Works contract for Railways – Sub-contracting the works for High Speed Rail Corridors

Facts of the Case

1. India is going to have its first high speed rail line i.e. bullet train in times to come and for this Mumbai-Ahmedabad High Speed Rail Corridor is under construction connecting the cities of Ahmedabad, Gujarat, and India’s economic hub Mumbai.
2. In 2016, the Ministry of Railways fast tracked the project and set up a Special Purpose Vehicle (SPV), named the National High Speed Rail Corporation Limited (hereinafter referred to as “NHSRCL”) to build and operate the corridor. NHSRCL divided the total construction work for the project into 27 packages for which it has to award contracts separately.
3. On 04.10.2017, NHSRCL issued ‘Letter of Acceptance (LoA) in favor of RITES Limited, RITES Bhawan No. 1, Sector – 29, Gurgaon – 122001 (hereinafter referred to as “main contractor” or “RITES”, as the case may be) for ‘shifting of existing railway infrastructure and other utilities in connection with construction of High Speed Rail projects’.
4. On 13.06.2018, main contractor issued LoA in favor of the appellant for ‘Construction of pavement, Track work, Warehouses, Admin Building, E&M works and other miscellaneous works’ at Khodiyar, Gandhinagar, Gujarat in connection with the work related to ‘shifting of existing railway infrastructure and other utilities in connection with construction of High Speed Rail projects’.
5. Hon’ble AAR held that works sub-contracted to the appellant does not pertains to Railway in the absence of sufficient documents.

Our Analysis

6. The expression “pertaining to” is an expression of expansion and not of contraction. A composite works contract for original works shall be pertaining to railways and the status of supplier and the recipient is immaterial. Further, the word “railways” has to be construed in its popular sense. The present contract is a part of main contract of construction of high speed rail line and therefore, pertain to railways.
7. Documentary evidence to substantiate the fact that contract granted to main contractor and that granted by main contractor pertains to railways i.e. NHSRCL, a special purpose vehicle created for the sole purpose of construction of Mumbai Ahmedabad high speed rail corridor, was submitted by appellant on 24.06.2020 which has been considered but not evaluated by the respondent for their evidentiary value. Therefore, impugned order is not supported by the reasons of rationality and liable to be set aside.
8. NHSRCL is incorporated with the sole objective of ‘High Speed Rail Services’ and is owned by the Ministry of Railways. Therefore, it is a ‘Government Railway’ and work allotted to the main contractor is pertaining to railways. The ‘letter of acceptance’ issued by NHSRCL establishes that work is in respect of railways.
9. A certificate has been issued by the Principal Employer i.e. NHRSCL under rule 21(2) of the Contract Labour (Regulation & Abolition) Central Rules, 1971 under Form-III wherein the name of the appellant is mentioned.

Order passed

10. M/s NHSRCL is a Government Body wherein the Ministry of Railways holds equity shares of 95.72% and Government of Gujarat holds 4.28% of the remaining equity shares. From the object clause, MoA and AoA of the NHSRCL, it is very much apparent that it is related to Railways.
11. M/s RITES Ltd  is also a Public Sector Undertaking wherein ownership of the GoI is 72.02% and it is also related to the Railways.
12. Letter obtained from M/s RITES Ltd is also taken on record wherein they have stated that NHSRCL has given the work to them and they have further sub-contracted a part thereof to the appellant.
13. The work allotted to appellant by M/s RITES Limited is undoubtedly pertains to Railways and therefore falls under S.No. 3(v)(a) of the NN 11/2017 CT (Rate) dated 28.06.2017, as amended and exigible to tax rate of 12%.

Decision by AAAR