Gst on finance build operate and then transfer (swiss model)

Hi Rohit,

Your question about GST treatment on a Finance, Build, Operate, and Transfer (FBOT or BOT) model project like a water supply project is quite insightful. Let me break down the key aspects for you.

Scenario Recap:

• Company constructs a water project under BOT/Swiss model.

• No upfront consideration from the government.

• Company recovers investment by supplying water to industries (which is GST exempt).

• After 30 years, project is handed over to the government.

• You want to know GST applicability, time of supply, consideration, and recipient.

1. Is GST applicable on this project?

GST on BOT/FBOT Projects depends on the nature of supply:

• Under GST, construction services including work contracts are taxable.

• However, supply of water to industries is exempt, so water supply itself attracts no GST.

• The construction part and related works performed by the company are taxable as supply of services under GST.

• The handover to government at the end of 30 years may be treated as supply of an intangible asset or service.

Important points:

• Even if government is not paying upfront, the company is supplying services (construction and operation).

• The recovery through water supply to industries (which is exempt) does not negate the fact that construction and operation is a supply.

• The entire BOT agreement needs to be evaluated to see when and how supply occurs.

2. What is the time of supply?

• Time of supply for works contract/service is generally:

  • When invoice is issued, or

  • When payment is received,

  • Whichever is earlier (Section 12 of CGST Act).

• If no invoice/payment for construction to government during construction phase, then supply time is when the handover happens or when consideration is received.

• Since company recovers cost by supply of water (exempt), the GST liability on construction may arise at the time of handover to government or per terms of contract.

3. What is the consideration for the work contract?

• Consideration is the monetary value of supply received or receivable.

• In BOT projects, where direct payment is absent, consideration may be the value of rights or benefits received.

• Here, company recovers via water supply to industries, but water supply is exempt.

• Hence, the consideration for construction service may be deemed as the fair market value or contractually agreed amount.

• The contract value or project cost plus profit margin can be used to value the supply under GST rules.

4. Who is the recipient of supply?

• The recipient of the construction service is the government (since they will own the asset after 30 years).

• The recipient of water supply is the industries/consumers using water.

• For GST on construction, government is the recipient.

• For GST exemption on water supply, industries are recipients of exempt supply.

Summary Table

Additional Notes:

• Since water supply to industries is exempt, company cannot claim ITC on inputs related to water supply.

• The project construction service is taxable even if consideration is indirect or deferred.

• Proper valuation and invoicing at the time of handover or milestones is important.