2023 (1) TMI 182 - AAR - GST

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

In Re: M/s. Triveni Engicons Private Limited

The AAR, West Bengal ruled that construction work for a new railway siding at Jhanjra Area, ECL, Paschim Bardhaman constitutes a works contract under ... Classification of services - works contract services - rate of tax - works being undertaken by the applicant for construction of new railway siding at Jhanjra Area, ECL Dist. Paschim Bardhaman, West Bengal against order received from M/s. RITES Ltd. - construction of rail infrastructure facilities - applicability of Sl. No. 3(v)(a) or Sl. No.3(xii) of Notification No 11/2017-Central Tax (Rate) dated 28/06/2017, as amended from time to time. Whether the work being executed by the applicant can be treated as works contract as defined u/s 2(119) of the GST Act? - HELD THAT:- In the case at hand, the letter of acceptance supra dated 02.03.2021 as furnished by the applicant refers the subject of work as “e-Tender No. 07/OT/ECL-JHANJRA/Civil & P. Way/PKG-III/20 dated 30.06.2020 for the work of Construction of Earthwork in Formation, Major & Minor Bridge, ROB, Drain, P.Way Linking work including supply of Track Ballast, P. Way Fittings, Points & Crossings, Derailing Switches etc., Construction of Service Building including Internal Electrification, Installation, Testing & Commissioning of 140MT In-Motion Weigh Bridge and other allied works etc., (Pkg-III) in connection with construction of New Railway siding at Jhanjra Area, ECL, Dist. Paschim Bardhaman, West Bengal” - On due consideration of the nature of works being undertaken by the applicant as detailed in the scope of work, we are of the opinion that the work is in relation to immovable property and certainly involves transfer of property in goods thereby qualifies to be a ‘works contract’ as defined in clause (119) of section 2 of the GST Act. Whether the said work can be considered as ‘original works’? - HELD THAT:- In the instant case the applicant executes construction work in connection of New Railway Sidings at Jhanjha Area of Eastern Coalfield Limited. Thus, we accept the contention of the applicant that the work can be considered as original works as defined in clause 2 (zs) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. Whether the work can be considered as works contract pertaining to railways? - HELD THAT:- In the case of M/s Steadfast Corporation Ltd, Telengana [2016 (9) TMI 50 - AUTHORITY FOR ADVANCE RULINGS], the applicant proposed to take up the activity of construction of Railway Works including sidings for private companies as well as Indian Railways. The Authority for Advance Rulings (Central Excise, Customs and Service Tax) vide order dated 15.07.2016 held that ‘Construction of railway siding for private parties is exempt under Notification No. 25/2012-ST dated 20.06.2012, as amended vide entry No. 14(a) thereof’ - the work executed by the applicant in connection with construction of New Railway siding at Jhanjra Area, ECL pertains to railways. 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%.