ITC on Railway freight and Railway Tank Wagons under GST

Article explains Input Tax Credit (ITC) availability on Railway freight and Railway Tank Wagons under GST, Rate of GST on Rail wagon, Whether ITC (Input Tax Credit) is available on purchase of rail wagon and Whether ITC (Input Tax Credit) is available on rail freight payment.

Input Tax Credit (ITC) availability on Railway freight and Railway Tank Wagons under GST

Among the various modes of transportation of goods like road, rail, water and air, Railway is one of the important mode of transport as it can transport goods and passenger at an economical cost.

From the business perspective, railway has been one of the preferred mode of transport of goods as it is cheaper than road transport.

Beside it for bulk customers Railway also provides the facility of Liberalized Wagon Investment Scheme (LWIS) under which a person can purchase a wagon and can handover the same to Railway for movement of his goods (this is subject to certain approval and conditions).

The following are the major two advantages of owning a wagon:

1. freight concession of 12% to 15% is allowed to the owner of wagon for a specified period and

2. He can ensure that his goods are being transported in his specially designed wagons to maintain the quality of his goods and protect it against any pilferage and damage. Owning such wagons becomes more useful for transportation of hazardous materials such as chemicals, oil, Gas etc from safety perspective.

Many business prefers to own its own wagon and they purchase it from independent wagon manufacturers (like Texmaco, Titagarh Wagons, Cimmco etc). A common question arises

1. what is the rate of GST applicable on this wagons ,

2. Whether ITC (Input Tax Credit) is available on this purchase of rail wagon and

3. Whether ITC (Input Tax Credit) is available on rail freight payment.

Rate of GST on Rail wagon:

We know that via Notification No. 14/2019 (CTR) dated 30.09.2019 w.e.f 01.10.2019 the rate of GST on Parts of railway or tramway locomotives, wagons, coaches, etc., classified under tariff heading 8601 to 8608 has been increased from 5% to 12%.

The above was done primarily to address the concern of ITC accumulation with the supplier of these goods as the primary inputs for such supplier is Iron and steel which itself attract GST @ 18%. So as a result of Input attracting GST rate of 18% and output attracting rate of 5% there was inverted rate structure and the need for claiming refund arisen. In order to address this issue of ITC accumulation / refund of ITC the rate on output goods (such as Parts of railway or tramway locomotives, wagons, coaches, etc) has been increased from 5% to 12% w.e.f 01.10.2019.

So rate of GST on wagons is 12% (w.e.f 01.10.2019) and from 01.07.17 to 30.09.19 the rate of GST was 5%.

Whether ITC (Input Tax Credit) is available on purchase of rail wagon?

Section 16 of CGST Act 2017 provides that a registered person shall be entitled to take ITC on goods and services used or intended to be used in the course or furtherance of his business.

However Sec 17(5) of CGST Act 2017 (amended from time to time) provides for blocked credit and specifies the list of items on which ITC is not available even if such goods or services are used in the course or furtherance of business.

Such section 17(5) contains the mention of motor vehicle, vessel and aircraft (in these cases ITC is allowed if certain conditions are fulfilled). However the above section does not mention about rail wagons.

So rail wagons does not contain any disqualification of ITC and hence ITC (Input tax Credit) on purchase of Rail wagons are fully eligible (except when goods transported are exempted goods such as liquor for human consumption, petrol, diesel, natural gas, ATF, crude oil etc)

Beside it repairs and maintenance expenses incurred on maintenance of these wagons are also fully eligible for ITC (except when used for exempted products mentioned above).

However one should not capitalise the amount of ITC on purchase of wagon, since sec 16(3) provides that where a registered person claim depreciation on the GST paid while purchasing the capital asset, he cannot claim input tax credit.

Whether ITC (Input Tax Credit) is available on rail freight payment?

The rate of GST on rail freight for goods is 5% (under forward charge- i.e Railway need to collect this GST from customer and pay to Govt ex-chequer and there is no RCM (Reverse charge Mechanism) applicable)

However if the goods transported falls under specified goods (such as agricultural produce, milk, salt, food grain, newspaper, defence material, relief material for disaster struck areas etc) then no GST is applicable.

So ITC is fully eligible on rail freight payment for transportation of goods (except when goods are exempted goods such as liquor for human consumption, petrol, diesel, natural gas, ATF, crude oil etc)

The above provisions can be tabulated below: