Vinay Kumar G, Assistant VP & Sector Head, Corporate Ratings, ICRA, said "The concessionaires can use the accumulated input tax credit (ITC) during the construction period to set off the GST liability on annuity payments received during the operations period. Thus, the impact of GST liability on annuity was expected to be limited on the project return metrics with cash outflow towards GST liability being restricted to the last three-year period of operations. However, as per the latest circular issued by NHAI on September 01, 2021, NHAI would be reimbursing the net impact of additional GST on annuity (adjusted for ITC) to the concessionaire under change in law for projects bid on or before June 30, 2017 and between October 14, 2017 and June 16, 2021. With NHAI reimbursing additional tax burden on account of GST levy on annuity payments for BOT HAM projects, there would be no impact on the cashflows, project debt coverage and return metrics of the concessionaire. For projects bid between July 01, 2017 and October 13, 2017 (HAM projects with approved total project cost of Rs. 4329.9 crore were awarded during the said period), NHAI would not reimburse the GST on annuity under change in law as bids were invited inclusive of GST."
During the construction period the company would be paying GST at 12% on the EPC cost of Rs. 900 crore (~Rs. 96.4 crore) while it would be liable to pay GST at 12% on the receipt of grant from the authority of Rs. 400 crore (Rs. 42.9 crore). The accumulated ITC of Rs. 53.6 crore by the end of the construction period can be utilised towards future GST liabilities on O&M and annuity payments received during the operations period of 15 years.
During the operations period, the company would be paying GST on O&M expenses whereas it would be liable to pay GST on annuity and O&M receipts. The accumulated ITC would be utilised by the year 12, resulting in a cash outflow during Year-13, Year-14 and Year-15. Given that majority of the debt repayments happen by year 14, the impact on debt coverage metrics would be minimal. With the latest policy circular, the net impact of additional GST on annuity (adjusted for ITC) would be reimbursed by NHAI under change in law resulting in no impact for the BOT-HAM concessionaires. NHAI would make proportionate payment of the same after adjusting for ITC during the operations period along with the annuity payments.
Under the above assumptions, the net cash outflow towards GST would be Rs. 12.9 crore during the operations period (years 13 to 15). The project IRR would reduce by 10 basis points. In a case wherein concessionaire bid low O&M price, the impact on the project metrics is expected to be even lower given the lower GST liability due to lower O&M bid. NHAI would be reimbursing the net impact on cash outflow of Rs. 12.9 crore under change in law, resulting in no impact on the cash flows and project metrics of the concessionaire. "As NHAI would be reimbursing the BOT-HAM concessionaires the additional cash outflow arising out of GST liability on the annuity payments (adjusted for input tax credit available) under change in law, the estimated cash outflow of NHAI would be between ~Rs. 2300- Rs. 2600 crore over a period of 15 years," Vinay added.
