Facts of the Case

The Government of India entrusted the National Highways Authority of India (NHAI) with augmentation and four-laning of approximately 61.98 kilometres of the Jorabat–Shillong section of National Highway No. 40 in Assam and Meghalaya under a Design, Finance, Operate and Transfer arrangement on BOT (Annuity) basis. Following a bidding process, the proposal of a consortium comprising IL&FS Transportation Networks Limited and Ramky Infrastructure was accepted, and the petitioner company was incorporated for implementation of the project.

The petitioner entered into a Concession Agreement dated 16.07.2010 for execution of the highway project on BOT (Annuity) basis. Under the arrangement, the petitioner was authorised to construct, operate and maintain the project highway and perform contractual obligations during the concession period, with annuity payments becoming payable after the commercial operation date.

GST Intelligence authorities initiated proceedings alleging non-payment of GST on annuity payments received in connection with the Jorabat–Shillong Expressway project. The dispute involved classification of the petitioner’s activity as works contract/construction services under SAC 9954 rather than exempt road-access services under SAC 9967. The Order-in-Original dated 18.04.2024 confirmed a GST demand of ₹112,39,64,394, together with applicable interest and penalty, on annuity receipts of ₹864,12,69,958 received from NHAI for the period July 2017 to December 2022.

The petitioner challenged the Show Cause Notice dated 30.09.2023 and the Order-in-Original dated 18.04.2024, besides questioning the validity and operation of relevant notifications and circulars, including Circular No. 150/06/2021-GST dated 17.06.2021.

Issues Involved

The principal issues before the High Court were:

  1. Whether the Additional Director, DGGI, was competent to issue the Show Cause Notice under Section 74 of the CGST Act as a “Proper Officer” within Section 2(91).
  2. Whether the Additional Commissioner of CGST, Shillong, was competent to adjudicate the notice and pass the Order-in-Original.
  3. Whether annuity receipts under the BOT (Annuity) highway model were classifiable under SAC 9954 as taxable works contract/construction services or under SAC 9967 as services by way of access to a road or bridge.
  4. Whether the petitioner could claim GST exemption under Entry 23A of Notification No. 12/2017-Central Tax (Rate), as amended.
  5. Whether Circular No. 150/06/2021-GST dated 17.06.2021 impermissibly restricted or overrode the statutory exemption notification.
  6. Whether invocation of Section 74 was justified in the absence of alleged fraud, wilful misstatement or suppression with intent to evade tax.
  7. Whether the High Court should exercise extraordinary jurisdiction under Article 226 despite availability of the statutory appellate remedy under Section 107 of the CGST Act.
  8. Whether the Karnataka High Court ruling in M/s DPJ Bidar-Chincholi (Annuity) Road Project Private Limited & Anr. vs Union of India & Ors. concluded the controversy regarding GST on annuity receipts.

Petitioner’s Arguments

The petitioner contended that the BOT (Annuity) Concession Agreement was fundamentally different from an ordinary EPC or construction contract. According to the petitioner, the arrangement constituted an integrated concession involving construction, operation, maintenance, concession obligations and eventual divestiture of the highway project, while NHAI retained toll-collection rights. Recovery of project costs was through half-yearly annuity payments.

It was argued that the respondents wrongly classified the services under SAC 9954 as works contract/construction services, whereas the activity should fall under SAC 9967 as service by way of access to a road or bridge, attracting exemption under Entry 23A.

The petitioner submitted that the exemption covered annuity consideration and that the consideration could not artificially be split into construction and access components. It further contended that Circular No. 150/06/2021-GST dated 17.06.2021 could not override or curtail a statutory exemption notification.

Reliance was placed heavily on M/s DPJ Bidar-Chincholi (Annuity) Road Project Private Limited & Anr. vs Union of India & Ors., where the Karnataka High Court had considered the validity of the circular and the treatment of annuity payments.

The petitioner further argued that Section 74 had been wrongly invoked because there was no fraud, wilful misstatement or suppression with intent to evade tax. It maintained that GST returns had regularly been filed and that the controversy was essentially one of interpretation of exemption provisions and classification.

On maintainability, the petitioner invoked recognised exceptions to the rule of alternate remedy, including lack of jurisdiction, violation of natural justice, pure questions of law, constitutional challenge, premeditation, error apparent on the face of the record and alleged ineffectiveness of the appellate remedy.

Respondents’ Arguments

The Union respondents contended that the Show Cause Notice and Order-in-Original were valid, lawful and within jurisdiction. They submitted that the Additional Director, DGGI, derived authority through Notification No. 14/2017-Central Tax and related statutory provisions and that the Additional Commissioner was competent to adjudicate proceedings arising from notices issued by DGGI officers.

The respondents argued that Entry 23A exempts only services by way of access to a road or bridge on payment of annuity and does not exempt deferred annuity payments representing consideration for construction of roads. According to them, Circular No. 150/06/2021-GST dated 17.06.2021 validly clarified this distinction.

It was further argued that the petitioner’s activities constituted a composite supply in which construction was the principal supply and that the services could therefore be taxed according to the character of the principal supply.

The respondents maintained that the petitioner had misclassified taxable construction services under SAC 9967 instead of SAC 9954 and that the proceedings under Section 74 were consequently valid.

They also submitted that the petitioner had an efficacious statutory appeal under Section 107 read with Rule 108 and that the writ petition should not be entertained merely because the petitioner disagreed with classification, exemption and adjudicatory findings.

Court Order / Findings

The Meghalaya High Court rejected the petitioner’s jurisdictional objection concerning the officers who issued and adjudicated the proceedings. The Court held that the Additional Director, DGGI, was competent to issue the Show Cause Notice under Section 74, considering Section 2(91), Sections 3 and 5 of the CGST Act and Notification No. 14/2017-Central Tax dated 01.07.2017.

The Court also held that the Additional Commissioner, CGST, Shillong, was a competent Proper Officer to pass the adjudication order, having regard to the statutory notifications governing appointment and vesting of powers, including Notification No. 2/2017-Central Tax and the subsequent amendment providing authority to pass orders in respect of notices issued by DGGI officers.

On the substantive tax controversy, the Court observed that the central dispute concerned classification under SAC 9954 or SAC 9967, applicability of Entry 23A, characterisation of annuity receipts under BOT projects and taxation of composite supplies. Significantly, the Court stated that “on a plain analysis, by virtue of Entry 23A, the petitioner would be liable for payment of GST on Annuity”, while also holding that the remaining questions required interpretation of contractual clauses, examination of the actual nature of services, determination of principal supply and consideration of factual and legal aspects.

The Court held that these questions could not be treated as pure questions of law fit for first-instance adjudication under Article 226. It further declined to treat the Karnataka High Court’s DPJ Bidar ruling as conclusively settling the controversy, noting that the legal position had not attained finality.

The High Court also observed that the petitioner had participated in the adjudication proceedings pursuant to directions of the Supreme Court, submitted replies, appeared at personal hearing and advanced detailed submissions. Whether the findings in the Order-in-Original were correct or erroneous was held to be a matter falling within the statutory appellate mechanism.

The Court rejected the argument that the appellate remedy became inefficacious merely because departmental authorities may be bound by circulars. It held that the existence of binding circulars did not make the statutory appellate mechanism otiose or ineffective.

Ultimately, the High Court found that none of the recognised exceptions to the rule of alternate remedy had been established. It held that there was no demonstrated violation of natural justice and no patent lack of jurisdiction, while the controversy substantially involved adjudicatory findings and interpretation of statutory provisions and exemption notifications capable of examination in statutory appeal.

Accordingly, the Court declined to exercise jurisdiction under Article 226 and dismissed the writ petition on the ground of availability of an efficacious alternate statutory remedy. However, since the petitioner had pursued the writ proceedings bona fide, it was granted liberty to file an appeal under Section 107 of the CGST Act within four weeks. If such appeal was filed within that period, the appellate authority was directed to decide it on its own merits and in accordance with law, uninfluenced by observations in the judgment. No order as to costs was made.

Important Clarification

The judgment should not be presented as a final merits ruling conclusively affirming the entire ₹112.39 crore GST demand or finally deciding every aspect of the taxability of BOT annuity receipts. The writ petition was dismissed principally because the Court found an efficacious alternate remedy under Section 107 and held that classification, exemption, contractual interpretation, principal supply and related adjudicatory questions were matters for the statutory appellate mechanism.

At the same time, the Court made important findings that the Additional Director, DGGI, was competent to issue the Section 74 notice and that the Additional Commissioner was competent to adjudicate it. The Court also recorded its prima facie/plain-analysis observation regarding Entry 23A and GST liability on annuity, but expressly left the broader adjudicatory controversy to be examined through the statutory appeal process.

Sections and Provisions Involved

Central Goods and Services Tax Act, 2017:

  • Section 2(91) – Definition of “Proper Officer”
  • Section 2(119) – Works Contract
  • Section 3 – Officers under the Act
  • Section 5 – Powers of officers
  • Section 8 – Tax liability on composite and mixed supplies
  • Section 11(3) – Exemption-related clarification
  • Section 13 – Time of supply of services
  • Section 50 – Interest on delayed payment of tax
  • Section 74 – Tax not paid or short paid by reason of fraud, wilful misstatement or suppression of facts
  • Section 107 – Appeals to Appellate Authority
  • Section 142(10) – Transitional provision concerning supplies under pre-appointed-date contracts
  • Section 168 – Power to issue instructions or directions


Link to download the order -

https://www.mytaxexpert.co.in/uploads/1783068633_428compressed.pdf

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