{"id":386477,"date":"2026-06-08T11:00:48","date_gmt":"2026-06-08T05:30:48","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=386477"},"modified":"2026-06-08T10:45:19","modified_gmt":"2026-06-08T05:15:19","slug":"rajasthan-hc-upholds-gst-demand-against-concessionaire-sub-contracting-does-not-extinguish-tax-liability","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2026\/06\/08\/rajasthan-hc-upholds-gst-demand-against-concessionaire-sub-contracting-does-not-extinguish-tax-liability\/","title":{"rendered":"Rajasthan HC Upholds GST Demand Against Concessionaire; Holds Sub-Contracting Does Not Extinguish Tax Liability"},"content":{"rendered":"
\n

Rajasthan HC:<\/span> In a writ petition filed against the order imposing tax liability under Central Goods and Services Tax Act, 2017<\/a> (CGST Act) and Rajasthan Goods and Services Tax Act, 2017<\/a> (RGST Act), with interest and penalty, on the petitioner, Division Bench of Sandeep Shah*<\/span> and Arun Monga, JJ.<\/span>, upheld the impugned orders holding that the concession agreement between the petitioner and National Highways Authority of India (NHAI) fell within the definition of “supply” under Section 7<\/a> CGST Act<\/a> and the arrangement fell within the definition of “works contract services” and was rightly treated as taxable as the right to collect toll was conferred on the petitioner in consideration of the construction services rendered by the petitioner on a design, build, finance, operate and transfer (DBFOT) basis. Moreover, allotting the work to sub-contractor will not extinguish the petitioner’s liability as he was collecting toll post-construction as consideration which amounted to annuity.<\/p>\n

Background<\/h3>\n

The NHAI entered into a concession agreement with the petitioner for construction of a section of NH-79 under which the petitioner was required to design, build, finance, operate and transfer the highway.<\/p>\n

The agreement was for construction, facilities, operation and maintenance of the highway along with the right to collect the toll, post commercial operation of the project, till validity of the concession agreement.<\/p>\n

Three years after the commercial operation date (COD), the petitioner was supposed to pay a premium in the form of an additional concession fee of ₹2,28,60,00,000 every year till 9 years of COD, which shall be increased by 3 per cent of the last premium every year. The petitioner gave road construction work to a sub-contractor but toll was to be collected by the petitioner.<\/p>\n

In an internal audit, it was found that the petitioner had unpaid tax liability of ₹16,36,20,418 which was to be paid along with interest. In response to the audit report, the petitioner filed a reply before Deputy Commissioner but it was not found to be satisfactory, hence, a show-cause notice was issued with direction to reply in time. Petitioner responded that there cannot be any tax liabilities as the work was sub-contracted and the GST was paid by the sub-contractor. The objection was raised that in similar cases authorities had dropped the audit proceedings, but it was not considered and after giving the opportunity of being heard, an order holding the petitioner liable for payment of GST with interest was passed under Section 73<\/a> RGST Act<\/a> and provisions of CGST Act.<\/p>\n

Thus, the petitioner filed an appeal under Section 107<\/a> RGST Act<\/a> which was dismissed holding the order valid and in accordance with law.<\/p>\n

Against the same, this petition was filed.<\/p>\n

Issues<\/h3>\n
    \n
  1. \n

    Whether the construction undertaken by the assessee would fall within the definition of “supply” or “services”?<\/p>\n<\/li>\n

  2. \n

    Whether the sub-contractor or the principal contractor would be liable for the payment of taxable liability of the principal contractor?<\/p>\n<\/li>\n<\/ol>\n

    Analysis<\/h3>\n

    Analysing various provisions of CGST Act and Rules, the Court observed that “consideration” includes any payment made or to be made, whether in money or otherwise, in respect of the supply of goods or services or both. “Works contract” means a contract for building, construction, erection, repair, maintenance, etc. of any immovable property and in the execution of such contract, even if the consideration is not in money, and payment is made or to be made in future, the same is included within the definition of “consideration”. At the same time, for a contract to qualify as a works contract, the handing over of any immovable property in execution of such contract for construction, maintenance, etc. is a necessary indice.<\/p>\n

    The Court further observed that “supply” includes all forms of supply of goods or services or both, including sale, transfer, barter, exchange, licence, lease, rental, etc. made or agreed to be made for a consideration. And composite supply includes works contract as defined in Section 2(119)<\/a> CGST Act<\/a>, as part of the supply of services.<\/p>\n

    The Court noted that Section 9<\/a> CGST Act<\/a> is for levy and collection of tax and Section 15<\/a> CGST Act<\/a> is for calculation of the value of taxable supply. The Court emphasised that the value of supply of goods and services shall be the transaction value, i.e., the price actually paid or payable for the said supply of goods or services or both. Section 15(2)<\/a> RGST Act<\/a> states what shall be included in the value of supply. In cases where consideration is not wholly in money, to determine the value of supply, Rule 27 specifies how the value is to be calculated, and Rule 28 deals with calculation of supply of goods or services between distinct or related persons other than through an agent, while emphasising that the same is to be calculated on the basis of the open market value of the supply, and in case of non-availability of the same, other yardsticks have been fixed.<\/p>\n

    In order to determine the interest, rights, liabilities of the parties and nature of the transaction, the Court analysed the concession agreement, which referred to the patch of national highway being handed over to the petitioner on DBFOT basis. Several clauses of the agreement were referred to, to understand the scope of the project, what concession has been granted, concessionaire’s right to access the site, concession fee to be charged by NHAI, etc. which made it clear that the concessionaire was not only required to build, operate and maintain the road but was also obligated to pay the premium to NHAI.<\/p>\n

    It was the finding of the Court that there was no privity of contract between NHAI and the sub-contractor. NHAI had the absolute right of termination, control and supervision over the project and the contract was between petitioner, as concessionaire, and NHAI. Thus, there were 2 different contracts, one between NHAI and the petitioner and the other between petitioner and the sub-contractor.<\/p>\n

    The Court noted that the land was provided on leave and license, and premium was being paid by the petitioner to NHAI. The ingredients of “barter” were made out and the petitioner had certain rights like leave and license to construct and operate the road, collect toll tax. etc. for construction and maintenance of the road.<\/p>\n

    The Court stated that the petitioner supplied works contract services to NHAI and had the right to demand and collect fees from the users, licence of the site, and right of way. Moreover, the right to receive premium showed that consideration formed part of the agreement, so the agreement fell within the definition of “supply” under Section 7<\/a> CGST Act<\/a>. The right to collect the toll was conferred in consideration of the construction services rendered by the petitioner on a DBFOT basis. Moreover, promise to construct and maintain the road and a corresponding promise to permit the petitioner to collect toll, qualifies for “supply” and “consideration”, thus, the arrangement fell within the definition of “works contract services” and was rightly treated as taxable.<\/p>\n

    Regarding the work taken by the sub-contractor, the Court observed that the sub-contractor provided work contract services to the petitioner and allegedly deposited the due tax liability as the services rendered attracted tax liability and were distinct from contract between petitioner and NHAI. The petitioner, got the road constructed through the sub-contractor under a separate contract, handed it over to NHAI and had been collecting toll upon the same while paying the premium as per the concession agreement. Thus, both contracts are distinct and cannot be treated as overlapping. They are not part of the same transaction, and thus, no privity of contract between NHAI and the sub-contractor.<\/p>\n

    The Court analyzed the notification, relied upon by the petitioner regarding the exemption from applicability of GST to the collection of toll, and the clarification issued by the Ministry of Finance. It was the finding of the Court that where construction of roads was undertaken and the toll was being collected as a reciprocal arrangement under the agreement, there was no exemption because the collection of toll was essentially the consideration being received by the petitioner and amounted to annuity. Moreover, in case of any ambiguity, the same was to be interpreted in favor of the revenue\/state and not in favor of the assessee.<\/p>\n

    Therefore, the Court held that the ground of exemption raised by the petitioner regarding the toll collection under Entry 23-A of the notification, cannot be accepted in view of the clarification issued by the department and the fact that toll was being collected as a barter for the work contract undertaken by the petitioner and apart from toll collection, premium was being paid too as specified under the agreement. Since, exemption was only with regard to toll collection simpliciter and not for toll being collected for barter, therefore, the petitioner was found ineligible for exemption.<\/p>\n

    The petitioner also raised argument regarding the dropping of identical objections in Karnataka and Gujarat, which was rejected by the Court stating that even if identical objections were dropped, it makes no difference because the Court was called upon to adjudicate a pure question of law and simply because an office of the department had dropped identical objections, it did not preclude the Court from deciding the tax liability of the petitioner. Moreover, there can be no concept of negative equality, as sought to be invoked by the petitioner.<\/p>\n

    The Court nonetheless went on to address the argument in the interest of justice. It was the finding of the Court that the issue in the case of Karnataka was not same as present case. Further, the Court found that the issue, regarding the audit objection in Gujarat, was with regard to payment of VAT\/GVAT and whether the same was paid under the composition scheme or not, thus, the issue pertained to liability under the VAT Act and not under the GST. Therefore, the Court held that the provisions of both Acts operate differently, and because an audit objection was dropped in Gujarat, it cannot be made applicable to the present case.<\/p>\n

    Decision<\/h3>\n

    The Court held that the impugned orders were well reasoned orders as per the provisions of law and terms and conditions of the concession agreement. No illegalities were found in the impugned orders and thus, the Court upheld the impugned orders and dismissed the petition.<\/p>\n

    [CG Tollway Ltd.<\/span> v. Union of India<\/span>, 2026 SCC OnLine Raj 3476<\/a>, decided on 22-5-2026<\/span>]<\/p>\n

    *Judgment authored by: Justice Sandeep Shah<\/span><\/strong><\/p>\n\n

    Advocates who appeared in this case:<\/p>\n

    For Petitioner:<\/span> Bharat Raichandani, R.S. Chouhan, Jitendra Mohan Choudhary<\/p>\n

    For Respondents:<\/span> Mahaveer Bishnoi, Harshvardhan Singh<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

    “Where construction of roads was undertaken and the toll was being collected as a reciprocal arrangement under the agreement, there was no tax exemption because the collection of toll was essentially the consideration being received and amounted to annuity and in case of any ambiguity, the same was to be interpreted in favor of the revenue\/state and not in favor of the assessee.”<\/p>\n","protected":false},"author":67011,"featured_media":386480,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,10],"tags":[77052,106542,31242,106558,106559,106543,106544,42972,106560,40056,106553,106555,2649,64859,106561,67301,38818,36204,30237,58058,106545,2509,106556,106541,106548,106550,106546,106554,106547,106549,18281,48403,106552,31393,76705,106557,31231,106551],"class_list":["post-386477","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-highcourts","tag-annuity","tag-arun-monga","tag-assessee","tag-audit-proceedings","tag-barter","tag-central-goods-services-tax-act-2017","tag-central-goods-and-services-tax-rules-2017","tag-concession-agreement","tag-concessionaire","tag-consideration","tag-consideration-under-cgst","tag-construction-of-highway","tag-exemption","tag-goods-and-services-tax-gst","tag-identical-objections","tag-j","tag-national-highways-authority-of-india","tag-negative-equality","tag-premium","tag-privity-of-contract","tag-rajasthan-goods-services-tax-act-2017","tag-Rajasthan_High_Court","tag-right-to-collect-poll","tag-sandeep-shah","tag-section-107-rgst-act","tag-section-15-rgst-act","tag-section-2119-cgst-act-2017","tag-section-7-cgst-act-2017","tag-section-73-rgst-act-2017","tag-section-9-rgst-act","tag-show-cause-notice","tag-sub-contractor","tag-supply-under-cgst","tag-tax-liability","tag-toll-collection","tag-unpaid-tax-liability","tag-works-contract","tag-works-contract-services"],"yoast_head":"\nRaj 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