Supreme Court issues notice on SLP challenging GST levy on road construction HAM annuity payments.

Issue

1. Whether deferred annuity payments received by a concessionaire from NHAI for hybrid annuity model (HAM) road construction services under Heading 9954 are exempt from GST under Entry 23A of Notification No. 12/2017–Central Tax (Rate).
2. Whether an advance ruling ruling in favor of exemption remains binding on tax authorities under Section 103 after the CBIC issues a clarifying Circular (No. 150/06/2021-GST) stating that Entry 23A does not apply to construction annuities.
3. Whether Circular No. 150/06/2021-GST issued under Section 168 validly clarifies the scope of Entry 23A or impermissibly alters/amends the statutory exemption notification.

Facts

• Concession Structure: The assessee entered into a concession agreement with the National Highways Authority of India (NHAI) to design, build, operate, and maintain a road project under the Hybrid Annuity Model (HAM).
• Funding & Consideration: Approximately 50% of the project funds were invested by the concessionaire, with the remaining balance paid by NHAI as annuity payments during the operational phase.
• Exemption & Clarifications:
  • Entry 23A of Notification No. 12/2017–Central Tax (Rate) exempts service by way of access to a road or bridge on payment of annuity under Heading 9967.
  • An Advance Ruling dated 12.02.2019 had previously held that HAM construction annuities were exempt under Entry 23A.
  • On 17.06.2021, the CBIC issued Circular No. 150/06/2021-GST clarifying that Entry 23A applies strictly to access services under Heading 9967 and does not extend to deferred annuity payments for construction services falling under Heading 9954.
• Revenue Action: Pursuant to the CBIC circular, the Department issued a Show Cause Notice (SCN) and passed a recovery order seeking to collect GST on the annuity amounts.
• High Court Ruling: The High Court dismissed the assessee’s writ petitions, holding that:
  • The concession agreement constitutes a works contract service (Heading 9954) rather than a pure access service (Heading 9967).
  • Entry 23A does not cover construction work merely because payments are structured as annuities.
  • The Board had valid authority under Section 168 to issue clarifying instructions to correct misinterpretations by advance ruling authorities.
• Supreme Court Appeal: The assessee filed a Special Leave Petition (SLP) before the Supreme Court against the High Court’s judgment.

Decision

• Notice Issued in SLP: The Supreme Court issued notice on the Special Leave Petition filed by the assessee, agreeing to examine the legal challenge against the High Court’s decision upholding GST on HAM road construction annuities. (In favour of assessee)

Key Takeaways

• Scrutiny of HAM Annuity Taxability: The Supreme Court will authoritatively decide whether annuity payments received during the operational phase of HAM road projects constitute taxable works contract services (Heading 9954) or exempt access/toll services (Heading 9967).
• Scope of CBIC Clarifications: The proceedings will address the legal boundary between a valid administrative clarification issued under Section 168 and an impermissible retroactive modification of an exemption notification.
• Locus of Advance Rulings vs. Board Circulars: The dispute highlights the ongoing conflict between binding advance rulings issued to specific assessees under Section 103 and subsequent contradictory policy circulars issued by the CBIC.