Madras High Court: 12% GST Applicable On RVNL Works Contract For Railway Infrastructure, Not 18%

In an Order interpreting the scope of GST exemption notifications, the Madras High Court has held that a works contract awarded by Rail Vikas Nigam Limited (RVNL) for railway infrastructure development is liable to 12% GST, not the higher rate of 18% as claimed by the tax authorities.

The Single Bench of Justice Mohammed Shaffiq allowed the petition filed by a joint venture between M/s. Stroytech Service LLC, Russia, and KEC International Limited.

"The impugned orders are set aside and the contract for doubling of track between Vanchi Maniyachchi to Nagercoil, construction of roadbed, minor bridges, platforms, buildings, water and effluent treatment facilities, wagon / coaching maintenance infrastructure, supply of ballast, installation of tracks and other electrical, signalling and telecommunication infrastructure in Madurai and Thiruvananthapuram Divisions of Southern Railway, between the petitioner and RVNL would be covered by Notification 11 of 2017 CGST (RATE) dated 28.06.2017 as amended vide Notification No. 20/2017 dated 22.08.2017, Notification No.8 of 2017 Integrated Tax (Rate) dated 28.06.2017 and G.O.Ms.No. 94 dated 22.8.2017 CT & RE and liable to tax at 12%," the Court held. 

Facts of the Case

The petitioner had been awarded a contract by RVNL for the doubling of the railway track between Vanchi Maniyachchi and Nagercoil, as well as for carrying out infrastructure works in the Madurai and Thiruvananthapuram Divisions of the Southern Railway.

The petitioner had discharged its GST liability at the concessional rate of 12%, applicable to composite supplies involving original works pertaining to railways, under Sl. No. 3(v)(a) of Notification No. 11/2017-CGST (Rate) dated 28.06.2017. However, the Revenue issued a notice under Form GST DRC-01A, asserting that the project was liable to 18% GST, on the ground that RVNL is not directly under the control of Indian Railways and hence not covered by the said exemption.

Challenging this demand, the assessee submitted that its services clearly fell within the ambit of Sl. No. 3(v)(a) of Notification No. 11/2017, which prescribes a 12% GST rate for original works related to railways, including monorail and metro systems. The assessee contended that the attempt to levy tax at 18% was arbitrary and not supported by law.

The Revenue, on the other hand, argued that exemption notifications must be strictly construed and contended that the petitioner was not entitled to the concessional rate since RVNL is a PSU and not functioning directly under the Ministry of Railways.

Court's Observations

Rejecting this narrow interpretation, the Court held that while exemption notifications must indeed be strictly construed, such strictness “would not mean that the scope of the exemption notification can be curtailed by importing conditions or giving an artificially restrictive meaning to the words.”

The Court further clarified that the term “railways” in the exemption notification was not defined with reference to the Indian Railways Act, 1989, and therefore should be understood in a broader sense. Even assuming the applicability of the Indian Railways Act, the Court held that the definition of “railway” under the Act is not confined to any particular entity, and covers the entire railway industry or utility, including projects executed by RVNL.

“It would fall foul of settled legal principles to suggest that the term ‘railway’ used in the notification should be limited only to ‘Indian Railways,’” the Court observed, adding that exemption notifications cannot be curtailed by importing artificial restrictions or external conditions.

Conclusively, the Court ruled that the contract between the assessee and RVNL for railway infrastructure development constitutes original work pertaining to railways, squarely falling within the scope of the exemption under Sl. No. 3(v)(a) of Notification No. 11/2017. The demand for GST at 18% was accordingly quashed, and the petition was allowed.

Cause Title: STS-KEC (JV) v. The State Tax Officer [W.P. (MD). Nos. 3938 to 3942 of 2024]

Appearance:-

Petitioner: Advocate Abishek A. Rastogi

Respondent: Additional Government Pleader R.Sureshkumar, Central Government Standing Counsel V. Malaiyendran

Click here to read/download the Order