Apco Arasavalli Expressway Private Limited Vs Assistant Commissioner ST and Others
Date: September 11, 2024
Subject Matter
GST on annuities (being Continuous supply of services) should be applied based on invoice issuance or payment receipt
Summary
In the case of Apco Arasavalli Expressway (P.) Ltd. vs. Assistant Commissioner, State Tax, the Honourable Andhra Pradesh High Court dealt with the issue of when GST liability arises regarding annuity payments under the Hybrid Annuity Model (HAM). The tax authorities insisted that GST should be paid upfront on the total annuity amount at the start of the concession period, regardless of actual payment receipt or invoicing. In contrast, the petitioner argued that GST liability should follow the provisions set under Section 13 of the CGST Act, 2017, which stipulates that liability occurs upon receipt of payment or issuing of invoices, whichever is earlier. The court relied on Circular No. 221/15/2024-GST, issued by the CBIC, clarifying that GST on annuities should be applied based on invoice issuance or payment receipt. The court recognized that HAM projects constitute 'Continuous supply of services' as defined in the Act. The court held that tax liability should not be calculated at the concession's start but instead aligned with the circular’s guidance on invoicing and payment timing. Additionally, the case highlighted cash flow issues for companies involved in HAM projects. Typically, these projects do not provide full payment upfront during construction, resulting in accretions of input tax credits (ITC) without immediate utilization, causing financial strain since projects must pay operational expenses without full realization of GST credits. Ultimately, the court set aside the assessment and appellate orders demanding upfront GST payment and directed that tax be collected as per the CBIC guidance. Recoveries made under previous assessments were ordered to be refunded to the petitioner.
FULL TEXT OF THE JUDGMENT/ORDER OF ANDHRA PRADESH HIGH COURT
The petitioner is engaged in the construction of roads, national highways etc. and is a registered dealer under the Andhra Pradesh Goods and Services Tax & Central Goods and Services Tax Acts (herein referred to as G.S.T. & C.G.S.T.). As part of its activities, the petitioner had undertaken the construction and maintenance of National Highway No.16 from 580.671 km to 634.861 km (approx.54.19 km) under NHDP Phase-V on Hybrid Annuity Mode. This mode requires the petitioner to design, build, operate and transfer the said section of the national highway on ‘D.B.O.T. Annuity’ or ‘Hybrid Annuity’ basis. For this purpose, the petitioner had entered into a concession agreement, dated 18.01.2018, with the National Highway Authority of India.
2. The relevant terms of the concession agreement were that the petitioner would construct, operate and maintain the said length of the national highway during the period of the agreement and thereafter, transfer the said length of the highway to the National Highway Authority of India. The period of the concession was to be 15 years from the date of commercial operation of the highway. As consideration for undertaking these functions, the petitioner was to be paid a certain consideration during the construction period of the road and subsequently on annuity basis for the period of the concession.
3. The petitioner had completed the construction of the national highway section and was paid the amounts payable for such construction. It is admitted that the G.S.T. payable on such consideration has also been paid.
4. The dispute relating to payment of G.S.T. arose in relation to the annuity being received by the petitioner. It is the stand of the petitioner that G.S.T. would be payable on the annuity received by the petitioner only on the date on which the invoice is raised by the petitioner for such purpose or when payment is made, whichever is earlier. However, the assessing authority took the view that the G.S.T. is payable on all the annuity installments at the very inception of the concession period and the payment of the G.S.T. cannot be deferred to the date of payment of annuity.
5. The assessing authority passed separate assessment orders for three separate periods whose details are extracted in the tables set out below. The petitioner being aggrieved by the said assessments approached the Appellate Authority, namely The Additional Commissioner of State Tax, Appellate Authority, Vijayawada by way of Appeals set out in the table extracted below. All these Appeals were dismissed on the dates set out below:
S.No | W.P. No. | Period | Impugned Order | Demand | Demand Paid/ Recovered |
1. | 17225/2023 | 2017-18 to 2020- 21 (Feb 2021) | Order-in-Appeal Reference No. ZD371222019171X dated 31.12.2022 | Rs.41,09,65,364/- | Rs.4,65,43,756/- [paid as pre- deposit before C(A) on 30.05.2022] |
Rs.36,44,21,608/ – (Electronic Credit Ledger debited by the Department on 13.03.2023) | |||||
2. | 30946/2023 | April 2022 to November 2022 | Order-in-Appeal bearing CTD Order No.DIN3713092339 361 dated 13.09.2023 | Rs.11,57,90,450/- | Rs.1,15,79,045/- [paid as pre- deposit before C(A)] |
Rs.2,31,58,090/- (paid vide cash ledger on 27.12.2023) | |||||
3. | 30956/2023 | April 2021 to March | Order-in-Appeal bearing CTD Order No.DIN3713092339 361 dated 13.09.2023 | Rs.15,42,31,232/- | Rs.1,54,23,123/- [paid as pre- deposit before |
Rs.3,09,54,744/- (paid vide cash ledger on 27.12.2023) |
6. The petitioner being aggrieved by these orders has approached this Court by way of the present set of Writ Petitions. These Writ Petitions are being disposed of by way of a common order in view of the common issue raised in these Writ Petitions.
7. Heard Sri Raghavan Ramabadran, learned counsel for the petitioner and the learned Government Pleader for Commercial Taxes appearing for the respondents.
8. The question that arises before this Court is the date on which the liability to pay G.S.T. would arise. The annuity payable to the petitioner is fixed in the concession agreement, dated 18.01.2018. There is a difference of opinion on the question of when such liability would arise.
9. Under Section 13 of the G.S.T. Act, 2017, the liability to pay G.S.T. on services shall arise at the time of supply as determined in accordance with the provisions of the Section 13.
10. Section 13 (2) of the G.S.T. Act, 2017, stipulates that the time of supply of services shall be the earliest of the dates set out in Sub-Section 2.
11. The assessing authority and the appellate authority have taken the view that the said time of supply of services should be treated as on the date on which the concession period had commenced as the annuity is based for maintenance of the road and management of the said road with the said responsibility commencing from the date of the concession period.
12. The issue as to whether the view of the petitioner is to be accepted or whether the view of the assessing authority and the appellate authority is to be accepted is now settled in view of the circular dated 26.06.2024, issued by the Government of India, Ministry of Finance, Central Board of indirect taxes and Customs bearing No.221/15/2024-GST. In this circular, the C.B.I.C. has taken the view that the tax is payable at the time of issuance of invoice or receipt of payments of annuity, whichever is earlier. The relevant part of the circular reads as follows:
“3. In the light of above, it is clarified that the tax liability on the concessionaire under the HAM contract, including on the construction portion, would arise at the time of issuance of invoice, or receipt of payments, whichever is earlier, if the invoice is issued on or before the specified date or the date of completion of the event specified in the contract, as applicable. If invoices are not issued on or before the specified date or the date of completion of the event specified in the contract, tax liability would arise on the date of provision of the said service (i.e., the due date of payment as per the contract), or the date of receipt of the payment, whichever is earlier.”
13. In that view of the matter, the orders in Appeal set out in the table above are set aside with a direction to the respondent authorities to collect tax in accordance with the circular issued by the C.B.I.C. mentioned above.
14. Any amounts recovered on account of the assessment orders or the appellate orders shall be refunded to the petitioner in accordance with law. There shall be no order as to costs.
As a sequel, interlocutory applications pending, if any shall stand closed.