Abatement issue: Concor, Rlys get service tax relief

A recent order of Director General Central Excise Intelligence (DGCEI) has brought some relief to Container Corporation of India (Concor) and several other container train operators of the Indian Railways.

In an order issued on February 14, DGCEI has dropped an earlier case through which the department had slapped a service tax demand in 2015 seeking ₹700 crore from Concor and ₹1,100 crore from the Railways.

The issue was whether containerised services offered by the Railways qualified for a 70 per cent abatement of service tax, which meant the Railways would charge a service tax only on 30 per cent of the freight amount charged by it to Concor and other container train operators.

Another view taken by a section in the government was that container services were a “support service” of the Railways, as defined in 1994, and thus the entire amount should attract service tax, instead of just on 30 per cent of haulage charges.

Concor and multiple operators of the Railways were unhappy with this interpretation.

However, now the DGCEI has clarified that the interpretation of the Railways and Concor was correct.

“Board of Excise and Customs, which place a different interpretation upon the phrase, that interpretation will be binding on Revenue,” said DGCEI in its order asking for the proceedings against Concor and Railways to be dropped.

When contacted, Concor’s Director Finance P Allirani told BusinessLine that the company won’t have to provide for a contingent liability for the ₹700 crore in the balance sheet in the future.

The decision comes at a time when Concor is facing pressure on its margins. Its most recent results have seen a year-on-year dip both in its topline and bottomline.

For the quarter-ended December, Concor registered a topline of ₹1,330 crore, down five per cent from ₹1,404 crore in the corresponding period previous fiscal. Its net profit was down 9.7 per cent at ₹186 crore against ₹206 crore.

The clarity on the issue will also benefit other rail-based operators, such as the container train operations arm of Adani, Gateway Rail Freight, at a time when Railways is facing competition from roadways.

The decision will also usher in a level-playing field between containerised services offered on roads and railways, as both will now incur service tax of 15 per cent on only the 30 per cent amount — that is 4.5 per cent.

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