The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh Bench, has ruled that service tax cannot be levied on railway construction projects merely because the railway infrastructure is meant for private or captive use, reiterating that the exemption under Notification No. 25/2012-ST extends to all railway projects without distinguishing between public and private railways. 

The Bench of Justice S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) set aside the orders of the lower authorities that had confirmed a service tax demand of ₹41.08 lakh, along with interest and penalties. 

The appellant/assessee, a public sector engineering consultancy company, was engaged in providing consulting engineering and sponsorship services. The dispute arose after the Directorate General of Central Excise Intelligence (DGCEI) issued a show cause notice alleging that services relating to railway infrastructure executed by a contractor for Damodar Valley Corporation (DVC) were taxable.

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The Department alleged that RITES, acting as project management consultant for DVC, was liable to pay service tax under the reverse charge mechanism on the services received from the contractor. Consequently, the adjudicating authority confirmed a demand of ₹41,08,925, together with applicable interest and penalties under the Finance Act, 1994. The Commissioner (Appeals) subsequently upheld the order, prompting RITES to approach the Tribunal. 

Before the Tribunal, RITES contended that it merely acted as the agent and power-of-attorney holder of Damodar Valley Corporation and was not the recipient of the services in its independent capacity.

The company further argued that the railway construction work executed by the contractor was squarely covered under Entry 14(a) of Mega Exemption Notification No. 25/2012-Service Tax dated 20 June 2012, which exempts services relating to the construction, erection, commissioning or installation of original works pertaining to railways.

RITES also relied heavily on an earlier CESTAT ruling delivered in its own case in 2025, wherein the Tribunal had already held that no distinction exists between private railways and public railways for the purpose of claiming the service tax exemption. The appellant additionally cited several judicial precedents, including the decisions in Konkan Railway Corporation Ltd., Delhi Metro Rail Corporation, and Nabha Power Ltd., supporting a broad interpretation of the term “railways.” 

The Tribunal observed that the central issue in the appeal was whether service tax could be levied on railway projects executed for private or captive use.

It noted that the controversy was no longer open to debate because the issue had already been conclusively decided in RITES’ own earlier case.

The Bench reiterated that Notification No. 25/2012-ST does not define the expression “railways”, nor does the Finance Act, 1994 restrict the exemption only to railways meant for public transportation. Therefore, tax authorities cannot import definitions from the Railways Act, 1989 to artificially limit the scope of the exemption. 

The Tribunal also referred to the Mumbai Bench decision in Konkan Railway Corporation Ltd., which had been affirmed by the Supreme Court, holding that the exemption is available to all railways except mono rail and metro rail as specifically provided under the notification, irrespective of whether the railway serves public or private purposes. 

The Bench further observed that even assuming the distinction between public and private railways were relevant, the railway siding in the present case had been constructed for Damodar Valley Corporation, a public sector undertaking.

It held that use by a public sector corporation constitutes public use, and therefore the Department’s attempt to deny the exemption on the basis of alleged private use had no legal merit. 

Following its earlier precedent, the Tribunal concluded that the impugned appellate order could not be sustained in law.

Accordingly, CESTAT set aside the service tax demand, interest and penalties, allowed the appeal filed by RITES Ltd., and granted all consequential reliefs available under law. 

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