Railway siding construction work classified as works contract under GST Section 2(119) with original works tax treatment

The AAR, West Bengal ruled that construction work for a new railway siding at Jhanjra Area, ECL, Paschim Bardhaman constitutes a works contract under Section 2(119) of the GST Act. The Authority determined the work relates to immovable property and involves transfer of property in goods. The construction was classified as original works under Notification No. 12/2017-Central Tax (Rate) and pertains to railways, referencing precedent from M/s Steadfast Corporation Ltd case regarding railway siding construction classification.

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Issues Involved:
1. Determination of the rate of tax for the construction of a new railway siding.
2. Whether the work awarded qualifies as a Works Contract under Section 2(119) of the CGST Act, 2017.
3. Classification of the tax rate under specific entries of Notification No. 11/2017-Central Tax (Rate).
4. Whether the work pertains to railways.

Issue-wise Detailed Analysis:

1. Determination of the rate of tax for the construction of a new railway siding:
The applicant sought an advance ruling on the rate of tax applicable to the construction of a new railway siding at Jhanjra Area, ECL, awarded by M/s RITES Ltd. The applicant argued that the work should be taxed at 12% under Sl. No. 3(v)(a) of Notification No. 11/2017-Central Tax (Rate), as amended. The Revenue contended that the work is commercial and should be taxed at 18% under Sl. No. 3(xii) of the same notification.

2. Whether the work awarded qualifies as a Works Contract under Section 2(119) of the CGST Act, 2017:
The applicant contended that the work qualifies as a composite supply of works contract, involving construction, erection, and commissioning of immovable property, thus meeting the definition under Section 2(119) of the CGST Act. The Revenue agreed, stating that the work order is composite in nature and involves both goods and services, qualifying it as a works contract.

3. Classification of the tax rate under specific entries of Notification No. 11/2017-Central Tax (Rate):
The applicant argued that the work falls under Sl. No. 3(v)(a) of Notification No. 11/2017, which pertains to original works related to railways and should be taxed at 12%. The Revenue, however, argued that the work is commercial and falls under Sl. No. 3(xii), attracting an 18% tax rate. The Authority observed that the entry under Sl. No. 3(v)(a) was omitted from 18.07.2022, and any supply under this entry would be taxed at 18% from that date onwards.

4. Whether the work pertains to railways:
The applicant argued that the work pertains to railways, citing definitions from the Railways Act, 1989, and various advance rulings. The Revenue contended that the railway siding constructed is for private use by ECL and does not fall under the definition of railways for public carriage. The Authority referred to previous rulings and circulars recognizing private sidings for railway freight services and concluded that the work pertains to railways.

Observations & Findings:
The Authority agreed with the applicant's submission that the work qualifies as a works contract under Section 2(119) of the GST Act and can be considered as original works. The Authority also concluded that the work pertains to railways, based on definitions and previous rulings. However, they noted that the applicable tax rate would be 12% until the omission of the relevant entry on 18.07.2022, after which it would be 18%.

Ruling:
The contract for the construction of a new railway siding at Jhanjra Area of ECL, as awarded by M/s RITES Ltd, qualifies as a works contract under Section 2(119) of the GST Act and would be taxable at 12% under Sl. No. 3(v)(a) of Notification No. 11/2017-Central Tax (Rate) until the omission of the entry on 18.07.2022, after which it would be taxed at 18%.

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