Service Tax on Transport of Goods by Rail- Shortest Journey

[Pradeep Jain]

Introduction: -

The Finance Minister in his Speech on Budget proposed imposition of service tax on transport of goods by rail. This was done to provide a level playing filed in the goods transport sector. Before Budget 2009, in the goods transport sector, service tax was levied on transport of goods by road, by air, through pipeline and by rail in containers. In the Budget 2009, service tax was proposed to be levied on Rail transport alongwith water transport. Thus, the entire goods transport sector would have come under the service tax net. However, the next steps taken by the Government taken for rail transport brought this proposal to an abrupt end even before anything started.

Service Tax on Rail Transport: -

Section 65 (105) (zzzp) of the Finance Act, 1994 was proposed to amended to include goods transported by railways, including Government railways, whether in containers or otherwise. Thus, this proposed amendment had two implications. Firstly, the Railway will also have to charge service tax on transportation by containers. This was leviable on person other than Railways. Secondly, the service tax will also be proposed to levy on transportation by non container cargo also.

Thereafter the budget was passed in Lok Shaba, Rajya Sabha and it was enacted with the approval of president. It was announced that the new levy will come into effect from September 01, 2009. Thus, Indian Railways will have to pay the service tax from September 1, 2009. The exemptions and abatement to be given were to be announced later on.

Exemptions: -

The levy was to come into effect from September 1, 2009 and as such various other exemption notifications came along with this levy.

Exemption was granted to transport of several items by Railways vide Notification No. 28/2009-Service Tax dated 31.08.09. The said Items were as under: -

-     Defence/ military equipments

-     Railway equipments/ materials

-     Postal mail bags

-     Relief materials meant for victims of natural or manmade disasters, calamities, accidents and mishap

-     Luggage of train passengers, whether carried as personal luggage in the train compartments or booked separately in the luggage van/Household effects

-     Parcels [including newspaper/magazines registered with Registrar of Newspapers] booked in the luggage vans, where the goods/commodity heads fall below train load class 130 as per the Indian Railway Conference Association(IRCA) Goods Tariff

-     The following goods which are classified in the IRCA Goods Tariff, as below train load class 130 and wagon load class 130 ( Formula: Train Load Class 120+10) including 'Low Rate' goods viz., LR1, LR2, LR3, LR4:

Food grains, flours and pulses(9), Chemical Manure(6), Gunnies(21), Oil cakes and seeds(16), Soap(19), Starch(21), Salt for industrial use(18), Sugar(20), Salt (18),De-oiled cakes(16), Machinery and machine tools(14), Hides and Skins(12), Leather(12), Rubber and plastic(12), Electrical appliances and fittings(22), Empty drums(22), jerry cans and barrels(22), Jaggry(22), Jute(22), Milk and Milk products(22), Organic Manure(22), Paints and polishes(22), Timber(22), Vegetable oil pitches(22), Water(22), Fireworks(23), Boiler components(24), Charcoal(24), Paper(24) Bamboos(25), Brooms(25), Coffee and Tea(25), Cotton and other textiles(25), Fodder and Husk(25), Fruits and vegetables(25) and other perishables like fishery and marine produce, Groceries(25), Live stock(25), Motor vehicles(25), Sugar cane and Bagasse(25),Fire clay(7),Edible oils booked in covered wagons and charged as LR4, booked in 4 wheeled Tank wagon and charged as Train Load class-100

-    Kerosene oil meant for supply through public distribution system; Petroleum products including LPG Cylinders (filled and empty) booked by public sector Oil Marketing Companies transported by Indian Railways

Abatement: -

The benefit of abatement was extended to Rails Transport vide Notification No. 29/2009-ST, dated 31.08.09. 70% abatement from service tax on rail transport was granted. This meant that service tax was payable only on 30% of the value of taxable services.

The Notification No. 01/2006-ST dated 01.03.06 was amended accordingly.

Grant of Exemption from Service Tax to Rail Transport: -

It was clear that Indian Railways will have to start paying service tax on transport of goods subject to exemptions and abatement granted. However, this was not going to happen. The powerful Railway Minister has had the upper hand over the Finance ministry.

The Government granted full exemption from service tax on transport of goods by rail. The pre-budget position was restored. The abatement Notification No. 01/2006-ST was again amended to restore it to the pre-September 2009 positions. This was done vide Notification No. 34/2009-ST dated 01.09.09. The exemption was again provided to Indian Railways from service tax in respect of container cargo and non-container cargo by Notification no. 33/2009-ST dated 01.09.09. Further, the impugned notification also provided exemption to transportation of non-container cargo by others. Thus, the levy was left only to transport of goods in containers by rail where the service tax liability is on a person other than Railway. Thus, it was restored to pre-budget period.

Resultantly, service tax was payable by any person other than Government Railways in relation to transport of goods in containers by rail.

All this was done on the exact day the service tax was to be leviable on rail transport. Not a single day was wasted.

Rescinding of Notification No. 28/2009-ST, dated 31.08.09: -

Since full exemption was granted to transport of goods by rail for now, the Notification No. 28/2009-ST which granted exemption to transport of several items by rail from service tax became irrelevant.

The Government rescinded the Notification No. 28/2009-St vide Notification No. 36/2009-ST, dated 09.10.09.

In the end: -

The whole affair of levying of service tax on rail transport started and came to an end within few days. The Indian Railways was saved from service tax net, of course by the blessings of the Railway Minister. Else the situation would have been still worse for railways - it took lot many years to bring Indian Railways in profit, if the service tax would have to be paid by it; perhaps the situation would have reverted back due to increase in Service tax related direct and indirect expenditure. However, there was wastage of Finance Ministry's time and money in amending and re-amending the Finance Act and the relevant notifications which would have added much to the country's deficit. "Truth is stranger than fiction" - Right Mr. Finance Minister!!!