GST on BOT Annuity Payments: Telangana High Court Upholds Show Cause Notice — GMR Pochanpalli Expressways Limited vs Additional Director
Background and Overview
The Telangana High Court recently delivered a significant ruling in the matter of GMR Pochanpalli Expressways Limited vs Additional Director, dismissing a writ petition that sought to challenge a show cause notice issued by the GST Department. The notice demanded GST of ₹68,26,68,000/- along with applicable interest and penalty, on annuity receipts covering the period from September 2017 to September 2022. The case raises fundamental questions about the GST treatment of annuity payments under Build-Operate-Transfer (BOT) concession agreements and the correct classification of services rendered by highway concessionaires under the GST framework.
This judgment carries considerable relevance for infrastructure developers, highway concessionaires, and entities operating under NHAI-BOT models across India, as it directly addresses the intersection of SAC 9967, SAC 9954, and the exemption provisions under Entry 23A of Notification No. 12/2017-Central Tax (Rate).
Factual Background
The Concession Agreement
The Government of India, through a notification dated 26.04.2002, entrusted specific stretches of National Highway-7 to the National Highways Authority of India (NHAI). Pursuant to Section 16 of the NHAI Act, 1988, the NHAI initiated the widening and improvement of the highway stretch from km 367/0 to km 447/20, along with operation and maintenance from 447/0 km to 464/0 km, inviting private sector participation under the Build-Operate-Transfer (BOT) annuity model for a period of 20 years.
A consortium comprising GMR Infrastructure Limited and GMR Energy Limited (the assessee) submitted bids and was selected. An acceptance letter was issued on 30.12.2005, followed by a formal contract agreement dated 31.01.2006 between NHAI and the assessee for execution of work on a BOT annuity basis.
Key Terms of the Agreement
Under the concession agreement:
- The assessee/concessionaire was obligated to bear all costs associated with engineering, financial management, construction, operation, and maintenance throughout the concession period
- NHAI retained the right to levy, demand, and collect appropriate fees from vehicles and users
- The assessee was not permitted to collect toll charges from road users
- Instead, NHAI was contractually required to pay the assessee a fixed annuity in instalments as consideration for operation and maintenance
- The annuity was subject to proportional abatement in case of non-performance of obligations during the operation period
Construction and Operation Timeline
The assessee completed the entire highway construction by 26.03.2009, having discharged applicable service tax and VAT during the construction phase. Active operation and maintenance commenced from 27.03.2009, with the concession period extending through to 2029.
The Impugned Show Cause Notice
The Department issued Show Cause Notice No. 5/2023-24 dated 28.04.2023, proposing to levy GST on the annuity amounts received by the assessee for the period from September 2017 to September 2022, characterising the annuity as consideration for construction of road services falling under SAC 9954 rather than access-to-road services under SAC 9967.
Arguments Advanced by the Assessee
Exemption Under Entry 23A
The assessee's Senior Counsel argued that Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 originally under Entry No. 23 exempted toll tax collected by concessionaires for construction, maintenance, operation, and provision of road access. Subsequently, following the 22nd GST Council's recommendation, annuity payments were brought on par with toll charges and exempted from GST through the insertion of Entry Nos. 23A and 24A via Notifications No. 32 and 33 of 2017 dated 13.10.2017. These entries specifically exempt services by way of access to a road or bridge on payment of annuity from GST.
The assessee contended that since it operated under a BOT model, it remained in control and possession of the project during the concession period and provided access to road users. Therefore, equating the concession agreement with a works contract was, in the assessee's view, legally untenable.
Pre-GST Taxable Event
The assessee further argued that since construction was completed in January/March 2009 — well before the introduction of the GST regime on 01.07.2017 — the taxable event had already crystallised under the pre-GST framework. Accordingly, levying GST on annuity payments where no construction services were rendered after 01.07.2017 would be without legal authority or jurisdiction.