Supreme Court Issues Notice on Revenue’s Demand for GST on DBFOT Road Construction Toll Rights

Supreme Court Issues Notice on Revenue’s Demand for GST on DBFOT Road Construction Toll Rights

Supreme Court Issues Notice on Revenue’s Demand for GST on DBFOT Road Construction Toll Rights

Issue

Whether the right to collect toll granted by NHAI under a DBFOT concession agreement constitutes non-monetary consideration for works contract services under Heading 9954 attracting GST, and whether taxing both the EPC sub-contractor and the concessionaire leads to double taxation.

Facts

• NHAI entered into a Design, Build, Finance, Operate and Transfer (DBFOT) concession agreement with the assessee for six-laning a National Highway stretch in Rajasthan.

• Under the concession, the assessee was granted site access on a leave-and-licence basis, exclusive toll collection rights, and was required to pay a premium to NHAI post the Commercial Operation Date (COD).

• The assessee subcontracted the physical construction work to an IRB group company (EPC contractor) while retaining the toll collection rights for itself.

• The sub-contractor discharged output GST on the works contract services supplied to the assessee.

• An internal audit flagged non-payment of GST by the assessee on the construction service supplied to NHAI, leading to a Show Cause Notice (SCN).

• The Deputy Commissioner confirmed the GST demand along with interest and a 10% penalty, holding that the toll collection rights constituted non-monetary consideration for works contract services provided to NHAI.

• The Commissioner (Appeals) upheld the demand. The assessee filed a writ petition before the High Court, contending that:

  • Toll collection is exempt under Entry 23 of Notification No. 12/2017.

  • Levying GST on the assessee when the sub-contractor already paid GST amounts to double taxation.

  • VAT precedents such as State of Andhra Pradesh v. Larsen & Toubro applied.

• The High Court dismissed the writ petition, holding that:

  • The DBFOT concession constitutes a works contract with reciprocal non-monetary consideration (barter) taxable under Heading 9954, and Entry 23 exemption applies only to access-to-road services under Heading 9967.

  • The contract between the sub-contractor and the assessee is distinct from the contract between the assessee and NHAI; hence, no double taxation arises.

  • VAT precedents on goods transfer do not apply to destination-based GST on services.

• Aggrieved by the High Court judgment, the assessee filed a Special Leave Petition (SLP) before the Supreme Court.

Decision

• The Supreme Court issued notice to the respondents on the Special Leave Petition (SLP) filed by the assessee.

• The matter was kept pending for detailed adjudication by the Apex Court.

• The order was passed partly in favour of the assessee.

Key Takeaways

• Notice Issued in DBFOT GST Dispute: The Supreme Court has agreed to examine the controversial issue of GST applicability on DBFOT/BOT road construction projects where toll rights serve as consideration.

• Non-Monetary Consideration Under GST: The High Court view treats the grant of toll collection rights by NHAI as a non-monetary barter consideration for construction services rendered under Heading 9954.

• Two-Leg Supply Distinction: Under the High Court’s analysis, an EPC sub-contractor’s supply to the main contractor and the main contractor’s transfer of the road asset to the authority form two distinct taxable legs, defeating the double taxation plea.

• Scope of Exemption (Heading 9954 vs. 9967): Entry 23 exemption is strictly confined to toll collection for road access (Heading 9967) and does not extend to construction services (Heading 9954) funded via toll rights.