With continuing pressure from the railway ministry, the finance ministry has decided to defer for at least three months a decision on whether service tax should be levied on transport of goods through rail.
?A decision has been taken by the finance ministry to keep in abeyance any decision on service tax on transport of goods till March 31 or three months from the last deferment that ends on December 31,? a finance ministry source told FE.
Finance minister Pranab Mukherjee has already given his approval to defer the proposal and the notification could come anytime next week, he said.
The move to defer the levy of service tax came after railway minister Mamata Banerjee put pressure on the government to waive off service tax as it had done last year also. Railways ministry officials had also written to the finance ministry seeking withdrawal of service tax on rail freight, the official said.
In Budget 2009-10, the government had proposed a 10% service tax on goods carried by the railways to provide a level-playing field to transport of goods by road.
However, it exempted rail freight from service tax in September 2009.
Later in Budget 2010-11, finance minister Pranab Mukherjee announced that the exemption from service tax would be withdrawn. The service tax, however, attracted an abatement of 70% of the gross value of freight charged on goods (other than exempted goods). This translated to a tax on only 30% of the value of transported goods.
Though, a final decision to do away with the proposal or to levy a service tax would be taken only after March 31 next year.
The railway ministry feels that despite the abatement, it could mean hike in freight rates by up to 5% or about Rs 100 per tonne. As a result, the ministry would have to pass on the tax to the consumer and is worried that it could also impact its freight traffic.
An additional burden of service tax would increase the transportation cost for those using rail services for transport, a huge chunk of the Railway?s income.