Rajasthan High Court Says Highway Company Must Pay Tax on Annuity Payments.
Jodhpur: The Rajasthan High Court has dismissed a batch of petitions filed by Nagaur Mukundgarh Highways Pvt. Ltd., ruling that the company has to pay GST on the annuity payments it receives from NHAI for building and maintaining highways.
A Division Bench of Justice Pushpendra Singh Bhati and Justice Praveer Bhatnagar rejected the company’s challenge to the GST demand and the CBIC circular on the issue.
The case arose from an agreement between Nagaur Mukundgarh Highways Pvt. Ltd. and NHAI for designing, constructing and maintaining a highway, under which 50% of the project cost was paid during construction and the remaining 50% through annuity payments over 10 years.
The company claimed GST exemption on these annuity payments, but tax authorities later raised a GST demand following a 2021 CBIC circular clarifying that such payments for road construction are taxable.
The company argued that GST should not be charged because government rules provide an exemption for certain payments made for access to roads or bridges. It also relied on a 2019 advance ruling which had earlier treated the service as exempt.
The High Court, however, said this exemption does not cover the construction and maintenance of roads.
The Court noted that Nagaur Mukundgarh Highways had an agreement with NHAI to design, build and maintain the highway, and the company was to receive part of its payment during construction and the remaining amount through annuity payments over 10 years.
The Bench held that the company’s work amounts to a works contract service and is therefore taxable under GST. Simply receiving the payment in instalments does not make it tax-free.
The Court also said that the earlier advance ruling could not stop the authorities from applying the correct tax position after the CBIC issued its clarification
With this, the Rajasthan High Court dismissed all the petitions and upheld the GST liability on the annuity payments received by the highway company.