Clarification regarding applicability of GST on the activity of construction of road where considerations are received in deferred payment (annuity)

Last updated: 15 July 2021

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This circular clarifies the Goods and Services Tax (GST) applicability on road construction projects where payments are received in deferred instalments, known as annuities. While access to roads and bridges via annuity payments is exempt under GST, the construction service itself, which falls under a different category, is not covered by this exemption. Therefore, GST is applicable on annuity payments received for the construction of roads.

Circular No. 150/06/2021-GST

CBIC-190354/36/2021-TRU Section-CBEC
Government of India
Ministry of Finance
Department of Revenue
North Block, New Delhi,

Dated the 17^th June, 2021

To,

The Principal Chief Commissioners/ Chief Commissioners/ Principal
Commissioners/ Commissioner of Central Tax (All) /
The Principal Director Generals/ Director Generals (All)

Madam/Sir,

Sub - Clarification regarding applicability of GST on the activity of construction of road where considerations are received in deferred payment (annuity)-reg.

Certain representations have been received requesting for a clarification regarding applicability of GST on annuities paid for construction of road where certain portion of consideration is received upfront while remaining payment is made through deferred payment (annuity) spread over years.

2. This issue has been examined by the GST Council in its 43^rd meeting held on 28^th May, 2021.

2.1 GST is exempt on service, falling under heading 9967 (service code), by way of access to a road or a bridge on payment of annuity [entry 23A of notification No. 12/2017-Central Tax]. Heading 9967 covers “supporting services in transport” under which code 996742 covers “operation services of National Highways, State Highways, Expressways, Roads & streets; bridges and tunnel operation services”. Entry 23 of said notification exempts “service by way of access to a road or a bridge on payment of toll”. Together the entries 23 and 23A exempt access to road or bridge, whether the consideration are in the form of toll or annuity [heading 9967].

2.2 Services by way of construction of road fall under heading 9954. This heading inter alia covers general construction services of highways, streets, roads railways, airfield runways, bridges and tunnels. Consideration for construction of road service may be paid partially upfront and partially in deferred annual payments (and may be called annuities). Said entry 23A does not apply to services falling under heading 9954 (it specifically covers heading 9967 only). Therefore, plain reading of entry 23A makes it clear that it does not cover construction of road services (falling under heading 9954), even if deferred payment is made by way of instalments (annuities).

3. Accordingly, as recommended by the GST Council, it is hereby clarified that Entry 23A of notification No. 12/2017-CT(R) does not exempt GST on the annuity (deferred payments) paid for construction of roads.

4. Difficulty if any, in the implementation of this circular may be brought to the notice of the Board.

Yours faithfully,

(Rajeev Ranjan)
Under Secretary, TRU
Email: rajeev.ranjan-as@gov.in
Tel: 011 2309 5558

FAQ :

Yes, GST is applicable on annuity payments received for the construction of roads. The exemption for annuity payments applies only to the service of accessing a road or bridge, not to the construction service itself.

Heading 9967 covers supporting services in transport, specifically the operation services of roads, bridges, and tunnels. GST is exempt for services under this heading by way of access to a road or bridge on payment of annuity (entry 23A) or toll (entry 23).

Heading 9954 covers general construction services, including the construction of highways, streets, roads, bridges, and tunnels.

No, the exemption under entry 23A of notification No. 12/2017-Central Tax does not apply to services falling under heading 9954, which includes the construction of roads, even if payments are made in deferred instalments or annuities.

This clarification was issued by the Central Board of Indirect Taxes and Customs (CBIC) under Circular No. 150/06/2021-GST.