Deferred Annuity Payments To Road Companies Under NHAI Contracts Taxable Under GST: Rajasthan High Court

The Rajasthan High Court on 17 August upheld the levy of Goods and Services Tax (GST) on annuity payments received by road construction companies under concession agreements with the National Highways Authority of India (NHAI), holding that such deferred payments for works contract services cannot claim exemption merely because they are paid as annuities.

A Division Bench of Justices Pushpendra Singh Bhati and Praveer Bhatnagar dismissed a batch of writ petitions filed by Nagaur Mukundgarh Highways Pvt. Ltd., challenging CBIC Circular No. 150/06/2021-GST dated 17 June 2021 and the consequential levy of GST on annuity payments received under its concession agreement with NHAI. It observed:

“..the nature of the concession agreement between the parties in the present matter is also a “works contract services”, hence taxable. It's not the case of the petitioner that his services were confined only to access to a road or a bridge, by way of payment of an annuity; rather, the terms of the contract essentially include construction, design, and maintenance of the roads, with payments at intervals.”

Nagaur Mukundgarh Highways challenged the circular on the ground that Entry 23A of Notification No. 12/2017-Central Tax (Rate) grants a nil-rated exemption to services by way of access to a road or bridge on payment of annuity. The company also relied on an advance ruling dated 12 February 2019, which had earlier treated the relevant service as exempt.

The High Court, however, held that Entry 23A applies only to services under Heading 9967 relating to access to roads or bridges, whereas road construction services fall under Heading 9954. It stated that where annuity payments constitute deferred consideration for construction services, the exemption under Entry 23A cannot be claimed merely because the consideration is paid in the form of annuities.

The Bench relied substantially on its earlier Division Bench judgment in CG Tollway Ltd. v. Union of India & Ors., decided on 22 May 2026. In that case, it had held that a concession agreement involving the construction and maintenance of roads in exchange for toll collection rights constituted a taxable works contract service.

Applying the same reasoning, this Bench examined the concession agreement between Nagaur Mukundgarh Highways and NHAI. Under the agreement, 50 per cent of the project cost was payable during the construction period, while the remaining 50 per cent was payable through biannual annuity instalments over 10 years, along with interest.

The Court observed that the contractual arrangement was essentially a design, build, operate and transfer project involving the construction, design and maintenance of roads. It held that the company had not merely provided access to a road or bridge against annuity payments and that the annuity represented deferred payment of the project cost.

Therefore, it concluded that the services rendered under the concession agreement constituted taxable works contract services under GST. It held that the distinction between Heading 9954 and Heading 9967 was material and that the exemption under Entry 23A could not extend to road construction services.

The Bench also rejected the challenge to the authority of the Central Board of Indirect Taxes and Customs (CBIC) to issue the impugned circular. It held that Section 168 of the Central Goods and Services Tax Act, 2017, which empowers the Board to issue instructions, orders and circulars for ensuring uniform implementation of the GST law, authorised the CBIC to issue the circular.

It further rejected the company's argument that the advance ruling dated 12 February 2019 prevented the Revenue from subsequently demanding GST. It observed that an advance ruling cannot defeat the correct interpretation of a statutory exemption, particularly where departmental authorities had earlier misunderstood the legal position.

Moreover, the judges held that the Revenue was not permanently bound by an erroneous interpretation merely because an advance ruling had earlier been issued in favour of the company. They added that the Board was entitled to issue a clarification to ensure the proper implementation of the statutory provisions. They also noted that if works contract services were intended to be exempt, the exemption notification would have expressly provided for such an exemption.

Accordingly, the High Court dismissed the batch of writ petitions along with all pending applications.

For Petitioner: Advocate Jatin Harjai

For Respondent: Mahaveer Bishnoi, Additional Advocate General, along with Harshwardhan Singh and Rajat Arora, Advocates