CESTAT Kolkata Clarifies Service Tax on Railway Siding, Mining Royalty, Cesses & Cenvat Credit

The Kolkata Bench of the CESTAT, in the case of Cement Corporation of India Ltd. Vs Commissioner of CGST, has delivered a significant decision on the scope of service tax exemptions and reverse charge liability in respect of:

  • Construction of railway sidings
  • Royalty paid for extraction of natural resources
  • Works contract services under reverse charge
  • Liability towards Swachh Bharat Cess (SBC) and Krishi Kalyan Cess (KKC)
  • Admissibility of Cenvat credit on the basis of STTG certificates

The dispute emanated from an audit for the period June 2015 to March 2017 and culminated in Final Order No. 76006/2024 dated 05/06/2024.

Background of the Dispute

An audit conducted on the Central Public Sector Enterprise engaged in manufacturing cement led to the issuance of a show cause notice dated 02 June 2020 proposing a total service tax demand of Rs.1,49,07,938, distributed as under:

  • Rs.1,24,61,772 – Service tax under reverse charge on services received from Indian Railways for construction of railway sidings, by denying exemption under Notification No. 25/2012-ST dated 20 June 2012
  • Rs.13,45,733 – Service tax under reverse charge on royalty paid to the State Government for limestone extraction
  • Rs.1,46,250 – Service tax under reverse charge on works contract service
  • Rs.53,803 – Short payment of SBC (Rs.23,520) and KKC (Rs.30,283)
  • Rs.9,00,380 – Cenvat credit allegedly taken on ineligible documents

The Additional Commissioner, CGST & CX, Guwahati, through order dated 08 November 2021, confirmed the above demands with interest and penalty, which was subsequently upheld by the Commissioner (Appeals) on 07 June 2023. The assessee carried the matter to CESTAT Kolkata.

Exemption for Construction of Railway Siding

Nature of the Transaction

The assessee had awarded work to the Northeastern Frontier Railway Administration for:

  • Construction of a private railway siding at its cement factory premises
  • Contract value: Rs. 11.83 crores (approx.)

The Department treated the services received from Indian Railways for construction of the siding as taxable under reverse charge and denied exemption under Notification No. 25/2012-ST.

Relevant Exemption under Notification No. 25/2012-ST

The central exemption relied upon reads as under:

“14. Services by way of construction, erection, commissioning, or installation of original works pertaining to,-
(a) an airport, port or railways, including monorail or metro;”

The lower authorities denied the benefit by:

  • Importing the definition of “railways” from the Railways Act, 1989
  • Contending that the siding was for private use, not for public carriage of passengers or goods, and hence outside “railways” as intended in the exemption

Tribunal’s Analysis on the Meaning of “Railways”

The Tribunal decisively rejected this reasoning on the following grounds:

  1. No definition in Finance Act, 1994

    • The term “railways” is not defined in the Finance Act, 1994.
    • Neither the Act nor the notification draws any line between public and private railways.

  2. Impermissibility of borrowing restrictive definitions

    • The Department cannot import a definition from another statute (here, the Railways Act, 1989) to narrow the scope of an exemption under the Finance Act, 1994, unless the service tax law itself expressly adopts that definition.

  3. Support from prior judicial precedents
    The Tribunal relied on the following decisions:

    • Konkan Railway Corporation Limited Vs. Commissioner of CGST & Central Excise [(2023) 8 Centax 161; affirmed in (2023) 8 Centax 166 (S.C.)]
      The Tribunal quoted the following extract:

      “…there being no definition of ‘railway’, either therein or in Finance Act, 1994, the distinction between railway for private purpose and railway for public service cannot be artificially contrived to suit tax administration; neither can the definition in another statute be drawn upon for the purported purpose of illumination…”

    • Shri Mahendra Kumar Anchalia Vs. Commissioner of CGST & CX, Kolkata [2023 (9) TMI 1377]
      The Kolkata Bench had held: