The Hindu Business Line : Railway falls in service tax net; details on abatement, exemption awaited

New Delhi, July 6 Rail transportation may become more expensive for some of its freight users with the Finance Minister, Mr Pranab Mukherjee, suggesting levy of service tax on the Indian Railways to provide a level playing field vis-À-vis road transporters.

But the Railway Ministry and its users are awaiting clarity on several issues – what is the level of abatement, what commodities will be exempted and who will collect the tax.

“In order to provide a level playing field in the goods transport sector, I propose to extend the levy of service tax to these modes of goods transport. The new levy is not likely to impact the prices of essential commodities or goods for mass consumption, as suitable exemptions will be provided,” the Finance Minister said.

Abatement levels

The effective level of service tax on the rail sector is yet to be ascertained because the Revenue Department provides an abatement of 75 per cent of the gross amount charged to a customer by a goods transport agency in the roads sector. Simply put, the service tax can be levied only on the 25 per cent of the gross amount charged for providing this service.

Similarly, the container train operators – who are already under the service tax net — are provided an abatement of 70 per cent.

According to research body Indian Foundation of Transport Research and Training, “Service tax on transportation of goods by Railways will increase freight cost by 2.5 per cent for consignors paying gross freight above Rs 750 per rail receipt (consignment note).”

The imposition of service tax may hit commodities such as fertilisers which do not attract any excise duty unless they are exempted under essential commodities. But steel producers are unlike to see any impact as they pay excise duty.

“It (service tax on rail transportation) will not impact the steel industry since it can be netted off against the excise duty of eight per cent,” said Mr Sushil Maroo, Director, Jindal Steel and Power Ltd.

Mr Mukherjee stated, “In the goods transport sector, service tax is currently levied on transport of goods by road, by air, through pipelines and in containers. However, goods carried by the Indian Railways or those carried as coastal cargo or through inland waterways are not charged to service tax.”

The exact revenue implication of this move is not yet clear. According to the Budget estimates, the Railways will garner Rs 58,525 crore as freight revenues in 2009-10.

On Friday, the Railway Minister, Ms Mamata Banerjee, was thanking the Finance Minster for the Rs 15,800-crore budgetary support for the Indian Railways — Rs 5,000 crore more than the Rs 10,800 crore pledged in the Interim Budget for 2009-10. Part of that extra Rs 5,000 crore will be raised from the rail users it seems!

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