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• The Rajasthan High Court has ruled that toll collection rights granted by NHAI to concessionaires are taxable under GST when provided as consideration for highway construction services.
• The judgment arose from a dispute involving CG Tollway Limited, which developed a section of NH-8 under a DBFOT concession model.
• The court clarified that while toll paid by road users remains GST-exempt, the right to collect toll granted in return for construction work does not qualify for the same exemption.
• The ruling upheld a GST demand exceeding INR 16 crore against the concessionaire.
• The decision could have significant implications for road developers and infrastructure companies operating under BOT and concession-based highway projects.
The Rajasthan High Court has held that toll collection rights granted by the National Highways Authority of India (NHAI) to a concessionaire under a highway development agreement are subject to Goods and Services Tax (GST), as they form consideration for construction services provided by the developer.
The ruling came in a case involving CG Tollway Limited, which was awarded the project for six-laning the Kishangarh-Udaipur-Ahmedabad stretch of National Highway-8 under a Design, Build, Finance, Operate and Transfer (DBFOT) model. Under the concession agreement signed with NHAI, the company was responsible for developing, operating and maintaining the highway and, in return, received the right to collect toll from users for a specified period.
The company challenged the GST demand by arguing that toll collection is exempt from GST under existing tax notifications. It contended that since the revenue was generated through toll collection, the transaction should fall within the scope of exempt services relating to access to a road or bridge on payment of toll.
The High Court, however, drew a distinction between toll paid by road users and toll collection rights granted by NHAI to a concessionaire. The bench observed that the exemption available under GST law applies to the service of allowing access to roads or bridges upon payment of toll. The present dispute, according to the court, concerned the consideration received by the concessionaire for construction and development of the highway.
The court noted that under the concession framework, NHAI did not make a direct monetary payment to the developer for constructing the road. Instead, it granted the concessionaire the right to recover its investment and earn returns through toll collection. Therefore, the toll collection right constituted non-monetary consideration received in exchange for construction services rendered to NHAI.
According to the judgment, the concession agreement clearly established a service provider-service recipient relationship between the developer and NHAI. Since the developer undertook construction and related obligations for NHAI, the value of the toll collection rights formed part of the taxable consideration for the works contract service supplied under the agreement.
The bench further observed that the GST exemption applicable to toll collection cannot automatically be extended to the underlying transaction through which the toll collection right was granted. The court held that the exemption protects the service provided to road users, but does not exempt the consideration received by a developer from NHAI in return for executing a highway project.
The court also rejected the concessionaire’s argument that portions of the construction work had been subcontracted and therefore tax liability should not rest entirely with the company. It held that the primary contractual responsibility under the concession agreement remained with the concessionaire, making it liable for the tax implications arising from the arrangement.
As a result, the High Court upheld the GST demand of more than INR 16 crore raised against the company. The ruling provides further judicial clarity on the tax treatment of infrastructure projects executed through concession-based models, where developers are compensated through future toll revenue instead of direct payments.
The judgment is particularly relevant for companies involved in Build-Operate-Transfer (BOT), DBFOT and similar public-private partnership projects. Over the years, taxation of toll roads and concession agreements has been the subject of multiple disputes, with developers seeking clarity on whether toll-linked revenue mechanisms fall within GST exemptions.
Industry observers believe the ruling could influence the GST treatment of similar highway projects across India, especially where toll collection rights are granted as consideration for construction and infrastructure development services provided to government agencies and public authorities.
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