M/S.K N R Srirangam Infra Pvt Ltd vs The State Tax Officer on 24 July, 2024

Here's a summary of the judgment:

1. Outcome
The Madras High Court (Madurai Bench) set aside the impugned assessment orders dated 28.04.2023 for the assessment years 2019-20, 2020-21, and 2021-22. The cases were remitted back to the respondent State Tax Officer for re-examination in light of the clarifications issued by the Central Board of Indirect Taxes and Customs (CBIC) vide Circular No.221/15/2024-GST dated 26.06.2024.

2. Core Issue
The core issue was the correct determination of the "time of supply" for the purpose of GST liability for services rendered under Hybrid Annuity Model (HAM) contracts. Specifically, whether the petitioner was liable to pay GST on the entire value of the contract upfront, even for the portion of consideration to be received as annuities over many years, after substantial completion of the construction work.

3. Key Facts
* The petitioner, M/s.K N R Srirangam Infra Pvt Ltd., undertakes highway development projects for the National Highways Authority of India (NHAI) under Hybrid Annuity Model (HAM) concession agreements.
* These HAM contracts are "Design, Build, Operate and Transfer" (DBOT) models, involving both construction and subsequent Operation and Maintenance (O&M) services over a long period (e.g., 15-17 years).
* The payment structure includes 40% of the bid cost paid in five installments during the construction period, linked to physical progress milestones. The remaining 60% is to be paid in 30 annuities over the subsequent 14 years.
* The State Tax Officer issued assessment orders for AY 2019-20, 2020-21, and 2021-22, demanding substantial tax, penalty, and interest (totaling over Rs. 176 Crores).
* The department's assessment was based on the premise that since the work was substantially completed (sub-contractors having raised bills for 89% of the work) and the petitioner had booked income in its Profit and Loss account and availed 100% Input Tax Credit (ITC) on sub-contractor payments, the petitioner was liable to pay tax on the entire value of the completed work, including the annuity portion.

4. Arguments
* Taxpayer (M/s.K N R Srirangam Infra Pvt Ltd.):
* Argued that under HAM contracts, tax liability should arise only when invoices are raised or payments are actually received, as per the staggered payment terms.
* Relied on the recent CBIC Circular No.221/15/2024-GST dated 26.06.2024, which clarifies that HAM contracts are a "continuous supply of services" and tax liability arises at the earlier of issuance of invoice or receipt of payment, if invoices are issued on time. Otherwise, it's the date of provision of service (due date of payment as per contract) or receipt of payment, whichever is earlier.
* Contended that booking income as per accounting standards and availing ITC as per Section 16(4) requirements (for services received from sub-contractors) are separate from the "time of supply" for the petitioner's own output services to NHAI. Tax on the annuity portion will be paid when invoices are raised based on the defined milestones for those annuities.
* Revenue (State Tax Officer):
* Contended that since the work was "substantially completed" (89% as per sub-contractor bills), the petitioner was liable to pay tax on the entire value of the work.
* Alleged that the petitioner had not correctly reported taxable turnover and had claimed an unjustified exemption on a large portion of the completed works.
* Pointed out that the petitioner had availed 100% ITC on the services received from its sub-contractors.
* Argued that the time of supply, as per Sections 13 and 31 of the CGST/TNGST Acts, would be the date of provision of service if invoices were not issued within the prescribed period for the full value of the completed work.

5. Court’s Reasoning
* The Court emphasized the importance of the CBIC Circular No.221/15/2024-GST dated 26.06.2024, which was issued pursuant to the GST Council's 53rd Meeting and directly addresses the issue of time of supply for HAM contracts.
* It noted that the Circular treats HAM contracts as a "continuous supply of services" and explicitly states that tax liability (including for the construction portion) arises at the earlier of the date of invoice issuance or receipt of payment, provided invoices are raised on or before the specified date/event. If not, it's the earlier of the date of provision of service (due date of payment as per contract) or receipt of payment.
* The Court found that the petitioner's contract with NHAI clearly delineates the staggered payment of 40% during construction and 60% as annuities over 14 years.
* It held that, prima facie, the petitioner is not liable to pay tax if no invoice has been raised for the annuity portion or if the annuity payments have not yet been received.
* The Court clarified that the petitioner's act of sub-contracting work, completing it in advance, or availing ITC on sub-contractor payments does not automatically trigger liability for output tax on the entire contract value with NHAI if invoices for the annuity portion have not been raised or payments not received.
* The Court concluded that the impugned orders failed to consider these nuances of HAM contracts and the recent CBIC clarification.

6. Statutory References
* Constitution of India: Article 226
* Central Goods and Services Tax Act, 2017 (CGST Act):
* Section 2(33) (Definition of 'Continuous supply of services')
* Section 13(2) (Time of supply of services)
* Section 15(2)(d) (Value of supply – inclusion of interest)
* Section 16(4) (Eligibility and conditions for taking input tax credit)
* Section 31 (Tax invoice)
* Section 31(5) (Tax invoice – continuous supply of services)
* Section 50(1) (Interest on delayed payment of tax)
* Section 74 (Determination of tax not paid or short paid etc., due to fraud/wilful misstatement/suppression of facts)
* Tamil Nadu Goods and Services Tax Act, 2017 (TNGST Act): Sections 13, 31, 50(1), 74 (referenced in conjunction with CGST Act).

7. Precedents Cited
* CBIC Circular No.221/15/2024-GST dated 26.06.2024.
* Decision taken by the GST Council in its 53rd Meeting on 22.06.2024.