The implementation of service tax levy on transport of goods by rail has been deferred, once again. This levy will now come into effect from April 1 against the earlier announced date of January1.

This is the sixth time that the implementation of this levy has been deferred. Given the high inflation situation in the economy, it is being felt that any service tax levy on rail freight would adversely impact domestic industry, especially cement and steel manufacturers.

Such companies would have ended up paying more for rail movement of their inputs such as coal and also for their finished products. Overall wholesale price index (WPI) based inflation in the economy has remained stubbornly high, near double digits, since January 2010.

Even after the service tax levy on railway freight comes into effect from April 1, rail movement of pulses, foodgrains, petroleum products for the public distribution system, organic and chemical manure and motor vehicles would be exempted from the levy. The 70 per cent abatement norm too would now come into force from April 1, 2012.

The Finance Minister, Mr Pranab Mukherjee, had in Budget 2010-11 brought transport of goods by rail under the service tax net from April 1, 2010. The Government was looking to mop up about Rs 1,000 crore in 2010-11 from this levy.

Now, this levy is to be implemented two years after the originally planned date of introduction of April 1, 2010.

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