Toll collection against construction services provided to NHAI taxable: Rajasthan HC

Mumbai: The Rajasthan High Court held that toll collection rights granted under a highway concession agreement constitute taxable consideration for construction services provided to the National Highways Authority of India (NHAI) and are not exempt from goods and services tax merely because toll collection is exempt.

The May 22 ruling by a division bench, dismissing a writ petition filed by CG Tollway Ltd, could have significant implications for public-private partnership infrastructure projects, said tax experts.

The bench of Justices Arun Monga and Sandeep Shah confirmed tax authorities’ demand for GST, interest and a 10% penalty from the company, a special purpose vehicle now part of IRB Infrastructure Trust.


The dispute stemmed from a 2016 design, build, finance, operate and transfer concession agreement under which CG Tollway was to six-lane a stretch of NH-79 in Rajasthan. In return, the company received rights to collect tolls during the concession period along with access and licence rights over the project site.

The company argued that it had not supplied any taxable service to NHAI and that toll collections were exempt from GST rules. It also contended that imposing GST on the concessionaire would result in double taxation as its EPC contractor had already paid GST on the construction work.

Rejecting these submissions, the court held that the arrangement amounted to a taxable works contract service. It observed that GST law recognises consideration received “in money or otherwise” and that the right to collect tolls represented reciprocal consideration for construction and maintenance of the highway.

It described the transaction as a barter arrangement.

It observed that the exemption available for toll collection could not be extended to toll rights received as consideration for construction services.

“When toll is being collected as a barter for the work contract undertaken by the petitioner, and further considering that apart from toll collection there is also a payment of premium…exemption is only with regard to toll collection simpliciter and not for toll being collected for barter,” the bench held.

It relied on a 2021 CBIC circular clarifying that deferred payments or annuities received for road construction remain taxable.

On the issue of double taxation, the court held that the EPC contractor’s supply to CG Tollway and CG Tollway’s supply to NHAI arose from separate contracts and constituted distinct taxable events. Since there was no contractual relationship between NHAI and the subcontractor, GST paid by the EPC contractor could not extinguish the concessionaire’s tax liability.

“With infrastructure projects increasingly being executed through concession-based models, the Rajasthan High Court's ruling is likely to have significant implications for similar arrangements,” said Ashish Karundia, founder of CA firm Ashish Karundia & Co.

The decision could prompt a re-evaluation of concession-based arrangements to examine whether a service has been supplied and, if so, whether the corresponding consideration is received in kind, such as by way of a right to collect toll, Karundia said. “A clear distinction must be maintained between the transfer of such rights and the subsequent collection of toll, which remains specifically exempt from GST. At the same time, any resulting GST implications should be addressed in a manner that preserves tax neutrality by allowing input tax credit on subcontracted services, thereby avoiding tax cascading and reinforcing the seamless credit framework that is fundamental to the GST regime,” Karundia added.