It has been always in dispute that the nature of services provided to railways would be eligible for exemption or not. Also, the service recipient to whom services have been provided would fall under the definition of 'Railway' or not. In the erstwhile regime, there was an exemption under Notification No. 25/2012 dated 20.06.2012 to the construction, erection & commissioning, or installation of original works provided to Railways. However, with respect to the interpretation of the term 'railway', there had been lot of litigation on whether the service recipient would be covered under 'Railway' or not. The exemption provided to 'Railway' would also cover the private railways or not. All these issues were later settled in the various decisions of the higher authorities, wherein it was held that the term 'Railway' will cover both, the private railway and the Government railway and contract entered with both for provision of construction services would be eligible for exemption. Though, in the GST regime, the exemption provided to construction services provided to 'Railway' was withdrawn, however, replacing the exemption a lower rate of tax, when compared to other construction services was granted. The applicability of lower rate of tax would depend very much on the nature of services provided and status of the recipient as 'Railway' in any sense.
An advance ruling was sought by one of our client from the Hon'ble Advance Ruling Authority, West Bengal, who was engaged in providing 'Consulting Engineering Services' and providing services related to engineering consultancy and monitoring agency to a large number of projects, both of the Government and Private Sectors, that what would be the rate of GST applicable to the construction of railway siding and will it fall under SI no. 3(v)(a) or SI No. 3(xiii) of the Notification 11/2017 – C.T. (Rate) dated 28.06.2017 and the corresponding notification under WBGST. On behalf of the Applicant, it was submitted by our team that Damodar Valley Corporation (DVC) has appointed the Applicant as Project Management Consultant for construction of railway infrastructure, including commissioning of railway system to handle coal and oil fuel traffic of Raghunathpur Thermal Power Station (RTPS). The scope of work includes awarding contracts on behalf of DVC for construction of railway infrastructure and the work includes construction of a private siding enabling carriage of coal and oil fuel to RTPS. The copy of agreement with DVC was provided and it was submitted that it is an agreement to undertake Engineering and Construction Management Service for construction of Railway Infrastructure including commissioning of the railway system and advanced procurement of railway section and P. way materials. The Construction Management includes procurement of Rails and PSC sleepers with fittings, points and crossings, tract fitting etc. Apart from track laying, the work includes the cost of all civil work, signalling and telecommunication, overhead electrification and allied electrical work. The contract with one of the contractors i.e., M/s Bridge & Roof Co. Ltd., a contractor employed for execution of the earthwork in railway formation, construction of minor and major bridges, p.way track linking work, to show the nature of work executed, was submitted.
The Hon'ble Advance Ruling Authority after considering the submissions made, found that the term "railways" is not defined in the GST Act however, it is defined under Section 2(31) of the Railways Act, 1989. The Railways Act, 1989, distinguishes between, but covers, Government Railway under Section 2(20) and Non-Government Railway under Section 2(25) of the Act. It, therefore, includes scope for railways under both Government and private administrations. The Scope of the work in the present case is fit to be called an 'original work' within the meaning ascribed to the term in para 2(zs) of Notification No. 12/2017-C.T. (Rate), dated 28-6-2017, and pertains to 'railways', provided it is meant for public carriage of passengers or goods. The Authority referring to the decisions relied upon by the Applicant found that the courts generally held that the phrase 'public carriage of passengers or goods' cannot be construed in such manner as to exclude from the ambit of 'railways' the sidings built and owned by organizations other than the government. It was found that DVC being an public sector undertaking - is the owner of the railway siding being built. It is meant for carriage of coal and oil fuel to RTPS. The purpose of the carriage of goods is, therefore, not recreation, but producing public goods like electricity. It is, therefore, not excluded under Section 2(31)(ii) of the Railways Act, 1989. Hence, the construction of the private siding that the Applicant refers to, therefore, pertains to 'railways', and is a composite supply of works contract taxable @ 12% under Serial No. 3(v)(a) of Notification No. 11/2017-C.T. (Rate), dated 28-6-2017.
Case details — A.A.R. in Re: Rites
Forum — AAR
Case No. — Advance Ruling No. 27/WBAAR/2018-19 dated 21.12.2018
Represented by — APRA & Associates LLP