BOT Concessionaire Liable To Pay GST On Toll Rights Received As Consideration: Rajasthan High Court

The Rajasthan High Court on 22 May held that toll collection rights granted under a Build-Operate-Transfer (BOT) concession agreement constitute consideration for taxable works contract services and are not exempt from GST merely because toll collection itself enjoys exemption.

A Division Bench of Justices Arun Monga and Sandeep Shah dismissed a writ petition filed by CG Tollway Ltd challenging orders of the GST authorities that had demanded Rs. 16.36 GST, interest and penalty on services rendered under a concession agreement with the National Highways Authority of India (NHAI). The judges held:

“In barter for undertaking the construction and maintenance of the road, the concessionaire has been conferred certain exclusive rights, including leave and licence to construct and operate the road and collect the toll tax. Thus, the ingredients of 'barter' are made out.”

NHAI executed a concession agreement with CG Tollway Ltd on 9 December 2016 for six-laning a stretch of National Highway-79 in Rajasthan on a Design, Build, Finance, Operate and Transfer basis. CG Tollway subsequently engaged IRB Infrastructure Developers Ltd as the EPC contractor for construction of the highway while retaining toll collection rights under the concession agreement.

Following an audit, GST authorities concluded that the company had not discharged GST liability on the value attributable to the concession arrangement. They raised a demand of Rs. 16.36 crore along with interest and penalty. The appellate authority upheld the demand, prompting the company to approach the High Court.

CG Tollway argued that it had not made any taxable supply to NHAI. It contended that toll collection is exempt under Entry 23 of Notification No. 12/2017-Central Tax (Rate) and submitted that the EPC contractor had already paid GST on the construction work. The company also relied on decisions of GST authorities in Gujarat and Karnataka where similar audit objections were allegedly dropped.

The State argued that the concessionaire received valuable rights under the agreement, including the right to collect toll, and that the arrangement amounted to a barter transaction falling within the definition of "supply" under the GST law.

The Court found that the concession agreement created a works contract under which CG Tollway supplied construction and maintenance services to NHAI in exchange for toll collection rights and other contractual benefits. It observed that the company received “the right to demand and collect fees from the users, licence of the site, and right of way” in return for its services, thereby satisfying the requirements of both “supply” and “consideration” under the GST framework.

Rejecting the plea of double taxation, the Court held that the EPC contract and the concession agreement were separate transactions involving different parties and distinct taxable supplies. The Bench noted that there “is no privity of contract between the NHAI and the sub-contractor” and held that the services rendered by the EPC contractor to the concessionaire were distinct from those rendered by the concessionaire to NHAI.

On the exemption claim, the Court held that Entry 23 of Notification No. 12/2017 exempts only the service of access to a road or bridge on payment of toll and does not extend to construction services classifiable under Heading 9954. The Bench further held that deferred payments or annuity-like consideration received for road construction remain taxable even when linked to toll collection rights. It observed:

“The collection of toll is essentially one of the consideration, which is being received by the petitioner and essentially amounts to annuity.”

Accordingly, the High Court upheld the GST demand and dismissed the writ petition.