2022 (5) TMI 1493 - AAR - GST

Railway infrastructure construction services may qualify for GST exemption if classified as Works Contract under Section 2(119)

In Re: M/s. Triveni Engicons Private Limited.

The AAR, Chhattisgarh ruled on GST classification for railway infrastructure construction services. The applicant sought exemption under Notification No. ... Classification of services - rate of tax - works contract - supply of goods or services or both pertaining to Railways based on order received from M/S. RITES Ltd. (on behalf of SECL) for construction of railway infrastructure facilities for the proposed feeder line of East West Rail Corridor within the leasehold boundary' of project for coal evacuation through Rail at Gevra Opencast of Gevera Area of SECL - applicability of Sl. No.3(xii) Notification No 11/2017-CT(Rate) dated 28/06/2017 - HELD THAT:- In the instant case under consideration, the applicant has submitted the copy of letter of acceptance dated 25.10.2021 issued by RITES LIMITED addressed to the applicant, for and behalf of SECL vide e-Tender No. 31 /OT/SECL-Gevra Cast/CiviI/ & P.Way /PKG-lI/21 dated 1.3.2021. Besides this from the submissions as put forth by the applicant it is seen from the said letter of acceptance issued on 25.10.2021 that RITES LIMITED for and on behalf of South Eastern Coalfields Limited, (SECL), Gevra has awarded to the applicant the work of 'Earthwork in formation, minor bridges, P. Way Linking work including supply of Track Ballast, PSC sleepers, P.Way Fittings, Points and Crossings, Drain, Road, FOB Geotechnical investigation etc. in connection with the proposed feeder line of East West Rail Corridor within the lease hold boundary of Project for coal evacuation through rail at Gevra Opencast of Gevra Area of SECL'. SAC 995421 covers 'General Construction services of highways, streets, roads, railways, airfield runways, bridges and tunnels' which by their very nature relates to work of civil engineering and there exists all plausible reasons to link the same to the aforementioned work awarded to the applicant by RITES LIMITED. Therefore, the instant supply of the applicant gets aptly covered under SAC 9954 in general and more specifically under 995421. Thus, the basic requirement for eligibility tö the said exemption as provided under S.no. 3(v) of Notification No. 1 1/2017 Central Tax (Rate) dated 28.06.2017 as amended, of getting covered under SAC 995421 stands fulfilled. Whether the instant supply is a Composite supply? - HELD THAT:- There exist all reasonable grounds to hold that natural bundle of supply of goods and services are present and are supplied in conjunction with each other in the ordinary course of business. The supply thereof is construed to be made when the entire supply is made. Thus, we come to the considered conclusion that the second criterion of ''composite supply' stands fulfilled in the case in hand. Works Contract, essential for availing the claimed exemption as provided under S.No. 3(v)(a) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended, vide Notification 01/2018 Central Tax (Rate) dated 25.01.2018 or not - HELD THAT:- In the present case under consideration, the letter of acceptance supra dated 25.10.2021 furnished by the applicant, issued by RITES to substantiate their claim of exemption supra only provides a peripheral aspect and indicates towards the outline description of the works and the activity to be undertaken by the applicant. The other aspects of the property as required for categorizing the same under the definition of 'Works Contract' is a prerequisite and can in no way be ignored with. Under GST, only those defined works carried out on any immovable property is covered under 'Works Contract' - without substantial evidence of the works contracted/undertaken like related diagrams /plans / schedules/ Pictures/ detailed write-up on the works, etc., it is practically impossible for this authority to conclude or for that matter to hold that the works as is forthcoming form the 'letter of acceptance', undertaken is 'Works Contract' per se, as per Section 2(119) of CGST Act, 2017. The benefit of the entry at Sl.no. 3(v)(a) would be eligible to M/S Triveni Engicons Private Limited Flat No.- 3, B-BIock, Mehta Bhawao, First Floor, Kalindi Kunj, Sarangarh Road, Raigarh, Chhattisgarh, 496001 [GSTlN-22AABCT4589RIZN], the applicant, subject to the fact that the works undertaken by them are 'Works Contract' as per Section 2(119) of the Act and if so the applicable GST would be @ 1 2% effective from 25.0.2018. Issues Involved:1. Rate of tax for the works contract related to Railways.2. Whether the work awarded can be covered under the definition of Works Contract as per Section 2(119) of the CGST Act, 2017.3. Applicability of Notification No. 11/2017-CT(Rate) dated 28/06/2017 for the construction of rail infrastructure facilities.4. Whether the work can be considered as pertaining to railways.Detailed Analysis:1. Rate of Tax for the Works Contract Related to Railways:The applicant sought clarity on the rate of tax applicable for the works contract involving the construction of railway infrastructure facilities. The applicable rate of tax for such works contracts is 12% (CGST @6% + SGST @6%) as per entry No. 3(v)(a) of Notification No. 11/2017-CT(Rate) dated 28/06/2017, amended by Notification No. 1/2018-Central Tax (Rate) dated 25th January 2018, provided the works undertaken satisfy the definition of 'Works Contract' as defined in Section 2(119) of the CGST Act, 2017.2. Definition of Works Contract:The term 'Works Contract' is defined under Section 2(119) of the CGST Act, 2017 as a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, or commissioning of any immovable property wherein the transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. The applicant's work involves a composite supply of goods and services naturally bundled and supplied in conjunction with each other, fulfilling the criteria of a 'Works Contract' for immovable property.3. Applicability of Notification No. 11/2017-CT(Rate):The eligibility for the reduced rate of 12% GST under entry No. 3(v)(a) requires that:- The service should be under Heading 9954 (Construction Service).- The supply should be a 'Composite Supply'.- The work should be a 'Works Contract' as defined in Section 2(119) of the CGST Act.- The work should be by way of construction, erection, commissioning, or installation of 'original works' pertaining to railways, including monorail and metro.The applicant's work, as described in the letter of acceptance, involves construction services for railways, including the supply of materials and execution of various construction activities, fitting the criteria under SAC 995421.4. Pertaining to Railways:The term 'railways' is defined in Section 2(31) of the Railways Act, 1989, and includes all lands, lines of rails, electric traction equipment, rolling stock, stations, and other works constructed for the purpose of or in connection with a railway. The applicant's work involves constructing a feeder line for the East West Rail Corridor within the leasehold boundary of SECL for coal evacuation, which pertains to railways. The courts have held that the phrase 'public carriage of passengers or goods' does not exclude works related to railways from the definition.Conclusion:The ruling confirms that the rate of tax for the works contract related to the proposed feeder line of the East West Rail Corridor is 12%, provided the works undertaken satisfy the definition of 'Works Contract' as per Section 2(119) of the CGST Act, 2017. The work awarded to the applicant is covered under the definition of Works Contract and pertains to railways, thus qualifying for the reduced rate of GST.