Introduction
The Central Board of Indirect Taxes and Customs (CBIC) has issued Circular No. 221/15/2024-GST, dated 26th June 2024. This circular aims to clarify the time of supply concerning the supply of services for the construction and maintenance of National Highway Projects under the Hybrid Annuity Model (HAM) implemented by the National Highways Authority of India (NHAI).
Key Clarifications
Issue 1: Time of Supply under HAM Model
The primary concern is determining the time of supply for tax purposes under the HAM model. And where payment is split between construction costs and deferred payments (annuities) over several years.
- Single Contract Nature: A HAM contract that includes both the construction and maintenance (Operation & Maintenance or O&M) of highways. It cannot be divided into separate contracts based on the payment schedule. The concessionaire is responsible for both constructing and maintaining the highway over a specified period (usually 15-17 years).
- Continuous Supply of Services: Payments under the HAM contract linked to specific events or periods, qualifying it as a continuous supply of services as defined under Section 2(33) of the CGST Act.
Time of Supply Determination
- Invoice and Payment: The time of supply is the earlier of the invoice date or payment receipt date. For continuous services, issue the invoice by the payment due date or event completion per the contract.
- Failure to Issue Invoice : If the invoice is late. The time of supply is the service date or payment receipt, whichever is earlier. For continuous supply services. The date of service provision is deemed as the due date of payment as per the contract.
Tax Liability on Concessionaire
- Tax Liability: The concessionaire’s tax liability under a HAM contract, including both construction and O&M portions, arises at the earlier of the invoice issuance date or payment receipt date, if the invoice is timely issued. Otherwise, it arises on the service provision date or payment receipt date, whichever is earlier.
Inclusion of Interest Component
- Interest Component: NHAI must include the taxable interest in the annuity payments made to the contractor.
Action Required
- Publicity: Issue suitable trade notices to disseminate the circular’s contents, ensuring uniform understanding and implementation across all field formations.
- Addressing Difficulties: Any implementation difficulties should be reported to the Board for further clarification or resolution.
Conclusion
This clarification aims to provide a uniform approach to determining the time of supply for services under the HAM model, ensuring consistency in tax treatment across various field formations. It highlights the importance of timely invoice issuance and includes provisions for the taxability of interest components in annuity payments.
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