GST Applies to Annuity Payments for Road Construction: Rajasthan High Court

The Hon’ble High Court of Rajasthan, in M/s Nagaur Mukundgarh Highways Pvt. Ltd. v. Central Board of Indirect Taxes and Customs & Ors. (D.B. Civil Writ Petition No. 10055/2024 and connected matters), decided on August 17, 2026, and held that annuity payments received under a concession agreement for construction, operation and maintenance of roads are taxable as consideration for works contract services. The Hon’ble Court further upheld CBIC Circular No. 150/06/2021-GST dated June 17, 2021, which clarifies that the exemption under Entry 23A of Notification No. 12/2017-Central Tax (Rate) does not extend to annuity payments made for construction of roads.

The dispute arose from concession agreements entered into between the petitioner and the National Highways Authority of India (“NHAI”) for road projects. Under the agreements, the petitioner was responsible for designing, constructing, operating and maintaining the roads. The project cost was partly paid during the construction period, while the remaining amount was payable through biannual annuity payments during the operation period. The petitioner claimed that these annuity payments were exempt from GST under Entry 23A of Notification No. 12/2017-Central Tax (Rate), which exempts services by way of access to a road or bridge on payment of annuity.

The petitioner challenged Circular No. 150/06/2021-GST, contending that the statutory notification expressly granted the exemption and that a subsequent circular could not override, modify or dilute such exemption. It was further submitted that the Advance Ruling Authority, by its order dated February 12, 2019, had already held the relevant Entry 23A to be applicable to the petitioner and that the ruling had not been challenged by the Revenue. The petitioner therefore contended that the advance ruling remained binding under Section 103 of the CGST Act.

The respondents contended that the impugned circular merely clarified the correct legal position and had been issued within the powers conferred upon the Board under Section 168 of the CGST Act. It was submitted that Heading 9967 covers services relating to access to roads or bridges, whereas construction of roads falls under Heading 9954. The respondents further argued that the earlier advance ruling could not operate in perpetuity and that the Revenue was entitled to determine the tax liability in accordance with the correct legal position.

The Hon’ble Court relied upon the judgement of the Coordinate Bench in CG Tollway Ltd. v. Union of India & Ors., wherein a concession agreement involving construction and maintenance of roads in exchange for toll collection rights was held to constitute a taxable supply of works contract services. The Hon’ble Court observed that the present agreement similarly required the petitioner to undertake construction, design and maintenance of roads, with the consideration being paid partly during construction and partly through annuity payments. The fact that the petitioner had invested approximately 50% of the project cost, with the balance being paid by NHAI through annuities, did not alter the nature of the transaction.

The Hon’ble Court further held that the exemption under Entry 23A could not be extended to construction services falling under Heading 9954. It observed that if works contract services were intended to be exempt from GST, the notification would have expressly provided for such exemption. The Court also rejected the contention that the circular impermissibly amended the notification, holding that Section 168 empowered the Board to issue instructions and circulars for proper implementation of the Act. The Court further held that the Revenue was not bound by an earlier advance ruling where the ruling had proceeded on a misinterpretation of the statutory provisions.

Accordingly, the Hon’ble Rajasthan High Court upheld the impugned circular and the consequential levy of GST on annuity payments received under the concession agreements. The challenge raised by the petitioner was rejected, and the batch of writ petitions was dismissed.