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Mr. Vivek Chaturvedi, IRS
The Chairman
Central Board of Indirect Taxes & Customs (CBIC)
Kartavya Bhavan-I
New Delhi – 110 001
Respected Sir,
Greetings from Bombay Chamber of Commerce & Industry!
We are writing to bring to your immediate attention to an emerging issue concerning the GST treatment of metro fare and toll revenue earned by concessionaires under Design-Build-Finance-Operate-Transfer (DBFOT) Metro Rail and Build -Operate-Transfer (BOT) (Toll) concession agreements.
The representation has been prompted by ongoing GST disputes on metro fare and toll revenue earned by concessionaires. While the GST law specifically provides exemption for passenger transportation by metro and for access to roads/bridges on payment of toll, GST authorities in certain proceedings have taken a view that the right to collect fare/toll under a concession agreement constitutes consideration for construction or works contract services supplied by the concessionaire to the project authority.
At the same time, inconsistent positions are being adopted across different proceedings. In some cases, fare or toll revenue has been regarded as revenue from exempt outward supplies for the purpose of input tax credit reversal, whereas in other cases the same revenue has been sought to be treated as taxable consideration for construction or works contract services. Such divergent interpretations have created significant uncertainty for concessionaires and the broader public-private partnership (PPP) infrastructure sector.
It is respectfully submitted that the grant of a contractual right to collect fare or toll is merely a mechanism enabling the concessionaire to recover its investment and earn a return over the concession period. By itself, such a right does not constitute consideration flowing from the project authority for any construction or works contract service. Further, the concessionaire already bears applicable GST on construction and other project-related procurements during the execution phase of the project. Accordingly, where no consideration is payable by the project authority, the notional valuation provisions ought not to be invoked to deem user-based fare or toll collections as consideration for construction services. Such an approach would effectively result in an additional GST burden in relation to the same underlying project and would be inconsistent with the commercial structure of concession-based infrastructure arrangements.
In light of the above, we would be grateful if the Central Board of Indirect Taxes and Customs (CBIC) could consider issuing an appropriate clarification to provide certainty and ensure uniform implementation of the law, specifically confirming that:
- metro fare/toll revenue collected from users under DBFOT/BOT arrangements is treated in accordance with the applicable exemption provisions;
- the right to collect fare/toll is not treated as consideration for construction or works contract services supplied to the project authority;
- notional valuation provisions are not applied where no consideration is payable by the project authority; and
- a uniform approach is followed across field formations to avoid divergent treatment of similar concession arrangements.
- Pending investigations and proceedings on this issue be kept in abeyance until a comprehensive policy position is finalized.
A detailed note elaborating upon the above issues and the legal basis supporting the requested clarification is enclosed herewith for your kind consideration.
We would be grateful for an opportunity to meet and discuss this matter and to receive any guidance that CBIC may consider appropriate. Given the critical implications of this issue for ongoing and future infrastructure projects, an early clarification would provide much-needed certainty, preserve the integrity of existing project financial models, and promote continued private sector participation in infrastructure development.
We look forward to your kind consideration of this representation.
