Time of Supply for Service Supplied under HAM Contract Would Be the Date of Issuance of Invoice or Receipt of Payment of Annuity, Whichever is Earlier

By: Admin
October 12, 2024
Categories: Important Pronouncements
4 Min Read

The Hon’ble Madras High Court, in the case of KNR Srirangam Infra (P) Ltd. v. Sales Tax Officer, Trichy [W.P.(MD) No. 14745 of 2023 dated July 24, 2024], set aside an Impugned Assessment Order and remitted the matter for reconsideration. The Court held that the tax liability under the Hybrid Annuity Model (HAM) contract would arise at the time of issuance of invoice or receipt of payment, whichever is earlier. This decision follows the observations made in Circular No. 221/15/2024-GST dated June 26, 2024.

Case Background

The petitioner, KNR Srirangam Infra (P) Ltd., provided services to the National Highway Authority of India (NHAI), where payment is divided into two parts:

  1. 40% of the payment during the execution of the work, and
  2. 60% of the payment received annually over the next 14 years.

The Revenue Department contended that since the work had been substantially completed, the petitioner was liable to pay tax on the entire project value. However, the petitioner argued that the time of supply should align with the Circular No. 221/15/2024-GST, issued after the 53rd GST Council Meeting.

Circular Clarification

The circular clarified that under a HAM contract, the tax liability would arise at the time of invoice issuance or receipt of payments, whichever is earlier. If no invoice is issued by the specified date, the liability would arise at the service provision date or the payment receipt date, whichever comes first.

Court’s Findings

The Hon’ble Madras High Court held that:

  1. The petitioner is not liable to pay tax unless an invoice is issued or payment is received. The tax obligation arises when the petitioner receives payment in the form of 30 annuities or issues an invoice.
  2. The petitioner is entitled to Input Tax Credit (ITC) even if the work was sub-contracted and completed in advance.
  3. The Impugned Order was set aside, and the matter was remitted for reconsideration based on the circular’s observations.

Our Comments:

A similar decision was given by the Hon’ble Andhra Pradesh High Court in the case of M/s. Apco Arasavalli Expressway Private Limited v. Assistant Commissioner (ST), where the matter was remitted for reconsideration in light of the circular’s clarification on the time of supply for HAM contracts.

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