Dr. Sanjiv Agarwal

Within few days of hike in diesel prices, Government has given one more silent blow to the country men by imposing levy of Service Tax on railway freight on transportation of goods by train and travel in trains in all types of air conditioned classes and first class. This levy of Service Tax shall be effective from today, 1st October, 2012.

While the levy of Service Tax on railway freight was introduced in the year 2006 but could not be enforced due to Railway Ministry being headed by one of the ruling party’s allies in the alliance, the levy of Service Tax on transport of passengers was introduced by Finance Act, 2012 w.e.f. 1st July, 2012 but was held in abeyance due to pressure from the Ministry of Railways for a period upto 30th September, 2012.

Now that Ministry of Railways has returned to Government’s own fold and there being no pressure from any quarter, Government has decided to impose Service Tax effective today as the current exemption comes to an end and the Government of the day is neither bothered about mounting prices due to inflation nor of the welfare of the citizens.

Though the rate of Service Tax is 12.36 including the two education cesses, the effective tax hit would be as under –


Rate of Service Tax


Net Tax Rate

Passengers Travel




Goods freight




 Thus, for a rail travel ticket of say, Rs. 1000/-, a Service Tax of Rs. 37.08 shall have to be extra borne by the passenger. In case of transport of goods, a gross freight of Rs. 1000/- would now be costlier by Rs. 37.08.

Railway freight will attract Service Tax, whether in containers or otherwise. However, no Service Tax shall be payable on transport of certain specified items such as petroleum products, relief material, goods for defense or military purposes, postal mail, news papers, fertilizers, specified food stuff etc.

While the services of railways in relation to transportation of passengers, with or without accompanied belongings in first class coach and air conditioned coach including AC chair car will attract Service Tax, any travel in any non- AC class will be out of Service Tax net. Also, there is no Service Tax on travel in metro train.

When one travels in train, he also pay Service Tax on consumption of catering services on board. The fares of upper classes were also raised in April this year where as increased fares were rolled back for non-AC classes after a lot of furore by a group of members of Parliament, which also cost the earlier railway minister his position.

Hindustan Times readers may note that Service Tax shall not be attracted on railway bookings done or tickets purchased prior to 1st October, 2012 even if the date of journey is after 30th September, 2012. The law does not allow to charge differential amount of Service Tax from passengers undertaking journey on or after 1st October, 2012.  Also, if a journey is not undertaken for whatever reason including cancellation of train by the railways itself, the railways cannot benefit from the Service Tax so paid by the passenger and it shall be duty bound to refund the Service Tax portion alongwith the refund due to the passenger.

The citizens of the country must be thinking today that the Government’s erstwhile ally, was at least good in one way – steadfastly preventing the levy of Service Tax on railway services.

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