Supreme Court Issues Notice on DBFOT Highway Toll Right GST Liability Upheld by High Court

Supreme Court Issues Notice on DBFOT Highway Toll Right GST Liability Upheld by High Court

Supreme Court Issues Notice on DBFOT Highway Toll Right GST Liability Upheld by High Court

Issue

Whether under a Design-Build-Finance-Operate-Transfer (DBFOT) concession agreement, granting exclusive toll collection rights to a concessionaire constitutes non-monetary/barter consideration for taxable works contract services provided to NHAI, attracting GST without exemption under Notification 12/2017.

Facts

• Concession Agreement: NHAI entered into a DBFOT concession agreement dated 09.12.2016 with the assessee for six-laning a National Highway stretch in Rajasthan, granting site access on a leave-and-license basis along with exclusive toll collection rights.

• Sub-contracting: The assessee subcontracted the physical highway construction to an EPC subcontractor (IRB group) while retaining the toll collection operations.

• Audit & Demand: An internal audit flagged non-payment of GST on the construction service provided to NHAI. The Deputy Commissioner confirmed the GST demand along with interest and a 10% penalty, treating the concession as a works contract with non-monetary consideration.

• High Court Findings: The High Court dismissed the assessee’s writ petition on multiple grounds:

  • Non-Monetary/Barter Consideration: Transfer of highway construction works to NHAI in exchange for exclusive toll rights constitutes a taxable works contract with non-monetary/barter consideration under Section 7 read with Schedule II.

  • No Double Taxation: GST paid by the EPC subcontractor for construction services supplied to the assessee is distinct from the works contract service supplied by the assessee to NHAI.

  • Inapplicability of Exemption: Exemption under Entry 23 of Notification 12/2017 applies strictly to access-to-road services by way of toll (Heading 9967), whereas road construction falls under Heading 9954 and remains taxable.

  • Distinction from VAT Precedents: VAT rulings like State of Andhra Pradesh v. Larsen & Toubro do not apply to comprehensive GST levies on services under concession agreements.

• Appeal to Supreme Court: The assessee filed a Special Leave Petition (SLP) before the Supreme Court challenging the High Court’s ruling.

Decision

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

• The matter stands pending for final adjudication before the Supreme Court. Decided partly in favor of the assessee (by virtue of issuing notice).

Key Takeaways

• Substantive Dispute on DBFOT Toll Rights: The Supreme Court is set to examine whether toll rights granted under DBFOT models constitute non-monetary consideration for road construction services attracting GST under Heading 9954.

• Distinct Legs of Supply: Under the High Court’s view, subcontracted EPC construction and the principal DBFOT agreement with the project authority represent two independent contractual legs of supply, making claims of double taxation unsustainable.

• Scope of Toll Exemption: The High Court strictly differentiated between exempt toll fees collected from commuters for road access (Heading 9967) and taxable construction services remunerated via toll rights (Heading 9954).