GST @12% leviable on contract w.r.t. construction of new railway sidings

The AAR, West Bengal in the matter of Triveni Engicons Private Limited [Order No. 14/WBAAR/2022-23 dated December 22, 2022] has ruled that the construction work carried out by the assessee of new private sidings pertains to the railways and GST @12% will be applicable on contracts for such construction,until the omission of Sl. No. 3(v)(a) of the Notification No. 11/2017 – Central Tax Rate dated June 28, 2017 ("the Services Rate Notification") w.e.f. July 18, 2022.

Facts

Triveni Engicons Private Limited ("the Applicant") is a private incorporation engaged in the execution of works contract services. The applicant was awarded a contract by M/s Rites Limited, a Public Sector Undertaking under the Ministry of Railways on behalf of the Eastern Coalfields Limited ("ECL") dated March 29, 2021. The Applicant’s work included construction of new railway sidings at Jhanjha area of ECL.

The Applicant contended that the aforementioned work may be considered as composite supply of works contract as defined in Section 2(119) of the Central Goods and Services Tax Act, 2017 ("the CGST Act") which is supplied by way of construction of original works pertaining to railways and therefore would be taxable at 12% GST as per SI. 3(v)(a) of the Services Rate Notification. Further, it was contended that work executed by the Applicant falls under the definition of original worksas mentioned in clause 2(zs) of Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017 ("the Services Exemption Notification").

The Revenue contended that the work was related to the construction of a private railway siding and hence it was commercial in nature. The railway siding was constructed for carriage of goods of private parties and not for public carriage, so it was not "pertaining" to railways. The construction of rail infrastructure facilities other than railways fall under serial no. 3(xii) of the Services Rate Notification and hence the GST at 18% will be applicable.

Issues

• Whether the supply made by the Applicant would attract GST @12% or 18% under the Services Rate Notification?
• Whether the work awarded can be covered under the definition of Works Contract as defined under Section 2(119) of the CGST Act?
• Whether the rate of tax for the construction of rail infrastructure facilities will be under Sl. No. 3(v)(a) or Sl. No.3(xii) of the Services Rate Notification?
• Whether the said work can be considered as works contract pertaining to railways?

Held

The AAR, West Bengal in Order No. 14/WBAAR/2022-23 held as under:

• Noted that, the SI. No. 3(v)(a) of the Services Rate Notification has been omitted w.e.f. July 18, 2022 vide Notification No. 03/2022- Central Tax (Rate) dated July 13, 2022 ("Notification No. 03").
• Opined that, the work was in relation to an immovable property and also involved the transfer of property in goods. Hence, it qualified to be a ‘works contract’ as defined in Section 2(119) of the CGST Act.
• Stated that, the construction work was in connection to new railway sidings, hence, the work will be considered as ‘original works’ as defined in clause 2 (zs) of the Services Exemption Notification.
• Opined that,the construction work carried out by the Applicant of new private sidings pertains to the railways.
• Held that, according to the definition of a works contract in Section 2(119) of the CGST Act, the contract for the construction of a new railway siding would be taxable at 12% vide Sl. No. 3(v)(a) of the Services Rate Notification until the omission w.e.f. July 18, 2022.

Relevant Provisions

Section 2(119) of the CGST Act

"(119) "works contract" means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract;"
Clause 2 (zs) of the Services Exemption Notification:

"(zs) "original works" means- all new constructions;

(i) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;
(ii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;"