Commercial, Tax & Compliance


Dear Friends,

You are aware that India is a big country on the basis of area and transportation infrastructure is essential for development of country. The transport through roads  is the major source of transportation in India, 70% of freight  and 85% of passengers are travelling in India through roads. We have 6.22 ( as on 31/03/2020) millions K.M., road network and second largest in the world. It will also be noted that till 31/03/2020 on 2% (1,38,551 KMs)of total roads in India consist of National Highways and contributing more than 40% of transport through these roads. The development of highways or expressways are the most important to develop Indian as a world business hub. The transport system whether for goods or passengers are the most important now days. The Central Government has taken various steps to increase connectivity and development of highways /national highways.

The National Highway  Authority of India ( NHAI) is the authority set up by the government to look after development of various National Highways Development Projects (NHDP). These projects generally developed in collaboration of private parties as Public Private Partnership(PPP) basis through Built Operate and Transfer(BOT)-Annuity, BOT-Toll Model and BOT-Hybrid Annuity Model. 


BOT-Toll (PPP): The BOT stands for the Build Operate and Transfer. In this type of the model a concession agreement is entered into between the NHAI and Private developer/ operator ( concessionaire) in which the concessionaire is responsible for the designing , building, financing , operating and transferring the project at the end of the concession period. In this types of the model the government generally made the provision of VGF (Viability Gap Funding)  to make the venture economically viable for the concessionaire . The concessionaire receives the commercial returns in the nature of toll revenue at the government regulated rates. Also the commercial risk pertains to the concessionaire .

BOT- Annuity (PPP) :  The concessionaire is responsible for the designing , building, financing , operating and transferring the project at the end of the concession period. The financial returns to the concessionaire through predetermined semi annual annuity payments made by then government . In this model the government is responsible for collecting toll revenue and the commercial risk is not transferrable to the concessionaire .

 OPERATE, MAINTAIN AND TRANSFER (OMT) CONCESSION : NHAI has recently taken up award of select highway projects to private sector players under an OMT Concession. Till recently, the tasks of toll collection and highway maintenance were entrusted with tolling agents/ operators and subcontractors, respectively. These tasks have been integrated under the OMT concession. Under the concession private operators would be eligible to collect tolls on these stretches for maintaining highways and providing essential  services (such as emergency/ safety services).

HYBRID ANNUITY MODEL :  Concessionaire responsible for Designing, Building, Financing (60% of the Project Cost),Operating and Transferring the project at end of concession period. Recovery of 60% of Project Cost through bi-annual annuity payments and separate market linked interest payment on reducing balance method . In addition, provisions for separate O&M payments . The payments are inflation indexed.

Concessionaire receives Construction Support of 40% of  Project Cost in five equal investments. Toll collection to be the responsibility of the Authority


The term “ Works Contract” is defined under Section 2(119) of CGST Act, 2017 as follows;

“ a contract for-building ,construction, fabrication, completion, erection , installation, fitting, improvement ,modifications, repair, maintenance, renovations , alteration or commissioning of any immovable property wherein transfer of property in goods(whether as goods or in some other form) is involved in the execution of such contracts.”

Concession agreements are of two types;

  1. Construction or Renovations of Highways;
  2. Operation and Maintenance of Highways.

In bother cases , the. Scope of work include a transfer of. Property in goods along with the services of construction o renovation or repair and maintenance as provided under above definition. Thus above transaction comes under definition of “Supply” under provisions of Section 6 of the CGST Act,2017 and liable to tax underCGST Act,2017.


Ashoka Infrastructures Vs. State of Maharashtra (2014-VIL-12-MSTT) – the key aspects of case were;   Question involved – whether the contract taken up by the appellant could be said to be worked contract and whether he could be said to be dealer as envisaged under Maharashtra Sales Tax on Transfer of Property in goods involved in the execution of Work Contract MD liable to pay tax on turnover of sales in respect of the goods used at the time of the road construction?   BRIEF FACTS; BOT Project agreement was entered on 28.08.1997-agreement was for period of 8 years and 9 months.Appellant was given right of collection of toll, expenditure incurred by them was to be recovered by way of toll during the concession period and upon completion of the lease was to hand-over the property back to the Government free of cost.   JUDGEMENTS; Section 2(d) for the Act -essential ingredients;He has to be a person;Whether they work for valuable consideration, commission ,remuneration or otherwise;The person transferred property in goods involved in the execution of works contract.   Handing. Over the project free of cost is after the concession period is over , as it as deemed that entire cost of project ,inclusive of interest and expenses and profits have been realised. In this case the contention of the appellant that he is not earning any profit cannot be accepted..   Appellant is a legal person. There is valuable consideration involved and which has been recovered during concession period. There is involvement of transfer of property in goods and hence he will be considered as a “Dealer” under the said Act.   Hence BOT Project involved both goods and services and therefore, it is a works contract. Once it is well cleared that the appellant is a dealer under the Act and he is involved in a works contract , then he is liable under the Act to pay tax on sales turnover.  


 Such types of the contract is generally awarded by the NHAI in the nature of composite supply of service.  In such type of contracts the principal supply  would depend upon  contract to contract basis . If the principal supply is the operation of the highway then it will be termed as the same and will not be in the nature of the work contract.

The supplies of services of operation and maintenance are generally naturally bundled in the ordinary course of business, the same would qualify as a composite supply. In order to determine taxability of the composite supply it is relevant to determine the supply which qualifies as a “ Principal Supply”.

“ if a Principal Supply is “Operation” of the Highways( as determined from the contract) the contract would not qualify as a “ Works Contract” since. Operations of an immovable property s not specifically covered under the ambit of the Works Contract” under GST.”

If the Principal Supply is the maintenance and repair services of highways ,the same would qualify as “ Works Contract”.



The government of India has taken various steps to improve the overall investment in infrastructure projects specifically in road projects and thus to boost the growth of the road infrastructure the some exemptions from the payment of GST has been given by the government .

These are explained below :


The entry no. 23 of Notification No. 12/2017-Central Tax (Rate) states the  “Service by way of access to a road or a bridge on payment of toll charges”. Therefore, no GST is payable on payment of toll charges.


The entry no. 23A of  Notification No. 12/2017-Central Tax (Rate) , amended by Notification No. 32/2017-Central Tax (Rate) dated 13.10.2017 clearly spelt “Service by way of access to a road or a bridge on payment of annuity” . Therefore, annuity amounts received by the  concessionaire from NHAI is exempt.


In the above mentioned discussion we have came to the conclusion that the ownership of the road projects remains with the government and therefore restrictions imposed by the section 17(5) of the  CGST Act would not be applicable to the any type of the models as mentioned supra. The concessionaire do not construct the road for itself rather it works for  and on behalf of the government and thus can avail the benefit of input tax credit of all goods and services used while carrying out the project against its output GST liability .

PLEASE NOTE THAT:  the land or land appurtenant there to on which theses highways are developed belong to NHAI and not the private operator. It can be said that the models be it DBFOT-TOLL or ANNUITY Based( or hybrid annuity model), the concessionaire cannot be said to be procuring goods and services on its own account ( there is no self service) for construction of immovable property and thus , can avail ITC on all goods and services used while carrying out the project against output GST, if any.

CONCLUSION: from above  it is cleared that the GST on payment made through toll charges or annuity payment by NHAI to the concessioner are exempt from GST and the Input Tax Paid by the the private operators i.e. the concessionaires will be available to them as Input Tax Credit.

DISCLAIMER:  the above article is only for information and knowledge of readers. It is advisable to go through relevant act. And notifications for more clarity and do consult with your tax consultant before taking any action on any part of article.  

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