The Rajasthan High Court has delivered an important ruling on the GST treatment of annuity payments received by road infrastructure companies under concession agreements with the National Highways Authority of India (NHAI). In its judgment dated 17 August 2026, the Court held that annuity payments representing deferred consideration for road construction, design and maintenance services are taxable under GST.
The decision clarifies the distinction between “access to a road or bridge” services and road construction/works contract services, particularly in cases where consideration is paid through annuities over several years.
Background of the Case
The matter arose from a batch of writ petitions filed by Nagaur Mukundgarh Highways Pvt. Ltd. against the levy of GST on annuity payments received under its concession agreement with NHAI.
The petitioner challenged CBIC Circular No. 150/06/2021-GST dated 17 June 2021, which clarified the GST treatment of such annuity payments. The company argued that the payments should be exempt under Entry 23A of Notification No. 12/2017-Central Tax (Rate).
Entry 23A provides a nil-rate exemption for services by way of access to a road or bridge against payment of annuity. The petitioner also relied upon an earlier advance ruling dated 12 February 2019, under which the relevant services had been considered exempt.
The Revenue, however, maintained that the annuity was merely a deferred mode of paying consideration for taxable construction and maintenance services.
Rajasthan High Court’s Key Findings
A Division Bench comprising Justice Pushpendra Singh Bhati and Justice Praveer Bhatnagar dismissed the petitions and upheld the GST liability.
The Court examined the actual substance of the concession agreement rather than merely the form in which consideration was paid. It found that the agreement involved a design, build, operate and transfer (DBOT) arrangement covering construction, design and maintenance of roads.
Consequently, the services could not be characterised merely as providing access to a road or bridge.
The Court observed that the concession agreement essentially constituted works contract services, which fall under Heading 9954 of the GST classification. In contrast, Entry 23A relates to services under Heading 9967, concerning access to roads or bridges.
This distinction was considered crucial for determining whether the exemption was available.
Annuity Does Not Change the Nature of the Service
One of the most significant aspects of the judgment is the Court’s treatment of annuity payments.
Under the concession agreement, approximately 50% of the project cost was payable during the construction period, while the remaining 50% was payable through biannual annuity instalments over a period of 10 years, together with interest.
The Court held that merely because part of the consideration was payable through annuities, the underlying nature of the transaction did not change.
In substance, the annuity represented deferred consideration for the construction project. It was therefore not equivalent to consideration independently paid for providing access to an already constructed road or bridge.
The exemption under Entry 23A could consequently not be extended to the entire contractual arrangement.
Reliance on Earlier Division Bench Decision
The Rajasthan High Court also relied upon its earlier judgment in CG Tollway Ltd. v. Union of India & Ors., decided on 22 May 2026.
In that case, the Court had considered a concession agreement involving construction and maintenance of roads against rights relating to toll collection and held that the arrangement constituted taxable works contract services.
Applying the same reasoning, the Court concluded that the services provided by Nagaur Mukundgarh Highways under its NHAI concession agreement were taxable.
Advance Ruling Cannot Override the Statutory Position
The petitioner also argued that an earlier advance ruling dated 12 February 2019 had treated the relevant services as exempt and that the Revenue could not subsequently take a contrary position.
The High Court rejected this contention.
According to the Court, an advance ruling cannot override the correct interpretation of a statutory exemption provision. The Revenue is not permanently bound by an erroneous interpretation merely because an earlier ruling had favoured the taxpayer.
The Court also accepted CBIC’s power to issue the impugned clarification under Section 168 of the CGST Act, 2017, which empowers the Board to issue instructions, orders and circulars for ensuring uniform implementation of GST provisions.
Key Takeaway for Road Infrastructure Companies
The ruling has significant implications for companies executing NHAI and other infrastructure concession agreements involving deferred annuity payments.
The GST treatment will depend primarily on the substance and classification of the underlying service, rather than the terminology used for consideration. Where annuity payments constitute deferred consideration for construction, design, operation or maintenance obligations forming part of a works contract, the payment cannot automatically qualify for the exemption applicable to access to roads or bridges.
In other words, calling consideration “annuity” does not by itself make the underlying service GST-exempt.
Conclusion
The Rajasthan High Court’s decision provides an important clarification on GST exemption for annuity-based infrastructure contracts. The judgment establishes that Entry 23A of Notification No. 12/2017-Central Tax (Rate) cannot be invoked merely because consideration for a road project is received through annuity payments.
Where the concession agreement substantially involves construction, design and maintenance of roads, the transaction may fall under works contract services taxable under Heading 9954.
The judgment therefore highlights the importance of carefully examining the contractual obligations, classification of services and actual nature of consideration before claiming GST exemption on annuity receipts.
Case: M/s Nagaur Mukundgarh Highways Pvt. Ltd. v. Central Board of Indirect Taxes and Customs
Case No.: D.B. Civil Writ Petition No. 10055/2024
Court: Rajasthan High Court
Decision: 17 August 2026