Levy of service tax on rail transportation of goods:

[C.A. DEV KUMAR KOTHARI]

On enactment of The Finance (No.2) Act, 2009 the provision relating to service tax on goods transport by rail was amended as follows:

Section 65 -  Definitions  

(105) "taxable service" means any service provided or to be provided, -

(zzzp) to any person, by any other person, in relation to transport of goods by rail, in any manner;

This clause was substituted vide Finance (No. 2) Act, 2009 w.e.f. 1-9-2009, before it was read as,follows;:

 "(zzzp) to any person, by any other person other than Government railway as defined in clause (20) of section 2 of the Railways Act, 1989 (24 of 1989), in relation to transport of goods in containers by rail, in any manner;"

The proposed amendment in the Bill was analyzed by the author as follows in one of articles:

Discussion on changes:

The effect of substitution are (a)  that the exemption earlier granted to Government  Railways by use of words "other than Government railway as defined in clause (20) of section 2 of the Railways Act,1989 (24 of 1989) stands withdrawn and

(b) omission of words " in container" has widened scope of services. Earlier it was restricted to transport in container by rail (other than government rail off course.) Therefore after amendment it will not be necessary that transport by rail should be in container. Open wagons transport like in case of steel roads, joists, coal, sugar cane, stones and chips, sand etc. shall also be covered in taxable category.

After successful imposition of service tax on GTA, Containers etc. naturally taxes on other transportation are being widened and tax is proposed on transport even by government railways. The Railways had gained competitiveness due to non levy of service tax on transport of goods by railways. If the levy can be successfully implemented, then the Indian Railways will lose this competitive advantage. By subsequent events it appears that the proposed levy of service tax is not in public interest as considered by bureaucracy.

Effective date of levy:

Vide Notification No. 26/2009-Service Tax of 19th August, 2009 it was provided that "in exercise of the powers conferred by clauses (A) and (B) of section 113 of the Finance (No.2) Act, 2009 (33 of 2009), the Central Government hereby appoints the 1st day of September, 2009, as the date on which the provisions of the said Act shall come into force.

Thus according to this notification service tax on all new services, including goods transport by railways, was to be effective from 01.09.09.

In this article we are mainly concerned with recent Notification no. 36 dated 09.09.09.Vide Notification no. 36/2009 dated  09.09.09 the government has rescinded  the Notification No. 28/2009-Service Tax, dated the 31st August, 2009 which exempted Services in relation to transport of goods by rail in certain cases of public interest like defence, military, railway equipment,  goods of general public utility, low cost items, PDS items etc as mentioned above with the said notification. The notification of 09.09.09 reads as follows:

NOTIFICATION NO. 36/2009-Service Tax dated: September 9, 2009

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby rescinds the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 28/2009-Service Tax, dated the 31st August, 2009, published in the Gazette of India, Extraordinary, vide number G.S.R. 617 (E), dated the 31st August, 2009, except as respects things done or omitted to be done before such rescission.

2. This notification shall come into force with effect from the date of publication in the Gazette of India.

The rescinded notification:

Exemption before effective date:

We find that even before the effective date of 01.09.2009 the Government issued  Notification No. 28/2009 - Service Tax ,dt. New Delhi, the 31 August, 2009 exempting certain goods transport by rail from service tax w.e.f. 01.09.09, that is to curtail the scope of service tax as per the Finance (No.2) Act 2009 and as notified on 19.08.2009. The reason for such exemption is given as in public interest. The relevant portions of the notification with highlights read as follows:

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service provided to any person in relation to transport of goods, the description of which is specified in column (2) of the Table, by rail as referred to in sub-clause (zzzp) of clause (105) of section 65 of the Finance Act, from the whole of the service tax leviable thereon under section 66 of the Finance Act.

2. This notification shall come into force on the first day of September, 2009.

                                                                                          Table                    

Sl.No.	Description of Goods
1.	Defence/ military equipments
2.	Railway equipments/ materials
3.	Postal mail bags
4.	Relief materials meant for victims of natural or manmade disasters, calamities, accidents and mishap
5.	Luggage of train passengers, whether carried as personal luggage in the train compartments or booked separately in the luggage van/Household effects
6.	Parcels [including newspaper/magazines registered with Registrar of Newspapers] booked in the luggage vans, where the goods/commodity heads fall below train load class 130 as per the Indian Railway Conference Association(IRCA) Goods Tariff
7.	The following goods which are classified in the IRCA Goods Tariff, as below train load class 130 and wagon load class 130 ( Formula: Train Load Class 120+10) including 'Low Rate' goods viz., LR1, LR2, LR3, LR4: Food grains, flours and pulses(9), Chemical Manure(6), Gunnies(21), Oil cakes and seeds(16), Soap(19), Starch(21), Salt for industrial use(18), Sugar(20), Salt (18),De-oiled cakes(16), Machinery and machine tools(14), Hides and Skins(12), Leather(12), Rubber and plastic(12), Electrical appliances and fittings(22), Empty drums(22), jerry cans and barrels(22), Jaggry(22), Jute(22), Milk and Milk products(22), Organic Manure(22), Paints and polishes(22), Timber(22), Vegetable oil pitches(22), Water(22), Fireworks(23), Boiler components(24), Charcoal(24), Paper(24) Bamboos(25), Brooms(25), Coffee and Tea(25), Cotton and other textiles(25), Fodder and Husk(25), Fruits and vegetables(25) and other perishables like fishery and marine produce, Groceries(25), Live stock(25), Motor vehicles(25), Sugar cane and Bagasse(25),Fire clay(7),Edible oils booked in covered wagons and charged as LR4, booked in 4 wheeled Tank wagon and charged as Train Load class-100
8.	Kerosene oil meant for supply through public distribution system; Petroleum products including LPG Cylinders (filled and empty) booked by public sector Oil Marketing Companies transported by Indian Railways

From the above notification it appears that many goods which are transported by rail have been exempted from levy of service tax, and the reason is that such exemption is in public interest. From the above table of exempted items, it is clear that the items are of general public utility and also for transportation of goods on behalf of some important government departments like  defence, military, railways, posts, PDS items, goods of daily consumption etc. The purpose of the exemption was, also to keep inflation under control.

No change in circumstances:

 There has been no change in circumstances which could lead to say that the public interest which was sought to be achieved by the Notification no. 28/ 2009 dated 31.08.09 by granting  exemption has lost it utility and now public interest require that the said notification should be rescinded meaning thereby that exemption stand withdrawn.

There appears some confusion or mistake. From other notifications relating to exemption of transport of goods by rail overall picture which appears that there should not be any service tax on service of transport of goods by rail.

Comments:

The Notification no. 28/2009 dt. 31.08.09 is to exempt certain prescribed goods from service tax levied on transport by rail (see table given earlier with the Notification no.28. The rescinding of the same means that service tax will be leviable on those goods when transported in rail.

Is there any mistake in the notification dated 09.09.09:

In view of large scale exemptions allowed, it does not appear logical that the government intended to withdraw exemption granted vide Notification no. 28/2009 including inter alia to goods used for important public purposes like defence, military, railway equipment, low cost items, items of general public utility, PDS items etc.

It appears that there is a mistake in the Notification no. 36/2009 dated 09.09.09. May be that what is intended is to rescind the Notification no. 26/2009 of 19.08.09 in relation to services covered under section 65 (105) zzzp that is goods transport by railways. If so the mistake should be rectified immediately.

Immature decision making:

Even after having gained experience with taxation of service of transport of goods by road, it appears that the government has not learned how to formulate sustainable tax policies. Rail transport is an important public service, and general public is affected by any additional burden imposed on the same. Even freight and fare rates are very sensitive to the public. In such circumstances the proposal to levy service tax on transport of goods by rail was a wrong policy decision. The government must have foresight to think as to what is sustainable tax levy. The government notified that service tax shall be levied from 01.09.2009, even before that notifications were issued to exempt most of such services. Now another notification to rescind an exemption notification clearly shows that decision making is at whims of bureaucrats. And it appears that the legislative intention is being overpowered by bureaucratic whims.