The Rajasthan High Court considered a batch of writ petitions filed by M/s Nagaur Mukundgarh Highways Pvt. Ltd. challenging the applicability and validity of Circular No. 150/06/2021-GST dated 17 June 2021, a show cause notice dated 9 December 2022 and a consequential recovery order dated 7 July 2023.
The dispute centred on the GST treatment of annuity payments received by the petitioner under its concession agreement with the National Highways Authority of India. The petitioner relied upon Entry 23A of Notification No. 12/2017-Central Tax (Rate), which grants a Nil rate to services by way of access to a road or bridge on payment of annuity under Heading 9967.
The petitioner also relied upon an advance ruling dated 12 February 2019 which had held the relevant transaction to be covered by the exemption.
Issue Before the High Court
The principal question was whether annuity payments received under a road construction concession agreement represented exempt consideration for providing access to a road under Heading 9967 and Entry 23A of Notification No. 12/2017, or constituted deferred consideration for taxable road construction/works contract services falling under Heading 9954.
The Court also examined whether CBIC Circular No. 150/06/2021-GST merely clarified the statutory position or impermissibly altered the exemption notification.
Entry 23A Exemption Limited to Access to Road or Bridge
Entry 23A of Notification No. 12/2017-Central Tax (Rate) exempts:
“Service by way of access to a road or a bridge on payment of annuity.”
The Court noted that this exemption is placed under Heading 9967, relating to supporting services in transport.
In contrast, services involving construction of roads fall under Heading 9954. Consequently, the mere description of deferred payments as “annuity” does not convert consideration for road construction into an exempt service under Entry 23A.
Annuity Was Part of Consideration for Construction
The High Court closely examined the concession agreement. Under its payment mechanism, 50% of the project cost was payable during the construction period, while the remaining 50% was payable through biannual instalments over ten years from the commercial operation date, together with interest.
The Court held that the contractual arrangement was not confined to providing access to a road or bridge. The petitioner was responsible for activities including design, construction and maintenance of the road.
Accordingly, the nature of the transaction was that of works contract services, and the deferred annuity payments represented consideration connected with those taxable services.
Works Contract Falls Under Heading 9954
Following its earlier Division Bench judgment in CG Tollway Ltd. v. Union of India & Ors., decided on 22 May 2026, the Rajasthan High Court held that construction services and transport/access services operate in different statutory fields.
Where the concessionaire undertakes road construction and related contractual obligations, the transaction falls within the works contract category. Entry 23A, being confined to services falling under Heading 9967, does not provide an exemption to road construction services falling under Heading 9954.
The Court observed that if the legislature intended to exempt works contract services of this nature, the exemption notification would have expressly provided for such exemption.
CBIC Circular No. 150/06/2021-GST Upheld
The petitioner argued that a circular issued under Section 168 of the CGST Act could not override or dilute an exemption granted through a statutory notification under Section 11.
The High Court, however, rejected the challenge. It found that the circular did not amend the notification but clarified the distinction between exempt access-to-road services under Heading 9967 and taxable construction services under Heading 9954.
The Court held that issuance of such clarification falls within the Board’s powers under Section 168 of the CGST Act to ensure uniform implementation of the law.
Accordingly, the Court found no merit in the challenge to Circular No. 150/06/2021-GST.
Earlier Advance Ruling Did Not Protect the Petitioner
The petitioner also contended that the advance ruling dated 12 February 2019 had attained finality and remained binding upon both the petitioner and the concerned tax authorities under Section 103 of the CGST Act.
The High Court rejected this argument as a basis for avoiding the GST liability.
It observed that taxability must ultimately be determined with reference to the statutory exemption and the true nature of the services rendered under the contract. An erroneous understanding of the existing legal provisions by the advance ruling authority could not prevent the Board from issuing a clarification for proper implementation of the law.
The Court therefore held that reliance upon the earlier advance ruling did not alter the taxability of the annuity payments.
High Court’s Decision
The Rajasthan High Court concluded that the petitioner’s concession agreements involved taxable works contract services and were not merely contracts for providing access to a road or bridge on payment of annuity.
Consequently, the exemption under Entry 23A of Notification No. 12/2017-Central Tax (Rate) was held inapplicable to the annuity payments received as deferred consideration for the road construction project.
The Court found no merit either in the challenge to Circular No. 150/06/2021-GST or in the consequential challenge to the levy of GST on the annuity payments.
Accordingly, all the writ petitions were dismissed and all pending applications were disposed of.
Key Takeaway
The Rajasthan High Court has drawn a clear distinction between an exempt service of providing access to a road or bridge on payment of annuity under Heading 9967 and a road construction works contract under Heading 9954.
Where annuity payments represent deferred consideration for construction, design and maintenance obligations under a concession agreement, they do not receive exemption merely because the payments are described as “annuity”. The true nature of the underlying supply determines its GST treatment.
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