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CBIC Clarifies Time of Supply for NHAI’s Hybrid Annuity Model Projects


On 26.06.2024, the Central Board of Indirect Taxes and Customs (‘CBIC’) issued a circular[i] providing clarity on the tax implications for concessionaires involved in National Highway Authority of India (‘NHAI’) projects under the Hybrid Annuity Model (‘HAM’). Given the complexity of these contracts, where payments are staggered over an extended period, determining the exact time of supply for tax purposes has been a contentious issue. The circular bridges existing gaps and addresses key concerns by providing a standardized understanding of the time of supply for such services, which has significant implications for the payment of tax under the Central Goods and Services Tax Act, 2017 (‘Act’).

Understanding HAM

The HAM become a popular method for executing highway projects due to its balanced risk-sharing mechanism between the government and private players. Under HAM, the concessionaire is obligated to construct a new road and provide its operation and maintenance, typically over a period of 15-17 years. The payment for these services is spread over the years to hold the concessionaire accountable for the repair and maintenance of the highway as well.

Time of Supply under HAM

The circular expressly addresses the time of supply for services under HAM contracts, clarifying that these contracts fall under the ‘continuous supply of services’ as defined in s. 2(33) of the Act. This classification is crucial as it dictates the timing for tax liability. Under HAM, payments to the concessionaire are divided into:

  • Construction payments: Received during the construction period.

  • Deferred payments (annuity): Spread over 15-17 years, tied to the operation and maintenance of the highway.

The circular clarifies that for tax purposes, these payments should not be viewed as separate contracts for construction and maintenance. Instead, they should be considered as a single continuous supply of services. This approach would prevent any artificial bifurcation that may lead to inconsistent tax treatments.

Tax Liability under the HAM Contract

As per s. 13(2)(a) read with s. 31(5) of the Act, the time of supply of services under the HAM contract, including the construction and operation and maintenance portion, should be the date of issuance of such invoice or the date of receipt of payment, whichever is earlier, if the invoice is issued within the prescribed period under s. 31. However, in cases where the invoice is not issued within such prescribed period, as per s. 13(2)(b) of the Act, the time of supply should be the date on which the service is provided or the date of receipt of payment, whichever is earlier.

Based on these provisions, the circular outlines that the tax liability for HAM contracts arises at the earliest date of invoice issuance or the payment receipt, provided the invoice is issued as per contractual terms. If not, the tax liability arises on the service provision date or payment receipt date, whichever is earlier.

Inclusion of Interest Component in Taxable Value

Another critical clarification is the inclusion of interest components in the taxable value. As annuity payments often include an interest element, the CBIC confirmed that this interest must be included in the taxable amount, as mandated by s. 15(2)(d) of the Act. This will ensure that the full value of the service, including deferred payment interest, is subjected to tax.


By treating such contracts as a continuous supply of services, the CBIC has streamlined the tax determination process, reducing ambiguity for concessionaires. The circular not only facilitates uniform compliance but also ensures a more predictable tax environment for stakeholders. Further, the inclusion of interest in the taxable value aligns with the broader principles of the Act, ensuring that the tax base comprehensively reflects the economic value of the services provided. It also underscores the importance of issuing invoices on time to avoid any potential tax liabilities. As the infrastructure sector continues to grow, this clarification is a significant step towards ensuring transparency and accountability in the execution of HAM contracts.

End Note

[i] Circular No.-221/15/2024-GST, dated 26.06.2024.

Authored by Srishty Jaura, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.


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