Works Contract with RVNL for Doubling Railway Track and Allied Construction Attracts GST @ 12%: Madras HC [Read Order]

The Madras High Court recently held that works contract awarded by Rail Vikas Nigam Limited (RVNL) to a developer for the purposes of railway infrastructure development is liable to Goods and Services Tax (GST) at the concessional rate of 12%, and not 18%.

The Petitioner, STS-KEC(JV) is a joint venture of M/s.Stroytechservice LLC, Russia and KEC International Limited, formed for executing various railway projects in India.

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The petitioner had been awarded a contract valued at ₹712.48 crores by RVNL for doubling the railway track between Vanchi Maniyachchi and Nagercoil, as well as for carrying out construction of roadbeds, minor bridges, platforms, buildings, water and effluent treatment facilities, wagon and coaching maintenance infrastructure, supply of ballast, installation of tracks and other electrical, signalling and telecommunication infrastructure in the Madurai and Thiruvananthapuram Divisions of the Southern Railway.

Considering the objectives of the contract to be a composite supply of original works pertaining to railways, under Sl. No. 3(v)(a) of Notification No. 11/2017-CGST (Rate), the Petitioner used to discharge GST at a rate of 12%.

However, the Revenue issued an intimation under Form GST DRC-01A dated 21.12.2022, contending that the works executed were liable to GST at 18%, asserting that RVNL, being a Public Sector Undertaking (PSU) is not under the direct control of the Ministry of Railways and hence not entitled to the concessional rate.

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The Petitioner maintained their stand, against which the Revenue passed the impugned orders rejecting the petitioner’s claim for concessional rate on the same grounds as had been made out before.

STS-KEC(JV), represented by Abishek A.Rastogi disputed the proposed levy, terming it arbitrary and in contravention to precedential law.

Meanwhile, R.Sureshkumar and V.Malaiyendran appearing for the Respondents reiterated their statements while also stating that RVNL is a public sector undertaking listed on the stock exchange and that it undertakes corporate social responsibility initiatives.

The single-judge Bench of Justice Mohammed Shaffiq observed that the term “Railway” in the related notification does not incorporate the same definition as under the Indian Railway Act, 1989. In light of such observation, the Bench emphasized that in the absence of a specific definition, the term should be understood in its common parlance and not be artificially restricted.

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Furthermore, the Madras High Court observed that the Revenue had relied upon the decision of the Gujarat Authority for Advance Ruling in M/s.SKG-JK-NMC Associates (JV) (2021), without noting that the decision had been overruled by the Appellate Authority for Advance Ruling.

In light of all the observations, the Bench proceeded to set aside the impugned orders while clarifying that the contract between the Petitioner and RVNL would be covered by the 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%.

To Read the full text of the Order CLICK HERE

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