The judge also rejected the stand of authorities that the definition of ‘railway’ under Indian Railways Act, 1989, is limited to Indian Railways alone.
In a significant ruling, the Madurai Bench of the Madras High Court has held that railway infrastructure development contracts awarded by Rail Vikas Nigam Limited (RVNL) are eligible for the concessional Goods and Services Tax (GST) rate of 12%, instead of the higher 18% rate previously imposed.
Court Upholds Lower GST Rate for Railway Works
Justice Mohammed Shaffiq delivered the judgment while allowing a petition filed by a joint venture between Stroytech Service LLC, Russia, and KEC International Limited. The companies had challenged the imposition of 18% GST by the state tax officer on contracts issued by RVNL for track doubling works on the Vanchi Maniyachchi–Nagercoil section.
The scope of work included major railway infrastructure activities such as construction of roadbeds, minor bridges, platforms, buildings, water and effluent treatment systems, maintenance facilities for wagons and coaches, supply of ballast, track installation, and the setting up of electrical, signalling, and telecommunication infrastructure across the Madurai and Thiruvananthapuram divisions of the Southern Railway.
RVNL Works Qualify as Railway Projects under GST Law
The petitioners argued that under central government notifications, works related to construction, erection, commissioning, or installation for railways—including mono rail and metro rail—are subject to a concessional 12% GST rate. However, the tax authorities denied this concession, contending that RVNL is not directly under the administrative control of Indian Railways, and thus, the standard 18% GST should apply.
High Court Rejects Narrow Interpretation by Tax Authorities
Justice Shaffiq, however, dismissed this narrow interpretation. He ruled that the operations and objectives of RVNL and Indian Railways are intrinsically linked, functioning jointly for the development of the national rail transport infrastructure. The judge further clarified that the definition of ‘railway’ under the Indian Railways Act, 1989, should not be confined strictly to Indian Railways alone but must encompass its associated entities like RVNL.
Key Takeaway for Contractors and Stakeholders
This landmark decision is expected to provide clarity and relief to contractors involved in railway infrastructure development. It affirms that GST concessions are applicable to works carried out under RVNL, reinforcing the broader interpretation of railway-related projects eligible for reduced tax rates.
Conclusion
With this verdict, the Madras High Court has set a crucial precedent that strengthens the legal understanding of concessional GST applicability on railway infrastructure contracts. Contractors and developers engaged with RVNL can now avail the 12% GST rate, promoting ease of doing business and reducing cost burdens on large-scale infrastructure projects.
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