GST Liability on BOT Highway Projects: Rajasthan High Court Upholds ₹16.36 Crore Demand Against CG Tollway Ltd

Background and Overview

The Rajasthan High Court recently delivered a significant ruling in the matter of CG Tollway Ltd Vs Union of India, settling a crucial question that has long remained contested in the infrastructure sector — whether a concessionaire executing a highway project under the Build, Operate and Transfer (BOT) Toll model is liable to pay GST on the construction services rendered to NHAI, where the consideration received takes the form of toll collection rights rather than monetary payment.

The Court upheld a GST demand of ₹16,36,20,418/- (approximately ₹16.36 crore) along with applicable interest and penalty, confirming the orders passed by the Deputy Commissioner, State Tax Business Audit-I, Bhilwara, dated 14.12.2023 and the Appellate Authority, Commercial Tax Department, Ajmer, dated 09.05.2025.

Factual Background

NHAI entered into a concession agreement dated 09.12.2016 with the petitioner — CG Tollway Ltd — for the six-laning of the Kishangadh–Udaipur–Ahmedabad Section from Km 90.000 (near Gulabpura) to Km 214.870 (end of Chittorgarh Bypass) of NH-79 in Rajasthan (Package-2 under NHDP Phase-V) on a BOT (Toll) Mode.

Key Features of the Concession Agreement

Under the terms of the agreement, the concessionaire was required to operate on a Design, Build, Finance, Operate and Transfer (DBFOT) basis. The principal obligations and entitlements included:

  • Construction and maintenance of the project highway in line with prescribed specifications
  • Right of Way and access to the project site
  • Leave and licence over all land comprising the site, granted from the Appointed Date
  • Exclusive right to collect toll from users of the highway during the concession period
  • Payment of concession fee of Re. 1/- per annum to NHAI
  • Payment of substantial premium to NHAI — a sum of ₹2,28,60,00,000/- (Rupees Two Hundred Twenty Eight Crore and Sixty Lakh) becoming payable immediately after the third anniversary of the Commercial Operation Date (COD), with annual increments of 3% through the 9th anniversary of COD and 8% thereafter

The actual construction activity on the ground was assigned by the petitioner to a subcontractor — IRB Infrastructure Developers Limited — through a separate Engineering, Procurement and Construction (EPC) contract. Toll collection, however, was retained by and continued to be operated by the petitioner.

How the Dispute Arose

During the course of an internal audit, Audit Report No. 15 dated 30.07.2023 was prepared, flagging an output tax liability of ₹16,36,20,418/- against the petitioner. The audit noted that no GST had been paid by the petitioner on the supply made to NHAI under the concession agreement.

Following an unsatisfactory reply from the petitioner dated 28.07.2023, a show cause notice was issued by the Deputy Commissioner, Commercial Tax Department, Business Audit-I, Bhilwara in September 2023, detailing the audit objections and the relevant legal provisions.

The petitioner responded vide a detailed reply dated 07.12.2023, raising several objections including double taxation and reliance on proceedings in Gujarat and Karnataka. However, the Deputy Commissioner passed an order dated 14.12.2023 holding the petitioner liable for the GST demand along with penalty @ 10% and interest.

The petitioner's appeal under Section 107 of the Act before the Appellate Authority was also dismissed on 09.05.2025. Subsequently, a recovery intimation letter was issued on 06.06.2025, prompting the petitioner to approach the Rajasthan High Court.

Arguments Raised by the Petitioner

The petitioner's counsel — Mr. Bharat Raichandani along with Mr. R.S. Chouhan and Mr. Jitendra Mohan Choudhary — advanced the following contentions:

1. No Supply to NHAI

The petitioner argued that it had not rendered any taxable service to NHAI and therefore the transaction did not constitute a "supply" within the meaning of Section 7 of the CGST Act, 2017. The concession agreement was characterised as an independent arrangement and not a service contract.

2. Toll Rights Are Exempt

The petitioner submitted that the only benefit received from NHAI was the right to collect toll from users. It argued that this right was squarely covered by the exemption under Entry 23 of Notification No. 12/2017–Central Tax (Rate) dated 28.06.2017, which exempts services by way of access to a road or bridge on payment of toll charges.