GST liability on annuities: Where does the buck stop?

The Goods and Services Tax (GST) Council, in its 22nd meeting in October 2017 recommended tax exemption to “annuity paid by National Highways Authority of India (NHAI) and state authorities or state-owned development corporations to concessionaires for the construction of public roads”.

Surprisingly, the above recommendation was implemented by the government through notification no. 32/2017 – central tax (rate), by adding entry 23A to notification no. 9/2017 – integrated tax rate, which reads as: “Service by way of access to a road or a bridge on payment of annuity”. It mentioned “access to a road” as opposed to “construction of public roads”.

It is important here to understand that annuity in road projects are paid as a belated consideration for construction and not in return for services by way of access to a road as envisaged under entry 23A. That the exemption under entry 23A is not in relation to construction services becomes clearer when one notes that the four-digit service heading (under the scheme of classification of services under GST) referred to in entry 23A is heading 9967, pertaining to “supporting services in transport”, as opposed to heading 9954, which pertains to “construction services”.

Sudipta Bhattacharjee is a partner in the tax controversy management and contract documentation practice of Advaita Legal.