CESTAT Kolkata Rules on Service Tax Exemption for Private Railway Infrastructure Construction
The decision in Triveni Engicons Private Limited Vs Commissioner of C.G.S.T. and Central Excise delivered by CESTAT Kolkata on 04/03/2024 clarifies an important issue under the erstwhile service tax regime: whether construction of railway infrastructure used exclusively by an industrial undertaking, and not by the general public, qualifies for exemption available to “railways” under specified notifications.
The Tribunal has followed its earlier ruling in M/s. Hari Construction & Associates Pvt. Ltd. v. Commissioner of C.G.S.T. & Excise, Patna II, Final Order No. 76168 of 2023 dated 13.07.2023 in Service Tax Appeal No. 79066 of 2018, which itself relied upon the reasoning in the Konkan Railway Corporation Limited line of cases. The outcome is a categorical affirmation that, for the relevant period, no distinction can be drawn between “public” and “private” railways for the purpose of service tax exemption.
Background of the Dispute
Nature of Services Provided
The appellant, Triveni Engicons Private Limited, executed works contract service involving:
- Construction of railway infrastructure
- Laying of railway tracks
- Erection of associated supporting structures
These works were undertaken under a contract from M/s. Damodar Valley Corporation for its Mega Projects at multiple sites.
The tracks and related structures were to serve as dedicated lines for the exclusive use of M/s. Damodar Valley Corporation, primarily to meet its internal logistical needs for those projects.
Period and Claim of Exemption
The period under dispute spans 2011-12 to 2015-16. During this time, the appellant did not discharge service tax on the value of works contract services related to the railway infrastructure, taking the view that:
- For the period up to 30.06.2012, the services were exempt under
Notification No. 17/2005-S.T. dated 07.06.2005, and - For the period from 01.07.2012 onwards, the services were exempt under
Notification No. 25/2012-S.T. dated 20.06.2012.
In essence, the assessee treated the works as construction of “railways” falling within the exclusion or exemption clauses under the relevant service tax framework, both before and after the introduction of the negative list regime.
Departmental Proceedings and Original Order
Show Cause Notice and Department’s Stand
The Department issued a Show Cause Notice proposing to levy service tax, interest and consequential liabilities on the appellant. The core allegation was:
- The exemption under Notification No. 17/2005-S.T. and Notification No. 25/2012-S.T. could be availed only in respect of railways used for public carriage of passengers or goods.
- Since the lines in question were constructed for, and utilized by, M/s. Damodar Valley Corporation for its own business operations and were not open to the public, these projects allegedly did not qualify as “railways” in the sense contemplated by the exemption.
On this basis, the Show Cause Notice suggested that the assessee had wrongly claimed exemption and was liable to pay service tax under the category of “works contract service” for the disputed period.
Findings of the Adjudicating Authority
The adjudicating authority concurred with the Department’s interpretation. Broadly, it held that:
- The term “railways” in the relevant exemption had to be read in a restricted manner.
- Only railway infrastructure connected with public carriage operations, as typically understood under the general railway system, would fall within the scope of the exemption.
- Dedicated railway tracks and facilities erected within industrial premises, or for the specific private use of an entity like M/s. Damodar Valley Corporation, would not qualify.
Consequently, the adjudicating authority confirmed the service tax demand against the appellant. This led the assessee to challenge the order before the CESTAT Kolkata.