2025 (8) TMI 1547 - HC - VAT / Sales Tax

Claim for concessional rate under Serial No.3(v)(a) of Notification No.11/2017-CT(Rate) remitted for fresh adjudication on mixed services

Tvl. B. Senthilkumar Contractor Versus The State Tax Officer, Office of the Assistant Commissioner (ST), Trichy

Tvl. B. Senthilkumar Contractor Versus The State Tax Officer, Office of the Assistant Commissioner (ST), Trichy - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether services rendered in execution of works contracts for railway infrastructure fall within the concessional entry at Serial No. 3(v)(a) of Notification No.11/2017-CT(Rate) (consequent concessional integrated tax entry) and are therefore taxable at the concessional rate of 12% (6% CGST + 6% SGST or 12% IGST as applicable). 2. Whether the subsequent amendment to central rate notifications (raising/changing rates effective from 01.01.2022) applied by the assessing authority overrides the applicability of the concessional entry in Notification No.11/2017 for supplies to railway entities. 3. Whether reliance upon certain Advance Rulings by the assessing authority is sustainable where those rulings have been reversed or are inconsistent with appellate or other state advance rulings, and what consequence follows from such inconsistency. 4. Whether an assessment should be reconsidered/remitted when a portion of the supply was rendered to a railway public entity or where it is disputed whether an intermediary/contractor qualifies as a 'railway entity' for the purpose of the concessional entry, including the procedure for adducing proof. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Applicability of Serial No.3(v)(a) of Notification No.11/2017 to works for railway infrastructure Legal framework: Serial No.3(v)(a) of Notification No.11/2017-CT(Rate) (as amended) grants a concessional rate for works contracts/supplies associated with railways, covering construction, erection, commissioning, installation and original works for railway infrastructure. The definition of 'works contract' and the scope of services relating to railway electrification, signalling, telecommunication, track laying, bridges, platforms and related infrastructure are the operative touchstones. Precedent treatment: The Court relied on the Court's prior decision holding identical or substantially similar contracts for railway doubling, track installation, signalling, electrification and related works to be covered by the concessional entry and taxed at 12%. Several state Appellate Advance Ruling Authorities and Advance Rulings have reached similar conclusions for analogous contractual activities. Interpretation and reasoning: The Court construed the notification consistently with prior appellate advance rulings and state AAR/AAAR decisions, emphasizing the composite nature of works contracts for railway infrastructure and the direct nexus between the supply and railway original works. The Court placed weight on consistency across rulings and the factual alignment of the present contracts (doubling of track, construction of roadbed, minor bridges, platforms, buildings, water and effluent treatment facilities, maintenance infrastructure, ballast supply, track installation and electrical, signalling and telecommunication infrastructure) with the entry's ambit. Ratio vs. Obiter: Ratio - where the contract involves original works for railway infrastructure as specified, the supply falls within Serial No.3(v)(a) and is taxable at the concessional rate. Obiter - references to broader state AARs and general observations on consistency as a policy value are persuasive but ancillary to the dispositive construction. Conclusion: The Court concluded that works contracts of the factual description before it are covered by Serial No.3(v)(a) of Notification No.11/2017-CT(Rate) (as amended) and liable to tax at the concessional rate of 12%. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Effect of subsequent rate amendment (Notification No.15/2021 and No.22/2021) on the concessional entry Legal framework: Subsequent notifications amending tax rates may alter the rate applicable to certain supplies from a stated effective date. The assessing authority placed reliance on an amendment made effective from 01.01.2022 to impose a higher rate. Precedent treatment: The Court treated the effect of subsequent notifications in light of the notification text, prior judicial interpretation of the concessional entry and the temporal application of amendments. Interpretation and reasoning: The Court held that mere issuance of a later notification does not automatically negate the applicability of an earlier concessional entry where the entry's conditions are met and where consistent judicial/adjudicatory authority has held the earlier entry applicable to such supplies. The Court emphasized that consistency and settled construction should guide application, and that the assessing authority's unilateral imposition of higher rates contrary to settled interpretation produces uncertainty. Ratio vs. Obiter: Ratio - an amendment increasing rates cannot be applied in a manner that undermines a concession which, on proper construction and consistent precedents, covers the supply in question; the assessing authority must conform to the settled construction. Obiter - policy observations about tax administration and certainty. Conclusion: The assessing authority's imposition of a higher rate under the later notification was set aside insofar as it conflicted with the settled applicability of the concessional entry to the supplies in question; the concessional rate governs when the entry's conditions are satisfied. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Reliance on Advance Rulings and inconsistency among authorities Legal framework: Advance Rulings and Appellate Advance Rulings provide authoritative interpretations for parties and are relevant precedents for assessing officers; inconsistency between AARs and AAARs and between state authorities calls into question the approach to be adopted by assessing authorities and courts. Precedent treatment: The Court identified that an AAR relied upon by the assessing authority was overruled by the Appellate Advance Ruling Authority in another proceeding, and that multiple other state AAR/AAAR decisions support the concessional view. Interpretation and reasoning: The Court emphasized the importance of consistency in revenue administration and judicial construction, citing the principle that consistency and discipline in law are of great importance. Where an AAR is overturned by an appellate authority or where a series of consistent rulings align with the concessional interpretation, an assessing authority's contrary reliance on an overruled AAR constitutes an error apparent on the face of the record and vitiates the impugned order. Ratio vs. Obiter: Ratio - assessing authorities must follow appellate rulings and avoid reliance on rulings that have been overruled; inconsistency with settled appellate authority constitutes an error warranting quashing of the order. Obiter - cataloguing of multiple state AARs as persuasive support for consistency. Conclusion: The impugned assessment that relied on an overruled Advance Ruling was quashed for want of consistency with appellate authority and with other state AAR/AAAR decisions that align with the concessional entry's application. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Reconsideration/remittal where supply partly to a railway public entity or qualification of an intermediary as a railway entity Legal framework: Where the applicability of a concessional entry depends on the identity/status of the recipient (e.g., a railway authority or a qualifying railway entity), factual determination and documentary proof are relevant; procedural fairness requires fresh consideration when material facts are contested. Precedent treatment: The Court proceeded by quashing the impugned order and remitting matters for fresh decision where the record showed supplies were partly to a rail public entity or where there was dispute whether an intermediary/contractor constituted a railway entity entitled to concession. Interpretation and reasoning: The Court recognized that where services are partly rendered to a public railway entity or where an intermediary claims that the recipient (or intermediary) is a railway entity, the assessing authority must examine documentary evidence before concluding applicability. The Court directed production of documents substantiating the railway status of the recipient and remitted the matter for fresh adjudication in the light of the Court's construction and relevant appellate authority, with a specified timeframe for completion. Ratio vs. Obiter: Ratio - where factual disputes on recipient status exist, the appropriate remedy is remittal for fresh assessment on merits after allowing the taxpayer to file supporting documents; quashing and remittal are warranted. Obiter - procedural timelines and guidance to file documents are pragmatic directions rather than substantive law. Conclusion: The Court quashed the impugned assessment to the extent it ignored or mischaracterized supplies partly to a railway public entity and remitted the matter for fresh adjudication, directing the petitioner to produce documentary proof of the recipient's railway status and setting a time limit for the process. OVERALL CONCLUSION The Court set aside assessments that imposed a higher rate contrary to the settled application of the concessional entry for works relating to railway infrastructure, held that consistency with appellate rulings and state AAR/AAAR decisions is obligatory, and remitted disputed factual questions about the railway status of certain recipients for fresh consideration with directions for evidence filing and a time bound disposal. No costs were awarded.