Railways have second thoughts on paying Service Tax
THE Rate Circular No. 29 of 2012 dated September 28, 2012 issued by the Dy. Director, Traffic Commercial (Rates), Railway Board on the subject "Levy of Service Tax on Transportation of Goods by Rail" contains the following guidelines -
ix) As per Rule 6 of the Service Tax (Determination of Value) Rules 2006, "the amount realized as demurrage or by any other name whatever called for the provision of service beyond the period originally contracted or in any other manner relatable to the provision of service" is included as part of the taxable service.
Accordingly, the levy of any demurrage and wharfage charges in case of transportation of goods by Rail shall attract Service Tax at the rate of 3.708%. Zonal Railways, FOIS/CRIS areinstructed to levy the Service Tax @ 3.708% on the gross amount of the demurrage and wharfage charges and collect the same from the customers for the purpose of remitting to Government of India.
I had in while reporting the Rate Circular 29 of 2012 mentioned -
Will the Board - CBEC (not Rail Board) Clarify?
Four days back, apparently, the Railways had a re-think on the matter. And after examination of the contents of the above paragraph, they have issued a Corrigendum no. 7 to the subject Circular. The corrigendum makes it amply clear that the same is issued with the concurrence of Accounts and Finance Directorates of Ministry of Railways.
This is what the corrigendum reads -
In supersession of Para 4(ix) of Rates Circular No. 29 of 2012, it is advised that there is no liability on the part of Railways to collect Service Tax on Demurrage and Wharfage Charges . Demand Note/Receipt etc. for collection of Demurrage/Wharfage Charge shall, however, clearly specify that "Customer shall solely be liable for paying applicable Service Tax directly, under Reverse Charge Mechanism".
Incidentally, there has been no change in the law on the Service Tax side but that does not seem to have bothered the Railways a bit.
P G James has been incessantly covering this issue through his articles carried on our portal and has also followed it up with RTI applications made to the CBEC. Please see DDT 2021 & 2425.
We are carrying his latest article on this "corrigendum" titled "Why ‘over-burdened' Railway should pay Service Tax?" in our ST se GST tak column today.