Construction of Railway Siding for PSU Project Eligible for Service Tax Exemption: CESTAT Affirms Broad Scope of ‘Railways’ [Read Order]
The Tribunal’s interpretation of “railways” allowed the appellant to escape service tax liability on consultancy and works contract services linked to a PSU rail project.
The bench of the Customs, Excise and Service Tax Appellate Tribunal, Chandigarh ( CESTAT ), held that services used for constructing a railway siding for a public sector power utility qualify as exempt “railway” services under the Finance Act, 1994, thereby setting aside the service tax demand.
The appellant, M/s Rites Limited, had been appointed by Madhya Pradesh PowerGenerating Company Limited (MPPGCL), a Public Sector Undertaking (PSU), to provide consultancy services for project management relating to the construction of a broad-gauge railway siding. In order to execute this project, the appellant engaged M/s GVR-ENC as the contractor after obtaining the requisite approval from Indian Railways.
A show cause notice alleged that the appellant had received works contract services from M/s GVR-ENC for a project not meant for public use and was, therefore, liable to pay service tax under Section 65B(22) read with Section 66E(h) of the Finance Act, 1994. The adjudicating authority confirmed the demand, holding that the siding did not qualify as a railway for “public carriage of goods”. The Commissioner (Appeals) upheld the order, and the appellant approached the Tribunal challenging the levy.
The Appellant, represented by Mansi Khurana, submitted that the show cause notice itself acknowledged that Rites Limited was working on behalf of MPPGCL and that the project involved installation of a railway system. She argued that the issue was already settled in Konkan Railway Corporation Ltd. (2023), wherein it was held that a railway siding constructed for transport of coal to a thermal power plant qualifies as “railways” and is exempt under Entry 14A of Notification No. 25/2012.
The Revenue, represented by Anurag Kumar and Amita Gupta, submitted that as per Section 2(31) of the Railways Act, 1989, “Railway” means a railway intended for public carriage of passengers or goods. Since the siding constructed for MPPGCL was for captive use and not for the general public, the benefit of exemption under Notification No. 25/2012 could not be extended.
The Bench of S. S. Garg, Judicial Member and P. Anjani Kumar, Technical Member held that the railway siding constructed for the PSU clearly falls within the scope of the exemption under Entry 14A of Notification No. 25/2012. Relying on the decision in Konkan Railway Corporation Ltd. (supra), the Tribunal observed that the Finance Act, 1994 does not draw any distinction between public and private railways when granting exemption. The Tribunal noted that the definition from the Railways Act, 1989 cannot be imported into the Finance Act, 1994 for the purpose of limiting the exemption.
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The Tribunal emphasised that even otherwise, the siding was constructed for a PSU, and the term “public” includes use by government-owned corporations and authorities. The Revenue’s argument that the siding was not for public use was, therefore, rejected.
CESTAT ruled that the service tax demand was unsustainable since works contract services used for constructing the railway siding were squarely covered by the exemption.
Accordingly, the appeal was allowed.
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