Decided 11 July 2022. The Karnataka High Court has quashed the CBIC circular dated 17.06.2021 that treated annuity paid as deferred payment for road construction as taxable. The Court held that Notification Nos. 32 and 33/2017, issued on the GST Council's recommendation to treat annuity on par with toll, exempt the entire annuity, including the construction component. A circular cannot override a notification.
Case at a glance
| Case | M/s DPJ Bidar-Chincholi (Annuity) Road Project Pvt. Ltd. v. Union of India & Ors. |
| Forum | Karnataka High Court (Justice M.I. Arun) |
| Case Nos. | W.P. No. 22250 of 2021 c/w W.P. No. 7233 of 2022 (T-RES) |
| Date of order | 11 July 2022 |
| Key provisions | Notification 12/2017 entry 23; Notifications 32/2017 and 33/2017 dated 13.10.2017; Section 11 CGST Act |
| Result | Circular dated 17.06.2021 and all actions under it set aside |
Facts of the case
The petitioner, a road concessionaire, receives annuity from the highway authority for building and maintaining a road. After the 43rd GST Council meeting (28.05.2021), CBIC issued a circular on 17.06.2021 clarifying that annuity paid as deferred payment for construction is not exempt.
Issue before the High Court
Can a circular deny exemption on the construction part of annuity when the notification exempts service by way of access to a road on payment of annuity?
What the High Court held
- Toll charges, exempt under entry 23 of Notification 12/2017, are consideration for both construction and maintenance of a road.
- The 22nd GST Council meeting (06.10.2017) recommended treating annuity on par with toll, and Notifications 32 and 33/2017 dated 13.10.2017 exempted service by way of access to a road on payment of annuity. This covers the whole annuity, including construction.
- A circular can clarify but cannot overrule a notification. The 2021 circular effectively overrode the exemption and is bad in law.
- If the government wants to tax annuity, it must amend the notification under section 11. The circular and all actions under it were set aside.
Practical takeaways for taxpayers
- Road concessionaires receiving annuity can rely on this ruling against GST demands based on the 2021 circular.
- Where a circular narrows an exemption granted by notification, challenge the circular itself.
- Check whether the government has since amended the notification for later periods.
Frequently asked questions
Is GST payable on annuity received for highway construction?
The Karnataka High Court held the entire annuity is exempt under Notifications 32 and 33/2017 and quashed the 2021 circular.
Can a CBIC circular override a GST notification?
No. A circular can clarify but cannot restrict an exemption granted by a notification.
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This summary is based on the order of the Karnataka High Court in Writ Petition No. 22250 of 2021 c/w Writ Petition No. 7233 of 2022. It is general information, not legal advice; the outcome of any case depends on its own facts and the full text of the order.