Hon’ble Karnataka High Court in Writ Petition No. W.P.No. 22250/2021 filed by M/s. D.P.J. Bidar-Chincholi (Annuity) Road Project Pvt Ltd., and W.P. No. 7233/2022 filed M/s. SEW Bellary Highways Ltd. (Justice M.I. Arun) has set aside / quashed the Circular dated 17th June 2021 issued by CBIC as being contrary to the Notification No. 12/2017-CT(R) dated 28.06.2017 as amended by Notification No. 32/2017-CT(R) dated 13.10.2017.

Brief facts:

a) The petitioner being the concessionaire had entered into a Concession Agreement dated 16.08.2010 with Govt of Karnataka with nodal agency being M/s. Karnataka Road Development Corporation Ltd.

b) Notification No. 12/2017-CT(R) dated 28.06.2017 vide Sl. No. 23 granted exemption from GST for the ‘services by way of access of a road or a bridge on payment of toll charges’.

c) GST Council 22nd meeting dated 6.10.2017 decided to grant exemption to the ‘annuity’ paid to Concessionaires holding that annuity is at par with toll and hence granted similar exemption to the annuity paid by NHAI/State Highways Construction Authority to Concessionaires during the construction of roads. Accordingly, Notification No. 32/2017-CT(R) dated 13.10.2017 was issued to insert new entry vide Sl.No. 23A for granting exemption from GST for ‘services by way of access of a road or a bridge on payment of annuity’.

d) In terms of exemption under Sl.No. 23A, the petitioner was claiming exemption for the annuities received from Authorities.

e) In 43rd GST Council meeting held on 28th May 2021, it was clarified that annuity paid as deferred payment for construction of roads / highways was not exempted from GST and the benefit of exemption is for such annuities which are paid for the service by way of access to a road or bridge.

f) Consequently, CBIC issued a Circular dated 17th June 2021 to clarify that together entries 23 and 23A exempt access to road or bridge, whether the consideration are in the form of toll or annuity under heading 9967. Accordingly, it was clarified that Entry 23A of Notification No. 12/2017-CT(R) does not exempt GST on the annuity (deferred payments) paid for construction of roads.

g) In terms of the above Circular, DGGST Intelligence started investigation by issuing summons and finally issued letter for recovery of GST on the annuity on the basis that no exemption under Sl.No. 23A is available on the annuity pertaining to construction of roads.

Aggrieved by the said recovery letter, the petitioner challenged the same along with Circular dated 17th June 2021 before Hon’ble High Court of Karnataka.

Hon’ble Karnataka High Court considered the arguments by the counsels of the petitioner and the respondents and held as under:

a) In terms of 22nd GST Council meeting held on 6th Oct 2017, it was recommended by Council that Concessionaires who are paid by way of ‘Annuities’ deserve to be exempted from GST levy at par with existing exemption on ‘Tolls’. In order to give effect the GST Council recommendation, the Entry 23A was inserted by Notification No. 32/2017-CT(R), which continues till date.

b) Though, certain clarification has been issued by GST Council in its 43rd Meeting regarding applicability of exemption under Sl.No. 23A, no notification has been issued.

c) Circular issued by CBIC cannot be contrary to the provisions of Exemption Notification

In view of the above, Hon’ble High Court set aside / quashed the Circular dated 17th June 2021 which had clarified that Entry 23A of Notification No. 12/2017-CT(R) does not exempt GST on the annuity (deferred payments) paid for construction of roads and allowed the Writ Petition filed by the petitioner.