The Rajasthan High Court has held that annuity payments received by a highway concessionaire under a concession agreement with the National Highways Authority of India (NHAI) are liable to GST where the underlying arrangement constitutes works contract services for construction, design and maintenance of roads, ruling that the exemption under Entry 23A of Notification No. 12/2017-Central Tax (Rate) does not extend to such construction services.
The Supreme Court has subsequently entertained the challenge against the High Court judgment and issued notice while directing that no further coercive steps be taken against the petitioner in the meantime. The matter is listed for December 1, 2026.
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Supreme Court Issues Notice, Restrains Coercive Action
The Supreme Court proceedings arose from the Rajasthan High Court’s August 17, 2026 judgment in a batch of writ petitions concerning the GST treatment of annuity payments received under highway concession agreements.
The matter before the Supreme Court is Special Leave Petition (Civil) arising from the Rajasthan High Court’s judgment in D.B. Civil Writ Petition. The bench comprising Justice Ujjal Bhuyan and Justice Atul S. Chandurkar heard the matter.
After hearing Senior Advocate S. Murlidhar for the petitioner, the Supreme Court ordered issuance of notice, returnable on December 1, 2026. Importantly, the Court directed that no further coercive steps shall be taken against the petitioner in the meanwhile.
Dispute Centred on GST Exemption for Highway Annuities
The underlying dispute before the Rajasthan High Court concerned the applicability of CBIC Circular No. 150/06/2021-GST dated June 17, 2021 to annuity payments received under highway construction agreements.
The petitioner challenged the circular as well as the consequential show cause notice and recovery order. Its case was that Notification No. 12/2017-Central Tax (Rate), issued under Section 11 of the CGST Act, granted a statutory exemption to services covered by Entry 23A.
Entry 23A covers “service by way of access to a road or a bridge on payment of annuity” under Heading 9967, with the rate of tax specified as Nil and the condition also specified as Nil.
The central legal question was whether this exemption could be invoked for annuity payments received under a highway construction concession agreement, or whether such payments represented consideration for taxable construction/works contract services falling under Heading 9954.
CBIC Circular Drew Distinction Between Access and Construction
CBIC Circular No. 150/06/2021-GST had clarified that GST exemption under Entry 23A applies to services falling under Heading 9967, namely access to roads or bridges against payment of annuity.
However, according to the circular, construction of roads falls under Heading 9954, which covers general construction services relating to highways, streets, roads, bridges and tunnels.
The circular therefore stated that where construction of a road is undertaken and consideration is paid partly upfront and partly through deferred annual payments described as annuities, Entry 23A would not apply because the underlying service is construction rather than access to a road.
Petitioner Challenged CBIC’s Power to Override Exemption
Before the Rajasthan High Court, the petitioner argued that the CBIC circular could not override or dilute the statutory exemption contained in Notification No. 12/2017.
It was contended that an administrative circular issued under Section 168 of the CGST Act could not create a tax liability contrary to the express language of a statutory notification issued under Section 11.
The petitioner also relied upon an advance ruling dated February 12, 2019, under which Entry 23A had been held applicable to the disputed services. According to the petitioner, since that advance ruling had not been challenged, it had attained finality and continued to bind the applicant and the concerned departmental authorities under Section 103 of the CGST Act.
The petitioner further argued that the Board’s power under Section 168 was administrative and intended to ensure uniform implementation of the GST law. It could not, according to the submission, be used to retrospectively withdraw or curtail a statutory exemption without a corresponding amendment to the notification.
Revenue Defended Circular and Taxability of Annuity
The Union GST and State GST authorities defended the circular.
The Revenue submitted that Section 168 expressly empowers the Board to issue orders, instructions and directions for securing uniformity in implementation of the CGST Act.
It was argued that the circular merely clarified the existing legal position and distinguished between two different categories of services: road-access services under Heading 9967 and road-construction services under Heading 9954.
The authorities also disputed the contention that the 2019 advance ruling continued to operate as an absolute bar. Relying upon Section 103(2), the Revenue argued that an advance ruling remains binding only so long as the law, facts and circumstances forming its basis remain unchanged.
Rajasthan HC Relied on Its Earlier CG Tollway Judgment
A significant part of the High Court’s reasoning was based on its earlier judgment in CG Tollway Ltd. v. Union of India & Others, decided on May 22, 2026.
In that case, the Division Bench had examined the GST implications of a concession agreement under which construction services were provided to NHAI in exchange for rights connected with toll collection.
The Court had held that the arrangement constituted a supply of works contract services and that the rights received by the concessionaire formed part of the consideration under the GST framework.
The Court also distinguished Heading 9954, concerning construction services, from Heading 9967, which covers specified transport-support services including operation-related services.
The Rajasthan High Court in the present case found the reasoning in CG Tollway directly relevant.
Concession Agreement Involved Construction, Design and Maintenance
The High Court examined the terms of the concession agreement with NHAI.
Under the agreement, 50% of the project cost was payable in five equal instalments during the construction period, while the remaining 50% was payable through biannual instalments commencing after the commercial operation date.
The agreement also provided for annuity payments over a 10-year period, together with interest.
The Court noted that the contractual arrangement was essentially a design, build, operate and transfer project, with the concessionaire partially financing the project and recovering the remaining project cost through annuity payments.
The Court specifically observed that the distinction between the present case and the earlier CG Tollway case was primarily the investment structure. In the BOT arrangement considered earlier, the concessionaire bore the entire investment risk, whereas in the present case approximately 50% of the required funds were invested by the concessionaire and the remaining amount was payable by NHAI through annuities.
Court Holds Highway Construction to be Taxable Works Contract
The Rajasthan High Court ultimately concluded that the concession agreement involved works contract services and was therefore taxable.
The Court emphasised that the petitioner’s services were not confined merely to providing access to a road or bridge against payment of an annuity. Rather, the agreement involved construction, design and maintenance of roads, with payments being made at specified intervals.
Accordingly, the Court held that the services fell within the works contract/construction category and did not qualify for the exemption claimed under Entry 23A.
The Court further observed that if works contract services were intended to be exempt, the exemption notification would have expressly included them.
High Court Rejects Challenge to CBIC Circular
The High Court also rejected the challenge to the authority of the CBIC to issue the circular.
It held that the circular was intended to clarify terminology and prevent misinterpretation by authorities implementing the GST law and that Section 168 empowered the Board to issue instructions for proper implementation.
The Court further rejected the argument that Revenue authorities were permanently bound by the earlier advance ruling. According to the judgment, the notification itself was binding, and an earlier departmental interpretation would not prevent the implementing authority from acting on a subsequent clarification of the statutory position.
The Court concluded that there was no merit in the challenge to the impugned circulars or in the consequential challenge to the levy of GST on annuity payments received under the concession agreements. It also held that reliance on the earlier advance ruling did not alter the position because taxability had to be determined with reference to the statutory exemption and the true nature of the services rendered under the contract.
The Supreme Court’s September 21 order does not finally decide the taxability issue. At this stage, the Court has issued notice and protected the petitioner from further coercive steps pending the proceedings, with the matter returnable on December 1, 2026.
The Supreme Court proceedings therefore bring the dispute over the interpretation of Entry 23A of Notification No. 12/2017-Central Tax (Rate), the scope of CBIC Circular No. 150/06/2021-GST, the treatment of highway annuity payments, and the binding effect of an advance ruling before the apex court.
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