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GST On Interest Received On Deferred Payment (Annuity Model): Maharashtra AAR Ruling in Shenva Infrastructure Case

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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