Karnataka HC quashes CBIC Circular imposing Annuity received by Concessionaires from Highway Authorities [Read Order]

The Karnataka High Court has quashed a circular issued by the Central Board of Indirect Taxes and Customs (CBIC) levying annuity received by the Concessionaires from Highway Authorities.

The petitioners, M/S DPJ Bidar – Chincholi, are concessionaires who have been entrusted with construction of road by respondent no.7-Karnataka Road Development Corporation Limited. As consideration for construction and maintenance of the roads for the contract period, the petitioners are paid certain amounts termed as ‘annuity’ by the Highway Authorities. In certain contracts where construction and maintenance of the roads have been outsourced to private persons, consideration is paid by permitting the concessionaires/contractors to collect tolls from the vehicles plying on the road.

The annuity being paid by the highway authorities to the concessionaries like the petitioners in the instant case towards construction as well as maintenance of the road was exempted from GST. Thereafter, a clarification was sought from the GST Council by certain government authorities as to whether the entire annuity paid to the concessionaries was exempt from GST or not, for which the GST Council in its minutes of the 43rd GST Council meeting held on 28.05.2021 clarified that the same does not enjoy tax exemption. The petitioner challenged the same before the Court.

Justice M.I Arun observed that “It is a settled proposition of law that a Circular which clarifies the notification cannot have the effect of overruling the notification. In the instant case, what has to be considered is whether the impugned Circular is in violation of notification nos.32 and 33/2017 dated 13.10.2017 or clarifies the said notifications.”

Allowing the petition, the Court held that “the deliberation of GST Council in its meeting held on 06.10.2017 and the notifications issued pursuant thereto clearly exempts the entire annuity being paid to the petitioners towards construction and maintenance of roads. It cannot be construed to have not exempted the annuity (deferred payments) towards construction of roads. “

“The impugned circular has the effect of overriding the notifications bearing Nos.32 and 33/2017 dated 13.10.2017 and has to be held as bad in law. Nothing prevents respondent no.1 from imposing GST on the consideration paid to concessionaires like the petitioners on the payment received by them by way of annuity but that has to be done in the manner known to law. In the instant case, respondent no.1 has issued the notifications under Section 11 of the Central Goods and Services Tax Act, 2017 and Section 6 of the Integrated Goods and Services Tax Act, 2017 exempting the consideration received by concessionaires from highway authorities as annuity from GST. The clarification issued is contrary to the said notifications for the reasons recorded above. If respondent no.1 is desirous of altering the same, it has to issue fresh notifications amending its earlier notifications,” the Court said.

To Read the full text of the Order CLICK HERE

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