The Rajasthan High Court, in M/s Nagaur Mukundgarh Highways Pvt. Ltd. v. Central Board of Indirect Taxes and Customs1, upheld the levy of Goods and Services Tax (“GST”) on annuity payments received under concession agreements for highway projects. The Division Bench held that the services undertaken under the agreements constituted taxable works contract services and that the exemption under Entry 23A of Notification No. 12/2017-Central Tax (Rate)2 did not extend to deferred payments made for road construction. The Court also upheld CBIC Circular No. 150/06/2021-GST3 dated June 17,2021.
The Petitioner challenged the Circular, a show cause notice dated December 9, 2022 and a recovery order dated July 7, 2023 concerning GST on annuity payments. Under the concession agreement with the National Highways Authority of India (“NHAI”), 50% of the project cost was payable in five equal installments during construction, linked to physical-progress milestones. The remaining 50% was payable in 20 biannual installments during the operation period. These deferred installments were described as “Annuity Payments”, payable over ten years from commencement of operations, along with interest. The dispute concerned whether deferred payments under a highway construction concession could qualify for the specific exemption under Entry 23A.
Notification No. 12/2017-Central Tax (Rate), issued under Section 11 of the Central Goods and Services Tax Act, 20174 (“CGST Act”), provides exemptions for specified services. Entry 23A covers: “Service by way of access to a road or a bridge on payment of annuity”.
The entry is classified under Heading 9967. CBIC Circular No. 150/06/2021-GST distinguished Heading 9967 from Heading 9954. Heading 9967 covers supporting services in transport, including operation services relating to roads and bridges, whereas Heading 9954 covers general construction services, including construction of highways, roads, bridges and tunnels.
The Circular clarified that where the underlying service is construction of a road and consideration is paid partly upfront and partly through deferred annual payments described as annuities, Entry 23A would not apply because the construction service falls under Heading 9954 rather than Heading 9967.
The Petitioner argued that the Circular could not override or dilute an exemption granted through a notification issued under Section 11. It relied on Sections 11, 103, 164 and 168 of the CGST Act5 and contended that CBIC’s power to issue instructions for uniform implementation did not permit it to effectively impose a tax liability contrary to the exemption notification.
The Revenue submitted that the Circular did not amend the exemption notification but merely clarified the classification of the services, relying on Section 168 of the CGST Act.
Court’ Decision
The Court examined the dispute in light of its earlier decision in CG Tollway Ltd. v. Union of India & Ors6., decided on May 22, 2026. In that case, the Rajasthan High Court had examined a concession agreement involving construction and maintenance of a road and held that the arrangement constituted taxable works contract services.
In the present case, the Court found that the Petitioner’s contractual obligations extended beyond merely providing access to a road or bridge. The agreement involved construction, design and maintenance of roads, with consideration being paid through the agreed payment structure. The Court accordingly held that the nature of the concession agreement was that of works contract services and was taxable.
The Court emphasised that the Petitioner’s services were not confined to access to a road or bridge against payment of an annuity. The contractual obligations included construction, design and maintenance. Accordingly, the services constituted works contract services and did not qualify for the Entry 23A exemption.
The Court further found no reason to depart from the coordinate Division Bench’s reasoning in CG Tollway that construction services fall under Heading 9954, while Entry 23A is linked to Heading 9967. The Court rejected the challenge to Circular No. 150/06/2021-GST. It held that the Circular’s purpose was to clarify the relevant terminology and prevent misinterpretation in implementing the GST law. Issuing such instructions was within the Board’s powers under Section 168 of the CGST Act. On the advance ruling, the Court held that it did not alter the tax position. Taxability had to be determined with reference to the statutory exemption and the true nature of the services rendered under the contract.
Conclusion
The Rajasthan High Court dismissed the batch of writ petitions. The decision turns on the nature and classification of the services provided under the concession agreements, rather than merely on the description of the consideration as “annuity”.
The judgment indicates that where contractual obligations comprise construction, design and maintenance of roads, and deferred annuity payments represent consideration for those services, the payments do not qualify for Entry 23A merely because they are described as annuities. The relevant distinction is between services under Heading 9967 and construction services under Heading 9954.
Citation
Expositor(s): Adv. Vatsala pandit
