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A free scan shows the junk files, broken settings and background clutter dragging Windows down - then fixes them in one click.Free scan · Windows 10 & 11Yes—on the facts before it, the Rajasthan High Court held that annuity payments paid by the National Highways Authority of India (NHAI) under an integrated road concession are consideration for taxable works-contract services. The court rejected the argument that Entry 23A of Notification No. 12/2017-Central Tax (Rate) exempts the receipts merely because payment is made in deferred annual instalments called an annuity. Its decision, delivered by the Jodhpur Bench on 17 August 2026 in M/s Nagaur Mukundgarh Highways Pvt. Ltd. v. Central Board of Indirect Taxes and Customs & Ors., is binding in that case and persuasive elsewhere while the Supreme Court challenge remains pending.
What the Rajasthan High Court decided
The concession agreement covered the road’s design, construction, operation and maintenance. The concessionaire financed approximately 50% of the required project cost, while NHAI paid the balance through scheduled annuity instalments. The court treated those instalments as contractual consideration for the integrated service, not as payment for a stand-alone right to use an existing road.
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That distinction determined the GST result. A contract that requires the concessionaire to design and build a highway and then maintain it supplies construction and maintenance services. Calling the later instalments “annuity” does not change what the parties agreed to supply.
Contractual substance controlled the classification
The court relied on the statutory concepts of “consideration,” “works contract” and “supply” in sections 2(31), 2(119) and 7 of the Central Goods and Services Tax Act, read with Schedule II, entry 6. It followed the Rajasthan Division Bench’s 22 May 2026 decision in CG Tollway Ltd. v. Union of India, which treated construction and maintenance supplied in exchange for toll-collection rights or equivalent contractual consideration as works-contract services.
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The judgment expressly contrasted the arrangement with a contract limited to road access. In the court’s words, the agreement “essentially include[d] construction, design, and maintenance of the roads, with payments at intervals.” Because those obligations were central, the court held the annuity receipts taxable as consideration for works-contract services.
The 50:50 funding structure did not change the result
The concessionaire’s investment of about half the project funds and NHAI’s deferred payment of the remainder affected financing and cash flow, not the nature of the supply. A hybrid-annuity or other part-funded model therefore cannot, by itself, turn a construction-and-maintenance contract into an exempt access service.
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Why Entry 23A did not exempt the annuities
CBIC Circular No. 150/06/2021-GST, dated 17 June 2021, separates two service categories that are often conflated in concession disputes.
| Service described by the contract | Service heading | Typical contractual substance | Effect of Entry 23A |
|---|---|---|---|
| Access to a road or bridge on payment of an annuity | Heading 9967 | Transport-support service granting use of an existing road or bridge | Entry 23A covers this described service |
| Construction of a highway, road, bridge or tunnel | Heading 9954 | Design and construction, often followed by contractual operation or maintenance | Entry 23A does not exempt the construction service merely because consideration is deferred as annuities |
The circular’s point is functional: the heading follows the service supplied, not the label attached to the payment. Where the concessionaire’s obligations extend beyond access, the construction heading and works-contract analysis apply.
Exemption notifications are read strictly
The Rajasthan court also applied the Supreme Court’s strict-interpretation rule from Commissioner of Customs v. Dilip Kumar & Co. If an exemption entry is ambiguous, the ambiguity is resolved in favour of the Revenue. A taxpayer therefore cannot extend Entry 23A from access services to a broader construction package simply because the contract uses the word “annuity.”
How to analyse another road concession
The ruling does not make every payment under every road agreement taxable in the same way. Classification depends on the actual bargain. Review the agreement in this order:
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- Map the obligations. Identify separate clauses for land or site preparation, design, engineering, construction, operation, routine maintenance, major maintenance and any access or toll-collection right.
- Identify what the payment buys. Determine whether each instalment is linked to construction milestones, availability, maintenance performance, access, toll rights or a combination of these elements.
- Check the applicable service heading. A construction package points toward Heading 9954; a service confined to providing access to a road or bridge points toward Heading 9967.
- Separate funding from supply. Record the concessionaire’s contribution, NHAI’s contribution, grants and debt, but do not assume that a deferred or part-funded structure changes the service classification.
- Test the exemption wording. Apply Entry 23A to the service actually supplied and read its conditions strictly. Do not rely on the payment label alone.
- Match the tax analysis to the period. Rate, valuation, time of supply, interest and penalty exposure must be checked against the agreement, tax period and notifications in force for that period.
Where the litigation stands
The Supreme Court has issued notice on the petitioner’s challenge to the Rajasthan decision and directed that no further coercive steps be taken against that petitioner while the Special Leave Petition is pending. That interim protection is procedural; it does not finally decide the GST treatment of all road annuity projects.
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Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Repair Windows errors before they cause bigger problemsFix Now →Other litigation has taken different or competing approaches, including the Karnataka High Court matter involving the DPJ Bidar-Chincholi (Annuity) Road Project and proceedings concerning GMR Pochanpalli in Telangana. The Rajasthan ruling should therefore be described as controlling the parties before that court and as persuasive precedent for comparable contracts, subject to Supreme Court review—not as a final nationwide resolution.
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What the decision means for concessionaires and NHAI contractors
Contract drafting matters
Contracts that bundle design, construction and maintenance should expect the tax authority to examine the entire obligation rather than isolate the payment schedule. If parties intend to supply distinct services, the agreement, pricing, performance tests and invoicing should identify those supplies clearly and consistently.
Payment timing is not an exemption test
Upfront consideration, toll rights, milestone payments, availability payments and deferred annuities can all be forms of consideration. The timing or financing method does not, without more, place a construction service within Entry 23A.
Exposure must be quantified project by project
The judgment establishes the classification and exemption reasoning, but it does not establish one GST rate for every concession, year or contract. Businesses should calculate potential output tax, input-tax-credit effects, interest and penalty exposure using the operative rules for each tax period and preserve the documents supporting their service and valuation analysis.
Quick Recap
Key points to retain
- An integrated concession for design, construction and maintenance was treated as a works-contract supply.
- Heading 9954 construction services are distinct from Heading 9967 road-access services.
- The word “annuity” and deferred annual payment terms do not independently create the Entry 23A exemption.
- A concessionaire’s approximately 50% project investment and NHAI’s deferred balance did not alter the classification.
- Supreme Court notice and interim non-coercive protection leave the broader national position open.
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