Madras HC Upholds 12% GST for Railway Infrastructure Works
The Madras High Court has provided significant relief to contractors in railway infrastructure projects by affirming that the 12% concessional GST rate applies to contracts awarded by Rail Vikas Nigam Ltd (RVNL). This decision rejects the tax department’s demand for an 18% GST rate and provides much-needed clarity for contractors engaged in railway development projects.
Case Background
A dispute arose when the tax authorities issued GST demand orders against STS-KEC, a joint venture between Stroytechservice LLC (Russia) and KEC International, for railway projects executed between 2018-19 and 2022-23. The projects involved doubling railway tracks between Vanchi Maniyachchi and Nagercoil in Tamil Nadu, along with significant signalling and telecommunication infrastructure development in the Madurai and Thiruvananthapuram divisions of Southern Railway.
The tax department contended that contracts executed for RVNL should attract an 18% GST rate, arguing that the concessional 12% rate was only applicable when work was directly executed for Indian Railways.
Legal Basis: GST Notification & Court Ruling
The case was built around Notification No. 11/2017 – Central Tax (Rate), dated June 28, 2017, which prescribes a 12% GST rate for works contract services related to railway infrastructure, covering:
- Construction
- Erection
- Commissioning
- Installation of original works
The Madras High Court, in its ruling on January 28, 2025, set aside the tax demand and clarified that railway projects qualify for 12% GST regardless of whether they are executed for Indian Railways, RVNL, or other railway infrastructure agencies. The court emphasized that the GST rate should be determined based on the nature of the work, not the identity of the recipient.
Key Takeaways from the Judgment
- GST Rate Based on Work Type: The concessional 12% GST rate applies to all railway-related infrastructure contracts, irrespective of the contracting authority.
- Clarification on Notification Scope: The June 28, 2017 notification extends to all railway infrastructure works, not just those awarded directly by Indian Railways.
- Relief for Contractors: The ruling eliminates ambiguity and prevents unfair tax burdens on railway project contractors.
Expert Opinion
Abhishek A Rastogi, founder of Rastogi Chambers, who represented the taxpayer, stated:
“The most important factor in deciding the GST rate is the type of work being done, not who the client is. If the work relates to railways, it should qualify for 12%—whether the contract is with Indian Railways, RVNL, or another railway infrastructure entity.”
Implications for Contractors & Businesses
This ruling sets a strong legal precedent for businesses and contractors engaged in railway infrastructure projects. Here’s what it means:
- Business Owners: Companies involved in railway contracts can confidently apply the 12% GST rate, reducing uncertainty and financial risk.
- Tax Professionals & Consultants: This case serves as a reference point for GST classification disputes, ensuring proper compliance with government notifications.
- Freelancers & Small Contractors: Independent contractors working on railway projects for various agencies can now rely on this ruling to avoid excessive tax liabilities.
FAQs: Common Questions on GST for Railway Contracts
1. Does this ruling apply to all railway projects?
Yes, the court clarified that the 12% concessional GST rate applies to all railway infrastructure contracts, regardless of whether they are awarded by Indian Railways, RVNL, or other agencies.
2. What if a contractor was previously charged 18% GST?
Such contractors may now have a basis to appeal for a refund or reassessment based on this ruling.
3. What are the key legal references supporting this ruling?
The decision is based on Notification No. 11/2017 – Central Tax (Rate), dated June 28, 2017, which prescribes a 12% GST rate for railway infrastructure projects.
4. Can this ruling be challenged by the tax department?
While the tax department may appeal in higher courts, the ruling sets a strong precedent for similar cases across India.