Can Railways avail CENVAT Credit?
WITH effect from 1 st October 2012, service tax is applicable on transport of passengers by rail in First Class and Air Conditioned coaches and transportation of goods by rail. According to the Notification No 26/2012 ST dated 20 th June 2012, an abatement of 70% is provided to both these services and tax is payable only on 30% of the amount charged for the respective services. (Sl No 2 & 3 of the Notification).
Unlike other entries in the Notification, for services at Sl No 1, 2 and 3, the condition for availing the exemption/abatement is mentioned as Nil in column (4) of the Notification. For all other entries, the exemption/abatement is only on the condition the service provider shall not avail CENVAT Credit as specified against each entry.
Since in column (4) for Sl No 2 and 3, it is mentioned as Nil, it appears that the Notification does not bar the railways from availing CENVAT Credit on inputs/input services/capital goods used for providing the service. Interestingly, prior to 01.07.2012, the abatement Notification No. 1/2006 ST dated 01.03.2006 had a condition common to all the services, including the “transportation of goods by rail" that the service provider shall not avail CENVAT Credit on inputs/input services/capital goods used for providing the services. It is not known whether the change is intentional.
Another interesting point is whether the Railways will be eligible for abatement on the cancellation charges collected. If one has to go by the recent draft circular issued with regard to air travel, if the cancellation fee is separately collected, no abatement will be admissible. If the amount is retained from the originally charged amount, (in railways, mostly the cancellation charges are not separately collected, but are retained from the originally charged amount) then abatement will be admissible. But should the mode of collection of cancellation charges be a factor to determine the admissibility of abatement?