RAILWAYS- WHY REPEATED AND SHORT TERM EXEMPTIONS which lead to uncertainty?

[C.A. DEV KUMAR KOTHARI]

Indian Railways – a government department:

Indian Railways is a government organization in nature of a department of government. It is providing services to meet essential requirement of Indian public. The organization is a Government of India (GOI) department, it is a part of GOI. It is not a case of government company which can be considered as a separate legal entity.

Therefore, the services provided by Indian Railways is services provided by GOI. GOI was not within the meaning and context a person for the purpose of service tax. However, now government ahs also been included in the definition of person therefore, Indian Railway being a department of GOI is also deemed a person.

According to new scheme of taxation of services GOI can also be taxed for services rendered by its department as a service provider or service receiver.

Railway fare pricing:

Railway budget is presented by the Railway Minister. Recently we had experienced novel things on presentation of Railways Budget, the Railway Minister presents budget with an increase in fares and then he has to resign and new Railway Minister presents another budget without fare increase. This shows public important of Railway, price charged by Railways for its services and attached socio-economic and political implications. There is no need to discuss these in details.

Is levy of service tax a way to increase price for services of Indian Railways?

Immediate question which arises is whether levy of service tax on services of Indian Railways is a way to increase the price for such services. The obvious answer can be yes. The reason is that Indian Railways is not separate from GOI. The tax collected by Railways will be deposited in the revenue of GOI under the ministry of Finance. Therefore, in indirect manner price of services of Indian Railways  will increase and the beneficiary of such increase will be GOI, though in a different pocket.

A direct price increase will go directly in pocket of Indian Railways under Ministry of Railways whereas indirect increase by levy of service tax will increase price to service receiver but the extra price realization will go to GOI, Ministry of Finance. So for price is concerned it was  to be controlled by Railway Minister, but unfortunately it was controlled by his party leader. Whereas levy of service tax is controlled by Finance Ministry. 

Deferment of service tax:

We have experienced deferment of service tax on services rendered by Indian Railways from time to time. This is by issuing notifications in public interest to exempt such services.   

Public interest:

So far public interest in relation to pricing of services of Indian Railways is concerned it cannot be a short-term aspect. Socioeconomically as well as politically this is a very sensitive issue. When a small increase in railway fares, after a long gap of nine year had seen strong protest, it cannot be said that public interest in this regard can be foreseen on a very short term scale that is for three months as has been done by recent Notification.   

About recent Exemption:

The Ministry of Finance has issued  Notification No. 43/2012-St, dated 2-7-2012 which states that the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the two kinds of services provided by Indian Railways namely Service of transportation of passengers (with or without accompanied belongings) in 1st class or in Air Conditioned Coach and services by way of transportation of goods, from the whole of service tax leviable thereon under section 66-B of the Finance Act 1994. The exemption would be effective up to 30th September 2012.

In this regard the Ministry of Railways has been pursuing the case with the Ministry of Finance for exempting Indian Railways from the levy of Service Tax in its entirety.  He has to take  up the issue with the Prime Minister, though  in his capacity as the Minister of Finance, to  emphasize that the role performed by the Railways is primarily aimed at fostering inclusive growth through effective discharge of its social obligation without  profit as a motive. While seeking exemption for the Railways, Shri Mukul Roy pointed out that Rail is the preferred mode of transport, not only for the bulk of passengers but also for carrying essential commodities and any levy of Service Tax would have an adverse impact on a large cross section of the society which may lead to spiraling inflationary pressure.