Levy of Service Tax on Railways postponed by three months – Tussle between FM and RM continues
THE eagerness with which the Finance Ministry decided to bring Railways into the ambit of Service Tax net last year fizzled out with strong opposition to such levy from the Railway Ministry. With the result, the levy was restricted only to ‘transport of goods in containers by rail' (Please refer to Service Tax Notifications and ).
Notwithstanding this reversal, in this year's Budget as well the Finance Ministry made an attempt to bring the entire Railways into the Service Tax net (with some exemption to transport of certain categories of goods) and not just the ‘transport of goods in containers by rail'. Notifications , and were issued to meet this objective and these notifications were to come into effect from today. Please see What Dada did not tell Didi in Parliament – Exemption given last year to Transport of Goods by Rail withdrawn) Now it appears that the Finance Ministry has backtracked and postponed the effective date of the said Notifications to 1 st of July, 2010.
In fact last year in TIOL-DDT 1188 02.09.2009 while summing up the tussle between the Finance Ministry and the Railway Ministry on this proposed levy, we said,
“Anyway, finally the Rail Babus had the last laugh – they did not make any arrangements to collect this tax – they knew all through that it will never be implemented. We mistook their confidence for arrogance. We regret that we mistakenly thought that a law passed by Parliament is supreme – we never really understood that a Department/ministry of the Government of India will show such scant respect for the Parliament and get away with it. It is not easy to get mighty organisations to be tax compliant. The Indian Railways have won over the Indian Revenue and Parliament. There will be no service tax on transport of goods by Rail – at least as of now. The elusive notification which we could not get yesterday is now available. The Train has arrived. We had reported about the late arrival of the train, early in the morning.”
Last year it was Round One and it was won by the Railways hands down. This year, it is Round Two and with postponement of the effective date, there is a clear indication that the bout will go in favour of the Railways, though on the face of it, it would only seem to be a temporary retreat from the Finance Ministry.
But we can never predict which way the wind blows, because politics is definitely intertwined with the economics of this levy.
Notification Nos. , 21, , Dated : March 30, 2010