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GST on Deferred Payment Receipt for Construction of Road

The Central Board of Indirect Taxes and Customs (“CBIC”) has issued Circular No. 150/06/2021-GST dated 17th June 2021 to provide clarification whether GST applicable on annuities paid for the construction of road where a certain portion of the consideration is received upfront while remaining payment is made through deferred payment (annuity) spread over years.

As per Entry No. 23A of Exemption Notification No. 12/2017:

“Service, falling under heading 9967 (service code), by way of access to a road or a bridge on payment of annuity”
Also entry no. 23 of said notification exempts “service by way of access to a road or a bridge on payment of toll”
Thus both the entries together exempt access to any road or bridge, not the construction thereof, whether the consideration are in the form of toll or annuity.

The above-mentioned Heading 9967 covers only supporting services in transport. Further sub-heading 996742 covers operation services of National Highways, State Highways, Expressways, Roads & streets; bridges and tunnel. This does not anyway covers construction services of roads/bridges which inter alia covered by heading 9954.

It has been clarified that Services provided by an entity by way of construction of road fall under heading 9954. This heading inter alia covers general construction services of highways, streets, roads railways, airfield runways, bridges and tunnels. Consideration for the construction of road service may be paid partially upfront and partially in deferred annual payments that may be called annuities. Said entry 23A does not apply to construction services of any road or bridge as these are not covered by heading 9967. Entry no 23A specifically covers heading 9967 only. Therefore, plain reading of entry 23A makes it clear that it does not cover the construction of road services which falls under heading 9954, even if deferred payment is made by way of instalments or say annuities.

Thus, it has been clarified that Entry 23A does not exempt GST on the annuity paid for the construction of roads.

 

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