Circular No. 221/15/2024-GST:TIME OF SUPPLY IN RESPECT OF SUPPLY OF SERVICES OF CONSTRUCTION OF ROAD AND MAINTENANCE THEREOF OF NATIONAL HIGHWAY PROJECTS OF NATIONAL HIGHWAYS AUTHORITY OF INDIA IN HYBRID ANNUITY MODE MODEL

Circular No. 221/15/2024-GST

which clarifies the time of supply for services related to the construction and maintenance of roads under the Hybrid Annuity Model (HAM) for National Highway Projects by the National Highways Authority of India (NHAI). Below is a detailed summary and breakdown of the key insights from the circular.

Summary:

The circular addresses the time of supply for tax purposes concerning the construction of roads and their subsequent operation and maintenance under the HAM model. It emphasizes that such contracts are continuous supplies of services under the CGST Act, where payments are made periodically or linked to specific events. The time of supply, as per Section 13(2) and Section 31(5) of the CGST Act, is clarified to be the date of issuance of the invoice or receipt of payment, whichever is earlier, if invoices are issued within the specified timelines. If not, the time of supply is determined by the date of service provision or payment receipt, whichever is earlier. The circular also notes that the interest component in annuity payments should be included in the taxable value.

Detailed Breakdown:

Serial Number	Paper Title	Insight	Citation Count
1	Circular No. 221/15/2024-GST (CBIC)	This circular provides clarity on the time of supply for construction and maintenance services under the HAM model, emphasizing the application of continuous supply of services as per the CGST Act. It ensures uniformity in tax implementation across field formations and highlights the inclusion of interest components in the taxable value.	–

Key Insights:

• Time of Supply Definition: Under the HAM model, the time of supply for tax purposes is either the date of invoice issuance or payment receipt, whichever comes first, if invoices are timely issued. If not, it’s the service provision date or payment receipt date, whichever is earlier.
• Continuous Supply of Services: The circular classifies the HAM model contracts as continuous supplies of services due to their periodic payment structure.
• Tax Liability: Tax liability arises on the earlier of invoice issuance or payment receipt, ensuring timely tax compliance.
• Interest Inclusion: Any interest component in the annuity payments is included in the taxable value, as per Section 15(2)(d) of the CGST Act.

Detailed Explanation with Examples

1. Time of Supply Definition under HAM Model:

Under the Hybrid Annuity Model (HAM) for highway projects, the time of supply for services, including both construction and operation & maintenance (O&M), is crucial for determining the tax liability. According to the circular, the time of supply is governed by Section 13(2) of the CGST Act.

• Example:
  • Suppose a concessionaire is constructing a highway under the HAM model. The project involves periodic payments. An invoice is issued on January 15, and the payment is received on January 20. In this case, the time of supply is January 15, the date of invoice issuance.
  • If no invoice is issued by the due date specified in the contract, say the due date is January 10, the time of supply would be January 10 (the due date) or January 20 (the date of payment receipt), whichever is earlier. Here, January 10 would be the time of supply.

2. Continuous Supply of Services:

The HAM model contracts are classified as continuous supplies of services because they involve ongoing activities and periodic payments over several years. This classification aligns with Section 2(33) of the CGST Act.

• Example:
  • A concessionaire enters into a 15-year contract with NHAI to construct and maintain a highway. Payments are structured to be made quarterly. Each quarter, an invoice must be issued either on a specified date (e.g., the 1st of each quarter) or upon completion of specific milestones.
  • In each case, the time of supply for tax purposes is tied to these regular intervals or completion events, making it a continuous supply of services.

3. Tax Liability Determination:

The tax liability under the HAM model arises at the time of issuance of the invoice or receipt of payment, whichever is earlier. This ensures that the concessionaire accounts for tax obligations promptly.

• Example:
  • Continuing the previous example, if an invoice for the first quarter is issued on April 1, and payment is received on April 10, the tax liability arises on April 1 (the date of invoice issuance).
  • If the invoice was not issued on time, say the work was completed on March 31 but the invoice was issued on April 5, the tax liability would still arise on March 31 (the date of service provision) or April 10 (the date of payment), whichever is earlier. Here, March 31 would be the relevant date for tax liability.

4. Interest Inclusion in Taxable Value:

Any interest component included in the annuity payments made by NHAI to the concessionaire is also subject to GST. This is in accordance with Section 15(2)(d) of the CGST Act.

• Example:
  • Assume the concessionaire receives an annuity payment of ₹10,00,000, which includes ₹1,00,000 as interest. The entire amount, ₹10,00,000, is considered for GST calculation. Thus, the GST is applied to the full payment, including the interest component, ensuring comprehensive tax coverage.

Key Points Summary:

• Time of Supply: Determined by the earlier of invoice issuance or payment receipt.
• Continuous Supply: Contracts involve regular intervals or milestone-based payments, classified as continuous services.
• Tax Liability: Arises promptly based on invoicing or payment schedules, ensuring compliance.
• Interest Component: Included in taxable value, reflecting total received amounts.

For further information, you can refer to the full document.

https://taxinformation.cbic.gov.in/view-pdf/1003200/ENG/Circulars