GST on Road Restoration Charges Paid to PWD for Pipeline Projects: Analysis of Torrent Gas Ltd Vs Commissioner (GSTAT Lucknow)

1. Background of the Dispute

The appeal in Torrent Gas Ltd Vs Commissioner (GSTAT Lucknow), Appeal No. LCK/40/2026, arose from a refund controversy relating to Goods and Services Tax (GST) paid under the reverse charge mechanism (RCM) on road restoration charges.

The assessee, M/s TORRENT GAS LIMITED, registered under GST (GSTIN 09AAGCT7889P1Z1) and engaged in the business of supplying natural gas through a pipeline network from its principal place of business in Kanpur Nagar, Uttar Pradesh, had obtained permission from the Public Works Department, Uttar Pradesh (PWD) to cut and excavate public roads for laying its gas pipelines.

This permission was conditional upon payment of specified road restoration charges to PWD for restoring the roads that were dug up for laying the pipelines.

For October 2020, the assessee:

  • Paid road restoration charges to PWD; and
  • Discharged an amount of ₹7,264/- as GST under RCM in Form GSTR-3B, comprising:
    • CGST: ₹3,632/-
    • SGST: ₹3,632/-

Subsequently, the assessee took the stand that no GST was actually payable on such charges and sought a refund of the entire sum.

1.1 Refund Claim and Initial Adjudication

  • A refund application for ₹7,264/- was filed in Form GST RFD-01 under Section 54 of the CGST Act on 26 February 2024, bearing Reference/Acknowledgment No. AA0902241945821.
  • The proper officer issued a Show Cause Notice (SCN) in Form GST RFD-08 (Ref. No. ZF0904204226897) on 12 April 2024, calling for documents and explanations.
  • The assessee submitted a detailed, point-wise reply on 30 April 2024.
  • The Adjudicating Authority thereafter passed Order-in-Original No. ZJ0905240092909 dated 06.05.2024, rejecting the refund claim in full.

The Adjudicating Authority reasoned that:

  • The road in question was already constructed by Government authorities for use by the general public in discharge of functions under Article 243G / Article 243W of the Constitution.
  • That original construction activity was a sovereign function for community welfare, not undertaken for consideration from any business entity.
  • In contrast, the present road cutting and subsequent restoration were triggered purely at the behest of a business entity (the assessee) for its commercial operations, not for a general “noble” public purpose.
  • Consequently, the restoration carried out post-excavation did not qualify as a sovereign function protected under the constitutional scheme for Panchayats or Municipalities.

1.2 First Appeal Before Appellate Authority

Aggrieved, the assessee filed an appeal under Section 107 of the CGST Act in Form GST APL-01 on 05.08.2024 (Ref. No. AD090824009581Z). A virtual personal hearing was held on 26.06.2025.

The Additional Commissioner (Appeals) passed Order-in-Appeal No. 438/GST/ADC/Alld/2025 dated 08.08.2025, upholding the rejection of the refund claim. A summary was later issued in Form GST APL-04, Ref. No. ZD090925047269S dated 04.09.2025.

Key findings of the Appellate Authority:

  • Road restoration services provided by PWD to the assessee do not fall within the scope of:
    • Notification No. 12/2017-Central Tax (Rate), or
    • Notification No. 14/2017-Central Tax (Rate).
  • The assessee is the recipient of a taxable service provided by a Government Department, and therefore, liability arises under RCM in terms of Notification No. 13/2017-Central Tax (Rate).
  • The GST already paid under RCM for October 2020 was a proper discharge of tax, leaving no scope for refund.

The assessee then approached GSTAT, Lucknow, challenging this Order-in-Appeal.

2. Core Grounds Raised by the Assessee

The assessee’s appeal before GSTAT attacked the Order-in-Appeal as being contrary to law, unsupported by evidence, and in breach of principles of natural justice. The main substantive and procedural arguments were as follows:

2.1 Road Restoration Charges Alleged to Be Pure Compensation, Not “Supply”

The assessee argued:

  • For a transaction to be taxed under Section 7(1) of the CGST Act, there must be a supply of goods or services for consideration.
  • The road restoration charges collected by PWD were described as compensation for damage to public roads, not as consideration for any contractually agreed service.
  • The payment was said to be a condition of obtaining permission, not a quid pro quo for a “supply”.
  • Reliance was placed on:
    • Bai Mamubai Trust v. Suchitra wd/o. Sadhu Koraga Shetty [TS-736-HC-2019(BOM)-NT] (Bombay High Court), relating to wrongful occupation and damages;
    • Circular No. 178/10/2022-GST, which deals with liquidated damages and situations where payment is only to make good a loss, not for any supply.
  • Additional support was sought from:
    • South Eastern Coalfields Ltd. v. C.C.E. & S.T.
    • Commissioner of Service Tax v. Repco Home Finance Ltd. (Larger Bench)
    • GE T & D India Limited v. Deputy Commissioner of Central Excise, Chennai

The assessee tried to place the road restoration payment into this “compensation” basket, outside the ambit of taxable supply.

2.2 Activity Claimed as Covered by Articles 243G / 243W and Treated as “Non-Supply”

The assessee further contended:

  • Section 7(2) of the CGST Act read with:
    • Notification No. 14/2017-Central Tax (Rate) and
    • Entries 4 and 5 of Notification No. 12/2017-Central Tax (Rate)
      treat certain activities “in relation to” functions under Article 243G/ Article 243W as neither supply of goods nor supply of services, or as exempt.
  • Roads, bridges, and communication infrastructure fall under:
    • Entry 13 of the Eleventh Schedule, and
    • Entry 4 of the Twelfth Schedule to the Constitution.
  • Road restoration and maintenance were said to be integrally linked to these functions.
  • The assessee relied on the decision in Doypack Systems (P.) Ltd. v. Union of India [1988 (36) E.L.T. 201 (S.C.)], arguing that the phrase “in relation to” has a wide connotation, capable of covering ancillary and incidental activities, including restoration works.

2.3 Exemption Not Limited to “Original Works”

The Assessing and Appellate Authorities had reasoned that the constitutional functions and the related non-supply/exemption notifications pertain primarily to original construction of roads, not to later, project-specific restoration following road cuts requested by a business entity.

The assessee rebutted: