Loading Ballast Into Railway Wagons Is Separate Service, Attracts 18% GST: Karnataka AAR

The Karnataka Authority for Advance Ruling (AAR) has held that supply of ballast to the Railways and its subsequent loading into railway wagons are separate and independently identifiable supplies. The two activities cannot be treated as a composite supply merely because they arise from the same tender or work order.

A Bench comprising Central Member Kalyanam Rajesh Rama Rao and State Member Sivakumar S. Itagi, passed a ruling in an application filed by S.K. Swamy and Company concerning the GST rate applicable to loading ballast into Railway-owned wagons using JCB loaders. The AAR held:

“The supply of ballast at Railway depot or nominated location; and Loading of Railway's ballast collected at yard/depot into Railway wagons using Mechanical Loader or any other method with all lead and lifts, as directed by Engineer in Charge. Constitute separate and independent supplies and cannot be regarded as a composite supply merely because both activities emanate from the same tender/work order.”

The applicant, a partnership firm engaged in executing works contracts for Indian Railways, including construction of rail under bridges and tunnels and supply and stacking of ballast, earthwork and other materials, sought a ruling on the GST rate applicable to loading ballast stacked adjacent to railway tracks into railway wagons stationed on the tracks using JCB loaders.

It contended that its works contracts for supply of ballast constituted more than 70% of the total contract and that the loading charges should consequently attract the GST rate applicable to the supply of ballast.

The AAR examined whether the supply of ballast and the subsequent loading activity constituted a composite supply under Section 2(30) of the CGST Act. It noted that the Letter of Acceptance separately specified the supply of ballast at the Railway depot or nominated location and loading of Railway's ballast collected at the yard or depot into Railway wagons using mechanical loaders or any other method. Separate rates were also prescribed for the two activities.

Further, the Authority noted that the applicant first supplied the ballast to the Railways at the designated location. Ownership and possession of the ballast thereafter stood transferred to the Railways. The applicant subsequently undertook the loading activity pursuant to separate instructions from the Engineer-in-Charge and raised separate invoices for it.

The AAR held that the two activities were not naturally bundled or supplied in conjunction with each other in the ordinary course of business. While the supply of ballast was completed upon delivery at the designated location, the loading was undertaken subsequently on goods already owned by the Railways. It held that the fact that both activities originated from the same tender did not, by itself, establish that they constituted a composite supply.

On classification of the loading activity, the Bench noted that the ballast was already available at the railway siding or track and belonged to the Railways when the loading took place. Railway wagons were stationed on the track, and the applicant deployed JCB loaders solely to lift and load the ballast. The applicant did not undertake transportation of the ballast or any movement, shunting, towing or marshalling of railway wagons. The Authority observed:

“In the present case, the applicant undertakes only the activity of loading of ballast lying adjacent to the railway track into Railway wagons stationed on the railway track. The applicant loads the ballast for a prescribed amount on the basis for the quantity loaded. No transportation of ballast, movement of railway wagons, shunting, towing, marshalling or any other railway operational activity is undertaken by the applicant.”

The Authority therefore held that the essential character of the activity was loading and handling of goods into railway wagons, rather than transportation of goods or operation of railway rolling stock. It classified the service under SAC 996719, “Other cargo and baggage handling services”, under Heading 9967.

Accordingly, the AAR ruled that loading ballast into Railway wagons using JCB loaders attracts GST at 18%, comprising 9% CGST and 9% SGST.

Counsel for Applicant: B.K. Srinivas, Advocate, Authorised Representative