In a major relief to contractors in railway projects, the Madras High Court has upheld the 12 per cent concessional rate of goods and services tax (GST) for contract services provided to Rail Vikas Nigam Ltd (RVNL), rejecting the tax department’s demand for 18 per cent GST.

The case involved STS-KEC, a joint venture between Stroytechservice LLC (Russia) and KEC International, which was awarded a contract for railway infrastructure projects.

Work involved doubling the railway tracks between Vanchi Maniyachchi and Nagercoil in Tamil Nadu, along with other infrastructure works as well as signalling and telecommunication infrastructure in the Madurai and Thiruvananthapuram divisions of Southern Railway.

On December 12, 2023, the tax department issued GST demand orders against STS-KEC for the assessment years 2018-19 to 2022-23, imposing 18 per cent on railway infrastructure works executed for RVNL instead of the 12 per cent concessional rate prescribed dated June 28, 2017.

This notification, issued by the central government, provides a 12 per cent concessional GST rate for works contract services related to railway infrastructure, including construction, erection, commissioning, and installing original works.

In response, STS-KEC filed five writ petitions before the Madras High Court, arguing that GST classification should be based on the nature of work, not the identity of the recipient.

In a common ruling on January 28, 2025, the court set aside the tax demand, affirming that railway projects qualify for 12 per cent, whether executed for the Indian Railways, RVNL, or any other entity involved in railway infrastructure development.

Source: Business Standard