EXEMPTION TO TRANSPORTATION OF GOODS BY RAIL - A MOCKERY

[Dr. Sanjiv Agarwal]

The nomenclature of taxable service of 'transport of goods in containers  by  rail', has been amended  by Finance Act, 2009 w.e.f. 1-9-2009 to 'transport of goods by rail'. Thus effective 1-9-2009, all types of transportation of goods by rail shall be covered.

W.e.f.  1-9-2009, transportation of good by rail was to be covered which means that transportation of goods in following mode was to be covered -

- Transport of goods in containers

- Transport of goods without containers .

- Transport of goods in open wagons/trailers.

- Transport of goods in by Government railways (Indian railways).

- Transport of goods by non-Government railways.

However, this legislative amendment has been nullified by exemptions issued on 31.8.2009 & 1.9.2009.

Providing exemption to transportation of goods by rail is yet another example of discrimination. While on one hand, the scope of taxable services was enlarged by Finance Act, 2009 by substituting the earlier definition of 'transportation of goods in containers by rail' by transportation of goods by rail , a Notification issued subsequently exempts whole of service tax on transportation of goods by rail.

In the guise of public interest, Central Government has issued Notification No 29/2009-ST dated 31.8.2009 exempting (abatement @ 70 percent) certain specified goods from levy of service tax on transportation by rail. A similar Notification was issued to exempt certain goods from water transportation services introduced from 1st September 2009 only.

According to Notification No 28/2009-ST dated 31.8.2009, the list of exempted goods under railway transportation includes edible oil seeds, food grains (cereals, pulses), flour , petroleum products, defence/ military equipment, railway equipments/ materials, postal bags, relief material for disasters, accidents, calamities etc, luggage of train passengers, parcels including newspapers, magazines, low  rate goods such as oil cakes, soap, starch, salt, sugar,   hides and skins, jute, milk, paints, polish, timber, water, paper, brooms, bamboos, tea, coffee, live stock, motor vehicles, kerosene oil, LPG cylinder etc.

Within 24 hours of providing abatement exemption to railway transport of goods, Ministry of Finance issued yet another notification stating that transport of goods by rail shall be wholly exempt except transportation of goods in containers by rail, thus restoring  the position as on 31st August, 2009 as well as pre budget provisions .

What is surprising is that the same goods when transported by air or road shall not enjoy exemption and such transportation will continue to attract service tax. If the idea is to curb or check price rise and contain inflation, public interest changes with the mode of transportation. A food grain if transported in a goods carriage is not a public interest concern but if transported in rail, it becomes necessary in public interest to exempt the service from service tax.

Not only this, the exemption goes beyond the legislative mandate of Finance Act, 2009 to levy of service tax on such services and if it was to be exempted on the request of Ministry of Railways, it should have been debated during the course of passage of bill itself. Unfortunately, once again, politics has prevailed over the economics by conceding to pressures from rail bhawan. In net effect, only transport of goods in containers by rail shall be taxable and general railway transportation shall be exempt.

This exemption is a total 'U-turn' from the law enacted and the logic given by Finance Minister to have level playing field for all modes of transportation of goods.

 While announcing the levy of service tax on transportation of goods by rail, The Finance Minister said-

'In the goods transport sector, service tax is currently levied on transport of goods by road, by air, through pipelines and in containers. However, goods carried by Indian railways or those carried as coastal cargo or through inland waterways are not charge to service tax. In order to provide a level playing field in the goods transport sector. I propose to extend the levy of service tax to these modes of goods transport. The new levy is not likely to impact the prices of essential commodities or goods for mass consumption, as suitable exemptions would be provided'.

The Ministry's clarification by way of TRU Letter No 334/13/2009-TRU dated 6.7.2009 also said that service tax is being imposed on goods transported by railways including government railways, whether in containers or otherwise and that suitable abatement and exemption to specified goods would be provided.  Keeping in line with this, Notification No 28/2009-ST dated 31.8.2009 was issued exempting specified goods from levy of service tax.

However, once fails to understand as to what happened during the intervening period between 31st August and 1st September (just one night) that Central Government's perception of public interest took a 'U turn' and what was not in public interest suddenly became a public interest issue and Notification No 33/2009-ST dated 1.9.2009 was issued, on the date from which service tax was to be levied , exempting all service in relation to transportation of goods by rail from whole of service tax except transportation of goods in containers by rail. Not only this, Notification No 1/2006-ST dated 1.3.2006 was also re-amended to restore pre 1.9.2009 position .

In effect, the exemption Notification has restored the pre Budget 2009 or pre Finance Act, 2009 position and thus nullified the legislative amendment effected by Finance Act, 2009.

Not only this, in the process, while Notification No 33/2009 dated 1.9.2009 exempts whole of goods transportation by rail other than containerized goods transportation, Notification No. 28/2009 still stands and accordingly, transportation of specified goods as mentioned in Notification No 28/2009 in containers by rail shall be exempt from levy of service tax. This also appears to be in tandem with public interest.

  To cut short, whole story seems to be the victory of political interest over  public interest and it also raises a few  questions for debate- should such notification nullify  or over rule  the legislative intent ? whether bureaucratic  wisdom is superior to parliamentary wisdom ? and whether a notification can supersede the constitutional enactment, despite their being the power to exempt. Such powers ought to be used in public and national interest. I hope, the message is clear for various stakeholders to ponder upon.