The finance ministry is likely to defer service tax on railway AC passengers and freight by two months after the railways ministry has sought more time to upgrade its accounting system to avail Cenvat credit. Tax on these railway services was to be levied from July 1 along with many other services, thanks to the shift to the negative list system which is more inclusive.
Railway minister Mukul Roy had recently written to the PM requesting him not to impose service tax, saying the railways is not a profit-making body and its competitive edge could be blunted.
According to sources, the railways had asked for more time to prepare an upgraded accounting system for availing CENVAT credit both on input services and goods. ?They can get an extension of 1 or 2 months,? said an official.
In the Budget 2012-13, the government had increased service tax rate from 10% to 12%. However, since there is an abatement of 70%, the effective additional burden on railway users would rise by 3.6%.
