Rate of GST here is 12 per cent

To implement GST in road constructions where payment by the government is made in parts, i.e., annuity, the National Highway Authority of India (NHAI) has come out with a circular defining various scenarios.

The GST Council, in its meeting on May 28, recommended no exemption from GST on the annuity (deferred payments) paid for construction of road. Rate of GST here is 12 per cent.

It’s been four roller-coaster years of GST

Based on the GST Council’s recommendation followed by a circular by the Central Board of Indirect Taxes and Customs (CBIC), NHAI has issued detailed clarification on four different scenarios. The first is with regard to projects where bid due date was on or before June 30, 2017 (as GST was implemented from July 1). Here, GST on annuity payments will be paid or reimbursed as per standard operating procedures. Tax calculation will be made on total cost of project i.e. bid project case plus escalation tax. The impact of additional GST will be calculated after adjusting input tax credit (ITC) lying with the concessionaire.

The second scenario talks about projects where bid due date was on or after July 1, 2017, and on or before October 13, 2017. Here, no GST on annuity under change in law will be paid or reimbursed since bids were invited inclusive of GST.

Over ₹81,000 crore due to States as GST compensation for FY21

The third scenario is related to projects where bid due date was on or before October 14, 2017, and on or before June 16, 2021. Here, effect of change in law on annuity will be calculated at applicable GST rates after adjusting ITC. Also, no GST will be paid on part of project cost known as construction support, and which is taken as 40 per cent of total. Here, GST on interest on annuity payments will also be payable.

The fourth scenario relates to projects where bid due date was after June 16, 2021. Here, no GST will be paid as bids are being invited exclusive of GST.

Not advantageous for all

Aditya Singhania, Founder of Singhania’s GST Consultancy, said the recommendation by the GST Council cleared the ambiguity relating to taxability on activity of construction of road where considerations are received in deferred payment HAM (Hybrid Annuity Model).

“The clarification issued by NHAI is certainly a welcome step, however, its impact will depend on the actual treatment done by the contractors during the period before the 43rd GST Council meeting decision. For contractors who would have treated it as taxable and have discharged the taxes are primarily at advantageous situation as NHAI promises to reimburse the GST due on the supply. However, it would be an area of concern for those contractors who have treated it as an exempt supply and have not availed/after availing have reversed their ITC as Policy Circular categorically stated that annuity payment shall be computed at applicable GST rate after adjusting GST ITC in projects where the bid due date was between October 14, 2017 and June 16, 2021,” he said.

Further, though until now no TDS was deducted considering the same as exempt supply, it has now been clearly stated that GST TDS shall be deductible from the annuity and interest on annuity payable on or after June 17, 2021.

Source: Business Line