[Opinion] Whether Right to Collect Toll in a PPP Road Project is ‘Actionable Claim’ under GST

Vikas Chandra Guru – [2022] 140 taxmann.com 250 (Article)

(I) Introduction and Background

1. GST is a tax on supply of Goods or Services or both (except on supply of alcoholic liquor for human consumption). Section 7 defines the term “supply” and Sub section 2 to Section 7 provides that activities or transaction specified in Schedule – III shall be treated neither as supply of goods nor as supply of Service. Among the 8 instances in Schedule – III, one notable instance is “Actionable Claim”. The item No. 6 in Schedule – III read as ” Actionable Claim other than lottery, betting and gambling”. Thus all activities or transaction which involve actionable claim ( Except Lottery Betting and Gambling) are not taxable under GST as these are neither goods nor service which can attract GST. The article discusses whether the right to receive toll or annuity as a compensation to the road developers is “Actionable Claim”. The GST law is evolving. There are very less judicial precedents which can provide support to the proposition. A free and fair discussion, deliberations and dialogue is only the way we can comprehend the new law. This article is one such humble attempt to provoke the mental faculties of our learned readers. The interpretation of statues is matching the text with the context and this article is one such endeavor.

2. In respect of question as to what constitute “Actionable Claim” we have judgment of Supreme Court to guide us in our endeavor, rendered in Sunrise Associates v. Govt of NCT of Delhi [2006] 4 STT 105 (SC). In Sunrise judgment the matter was whether a Lottery ticket is a Goods or Actionable Claim. Hon Apex Court after consideration held that Lottery ticket is a chance or right to conditional benefit of winning prize of greater value than consideration paid for transfer of that chance. Transfer of right would thus be of beneficial interest in movable property not in possession and therefore right to participate in lottery is actionable claim.In the light of the same judgment, it appears that toll rights supplied in consideration of the obligation of construction and maintenance of road is transfer of “Actionable Claim”. The toll rights are also conditional benefits which is invisible and not in possession. The toll receivable in future is surrounded by uncertainty going forward and this risk is borne by Contractor/ Concessionaire. Similarly, in Hybrid Annuity (HAM) project the amount of annuity payable in say 10 Years becomes a debt and cease to be a creditor on part of Authority. This debt is further not secured by any mortgage or charge. Therefore, it stand to reason to examine the said aspect. In the light of a constitutional proposition that no tax can be levied or collected except by the authority of law [Article 265] this study becomes more prominent.

3. Toll and annuity, which is consideration to a Concessionaire are exempt [ Entry 23 and 23A to Exemption Notification No. 12/2017 ] but GST Council has examined issue of levy of GST on Annuity in 43rd Meeting Dated 17/06/2022. That exemption under 23 and 23A of the Notification covers heading 9967 (Supporting Services in Transport) i.e. access to a road or a bridge, whether the consideration in the form of a toll or annuity and not construction of road service falling under heading 9954. Thus the payment in future in the form of Annuity in a Hybrid Annuity Model (HAM) of road construction relatable to Construction is treated as taxable supply.

4. The insufficient infrastructure in the nation has given rise to PPP (Public Private Partnership ) initiatives by the Government. Traditionally, the Government used to build road by making payment to the Contractor selected by a bidding process. The emerging economic environment has brought sea change in government approach. Under PPP model i.e. BOT ( Toll), the toll rights are conferred, for a specified time, say 15 years, to the Concessionaire upon successful construction of the Road facility. Under the Hybrid Annuity Model ( HAM ) the Concessionaire gets 40% during construction period and 60 % of the value of work done is payable in future along with interest. In a BOT ( Toll ) model, the Concessionaire is entitled to collect toll for specified period and also obliged to carry out operation and maintenance during such period known as Concession Period. The risk of shooting up operation and maintenance expenses in future as well as risk or chance of getting or not getting toll is borne by Concessionaire. Thus essentially, the BOT (Toll ) is a model wherein recovery of amount spent by Contractor/ Concessionaire on making of the Road / regular maintenance is contingent upon toll revenue forthcoming. Such risk is not there in Hybrid Annuity Model (HAM) wherein amount spent is not contingent upon toll revenue. But under HAM Model, the amount becomes a unsecured debt on NHAI or other government authority.

(II) Provisions relevant to the issue under consideration

5. The relevant definitions under GST law and Transfer of Property Act which needs a contextual interpretation is re produced below,

a. Section 2(1) of CGST Act defines “actionable claim” shall have the same meaning as assigned to it in section 3 of the Transfer of Property Act, 1882;
b. Section 3 of The Transfer of Property Act, 1882 as “a Claim to any debt, other than a debt secured by mortgage of Immovable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent”.
c. Section 2 (52) of CGST ―goods means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract.
d. Sec.7 of CGST Act which defines ” Supply”

6. Scope of supply.— (1) For the purposes of this Act, the expression ―supply includes––

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business;[and]
(c) the activities specified in Schedule I, made or agreed to be made without a consideration; .

[(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.]
(2) Notwithstanding anything contained in sub-section (1),––

(a) activities or transactions specified in Schedule III; or
(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services

(III) Supreme Court Judgment in Sunrise on Ingredients of a Actionable Claim

7. Hon. Supreme Court in the Judgment of Sunrise Associates (supra) has held that lottery tickets are token of right to receive prize in future which is a conditional right and therefore lottery tickets are actionable claim. The matter reached because by an order dated 13th October, 1999 in Sunrise Associates v. Government of NCT of Delhi [2000]10 SCC 420, the decisions of Hon. Supreme Court in H. Anraj v. Government of Tamil 1986 taxmann.com 838 well as Vikas Sales Tax Corporation v. Commissioner of Commercial Taxes 1996 taxmann.com 1126 (in so far as it affirmed the decision in the H. Anraj) have been referred to a larger Bench for re-consideration. The issue in H. Anraj(supra) was whether sales tax can be levied by States on the sale of lottery tickets. A bench of two-Judges held that a lottery involved (i) the right to participate in the lottery draw, and (ii) the right to win the prize, depending on chance. The learned Judges were of the opinion that while” the second right was a chose in action and therefore not ‘goods’ for the purposes of the levy of Sales Tax, the first; was a transfer of a beneficial interest in moveable goods and was a sale within the meaning of Article 366(29-A)(d) of the Constitution and consequently subject to sales tax.

8. Before the Supreme Court, the appellants, who are dealers in the sale of lottery tickets, have submitted that H. Anraj (supra) wrongly drew a distinction between the right to participate in the draw and chance to win the prize. It was submitted that such bifurcation was artificial as both were part of the same transaction. It was submitted that even on the “two rights” theory each of those rights would be choses in action. As far as the decision in Vikas Sales Corporation (supra) is concerned, it was submitted that the additional reason given namely free transferability for holding that a particular thing was goods, was erroneous. It was pointed out that even actionable claims such as negotiable instruments and debentures may be freely transferable. As far as the DEPB is concerned, according to the appellants, it was in the nature of a notional credit which an exporter acquires on export by way of an entry in a passbook. This credit was utilizable by the importer to be adjusted against the import duty payable on goods imported. The credit was freely transferable but it could not be said to be goods only by that reason. At best it was an actionable claim.

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