Madurai Court Allows Lower 12 Percent GST on Railway Project Contracts

The Madurai Bench of the Madras High Court has ruled that contracts awarded by Rail Vikas Nigam Limited (RVNL) are eligible for a concessional Goods and Services Tax (GST) rate of 12 percent, rather than the previously imposed 18 percent.

This decision is expected to bring relief to several contractors involved in critical railway development works and underscores the legal recognition of RVNL’s functional proximity to Indian Railways. The court ruling came after a joint venture involved in the track doubling project between  Vanchi Maniyachchi and Nagercoil challenged the higher tax rate imposed by state tax authorities. The project included a comprehensive scope of work such as building roadbeds, minor bridges, platforms, railway stations, maintenance depots, and installing critical electrical and telecommunication systems in the Southern Railway zones of Madurai and Thiruvananthapuram.

Officials representing the contractors contended that under prevailing central government notifications, infrastructure projects related to railway development—including works for metro and mono rail systems—are legally entitled to the reduced 12 percent GST slab. This interpretation was rejected by local tax authorities who argued that RVNL does not fall directly under the control of Indian Railways and thus should not qualify for the concession. However, the court ruled in favour of the petitioner, citing that the roles of Indian Railways and RVNL are functionally inseparable. The judge noted that RVNL was specifically created to implement railway infrastructure development on behalf of Indian Railways, and its projects are directly aligned with national rail policy and operations. The argument that RVNL’s legal and operational separation disqualifies it from tax relief, the court found, was neither practical nor in spirit with the tax law’s objective.

Experts in infrastructure and tax law believe this verdict could serve as a precedent for similar disputes involving GST classification of infrastructure projects linked to public utilities. As infrastructure development continues to be a core driver of India’s economic growth, judicial clarity on tax treatment will be critical in encouraging private participation and timely execution of projects. Industry insiders also argue that applying higher tax rates to public infrastructure projects such as railways only increases project costs and delays implementation timelines. This, in turn, affects the roll-out of critical transportation corridors that are vital not only for economic integration but also for the climate goals India has committed to by improving low-emission transport networks.

The Madurai ruling offers hope for ongoing and future projects led by RVNL and similar public sector entities that function as extensions of central ministries. Infrastructure specialists working on sustainable transit systems believe this could also positively influence taxation norms in allied sectors such as metro rail, green mobility corridors, and urban mass transport, which often face similar challenges. Furthermore, the court’s observation also brings attention to the need for a unified interpretation of tax laws across central and state levels. The conflict between state GST officers and central policy guidelines continues to create operational bottlenecks, particularly in large-scale infrastructure works where legal ambiguities increase the financial burden on contractors and delay national priorities.

The railway doubling project in Southern India, which formed the basis of this legal dispute, is part of a broader national push to enhance rail capacity and connectivity in high-density corridors. These upgrades aim to improve logistical efficiency, reduce carbon emissions from road transport, and ensure equitable mobility in semi-urban and rural areas. While the ruling applies specifically to the case in Madurai, infrastructure policy experts are hopeful that the tax department will now take a more uniform approach, ensuring that sustainable development goals are not hampered by procedural inconsistencies. With urbanisation rapidly rising and state governments relying heavily on rail and public transport infrastructure, clarity in taxation could unlock faster financing and execution of climate-aligned mobility projects.

As the country advances towards its net zero targets and inclusive mobility goals, policy certainty in taxation is no longer a bureaucratic matter—it is essential for sustainable development. The court’s verdict, grounded in practical reasoning and public interest, marks a step in that direction.

Madurai Court Allows Lower 12 Percent GST on Railway Project Contracts