Share Service Tax with Railways
The Parliamentary Standing Committee on Railways in its Tenth Report to Parliament presented to the Lok Sabha Speaker on 31.08.2016, observed:
The Committee were informed that the service tax on specified classes of passenger travel and freight was introduced w.e.f. 01.10.2012, resulting in increase of cost of transportation affecting the business of the Ministry of Railways. The tax were to the tune of Rs.1478.10 crore and Rs. 3449.34 crore during 2012-13 and 2013-14, respectively. The Ministry of Railways had made several requests to the Ministry of Finance for exemption from payment of service tax on freight and fare anything, inter alia, that this would increase the overall cost of transportation. This, however, was not agreed to by the Ministry of Finance. However, the Committee understand that reimbursement of the service tax has not ever been sought by the Indian Railways for themselves. The Committee strongly feel that the service tax thus collected by the Ministry of Finance through Railways' freight and fare and other services should be shared with the Ministry of Railways. As such, they recommend that the Railways should pursue the matter vigorously with the Ministry of Finance.
This Committee is headed by Mr. Dinesh Trivedi, a former Railway Minister.
The Finance Ministry was trying to tax the services of the Railways since 2009 and they succeeded only in 2012.
I wrote in 28 09 2012,
The tax was imposed on transport of goods by Rail in 2009 budget. The Railways really never took the tax seriously. DDT spoke to several Rail Officials and they considered the tax to be a joke. In 2009, DDT asked a senior Railway officer whether they were ready to collect Service Tax on goods transport. He told us that the Finance Ministry has no right to levy Service Tax on Rail freight and he had no instructions to collect the tax. He said his Board does not recognise this tax. We tried to explain to him that this was an Act passed by Parliament, but he was not impressed. He was sure that it requires approval by his Board and as of now his Board was not too keen to approve the Finance Act. He was aghast that somebody is trying to tax the Railways! When told that Railways are already paying Service Tax on catering, he said it was paid by IRCTC and not by Indian Railways.
From 2009 till June 2012, the tax was being exempted on a quarterly basis and the tax would have come into force from 1st July 2012 under the new regime, but even without Didi, the levy was exempted till 30th September 2012. Now that Didi and her party are out of the complex coalition compulsion, the Government is free to levy the tax it wants. And the Railways have issued a Press Release that Service Tax is applicable from 1st October 2012.
Yes, the Railway Board did not recognize this tax for three years. I am aware of an interesting incident. In 2009, a CBEC Member went to the Rail Bhavan to meet a Member of the Railway Board to discuss the modalities of collecting service tax. The Rail Board Member haughtily told the CBEC Member, "I don't recognize service tax." The CBEC Member was so furious that he pushed back his chair, left his unfinished coffee (Rail Bhavan provides excellent coffee) and walked out in a huff. But the Rail Member was right - at least for three years.
Ministry of Finance has its advantages; it makes more money out of the Railways than even the Railways do.