Summary of Time of Supply for Construction and Maintainance of NHAI Projects in HAM Model
Clarification has been issued for Time of Supply for constuction and Maintainance of NHAI Projects in HAM Model.The Government has received queries for when to apply GST on Road construction and Maintainance Project under HAM model. In this model some payment is received during construction , and rest is paid over many years. Hence the government has clarified that GST should be applied at time when the road cnstruction or Maintainance service is actually provoded, not when payment are received. This means GST will be applied as the work progressees, regardless of when payment is received .
Issue: Under HAM model of National Highways Authority of India (NHAI), the concessionaire has to construct the new road and provide Operation & Maintenance of the same which is generally over a period of 15- 17 years and the payment of the same is spread over the years.What is the time of supply for the purpose of payment of tax on the said service under the HAM model?
Clarification:
In HAM Model the Private company ( Concessionaire) and Government ( Through NHAI) work together. The Private company is responsible for Designing, Building , Operating and Maintaining the Highway for certain period.The Government pays the company in two ways:
- During Contruction
- After Construction
HAM is single contract which covers both the construction and Maintainance of Highway. The Payment structure is designed in way that the company building the highway is responsible for its maintainance.Even the payments are made in stage, the contract is considered a single unit. It can not be divided in to separate contracts for construction and maintainance. The Company is legally obligated to finish the construction and then maintain the highway for specific period.
The Government does not pay the entire amount to the construction comapany at once, instead the payments are made in installments over a long period, These installments are paid at specific times like when particular construction work is completed. This type of payment structure, where service are provided continuously over time is similar to the concept of continous supply of service. Hence the overall service of building and maintaining the highway is considered as continous process.
As per section 13(2) (a) of CGST Act, the time of supply in respect of a supply of services shall be the date of issue of Invoice, or date of receipt of payment, whichever is earlier, in cases where invoice is issued within the period prescribed under section 31 of CGST Act. Further, as per clause (b) of Section 13(2) of CGST Act, in cases where invoice is not issued within the period prescribed under section 31, the time of supply of service shall be date of provision of the service or date of receipt of payment, whichever is earlier.
However, as per section 31(5) of CGST Act, in cases of continuous supply of services, where the payment is made periodically, either due on a specified date or is linked to the completion of an event, the invoice is required to be issued on or before the specified date or the date of completion of that event.
Accordingly, as per section 13(2) of CGST Act, read with section 31(5) of CGST Act, time of supply of services under HAM contract, including construction and O&M portion, should be the date of issuance of such invoice, or date of receipt of payment, whichever is earlier, if the invoice is issued on or before the specified date or the date of completion of the event specified in the contract, as applicable.
However, in cases, where the invoice is not issued on or before the specified date or the date of completion of the event specified in the contract, as per clause (b) of section 13(2), time of supply should be the date of provision of the service, or date of receipt of payment, whichever is earlier. In case of continuous supply of services, the date of provision of service may be deemed as the due date of payment as per the contract, as the invoice is required to be issued on or before the due date of payment as per the provisions of Section 31(5) of CGST Act.
In simple, The tax liability for concessionaire under HAM Model arises based on the timing of invoices or payments. If the invoice is issued before the specified date or the completion of the event mentioned in the contract, the tax liability arises at the earlier of invoce issued or payment received.If the concessionaire does not issue the invoice by the specified date or the completion of event , the liability shifts and arise on the earlier of date of service provided or when the payment is actually received.
The installments or annuity payments made by NHAI to the concessionaire include an interest component.This Interest amount must also included in the taxable value when calculating the tax on these payments. This is because section 15(2)(b) of the CGST Act, any interest or financial charges related to the supply of services are required to be added to the taxable value. So when the concessionaire receives annuity or installment payments from NHAI, they need to pay tax not only on the principal amount but also interests portion included in those payments.
Download – Circular No 221/15/2024
