Swift response from Indian Railways - Revenue service to take a cue from Railway Service
ON 27th September 2012, Ministry of Railways issued a press note that Service Tax will be applicable on AC Classes, Executive Class and First Class passenger fares from 1st October 2012. The Ministry Press note also said that for the tickets already issued prior to 01.10.2012, the service tax will be collected by the TTEs/Booking offices. Apparently, one cannot find fault with the Railways for not understanding the Point of Taxation Rules of Service Tax, as they might be under the impression that the fare revision will be applicable even for the tickets issued prior to 1st October 2012, since that is how normally railways will implement the fare revisions.
But, they were wrong. The service tax on transportation of passengers/goods by Railways is made applicable from 1st October 2012 by way of not extending the exemption under Notification No 43/2012 which expired on 30 th September 2012. In such situations, Rule 4(b)(ii) of the Point of Taxation Rules will be applicable and it reads:
4. Determination of point of taxation in case of change of rate of tax.- Notwithstanding anything contained in rule 3, the point of taxation in cases where there is a change in effective rate of tax of tax in respect of a service, shall be determined in the following manner, namely:
(a) in case a taxable service has been provided before the change in effective rate of tax,-
(i) xxxx
(ii) xxxx
(iii) xxxx
(b) in case a taxable service has been provided after the change in effective rate of tax,-
(i) xxxx
(ii) where the invoice has been issued and the payment for the invoice received before the change in effective rate of tax, the point of taxation shall be the date of receipt of payment or date of issuance of invoice, whichever is earlier; or
(iii) xxxxx
So, in case of tickets issued prior to 1st October 2012, since the service is provided after the change in effective rate and the payment is received and invoice (ticket) is issued before the change in effective rate, the point of taxation will be date of receipt of payment or date of issuance of invoice whichever is earlier.
Hence, no service tax will be applicable to the tickets issued before 1 st October 2012.
On cancellation of tickets, the Press Note said that the passengers have to file the refund claims with the Service Tax department. But, as per sub-rule (3) of Rule 6 of the Service Tax Rules, when the service is not provided and the amount is refunded to the person from whom it was received, the service provider can take the credit of such excess service tax paid. So, there was no need for Railways to direct the passengers to claim refund from the Service Tax department as they can very well refund the entire fare to the passenger and take credit of the service tax already paid on such cancellations. Further, considering the fact that the service tax on each ticket willbe too small, it will be difficult for each passenger to file a refundclaim and follow it up. had also highlighted this problem.
And the Ministry of Railways has responded to the above issues. With a speed matching that of a Shatabdi Express! Within 24 hours of the first Press Note, another Press Note was issued on 28th September 2012 modifying the first Press Note as under:
The Ministry of Railways has made partial modification in levy of Service Tax on the fare of passengers travelling in AC Classes/First Class from 1st October 2012. As per the corrigendum issued by Ministry of Railways today i.e. 28.9.2012, there are following changes:
(i) Service Tax amounting to 3.708% on the total fare of passenger services in (a) AC First Class, (b) Executive Class, (c) AC-2 tier Class, (d) AC-3 tier class, (e) AC Chair Car class, (f) AC Economy class and (g) First Class is leviable from the 1st day of October 2012. It has been clarified that the Service Tax would be collected on the tickets issued/bookings made on or after 01.10.2012. Service Tax is not leviable on tickets issued prior to 01.10.2012 and hence will not be collected on board the trains.
(ii) In case of cancellation of tickets booked by the passengers on or after 01.10.2012, the applicable amount including refundable Service Tax amount will be refunded by Railways as per Railway refund rules and Finance Ministry guidelines.
That is how a public authority should react. While to err is human (read Government Department), but once the mistake is made known, how quickly one corrects the same makes a big impression about the authority. It would have been a lot better, if the CBEC had come out with all the detailed clarifications, knowing fully well that this tax is going to be effective from 1st October 2012 and the exemption is not going to be extended from 1st October 2012.