The Finance Ministry has exempted the Railways from service tax, both on goods and passengers.
The notification came on Monday citing public interest. The service of transportation of passengers (with or without accompanied belongings) in non-AC first class and all AC classes and coach and services by way of transportation of goods, which were charged with a service tax of roughly 3.6%, will be exempted till September 30, 2012. So far, service tax was applicable on these classes barring the general and sleeper classes.
The Railway Ministry has been pursuing the case with the Finance Ministry for exempting the Railways from the levy of service tax in its entirety wherever applicable. Railway Minister Mukul Roy had taken up the issue with the Prime Minister, in his capacity as the Finance Minister, and had emphasised that the role performed by the Railways is not for profit but a social obligation. Roy pointed out that trains being the most preferred mode of transport for the passengers and essential commodities, any levy of service tax would have an adverse impact on a large cross section of society which may lead to spiraling inflationary pressure.