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2018 (10) TMI 142 - AAR - GSTRate of GST - Construction Services - Construction of factory for Madhepura Electric Locomotive Pvt. Ltd. which subsidiary of Indian Railways - Supply of services - Composite Supply - Special Purpose Vehicle - whether the construction services are connected to Railways or not? Held that - The nature of activity undertaking by the applicant is Works Contract - However the work completed by the applicant company cannot be held to be Resale/supply to railway company - the rate of GST applicable will be at 9%.
ISSUES PRESENTED and CONSIDERED
The primary issue considered was whether the construction services provided by the applicant, under a works contract for the construction of a factory and related infrastructure for Madhepura Electric Locomotive Pvt. Ltd., qualify for a reduced GST rate under Notification No. 20/2017-Central Tax (Rate) as amended, specifically if these services are considered as pertaining to "railways" under the GST framework. ISSUE-WISE DETAILED ANALYSIS Relevant legal framework and precedents: The legal framework involves the interpretation of the term "railways" within the context of GST Notification No. 20/2017-Central Tax (Rate). The notification provides a reduced GST rate for composite supply of works contract related to railways, excluding monorail and metro. The applicant argued that their services fall under this category and should be taxed at a lower rate of 6% CGST and 6% SGST. Court's interpretation and reasoning: The Tribunal analyzed whether the term "railways" as used in the notification includes the construction of facilities for a joint venture company, Madhepura Electric Locomotive Pvt. Ltd., which manufactures electric locomotives for Indian Railways. The Tribunal emphasized that the notification does not specify "Indian Railways" but rather uses the general term "railways." Therefore, the Tribunal interpreted "railways" in its common parlance, as defined in the Oxford Dictionary, which refers to a track made of steel rails along which trains run. Key evidence and findings: The Tribunal noted that Madhepura Electric Locomotive Pvt. Ltd. is a joint venture company established as a Special Purpose Vehicle (SPV) for manufacturing electric locomotives, which are supplied to Indian Railways for valuable consideration. The land on which the factory is built belongs to Indian Railways, and all facilities constructed on this land will be provided to Indian Railways. However, the Tribunal found that the works contract executed by the applicant is not directly for Indian Railways but for Madhepura Electric Locomotive Pvt. Ltd. Application of law to facts: The Tribunal applied the principles of common parlance interpretation to determine that the works contract services provided by the applicant do not directly pertain to "railways" as intended by the notification. The contract is with a company that supplies goods (locomotives) to Indian Railways, but the construction services themselves are not for the railway infrastructure directly. Treatment of competing arguments: The applicant argued that since the facilities are ultimately for Indian Railways, the services should qualify for the reduced rate. However, the Tribunal rejected this argument, stating that the contractual relationship is with Madhepura Electric Locomotive Pvt. Ltd., not directly with Indian Railways, and that the supply of goods and services between Madhepura Electric Locomotive Pvt. Ltd. and Indian Railways is distinct from the applicant's works contract. Conclusions: The Tribunal concluded that the applicant's services do not qualify for the reduced GST rate under the notification, as they are not directly related to "railways" as per the common understanding of the term. SIGNIFICANT HOLDINGS The Tribunal held that the works contract executed by the applicant is not related to "railways" as defined in the context of the GST notification. Therefore, the services are subject to the standard GST rate of 9% SGST and 9% CGST. The Tribunal emphasized that the interpretation of "railways" should be based on common parlance and not extended to include entities supplying goods to Indian Railways. Core principles established: The Tribunal established that the interpretation of terms in taxation law should adhere to their common parlance meaning unless explicitly defined otherwise in the statute. Additionally, contractual relationships and the nature of supply must be clearly distinguished to determine applicable tax rates. Final determinations on each issue: The Tribunal determined that the applicant's construction services do not qualify for the reduced GST rate under Notification No. 20/2017-Central Tax (Rate) as they are not directly related to "railways." Consequently, the standard GST rate applies.
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