Whether construction of railway lines for private parties and construction of private roads are taxable under Works Contract Services (WCS) or under Commercial or Industrial Construction Services (CICS)?

PJ/Case Law/2019-2020/3594

United Rail Road Consultants Pvt Ltd Vs Secunderabad GST dated 19.06.2019
Brief Facts: - The Assesses is providing services of construction in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.

Issue: - Whether construction of railway lines for private parties and construction of private roads are taxable under Works Contract Services (WCS) or under Commercial or Industrial Construction Services (CICS)?
Appellant’s Contention:- Assesses contention is that due to the exclusion under section 65(25b) Service Tax cannot be charged under CICS on services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Similarly, it is the case of the assessees that the charge under Works Contract Service excludes works contract in respect of ports, airports, railways, transport terminals, bridges, tunnels and dams. In both cases, the provisions do not specify that the roads have to be only public roads and cannot be private roads or the railways have to be only of Indian railways or a particular metro and cannot be a private railway or railway siding for a private company. In the absence of any specific stipulation, any road, any airport, any railway, any bridge or any dam is excluded from the charging section, both under CICS as well as under WCS. As all the services were rendered undisputedly in connection with the railways or roads, they are not covered by the charging section of the Finance Act, 1994 at all and therefore, no service tax is leviable on them. Consequently, no demand on interest and no penalties can be imposed upon them.
Reasoning of Advance Ruling:- The case of the revenue is that both CICS and WCS exclude railways or roads. These should be understood as is commonly understood to mean the railway lines of Indian Railways and public roads. Although there could be roads inside the private premises or inside factories or colonies but they do not qualify for exclusion under charging section. Similarly, there could be private railways such as railway sidings of the ports, private factories, etc., but they do not qualify as railways for the purpose of exclusion from the charging section. Therefore, the assessees are fully chargeable to service tax for the services rendered by them. Consequently, demands of service tax and interest are sustainable and penalties have been correctly imposed.

In respect of one of the appeals herein viz., United Rail Road Consultants Pvt Ltd in appeal ST/25411/2013, this bench vide Final Order No. 30695/2019 dt.19.06.2019 has decided that the charging section of works contract under section 65(105)(zzzza) of the Finance Act, 1994 excludes railways. Since it does not qualify the term by saying “railways for public carriage or railways by the Government”, it was held that the term “railways” includes any form of railways in the absence of any stipulation to the contrary in the charging section.Therefore, the charging section under CICS is also identically worded and find no reason to take a different view.
In the case of Dilip Kumar & Co. and others (Civil Appeal No. 3327/2007), the Hon’ble Supreme Court has categorically held that taxing statutes must be strictly interpreted and if there is any doubt whether the assessee is covered by the charging section or otherwise, the benefit of such doubt should go to the assessee. However, where there is an exemption notification, the benefit of doubt should be construed strictly against the assessee and in favour of the revenue. The dispute in question, in this case, being about the charging section, even if there is any doubt regarding the private railways or private roads being excluded from the charging section in CICS [section 65(25d)] or WCS [section 65(105)(zzzza)], the benefit of such doubt should go to the assessee and not otherwise.
Since, the bench has already decided that railways includes private railways for the purposes of the charging section, in one of the assessees’ own case [United Rail Road Consultants Pvt Ltd in Final Order No. 30695/19] and in the case of KVR Rail Infra [2019 (5) TMI 376 (CESTAT-Hyd)], we find no reason to deviate from the view already taken, considering that these views have not been overturned by any superior judicial forum.
Accordingly, in both CICS and WCS the exclusions from railways, roads, dams, etc., extends to all forms of railways, roads, dams, etc., in the absence of any word restricting them to public railways, public roads, public dams etc. Consequently, demands raised in all these appeals must fail. Since the demands are themselves not sustainable, there is no question of any interest or penalty being imposed for non-payment of service tax.
The Hon’ble Delhi High Court in the case of DMRC itself titled as DMRC v. Municipal Corporation of Delhi, & Hon’ble High Court Karnataka in the case of DMRC v. Ministry of Finance, 2013 (6) T.M.I. 78 has also held that work contract services in respect of railways are excluded in definition of section 65(105) zzzza of the Finance Act i.e. such contracts will fall outside the definition of taxable service and consequently no tax shall be leviable under Section 66 of the Act on the value of such services.
Department has also refer Tribunal decision in case of M/s IRCON International Ltd. vs. C. S. T. Delhi has held that section 65(105) zzzza of the Finance Act, 1994 does not use the word railways for public carriage or that the railways should be government railways. The definition uses the words railways only. Therefore, the execution cannot be restricted to the government railways which are used for public transport of passengers or goods.

Ruling:- Appeal is allowed and the impugned order is set aside.

Conclusion: - Works contract service under section 65(105)(zzzza) of the Finance Act, 1994 excludes railways. Since it does not qualify the term by saying “railways for public carriage or railways by the Government”, it was held that the term “railways” includes any form of railways in the absence of any stipulation to the contrary in the charging section.

Prepared by CA Mahesh Parmar

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PJ/Case Law/2019-2020/3594

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