Background

India's infrastructure ambitions have long rested on the Build-Operate-Transfer (“BOT”) model, under which private concessionaires construct and operate national highways in exchange for the right to collect toll from road users over a fixed concession period. This structural arrangement, widely used by the National Highways Authority of India (“NHAI”) has remained a contentious issue under India’s goods and services tax (“GST”) regulatory regime; since regulatory uncertainty persisted as to whether toll collection rights of a concessionaire would constitute consideration for construction services rendered to the concessioning authority.

On May 22, 2026, a Division Bench of the Rajasthan High Court (“Court”) in CG Tollway Ltd versus Union of India, observed that a BOT concessionaire is liable to pay GST on the works contract services it renders to NHAI, and that the right to collect toll constitutes a taxable consideration.

Factual Matrix

The dispute arose from a concession agreement entered into between CG Tollway Limited (“CGT” or “Concessionaire”) and NHAI for the six-laning of stretch of a highway, on a Design, Build, Finance, Operate and Transfer (“DBFOT”) basis. Under the concession agreement, NHAI granted CGT an exclusive right to design, finance, construct, operate and maintain the project highway for a concession period of 45 (forty-five) years, together with leave and licence rights over the project land and the exclusive right to collect toll from road users.

During an internal audit conducted, the GST authorities concluded that the Concessionaire had not discharged its GST liability on the value attributable to the concession arrangement entered and existing between itself and NHAI. Following a show cause notice, the Deputy Commissioner, State Tax, Business Audit-I, Bhilwara, passed an order holding the Concessionaire liable for GST demand to the tune of Rs. 16.36 crore along with interest and a 10% penalty (“impugned order”).

The Concessionaire then challenged the aforesaid demand before the Appellate Authority, Commercial Tax Department, Ajmer, which upheld the impugned order. Aggrieved by the same, the Concessionaire approached the Rajasthan High Court by way of a writ petition.

Key Findings in the Judgment of the Court

  • The Court held that the Concessionaire’s BOT/DBFOT arrangement with NHAI was not a mere toll-exemption issue, but a taxable “works contract” arrangement where: construction, maintenance, licence of the site, right of way, and toll collection rights formed the overall “consideration” within the “scope of supply” of services to the concessioning authority under the provisions of the Central Goods and Services Tax, 2017.

  • It further held that the Concessionaire’s right to collect toll, together with the premium payable under the concession agreement, satisfied the essential ingredients of “barter” under the under the provisions of the Central Goods and Services Tax, 2017.

  • On the tax exemption argument referencing the Ministry of Finance’s Circular No. 150/06/2021-GST, the Court held that construction of roads falls exclusively under Heading 9954 and not Heading 9967. It distinguished Heading 9954 and Heading 9967, furnishing that Heading 9954 covers construction services relating to highways, roads, bridges and tunnels, which constitute consideration/annuity for taxable construction services; while Heading 9967 read with Entry 23 of GST Council’s Notification No. 12/2017-CT(R), covers supporting transport services (such as access to roads/bridges on payment of toll and operational highway services) which are tax exempt. To this effect, the Court also aligned itself with the Division Bench of the Telangana High Court in GMR Pochanpalli Expressways Limited v. Additional Director, DGGI and Ors, which had reached a similar conclusion on an identical BOT structure.

Industry Implications

This ruling shall pose significant ramifications for concessionaires, lenders, and other stakeholders involved in BOT public-private partnership ("PPP") infrastructure projects in the highways sector, given its intersection with: project bankability, tax treatment of toll collection and broader cost mechanics for developers participating in highway development bids in India.

The Court’s ruling introduces an additional tax layer by increasing the effective cost burden on concessionaires which shall affect weaken return expectations and reduce bid competitiveness. Further, there are concerns with respect to legacy BOT projects, the risk profile of which were structured based on a different understanding of GST implications.

It is also pertinent to note that while the Ministry of Road, Transport and Highways’ revised bidding norms now permit venture capital, pension funds and global sovereign wealth funds to bid for highway PPP projects in India, the Court’s interpretation could potentially dampen overseas investor appetite and constrain liquidity in the value chain.

Concluding Remarks

In CG Tollway Ltd versus Union of India, the Court’s verdict fundamentally alters the GST landscape for BOT highway projects by affirming that toll collection rights constitute non-monetary consideration for taxable works contract services, rather than an exempt toll operation.

While this calls for immediate regulatory clarification from the competent authorities, the ultimate impact of this ruling will depend on whether the Supreme Court (in case of an appeal scenario) affirms this interpretation balancing regulatory guardrails around infrastructure development and project bankability.