CG Tollway Ltd v Union of India & Ors.

What happened

By a concession agreement of 9 December 2016, NHAI granted CG Tollway Limited a 45-year concession on a design, build, finance, operate and transfer (DBFOT) basis for six-laning of NH-79 from kilometre 90.000 to 214.870 in Rajasthan, with a leave and licence over the site, the exclusive right to collect user fees, a concession fee of Re. 1 a year and a premium of Rs.2,28,60,00,000/- immediately after the third anniversary of commercial operation, rising by 3 per cent a year till the ninth anniversary and by 8 per cent thereafter. The petitioner let the construction to IRB Infrastructure Developers Limited under a separate contract, while it collected toll itself. An internal audit report of 30 July 2023 found that output tax of Rs. 16,36,20,418/- had not been paid, a show cause notice of 29 September 2023 followed, and the Deputy Commissioner passed an order of 14 December 2023 under section 73 for tax with interest and penalty at 10 per cent, which the Appellate Authority upheld on 9 May 2025. The petitioner said there was no supply to NHAI, that entry 23 of Notification No. 12/2017 exempts toll, that the Circular No. 150/06/2021-GST dated 17 June 2021 deals only with annuity payments, that the same consideration was taxed in the sub-contractor's hands, that Larsen and Toubro (Andhra Pradesh) against double taxation applied, that the Department dropped identical objections in Gujarat and Karnataka, and that the matter was revenue-neutral. The State raised the remedy of appeal and said the transaction was barter.

Questions before the court

• Is a BOT (toll) concessionaire who builds a national highway through a sub-contractor and collects toll liable to GST on construction services supplied to NHAI, or is the toll exemption in entry 23 available?

Why the court ruled this way

The Appellate Tribunal not being functional, the alternative remedy under section 112 could not be relied on, and the Court decided on merits (paragraph 18). 'Supply' under section 7(1)(a) includes barter, licence and transfer for consideration, 'consideration' under section 2(31) includes payment otherwise than in money, and a works contract is a supply of services under Schedule II entry 6; the concessionaire built and maintained the road and received the right to collect toll, a licence of the site and a premium arrangement, which is barter, and the agreement itself valued the toll rights at about Rs. 2590 million (paragraphs 19 to 34). There are two distinct contracts, between NHAI and the petitioner and between the petitioner and IRB, so there is no double taxation, and Larsen and Toubro (State of Andhra Pradesh) concerned VAT on goods in a works contract, not tax on services (paragraphs 35 and 43 to 45). Entry 23 exempts services in heading 9967 by way of access to a road or bridge on payment of toll, while construction of road falls in heading 9954 and entry 23A does not exempt it, as the Circular of 17 June 2021 clarified following the 43rd GST Council meeting; the toll here was the consideration for construction, in effect an annuity (paragraphs 36 to 42). Exemption notifications are strictly construed, with ambiguity going to the Revenue under Commissioner of Customs v. Dilip Kumar & Co. and Commissioner (CGST) v. Safari Retreats, and the Court agreed with the Telangana High Court in GMR Pochanpalli Expressways v. Additional Director, DGGI (paragraphs 40 to 42, 46 to 50). The Karnataka audit objection concerned ineligible input tax credit and the Gujarat one concerned VAT, in any case there is no negative equality (paragraphs 51 to 54).

Controlling point

The petitioner was liable to GST on the supply of works contract services to NHAI and the exemption for toll did not apply.

Order and next steps

The writ petition was dismissed and the orders of 14 December 2023 and 9 May 2025 were affirmed, with no order as to costs.

Practical implications

A BOT (toll) concessionaire that constructs through a sub-contractor should treat the construction supplied to the authority as a taxable works contract service in barter and not rely on the toll exemption in entry 23 for the construction element.

Limits of this ruling

• The Court dealt with a concession where the concessionaire collected the toll and also paid a premium, and it did not decide the quantum of the tax or the penalty; it noted that the Telangana case concerned toll collected by NHAI; and the position on the revenue-neutrality plea was not separately decided.