The goods and services tax (GST) council is likely to exempt contractors collecting toll on some of the National Highways Authority of India’s roads, ending ambiguity over the tax treatment of such transactions, a government source has said.
The issue of toll-operate-transfer (TOT) roads is expected to be taken up in the next council meeting, where a clarification may be issued saying that such contracts not be treated as a taxable service, the source said.
“NHAI gives the right for toll-operate-transfer, which was being interpreted as a taxable service. Companies were required to pay tax on a reverse charge basis. The council is likely to discuss this and clarify that it should not be termed as a supply because it is in lieu of toll collection. So, a clarification may be given that will make it exempt,” the source said.
Reverse charge means the liability to pay tax is on the recipient, in this case private companies, of the supply of goods or services instead of the supplier.
The GST framework treats the granting of toll collection rights under TOT contracts as a service akin to leasing or licensing. These contracts attract 18 percent GST, payable under the reverse charge mechanism.
Companies in TOT are required to pay GST, even though they are merely stepping into the role of the toll collector, an activity exempt from the tax.
The fitment committee, a technical advisory body under the GST council, has recommended exempting these contracts from the levy. It argued that the classification of TOT contracts as a taxable service may have been a misinterpretation of the law, since toll collection is not an independent supply by NHAI but a transfer of rights.
In a TOT model, NHAI grants private companies the right to operate and collect toll from completed highway stretches for a fixed term in exchange for a lump-sum payment. These contracts are a part of the government’s asset monetisation programme aimed at recycling capital into new infrastructure.
If approved by the council, the move would benefit several road developers such as Adani Enterprises, IRB Infrastructure Developers, Reliance Infrastructure and Welspun Enterprises, which have participated in the TOT floated by NHAI in recent years.
The GST council is likely to meet after the monsoon session, which ends August 21.
