Works Contract For Track Doubling & Infrastructure Under RVNL Is Liable To 12% GST: Madras High Court

Justice Mohammed Shaffiq stated that “it may be relevant to keep in mind that 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.”

In this case, the assessee/petitioner is a joint venture of M/s. Stroytech Service LLC, Russia and KEC International Limited formed for executing various railway projects in India.

The assessee was assigned a works contract by Tvl. Rail Vikas Nigam Limited ('RVNL') for the doubling of track between Vanchi Maniyachchi to Nagercoil and infrastructure works in Madurai and Thiruvananthapuram Divisions of Southern Railway.

The assessee paid GST at the rate of 12%, on the above contract. The assessee was served with an intimation in Form GST DRC-01A. The said notice proceeds on the premise that the subject contract between the assessee and RVNL is liable to tax at 18%.

The assessee submitted that the scope of the assessee's services would clearly fall within the scope of Sl.No.3(v)(a) of Notification No.11/2017, thus the levy of the higher rate of tax at 18% is arbitrary.

What is Notification No.11/2017?

Under Notification 11 of 2017 CGST (RATE)dated 28.06.2017 as amended vide Notification No.20/2017 dated 22.08.2017 and Notification No.8 of 2017 Integrated Tax (Rate) dated 28.06.2017 and G.O.Ms.No. 94 dated 22.8.2017 CT & Rea, composite supply of original works as defined in clause (119) to Section 2 of the CGST Act, other than that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if), by way of construction, erection, commissioning or installation, pertaining to railways, including monorail and metro is liable to be taxed at 12%.

The department submitted that exemption notification must be strictly construed and reiterated that the assessee was not entitled for the concessional rate of tax as RVNL does not function under the direct control of Railways.

The bench stated that “…….the expression “Railway” employed in the notification does not incorporate the definition under Indian Railway Act nor is it with reference to or limited in its operation to Indian Railway. In any view, assuming that the definition of “Railways” as defined under the Indian Railways Act, 1989 does apply to the subject notification, the definition of Railway under IRA extracted above does not appear to limit its operation to any particular entity or in particular Indian Railways instead covers the entire industry / utility viz., Railway…….”

Thus, any attempt to suggest that the expression “railway” employed in the subject notification would only cover “Indian Railways” would fall foul of the settled principle that exemptions cannot be curtailed by artificially narrowing down the width of the exemption or by importing conditions, added the bench.

The bench opined that in any view, even applying the definition of Railway as defined under the Indian Railway Act, 1989, to the contract between the assessee and M/s. RVNL it would still constitute original work pertaining to Railway for the purpose of the subject notification and thus covered under Sl.No.3(v)(a) of the said notification.

In view of the above, the bench allowed the petition.

Case Title: STS-KEC(JV) v. The State Tax Officer

Citation: 2025 LiveLaw (Mad) 130

Case Number: W.P.(MD). Nos. 3938 to 3942 of 2024

Counsel for Petitioner/ Assessee: Abishek A. Rastogi

Counsel for Respondent/ Department: R. Sureshkumar

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