Introduction:

In a significant ruling, the Madras High Court addressed the applicability of the Goods and Services Tax (GST) rate on works contracts related to railway infrastructure projects undertaken by Rail Vikas Nigam Limited (RVNL). The case involved STS-KEC(JV), a joint venture between Stroytechservice LLC, Russia, and KEC International Limited, which was awarded a contract by RVNL for doubling the track between Vanchi Maniyachchi and Nagercoil, along with other infrastructure works in the Madurai and Thiruvananthapuram divisions of Southern Railway.

Arguments Presented:

Petitioner’s Arguments:

The petitioner contended that their services fell under Sl.No.3(v)(a) of Notification No.11/2017, which specifies a 12% GST rate for composite supplies of original works related to railways. They argued that the nature of their work—comprising construction, erection, commissioning, or installation pertaining to railways—qualified for this concessional rate. The petitioner emphasized that the GST classification should be based on the type of work performed rather than the identity of the recipient.

Respondent’s Arguments:

The tax department asserted that the concessional 12% GST rate was inapplicable because RVNL does not operate under the direct control of Indian Railways. They maintained that exemption notifications must be strictly construed and that the petitioner’s contract did not meet the criteria for the lower tax rate.

Court’s Judgment:

Justice Mohammed Shaffiq, presiding over the case, provided a comprehensive analysis of the issues at hand. The court observed that the term “railway” in the notification should not be narrowly interpreted to refer solely to Indian Railways. It stated that the definition under the Indian Railways Act, 1989, encompasses the entire railway industry and is not limited to a specific entity. Therefore, the works executed by the petitioner for RVNL qualify as original works pertaining to railways and are eligible for the 12% GST rate.

The court emphasized that while exemption notifications must be strictly construed, this does not justify imposing artificially restrictive interpretations that curtail their scope. Consequently, the court set aside the tax demand imposing an 18% GST rate and upheld the applicability of the 12% concessional rate for the petitioner’s works contract services related to railway infrastructure under RVNL.