Finance ministry has rolled back the proposal to impose a 10.3% service tax on goods transported by the railways. Budget 2009-10 had proposed a 10% service tax on goods carried by the railways, ‘in order to provide a level-playing field in the goods transport sector’, as finance minister Pranab Mukherjee put it.

But the government on Tuesday night issued a notification to hold back the tax, which would have added to the transportation cost of key intermediates like steel, cement and coal, besides automobiles and every other consumer good that is carried through the railway network.

The withdrawal of the tax would benefit the railways as its haulage charges would be much more competitive than the road sector. But the decision would cost the finance ministry Rs 6,000 crore this fiscal.

“The central government, on being satisfied that it is necessary in public interest to do so, hereby exempts the taxable services provided to any person in relation to transport of goods by rail from the whole of service tax,” the CBEC has notified. Private rail container operators would, however, still be liable to pay service tax.

Notification for the above is as follows:-

New Delhi, the 1st September, 2009,

Notification No. 33/2009 – Service Tax

G.S.R. (E).- 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 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, provided, nothing contained in this notification shall apply to any service provided or to be provided, by any person other than government railway, in relation to transport of goods in containers by rail.

F. No. 356/24/2009-TRU

Prashant Kumar

Under Secretary to the Government of India

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