Service tax demand quashed on works contract for PSU railway siding, exemption under Entry 14A Notification 25/2012-ST upheld

CESTAT Chandigarh allowed the appeal, setting aside service tax demand on works contract services used for constructing a railway siding for coal transport to a power-generating PSU. The Tribunal held that exemption under Entry 14A of Notification No. 25/2012 applies, following precedents such as Konkan Railway and CONCOR, which clarified that "railways" in the Finance Act and exemption notification covers both public and private railways, and no distinction is made in the notification. It further held that "use by public" includes use by Public Sector Undertakings/Corporations, rendering the Department's contention unsustainable and the demand unsustainable.

---

---

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether works contract service received for construction of a railway siding for transport of coal to a power generating company is exempt from service tax under Entry 14A of Notification No. 25/2012-ST, notwithstanding that the siding is not used for public carriage of passengers or goods.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Exemption from service tax for works contract relating to construction of railway siding under Notification No. 25/2012-ST

Legal framework

2.1 The demand was raised by invoking Section 65B(22) read with Section 66E(h) of the Finance Act, 1994, treating the activity as taxable works contract service received under reverse charge.

2.2 Exemption was claimed under Entry 14A of Notification No. 25/2012-ST, which grants exemption to services by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of "railways".

Interpretation and reasoning

2.3 The Tribunal noted that the appellant was appointed as consultant by a public sector power generating company for construction of a railway siding, and a contractor was engaged for execution of that work; the Revenue sought to deny exemption on the ground that the siding was not for "public carriage of goods".

2.4 Relying on prior decisions, including those holding that railway sidings constructed for transport of coal to thermal power plants operated by private entities fall within the term "railway" for purposes of Entry 14A of Notification No. 25/2012-ST, the Tribunal observed that such construction activity is exempt from service tax.

2.5 The Tribunal took note of the reasoning in earlier decisions that, in the context of Notification No. 25/2012-ST and the Finance Act, 1994, the term "railways" is not defined, and no distinction is made between public and private railways; hence, a distinction between "railway for private purpose" and "railway for public service" cannot be imported to restrict the exemption.

2.6 It was emphasized that, since the Finance Act, 1994 and the exemption notification do not define "railways" or restrict the exemption to railways for public carriage, it is impermissible for the tax administration to borrow the definition from the Railways Act, 1989 or to artificially introduce such a limitation.

2.7 The Tribunal further noted that other coordinate benches had held that no distinction is made between public and private railways in Notification No. 25/2012-ST and accepted that the legislative intent behind the exclusion/exemption of "railways" was clear and not confined to public carriage alone.

2.8 In the present case, the Tribunal also held that, in any event, the siding was for use by a Public Sector Undertaking/Corporation; the expression "for public" in the context of use does not necessarily restrict usage to individual members of the public but includes use by Public Sector Undertakings/Corporations.

Conclusions

2.9 The services received for construction of the railway siding for the power generating company fall within the scope of "railways" under Entry 14A of Notification No. 25/2012-ST.

2.10 No valid distinction can be drawn, for purposes of exemption, on the basis that the siding was not for public carriage of goods; the definition in the Railways Act, 1989 cannot be imported to narrow the scope of the exemption.

2.11 The demand of service tax under Section 65B(22) read with Section 66E(h) was unsustainable; the appeal was allowed and the impugned demand set aside.

---