Credit to Indian Railway
EFFECTIVE from 1st October, 2012 Indian Railways has become the biggest Service Tax assesse in terms of area and network of operations. Though it is not known whether the Indian Railways would choose for centralized registration or localized registration, it would be interesting to examine the position of this biggest assesse vis-a-vis CENVAT Credit Rules.
Rakes (rail coaches and locomotives) and Tracks constitute the principal capital assets (goods) through which Indian Railways renders its output services of transport of passengers or goods. These rolling stock of railways are classifiable under Ch.hd 86 of CETA and it is interesting to note that Ch.Hd 86 is not one of the Tariff Headings specified under the definition of Capital goods given under Rule 2(a) of CENVAT Credit Rules (as it covers only the Headings 82,84,85,90 and certain motor vehicles falling under Ch.Hd87 ). Hence, IR are not eligible to take credit on duty paid on coaches or locomotives. Nor are they eligible to take credit as inputs, as the definition of inputs specifically excludes any capital goods under its purview.
Coming to the railway tracks / signalling system, they being attached to earth are like civil structure, and as such Railways are also not eligible to take credit on service portion of works contract as input services, because the definition of input service at clause (A) excludes service portion in the execution of a works contract and construction services in so far as they are used for -
(a) construction or execution of works contract of a building or a civil structure or a part thereof; or
Unless rail coaches, locomotives, tracks are declared as capital goods, by amending the CCR, Railways may not be eligible to take credit on these items (as capital goods) and also not eligible to take credit on a host of various inputs or input services purchased towards maintenance of rail coaches or tracks. This is because, the exclusion clause (BA) of input service definition (which reads as follows), may be interpreted by the department to state that the maintenance or repair service is eligible as input service only if it relates maintenance of capital goods
(BA) service of general insurance business, servicing, repair and maintenance, in so far as they relate to a motor vehicle which is not a capital goods
Further, Indian Railways engage many input services (through outsourcing) towards maintenance of its Railway Stations. It has to be seen how the department would treat these services when it comes to extending the benefit of CENVAT credit.
This apart, the operations of IR also attract the provisions of Rule 6 of CCR as the services rendered by IR other than First/ AC class are services on which no service tax is being levied. It is practically impossible for the railways to follow the mandates of Rule 6 of CCR.
Since the definition of capital goods under CCR covers both motor vehicles used for transport of goods and passengers under its purview and allows taking of credit on these goods, it is imperative for the government to amend CCR to include Chapter 86 also (in which railway coaches/locomotives are classifiable) under its purview which would make IR entitled to take credit on these items as capital goods. This apart, the Government should consider making special provisions under CCR (as has been specified in the case of Banking and Financial services) for railways to overcome the difficulty of maintaining separate accounts required under Rule 6 of CCR. Otherwise, the Railways would end up paying an amount at 2% on exempted services in terms of proviso to Rule 6(3) of CCR.
Further, will the Railways get credit for the Service Tax paid on catering in the Rajadhani and other trains?