Key Takeaways:

- HAM contracts are treated as a single contract for construction and maintenance

- Time of supply is determined based on invoice issuance or payment receipt

- Interest components in annuity payments are included in the taxable value

- The circular applies to National Highway Projects under NHAI's Hybrid Annuity Model

- It clarifies the application of continuous supply of services provisions to HAM projects

- Right Click here and open Official Circular in new tab

Let's break down the key points of Circular No. 221/15/2024-GST and understand its implications:

Understanding the Hybrid Annuity Model (HAM):

The HAM is a model used by the National Highways Authority of India (NHAI) for highway development projects. Under this model:

1. The concessionaire is responsible for both construction and long-term maintenance of the highway.

2. The payment is spread over a period of 15-17 years, including both construction costs and operation & maintenance fees.

3. It's considered a Design, Build, Operate, and Transfer (DBOT) model .

The Clarification:

The circular provides the following key clarifications:

1. Single Contract: HAM contracts are treated as a single contract for both construction and operation & maintenance (O&M) of the highway. The Board states, "The contract needs to be looked at holistically based on the services to be performed by the concessionaire and cannot be artificially split into two separate contracts for construction and operation and maintenance, based on the payment terms".

2. Continuous Supply of Services: These contracts fall under the definition of 'Continuous supply of services' as per section 2(33) of the CGST Act.

3. Time of Supply: The time of supply for these services is determined as follows:

a) If the invoice is issued on or before the specified date or the date of completion of the event in the contract: It's the date of invoice issuance or payment receipt, whichever is earlier.

b) If the invoice is not issued on time: It's the date of provision of service (deemed as the due date of payment as per the contract) or date of payment receipt, whichever is earlier.

4. Taxable Value: The circular clarifies that "the amount of such interest shall also be includible in the taxable value for the purpose of payment of tax on the said annuity/installment in view of the provisions of section 15(2)(d) of the CGST Act".

Implications:

This clarification has significant implications for companies involved in NHAI's HAM projects:

1. Tax Calculation: It affects how GST is calculated and applied to these long-term infrastructure projects.

2. Compliance: Companies need to ensure their GST compliance aligns with this clarification, particularly in terms of invoice issuance and tax payment timing.

3. Cash Flow Management: The clarification on time of supply can impact cash flow management for companies involved in these projects.

4. Valuation: Including interest components in the taxable value may increase the overall GST liability.

FAQs:

Q1: How does this circular affect the GST treatment of HAM projects?

A1: The circular clarifies that HAM projects are treated as a single contract for continuous supply of services. The time of supply is generally the date of invoice issuance or payment receipt, whichever is earlier, affecting when GST becomes due.

Q2: Are construction and maintenance services treated separately for GST purposes in HAM projects?

A2: No, the circular explicitly states that HAM contracts should be viewed holistically and not artificially split into separate contracts for construction and maintenance.

Q3: How is the taxable value determined for annuity payments in HAM projects?

A3: The taxable value includes both the principal amount and the interest component of the annuity payments, as per section 15(2)(d) of the CGST Act.

Q4: What happens if an invoice is not issued on time for a HAM project?

A4: If the invoice is not issued on or before the specified date or event completion date, the time of supply becomes the date of provision of service (deemed as the due date of payment as per the contract) or the date of payment receipt, whichever is earlier.

Q5: Does this circular apply retroactively to existing HAM projects?

A5: The circular doesn't explicitly mention retroactive application. Companies involved in ongoing HAM projects should consult with tax professionals to determine how this clarification affects their current arrangements.

Key Precedents:

- Central Goods and Services Tax Act, 2017 (CGST Act)

- Integrated Goods and Services Tax Act, 2017 (IGST Act)

- Circular No. 221/15/2024-GST dated 26th June, 2024

- Section 2(33) of CGST Act (Definition of Continuous supply of services)

- Section 13(2) of CGST Act (Time of supply of services)

- Section 31(5) of CGST Act (Invoice in case of continuous supply of services)

- Section 15(2)(d) of CGST Act (Value of supply)

Circular No.-221/15/2024-GST

F.No. CBIC-20001/4/2024-GST

Government of India

Ministry of Finance

(Department of Revenue)

Central Board of Indirect Taxes and Customs

GST Policy Wing

North Block, New Delhi

Dated the 26th June, 2024

To,

The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/Commissioners of Central Tax (All)

The Principal Directors General/ Directors General (All)

Madam/Sir,

Subject: Clarification on 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 (NHAI)in Hybrid Annuity Mode (HAM) model -reg.

Representations have been received from the trade and the field formations seeking clarification regarding the time of supply in respect of supply of services of construction of road and maintenance thereof of National Highway Projects in Hybrid Annuity Mode (HAM) model, where certain portion of Bid Project Cost is received during construction period and remaining payment is received through deferred payment (annuity) spread over years.

2. In order to clarify the issue and to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168 (1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), hereby clarifies the issues as under:

S.No. Issue Clarification

1. Under HAM model of National Highways Authority of India (NHAI), the concessionaire has to construct the new road and provide Operation & Maintenance of the same which is generally over a period of 15- 17 years and the payment of the same is spread over the years.

What is the time of supply for the purpose of payment of tax on the said service under the HAM model?

Under the Hybrid Annuity Model (HAM) of concession agreements, the highway development projects are under Design, Build, Operate and Transfer model (DBOT), wherein the concessionaire is required to undertake new construction of Highway, as well as the Operation and Maintenance (O&M) of Highways. The payment terms for the construction portion as well as the O&M portion of the contract are provided in the agreement between National Highways Authority of India (NHAI) and the concessionaire.

2.1 A HAM contract is a single contract for construction as well as operation and maintenance of the highway. The payment terms are so staggered that the concessionaire is held accountable for the repair and maintenance of the highway as well. The contract needs to be looked at holistically based on the services to be performed by the concessionaire and cannot be artificially split into two separate contracts for construction and operation and maintenance, based on the payment terms. The concessionaire is bound contractually to complete not only the construction of the highway but also to operate and maintain the same.

2.2 In HAM contract, the payment is made spread over the contract period in installments and payment for each installment is to be made after specified periods, or on completion of an event, as specified in the contract. The same appears to be covered under the ‘Continuous supply of services’ as defined under section 2(33) of the CGST Act.

2.3 As per clause (a) of Section 13(2) of CGST Act, the time of supply in respect of a supply of services shall be the date of issue of Invoice, or date of receipt of payment, whichever is earlier, in cases where invoice is issued within the period prescribed under section 31 of CGST Act. Further, as per clause (b) of Section 13(2) of CGST Act, in cases where invoice is not issued within the period prescribed under section 31, the time of supply of service shall be date of provision of the service or date of receipt of payment, whichever is earlier.

However, as per section 31(5) of CGST Act, in cases of continuous supply of services, where the payment is made periodically, either due on a specified date or is linked to the completion of an event, the invoice is required to be issued on or before the specified date or the date of completion of that event.

2.4 Accordingly, as per section 13(2) of CGST Act, read with section 31(5) of CGST Act, time of supply of services under HAM contract, including construction and O&M portion, should be the date of issuance of such invoice, or date of receipt of payment, whichever is earlier, if the invoice is issued on or before the specified date or the date of completion of the event specified in the contract, as applicable. However, in cases, where the invoice is not issued on or before the specified date or the date of completion of the event specified in the contract, as per clause (b) of section 13(2), time of supply should be the date of provision of the service, or date of receipt of payment, whichever is earlier. In case of continuous supply of services, the date of provision of service may be deemed as the due date of payment as per the contract, as the invoice is required to be issued on or before the due date of payment as per the provisions of Section 31(5) of CGST Act.

3. In the light of above, it is clarified that the tax liability on the concessionaire under the HAM contract, including on the construction portion, would arise at the time of issuance of invoice, or receipt of payments, whichever is earlier, if the invoice is issued on or before the specified date or the date of completion of the event specified in the contract, as applicable. If invoices are not issued on or before the specified date or the date of completion of the event specified in the contract, tax liability would arise on the date of provision of the said service (i.e., the due date of payment as per the contract), or the date of receipt of the payment, whichever is earlier.

4. It is also clarified that as the installments/annuity payable by NHAI to the concessionaire also includes some interest component, the amount of such interest shall also be includible in the taxable value for the purpose of payment of tax on the said annuity/installment in view of the provisions of section 15(2)(d) of the CGST Act.

3. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.

4. Difficulty, if any, in implementation of this Circular may please be brought to the notice of the Board. Hindi version would follow.

(Sanjay Mangal)

Principal Commissioner (GST)