Railway Infrastructure Contracts Can Avail Concessional 12% GST Rate

The Madurai Bench of the Madras High Court recently ruled that contracts given by Rail Vikas Nigam Limited (RVNL) for railway infrastructure work should be taxed at a lower 12% GST rate instead of 18%.

Justice Mohammed Shaffiq made this decision in a case brought by a joint venture between Stroytech Service LLC (Russia) and KEC International Ltd. They were challenging a tax officer’s decision to apply 18% GST on their railway project between Vanchi Maniyachchi and Nagercoil.

The work consisted of building tracks, platforms, minor bridges, maintenance facilities, installing signals, telecommunication systems, and more in the Southern Railway’s Madurai and Thiruvananthapuram divisions.

The firms argued that government rules clearly state a 12% GST should be implemented to railway-related construction and installation works, including for metro and monorail projects. But the tax department claimed that RVNL does not fall directly under Indian Railways, therefore, the higher 18% GST should apply.

However, the judge disagreed with this view, saying RVNL and Indian Railways work closely together and are part of the same effort to improve railway infrastructure. He also rejected the narrow interpretation of “railways” that excluded RVNL from the benefits of the lower tax rate.