Introduction
In the recent judgment of Apco Arasavalli Expressway (P.) Ltd. v. Assistant Commissioner, State Tax[i], delivered by the Andhra Pradesh High Court, the jurisprudence surrounding the concept of ‘supply’ under the Goods and Services Tax (‘GST’). The court addressed the issue of when GST obligations arise concerning annuities received by the petitioner company for the construction and maintenance of national highways. This ruling offers important insights into interpreting s. 13 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) for long-term infrastructure projects.
Brief Facts
The petitioner, engaged in constructing and maintaining national highways, entered into a concession agreement with the National Highway Authority of India (NHAI) in January 2018. Under this agreement, the petitioner was responsible for constructing, operating, and transferring a portion of NH-16 after 15 years of commercial operation. Compensation for these services was to be provided during the construction phase and through annuities over the concession period under the Hybrid Annuity Model (‘HAM’).
A dispute arose over GST liability for annuity payments. The petitioner contended that GST was payable either when the invoice for the annuity was raised or when the annuity payment was made, whichever occurred first. Conversely, the assessing authority argued that GST was payable on all annuity instalments from the inception of the concession period. The petitioner challenged this interpretation before the assessment and appellate authorities, but the decisions were unfavourable.
Decision of the High Court
The court analysed s. 13 of the CGST Act, which governs the ‘time of supply’ for services, to determine when GST liability arises in this case. Specifically, the court relied on s. 13(2) and Circular No. 221/15/2024-GST, issued by the Central Board of Indirect Taxes and Customs (‘CBIC’)[ii]. The circular explicitly clarifies that the time of supply for services occurs either on the date of issuance of an invoice or the receipt of payment, whichever is earlier.
The key issue revolved around the interpretation of when the service is ‘provided’ in the context of long-term infrastructure projects under an annuity-based model. While the petitioner argued that GST should be triggered upon the issuance of invoices or receipt of payment for each annuity instalment, the assessing authorities maintained that the liability commenced with the start of the concession period. The court, however, found that the CBIC’s circular conclusively settled the matter, supporting the petitioner’s position.
Our Analysis
This case sets an important precedent regarding the timing of GST liability for long-term contracts, particularly in the infrastructure sector under the HAM model. The ruling reaffirms that GST liability arises upon issuing invoices or receipt of payment, whichever occurs first and not at the commencement of the concession period.
By ruling in favour of the petitioner, the court clarified that GST liability for annuity payments is not tied to the start of the concession period but rather to the specific invoicing or payment milestones. This interpretation provides much-needed clarity for businesses involved in long-term infrastructure projects, ensuring that GST is applied fairly in line with the actual provision of services.
End Note
[i] [2024] 166 taxmann.com 717 (Andhra Pradesh).
[ii] CBIC Clarifies Time of Supply for NHAI’s Hybrid Annuity Model Projects* - analysis *by our associate Srishty Jaura.
Authored by Vanshika, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.
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