The Madras High Court has clarified that the works contract for track doubling and infrastructure development under Rail Vikas Nigam Limited (RVNL) falls under the 12% Goods and Services Tax (GST) bracket. This ruling resolves a tax dispute where authorities attempted to impose an 18% GST rate on such contracts.
Justice Mohammed Shaffiq, delivering the judgment, stated:
“While exemption notifications must be strictly construed, it certainly 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 in an exemption notification.”
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Background of the Case
The petitioner in this case is a joint venture between M/s. Stroytech Service LLC, Russia, and KEC International Limited. The partnership was formed to execute railway infrastructure projects across India. Under an agreement, the petitioner was awarded a works contract by RVNL for:
- Doubling the railway track between Vanchi Maniyachchi and Nagercoil
- Infrastructure development in Madurai and Thiruvananthapuram Divisions of Southern Railway
Following the completion of these projects, the petitioner paid GST at the rate of 12%. However, the tax department issued a notice (Form GST DRC-01A), claiming that the contract should be taxed at 18% instead.
The petitioner argued that their services clearly fell under the scope of Sl. No. 3(v)(a) of Notification No. 11/2017, which specifies that composite supplies of original works, including those related to railways, are subject to a 12% GST rate. The imposition of a higher tax rate, they contended, was arbitrary and unjustified.
The relevant GST notifications governing the case include:
- Notification 11/2017 - CGST (Rate) dated 28.06.2017 (amended by Notification No. 20/2017)
- Notification 8/2017 - Integrated Tax (Rate) dated 28.06.2017
- G.O.Ms.No. 94 dated 22.08.2017
These notifications establish that composite supplies of original works related to railways are taxable at 12% GST, provided they do not fall under excluded categories.
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The tax department contended that:
- Exemption notifications must be strictly interpreted.
- RVNL does not function directly under the Indian Railways, and therefore, the concessional tax rate should not apply.
The bench rejected the department’s argument, stating:
“The expression ‘Railway’ employed in the notification does not incorporate the definition under the Indian Railways Act, nor is it limited to Indian Railways alone. Instead, it applies broadly to the railway sector as a whole.”
Further clarifying its stance, the court ruled that even if the definition of "Railway" under the Indian Railways Act, 1989, is applied, the contract between the petitioner and RVNL still qualifies as an original work related to railway infrastructure, making it eligible for the 12% GST rate under Sl. No. 3(v)(a) of Notification No. 11/2017.
In conclusion, the Madras High Court ruled in favor of the petitioner, allowing their claim for the 12% GST rate and dismissing the tax department’s attempt to impose an 18% tax rate.
“Exemptions cannot be curtailed by artificially narrowing down their scope or by importing additional conditions,” observed the court.
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Case Details
- Case Title: STS-KEC(JV) v. The State Tax Officer
- Case Number: W.P.(MD). Nos. 3938 to 3942 of 2024
- Petitioner’s Counsel: Abishek A. Rastogi
- Respondent’s Counsel: R. Sureshkumar
