GST On Interest Received On Deferred Payment (Annuity Model):
Maharashtra AAR Ruling in Shenva Infrastructure Case
Introduction: In
a ruling with wide ramifications for infrastructure companies operating under
the Hybrid Annuity Model (HAM), the Maharashtra Authority for Advance
Ruling (AAR) has held that interest received by concessionaires on deferred
payments under HAM agreements is liable to GST. The interest is
considered as part of the value of supply under Section 15(2)(d) of the
CGST Act, 2017.
The ruling was pronounced
in the case of M/s Shenva Infrastructure Pvt. Ltd., a road construction
contractor working on projects under HAM for the Maharashtra Public Works
Department.
Case
Summary
- Applicant:
M/s Shenva Infrastructure Pvt. Ltd.
- Application No.:
GST-ARA-53
- Order No.:
GST-ARA-53/2022-23/B-202
- Date of Ruling:
30.04.2025
Background
and Business Model
M/s Shenva Infrastructure
Pvt. Ltd. was awarded a road construction contract by the PWD, Government of
Maharashtra under the Hybrid Annuity Model. As per the terms:
- 60% of the project cost
is paid during the construction period in five equal installments upon
achieving specific physical progress milestones.
- The remaining 40%, referred to
as Completion Cost, is paid post construction over 10
years in 20 biannual installments.
- These deferred payments carry an interest
component, calculated at Bank Rate + 3%, payable along with
each annuity installment.
The applicant sought an
advance ruling on whether the interest component of these annuity
payments is subject to GST, and if so, what classification and rate
should apply.
Questions
Before AAR
1. Is
interest receivable on deferred payments in Equated Yearly Installments
under the annuity model liable to GST?
2. If
yes, what is the classification of the service and the applicable GST
rate?
Submissions
by Applicant
- The interest component arises due to deferred
payment of consideration, and hence it should form part of the transaction
value as per Section 15 of the CGST Act.
- The original supply was that of road
construction services, and interest should be taxed at the same
rate as applicable to the original supply.
Submissions
by Jurisdictional Officer
- Supported the applicant's view,
citing Section 15(2)(d) which explicitly includes “interest or late
fee or penalty for delayed payment of any consideration” in the taxable
value.
- Referred to CBIC Circular No.
221/15/2024-GST dated 26.06.2024, which specifically clarified the GST
liability on interest under HAM projects involving NHAI and road
authorities.
Key Legal
Provisions Considered
- Section 15(2)(d), CGST Act:
“The value of supply
shall include interest or late fee or penalty for delayed payment of any
consideration for any supply.”
- CBIC Circular No. 221/15/2024-GST
(Para 4):
“As the
instalments/annuity payable by NHAI to the concessionaire also include some
interest component, the amount of such interest shall also be includible in the
taxable value…”
AAR’s
Analysis and Findings
- The interest is clearly linked to
the deferred payment of 40% project value.
- This interest is not a separate
independent supply, but arises from delayed consideration.
- The wording of Section 15(2)(d) is unambiguous
in stating that interest on delayed payments forms part of the
value of supply.
- The CBIC Circular, though specific to
NHAI, is applicable in principle to similar annuity-based
infrastructure contracts under state PWDs.
AAR's Final
Ruling
Question
|
Ruling
|
Q1:
Is interest receivable on deferred annuity taxable?
|
Yes.
Interest is liable to GST under Section 15(2)(d).
|
Q2:
What is the classification and rate of GST?
|
The
same as the original supply – i.e., “Construction of Road” services
(SAC 9954), which is generally exempt or taxable at concessional rates
based on recipient and contract.
|
Conclusion
This ruling confirms that
interest received by concessionaires under the Hybrid Annuity Model
is not outside the scope of GST, and must be treated as part of the
taxable value of the original supply of services.
Key Takeaways:
- Interest on deferred consideration
under annuity models attracts GST.
- The applicable GST rate is the same
as that of the original service, typically road construction
under SAC 9954.
- This decision aligns with the CBIC
clarification and reinforces the taxability of annuity-linked interest
in infra concession contracts.
Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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