Background:
Under the Toll-Operate-Transfer (TOT) model adopted by the National Highways Authority of India and other authorities for asset monetisation, a concessionaire pays an upfront concession fee to the concessioning authority and, in return, is granted the exclusive right to demand, collect and appropriate toll on a bundle of operational highways for a long concession period (typically 15 to 30 years), subject to the obligation to operate and maintain (O&M) the highways during that period. The toll collected is deposited in an Escrow Account maintained in accordance with the concession agreement, out of which the O&M expenditure is met.
Two GST issues arose. First, the grant of the right to collect toll against the upfront concession fee was treated as a taxable service under Heading 9973 at 18%; this has now been exempted vide S. No. 42A of Notification No. 12/2017-Central Tax (Rate), inserted by Notification No. 07/2026-Central Tax (Rate) (see Update 6). Second, the O&M services supplied by the concessionaire to the concessioning authority during the concession period are not separately paid for by the authority; the consideration for O&M is embedded in the concession arrangement, since the upfront fee quoted by the bidder is net of the expected O&M cost over the concession period. The Department sought to tax the O&M component at the outset on an estimated value, treating the arrangement as a barter, leading to disputes on the value of supply (Section 15 read with Rule 27 of the CGST Rules) and the time of supply (Section 13), with the entire liability for a multi-decade concession being demanded at the commencement of the concession.
The 57th GST Council recommended (para C2(12) of the Press Release) a special procedure regarding the valuation and time of payment of GST on O&M services provided by concessionaires to the concessioning authority for highway projects under the TOT model. The FAQs (Q. 22 to Q. 27 on services) explain that the special procedure under Section 148 applies to a registered person who is a concessionaire under a TOT concession agreement with the Central Government, State Government, Union territory, local authority, Governmental Authority or Government Entity, where the expenditure towards O&M is adjusted out of the upfront concession fee; that GST is to be paid in the tax period in which the O&M expenses are debited/charged from the Escrow Account; and that the value of the O&M service is linked to the actual expenditure so charged (for example, if ₹100 is incurred towards O&M and debited from the Escrow Account in a tax period, GST is to be discharged on ₹100 at the applicable rate).
What the Notification provides:
Now, the CBIC vide Notification No. 10/2026-Central Tax (Rate) dated 27.10.2026 (G.S.R. 948(E)), issued under Section 148 of the CGST Act, 2017 on the recommendations of the GST Council, has notified the following class of registered persons and the special procedure to be followed by them:
- Class of registered persons: “Concessionaire under a concession agreement, who supplies operation and maintenance services to the concessioning authority during the concession period”.
- Special procedure: Such registered persons “shall pay central tax on the supply of such operation and maintenance services on the amount charged or debited from the Escrow Account, maintained in accordance with the concession agreement, towards operation and maintenance expenses incurred by such registered persons, in a tax period in which such expenditure is so charged or debited”.
- “Concession Agreement” means an agreement entered into between a concessionaire and the concessioning authority under the Toll-Operate-Transfer model, whereby the concessionaire is granted the exclusive rights to demand, collect and appropriate toll in respect of a road or highway and is required to operate and maintain such road or highway during the concession period where the concessionaire is required to pay the concession fee upfront.
- “Concessioning authority” means the Central Government, State Government, Union territory, local authority, Governmental Authority or Government Entity which enters into the Concession Agreement.
| Aspect | Position for TOT concessionaires w.e.f. 01.11.2026 |
| Value of O&M services | The amount charged or debited from the Escrow Account towards O&M expenses actually incurred by the concessionaire. |
| Time of payment of tax | The tax period in which such expenditure is charged or debited from the Escrow Account, and not upfront at the commencement of the concession. |
| Rate of tax | The rate applicable to the O&M services under Notification No. 11/2017-Central Tax (Rate) (the Notification does not alter the rate). |
| Eligible persons | Only registered concessionaires under TOT concession agreements with the Central/State Government, UT, local authority, Governmental Authority or Government Entity, where the concession fee is paid upfront. |
Identical special procedures have been notified for integrated tax vide Notification No. 10/2026-Integrated Tax (Rate) dated 27.10.2026 (G.S.R. 949(E)) under Section 20 of the IGST Act read with Section 148 of the CGST Act, and for Union territory tax vide Notification No. 10/2026-Union Territory Tax (Rate) dated 27.10.2026 (G.S.R. 950(E)) under Section 21 of the UTGST Act read with Section 148 of the CGST Act.
Effective date:
The Notification comes into force with effect from 1st November, 2026. From that date, TOT concessionaires are to discharge GST on O&M services on the basis of the amounts charged or debited from the Escrow Account in each tax period. The Notification does not contain any provision for the period prior to 01.11.2026, and the treatment of past periods, including cases where demands have been raised on the estimated O&M value at the commencement of the concession, would need to be addressed on the basis of the general provisions or any clarification that may be issued.
Key takeaways for taxpayers and the industry:
- TOT concessionaires: The special procedure brings certainty on both the value and the timing of GST on O&M services, aligning the tax outgo with the actual O&M cash flows over the concession period instead of a lump-sum demand at the outset. Concessionaires should reconcile monthly Escrow Account debits towards O&M with their GSTR-1/GSTR-3B reporting, raise tax invoices on the concessioning authority for the O&M value so determined in each tax period, and maintain the escrow statements as the primary record for the value of supply.
- Scope limited to TOT: The procedure applies only where the concession fee is payable upfront and the agreement is with a Government or governmental body under the TOT model. Hybrid Annuity Model (HAM), BOT (Annuity) and EPC contracts, where O&M is separately priced and paid, as well as O&M contracts with private concessionaires, are outside this Notification and continue to be governed by the general provisions on value and time of supply (FAQ Q. 27).
- Interplay with the exemption under S. No. 42A: Read together, the upfront concession fee paid for the grant of the right to collect toll is exempt, toll collected from users is exempt (S. No. 23), and only the O&M service to the authority is taxed, on the escrow-based value. Concessionaires should re-examine their ITC position under Section 17(2), since a substantial part of their outward supplies (toll) is exempt, and the O&M-related inputs and input services (maintenance contracts, materials, equipment) are the principal source of eligible credit.
- Concessioning authorities: NHAI and other authorities, being registered recipients, will receive tax invoices for O&M services on a periodic basis; since the authority’s outward supply (grant of right to collect toll) is now exempt, the GST charged on O&M will generally be a cost to the authority, which may be factored into future TOT bid parameters.
- Bidders for upcoming TOT bundles: Financial models should be updated for the exemption on the concession fee and for GST on O&M being payable periodically on actual escrow debits, which materially improves the cash-flow profile of TOT projects.
Similar notifications have been passed under the Integrated Goods and Services Tax Act, 2017 (“the IGST Act”) and the Union Territory Goods and Services Tax Act, 2017 (“the UTGST Act”).
The Notification can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2026/10/N.-No.-10-2026-CT-UT-IG-Rate.pdf
