GST is applicable at a rate of 18% for works contract services provided to Indian Railways and 12% for those that primarily involve earthwork

Fact and issue of the case

The AAR, Karnataka in the matter of Advance Ruling No. KAR ADRG 05/2023 held as under:

Held that, works contract services supplied by the Applicant to Indian Railways such as construction of rail under bridge and tunnels either as a main contractor or as a sub-contractor are covered under Sl. No. 3(xii) of the Services Rate Notification and is exigible to GST at 18%.

Further held that, if the Applicant is engaged in supply of works contract services involving predominantly earth work i.e. constituting more than 75 per cent of the value of the works contract, to Indian Railways, it is covered under Sl. No. 3(vii) of the Services Rate Notification and is exigible to GST at 12% and that if the Applicant is supplying the same service as a sub-contractor then, it will be covered under Sl. No. 3(x) of the Services Rate Notification and will be chargeable to GST at 12%.

Further held that, the supply of ballast to the Konkan Railway Corporation Limited and the Indian Railways is exigible to GST at 5% as per the Sl. No. 126 of Schedule I of the Goods Rate Notification.

Relevant Provisions:

Sl. No. 3(vii), (x) & (xii) of the Services Rate Notification:

SI. No.	Chapter, Section Or Heading	Description of Service	Rate (Percent)	Condition
3.	Headin 9954 (Construction Service)	(vii)Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, involving predominantly earth work (that is, constituting more than 75per cent. of the value of the works contract) provided to the Central Government, State Government, Union territory or a local authority	6	–
		(x) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017 provided by a sub-contractor to the main contractor providing services specified in item (vii) above to the Central Government, State Government, Union territory or a local authority	6	–
		(xii) Construction services other than (i), (ia), (ib), (ic), (id), (ie), (if), (vii), (viii), (x) and (xi) above. Explanation. – For the removal of doubt, it is hereby clarified that, supply by way of services specified at items (i), (ia), (ib), (ic), (id), (ie) and (if) in column (3) shall attract central tax prescribed against them in column (4) subject to conditions specified against them in column (5) and shall not be levied at the rate as specified under this entry	9”	–

SL. No. 126 of Schedule I of the Goods Rate Notification:

“Schedule I- 2.5%

SI. No.	Chapter / heading / sub Heading /Tarrif item	Description of Service
126	2517	Pebbles, gravel, broken or crushed stone, of a kind commonly used for concrete aggregates, for road metalling or for railway or other ballast, shingle and flint, whether or not heat-treated; macadam of slag, dross or similar industrial waste, whether or not incorporating the materials cited in the first part of the heading; tarred macadam; grenules cheeping and powder of stones heading 2515 or 2516 whether or not heat treated.”

M/s. S.K. Swamy and Company, No.30/9, 9th A Main Road, RMV Extension, Bengaluru-560 080 (hereinafter referred to as The applicant’), having GSTIN 29AAPFS7533P1Z4 have filed an application for Advance Ruling under Section 97 of CGST Act, 2017 read with Rule 104 of CGST Rules, 2017 and Section 97 of KGST Act, 2017 read with Rule 104 of KGST Rules, 2017, in FORM GST ARA-01 discharging the fee of Rs.5,000/- each under the CGST Act and the KGST Act.

The applicant is a Partnership firm registered under the provisions of Central Goods and Services Tax Act, 2017 as well as Karnataka Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act and KGST/SGST Act respectively). The applicant is engaged in executing works contract to Indian Railways such as construction of Rail under bridge, construction of tunnels and supplying and stacking of ballast, earth work and also sub contract of all the mentioned works.

The applicant has sought advance ruling in respect of the following questions:-

i. What percentage of GST output tax should be charged for our nature of works contract executed to Indian Railways.

a) On Railway under Bridge works

b) Construction of Tunnels for Railways

c) Supply and stacking of ballast

d) Execution of Earth Works Contract

e) Subcontract works for the above mentioned contract works

Observation of the court

The Applicant has entered into a contract with Konkan Railway Corporation Limited for supplying and stacking of ballast at Thokur ballast depot, loading into KRCL hoppers for CTR (P) works under AEN / Udupi. That is the applicant is supplying ballast to the Konkan Railway Corporation Limited and the supply of ballast to railways is exigible to GST at 5% (CGST @ 2.5% and SGST @2.5%) (HSN 2517) as per entry No. 126 of Schedule I of Notification No. 1/2017-Central Tax (Rate), dated: 28.06.2017 and the same is reproduced below:

Schedule I-2.5%

SI. No.	Chapter / heading / sub Heading /Tarrif item	Description of Goods
126	2517	Pebbles, gravel, broken or crushed stone, of a kind commonly used for concrete aggregates, for road metalling or for railway or other ballast, shingle and flint, whether or not heat-treated; macadam of slag, dross or similar industrial waste, whether or not incorporating the materials cited in the first part of the heading; tarred macadam; granules cheeping and powder of stones heading 2515 or 2516 whether or not heat treated

i. Works contract services like a) construction of Railway under Bridge executed to Indian Railways by the Applicant is exigible to GST at 18% (SGST @ 9% and CGST @ 9%) if the Applicant is providing the services either as a main contractor or as a sub-contractor to main contractor. b) construction of Tunnels executed to Indian Railways by the Applicant is exigible to GST at 18% (SGST @ 9% and CGST @ 9%) if the Applicant is providing the services either as a main contractor or as a sub-contractor to main contractor.

ii. Works contract services involving predominantly earth work (that is, constituting more than 75per cent, of the value of the works contract) executed to Indian Railways (Central Government) by the Applicant is exigible to GST at 12%(SGST @ 6% and CGST @ 6%) if the Applicant is providing the services either as a main contractor or as a sub-contractor to main contractor.

iii. Supply of ballast to railways is exigible to GST at 5%(CGST @ 2.5% and SGST @2.5%) (HSN 2517) as per entry No. 126 of Schedule I of Notification No. 1/2017-Central Tax (Rate), dated: 28.06.2017

Read the full order from here

In-re-S.K.-Swami-Company-GST-AAR-Karnataka