The Goods and Services Tax Appellate Tribunal (GSTAT), Agra Bench, has held that construction services supplied to Indian Railways do not automatically qualify for the concessional 12% GST rate merely because the recipient is the Railways. The taxpayer must establish that the supplies meet the requirements of the relevant works contract entry in the rate notification.

Allowing an appeal filed by the Uttar Pradesh State Tax Department, the Bench of Ajeet Singh (Judicial Member) and Vivek Kumar (Technical Member) set aside the first appellate authority’s order and restored the adjudication order concerning a differential GST demand of ₹72,82,446.

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The bench concluded that the taxpayer had paid GST at 12% without establishing its entitlement to that rate and that the services attracted the standard 18% rate.

The respondent/assessee, a registered joint venture, undertook construction and related work for North Central Railway.

The work included earthwork in embankments and cutting, blanketing, side drains, retaining and toe walls, minor bridges, removal of infringements involving signals and cable equipment, major bridges, and earthwork in approaches, together with protection and ancillary work.

According to the order, the taxpayer issued invoices totalling ₹12,13,74,088 for the railway work and discharged GST at 12% through its GSTR-1 and GSTR-3B returns.

The tax authorities disputed that rate. The proper officer treated the supplies as general construction services under SAC 995423 and 995424, attracting GST at 18%.

A show cause notice under Section 74 of the Central Goods and Services Tax Act and the Uttar Pradesh Goods and Services Tax Act alleged short payment through wilful misstatement. It proposed differential GST of ₹72,82,446, together with applicable interest and penalty. The adjudicating officer subsequently passed an order under Section 74(9) on June 28, 2025.

The taxpayer challenged the adjudication order before the first appellate authority.

By an order dated January 16, 2026, the authority set aside the principal demand of ₹72,82,446. It accepted that the services concerned immovable property and qualified as works contract services supplied to the Railways, taxable at 12%.

The first appellate authority, however, upheld a separate amount of ₹43,248 relating to other income of ₹75,100 identified during audit.

The State Tax Department then approached GSTAT under Section 112, challenging the relief granted on the construction services demand.

The central question before the Tribunal was whether the services fell within the composite supply of works contract entry for Railways under serial number 3(v)(a) of Notification No. 11/2017–Central Tax (Rate), as amended by Notification No. 20/2017–Central Tax (Rate).

The Tribunal noted that the description of the work included bridges, walls, signal relocation and earthwork. Nevertheless, it held that the taxpayer had to demonstrate, through structural evidence and billing breakups, that the supplies satisfied the requirements for the concessional entry.

The Bench observed that the taxpayer’s invoices described the supplies as “general construction services”. It also explained that the broad classification of construction and works contract services under heading 9954 did not dispense with the need to examine the specific entries in the rate notification.

The Tribunal found that the taxpayer had not established that the services constituted a composite supply of works contract involving construction in relation to immovable property for the purposes of the claimed concession.

It therefore held that the supplies did not qualify for the 12% rate under the entry relied upon and attracted GST at 18%.

The Tribunal rejected the first appellate authority’s approach that the railway construction services in question qualified for 12% GST.

Its reasoning makes the distinction between the identity of the recipient and the nature of the actual supply central to the dispute. A contract with Indian Railways, by itself, did not establish eligibility for the concessional entry; the taxpayer also had to substantiate the character of the work and its coverage under that entry.

The decision thus turned on the Tribunal’s finding that the necessary factual foundation for the concession had not been demonstrated in this case.

GSTAT set aside the first appellate order dated January 16, 2026 and restored the adjudicating officer’s order dated June 28, 2025.

The Tribunal expressly concluded that the taxpayer had short-paid GST by charging 12% instead of the applicable 18% on the general construction services supplied to Indian Railways.

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