S.No.

9 Agarwal Sanjiv & Company

Chartered Accountants, Jaipur

IMPACT OF GST ON INDIAN RAILWAYS

1. Preamble

Indian Railway(IR) is an Indian state-owned enterprise, owned and operated by the

Government of India through the Ministry of Railways. It is one of the world's
largest railway networks comprising 115,000 km (71,000 mile) of track over a route
of 65,436 kms (40,660 mile) and about 7200 stations.

Railways were first introduced in India in 1853 from Bombay to Thane. In 1951 the
systems were nationalized as one unit, the Indian Railways, becoming one of the
largest networks in the world. IR operates both long distance and suburban rail
systems on a multi-gauge network of broad, meter and narrow gauges. It also owns
locomotive and coach production facilities at several places in India and is assigned
codes identifying their gauge, kind of power and type of operation. Its operations
cover twenty-nine states and seven Union Territories and also provide limited
international services to Nepal, Bangladesh, and Pakistan.

Indian Railways is divided into several zones, which are further sub-divided into
divisions. The number of zones in Indian Railways increased from six in 1950's to
seventeen today. Each zonal railway is made up of a certain number of divisions,
each having a divisional headquarters. There is a total of seventy divisions.

Major revenue sources of railways inter alia, include freight, passenger fares,
advertisement, and publicity, land and other lease etc. Railway’s gross traffic
receipts are estimated at close to Rs 2,00,000 crore, and net revenue is estimated
at close to Rs.19,000 crore.

In the ensuing paragraphs, we have sought to identify the key aspects of the Model
GST Law as may be relevant for the Indian Railways operating in India.

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2. Territory

GST law shall extends to the whole of India and SGST law would apply to
respective states. Presently, Service Tax law extends to the whole of India except
the State of Jammu & Kashmir and Central Excise law extends to the whole of
India.

Accordingly, it is clear that the services (supply) provided or to be provided in the

State of Jammu and Kashmir (J&K) shall not be any more exempt. Indian Railways
providing transportation of passenger services and freight services in the State of
J&K will also be covered under the ambit of supply.

3. Coverage under GST for IR

(a) Business
IR being a body of Central Government is engaged in providing transportation
services to the general public in India, therefore, activities of transportation by
IR shall be deemed to be a business or commerce.

Further, IR owns and/or is maintaining and/or operating hospitals, schools for

children of employees and other ventures for the benefits and welfare of its
manpower. Accordingly, all the activities like transportation service including
hospitals, schools and other venture will also be covered in the scope of
business, irrespective of pecuniary benefit.

(b) Business Vertical

IR has been providing transportation of passengers and freight services, a
workshop for development or maintenance, leasing, advertisement and any
various other commercial activities. Therefore, business vertical may be defined
according to transportation services for passengers and goods and workshops
for development or maintenance, leasing, advertisement and any other
distinguishable activities.

What is a business vertical has been defined in GST law. Accordingly, “business
vertical” means a distinguishable component of an enterprise that is engaged in

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supplying an individual product or service or a group of related products or

services and that is subject to risks and returns that are different from those of
other business verticals.

Explanation: Factors that should be considered in determining whether

products or services are related include:
(a) the nature of the products or services;
(b) the nature of the production processes;
(c) the type or class of customers for the products or services;
(d) the methods used to distribute the products or provide the services; and
(e) if applicable, the nature of the regulatory environment, for example,
banking, insurance, or public utilities.

Indian Railway may need to look into this may have to register under different
verticals.

4. Taxable Person

For GST, ‘taxable person’ means a person who is registered or liable to be

registered under Schedule-V of the Act.

A person, who has obtained or is required to obtain more than one registration in
one State or more than one State, shall be treated as distinct persons in respect of
each such registration.

Example
If IR has obtained a separate registration for its administrative office and workshop
in the same/different State(s), then both separate registrations i.e., administrative
office and workshop, shall be treated as distinct persons. Accordingly, transaction
between distinct persons will be subject to levy of GST provisions including input
credit mechanisms.

An establishment of a person who has obtained or is required to obtain registration

in a State, and any of his other establishments in another State shall be treated as
establishments of distinct persons for the purposes of this Act.

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5. Registration

IR is required to get registration in the State from where it makes the supply. There
is no concept of Centralized registration under GST as it is available under the
present service tax. Therefore, State wise registrations need to be taken.

Example
In the State of Rajasthan, there will be a principle place of business and more than
one additional place of business like each and every railway station from where the
services through trains are provided.

Further, production units of Railways will also be required to get themselves

registered under GST.

6. Taxable Event- Supply

Under service tax law, rendering of service is a taxable event for levy of Service Tax.
In case of central excise, manufacture and place of removal determines the
taxability. ‘Supply’ is to be considered as a taxable event under GST.

Supply shall include:

(i) all forms of supply of goods and/or services made or agreed to be made
for a consideration by a person in the course or furtherance of business,
(ii) Importation of service for a consideration, and
(iii) Services have been specified in schedule I, which shall be considered as a
supply even if made without consideration.

Accordingly, transportation services, facilities in hospitals and other activities

relating to welfare of manpower, importation of services for consideration, long term
leases meant for development of infrastructure, all projects being executed by
Indian Railways through PPP/JV and cleaning at Railways Stations, Railways
tracks etc. shall be covered under the ambit of GST.

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7. Types of Supply

(a) Composite Supply

A supply made by a taxable person to a recipient comprising two or more
supplies of goods or services, or any combination thereof, which are
naturally bundled and supplied in conjunction with each other in the
ordinary course of business, one of which is a principal supply.

IR has been providing transportation of freight services, therefore, in the

case where goods are packed and transported with insurance then, the
supply of goods, packing materials, transport and insurance etc. may be
considered as a composite supply where transportation of goods shall be the
principal supply.

IR also provides transportation of passenger services along with food facility

in the train (like Rajdhani, Shatabdi, Duronto, etc.) for its passengers. For
these services, IR has charged a single price for transportation and food.
Both i.e., services and goods are not supplied separately and are dependent
on one other. Therefore, in this case, IR provides composite supply.

(b) Mixed Supply

Where two or more individual supplies of goods or services, or any
combination thereof, made in conjunction with each other by a taxable
person for a single price where such supply does not constitute a
composite supply.

For example, in a train like 'Duranto' passengers are transported for a

consideration and food and bad roll are supplied for a price which can be
booked with the journey ticket. The combined price would constitute a mixed
supply.

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8. Import of Goods – GST or Custom Duty?

As per Model GST law, a supply of goods in the course of import shall be deemed to
be a supply of goods in the course of inter-state trade and accordingly leviable to
Integrated Goods and Service Tax (IGST). Presently, the customs duty is having
three major components Basic Custom Duty (BCD), Countervailing Duty (CVD),
and Special Additional Duty (SAD). Under GST regime, levy of IGST on imports
would subsume CVD and SAD. Also, it appears that Education Cess (EC) and
Secondary Higher and Education Cess (SHEC) shall continue to be levied on
imports of goods on BCD and other Duties under Customs Act except for CVD and
SAD which will be subsumed under GST.

Further, GST model propose 'transaction value' based valuation. The concept of
MRP valuation will not be there under GST regime. Accordingly, there will be the
impact on customs duty payment on goods on which CVD has levied on MRP based
valuation since IGST would levy on transaction value. The transaction value will
include any taxes, duties, fees and charges levied under any other statute. It
means that while calculating IGST on imports, BCD should be added to the
transaction value of imports. All other customs duty such as anti-dumping duty,
other additional duties shall also be added to the transaction value of imported
goods while calculating the IGST on such goods. This would certainly impact the
valuation, working capital and management of cross-border transactions.

Accordingly, IR is importing goods from outside India for manufacturing of train

related or other structures. In such cases, importation of goods would be subject to
IGST and BCD, both.

9. Time of Supply of Goods and/or Services

CGST/SGST/IGST shall be payable at the earliest of the following dates, namely:

· the date of issue of an invoice by the supplier or the last date on which he is
required to issue the invoice with respect to the supply; or
· the date on which the supplier receives the payment with respect to the supply

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10. Valuation

Transaction value shall be considered for payment of tax, with various inclusions
prescribed in the valuation provisions/rules.

Certain inclusions in the valuation are as follows:

(i) Any taxes, duties, cesses, fees and charges levied under any statute
(like Basic Customs Duty and Anti-dumping Duty), other than
SGST /CGST/IGST.
(ii) Any amount that the supplier is liable to pay in relation to such
supply but which has been incurred by the recipient of the supply
and not included in the price actually paid or payable for the services.
(iii) Incidental expenses
(iv) Interest or late fee or penalty for late payment of any consideration of
supply.
(v) Subsidies directly linked to the price excluding subsidies provided by
the Central and State Governments

But shall not include discounts:

Post-supply discounts will not be included in the transaction value if it is
established as per the agreement and is known at, or before, the time of supply.
Year-end discounts and discounts offered on achieving a target will also be
excluded if they could be specifically linked to relevant invoices against which
discount has been offered.

Therefore, it is important that the proper planning, accounting and disclosures in

relation to ‘discount’ may be made for the exclusion under transaction value under
tickets issued in the ordinary course of business. It may be advisable to draft a
proper discount policy for smooth calculation and disclosure of the discount, i.e.,
discount to senior citizens, free passes to specific categories of person, a discount
to specially abled and privileged persons and other categories of persons in the tax
invoices (tickets) to be issued.

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11. Stock Transfers to be subject to GST

Transfer of inputs/ capital equipment from one unit to another is quite common in
IR. Therefore, units operating from multiple locations in different States would be
required pay to GST on stock/assets transfers from its premises in one State to its
premises in another State. Further, in the case of IR are having multiple business
verticals within the State and if IR opts to take separate registration for each such
business vertical, then GST needs to be paid for stock transfers even when made
within the same State but of course, subject to availment of Input Tax Credit (ITC)
as per law.

Therefore, transfer of manufactured railway locomotives/coaches being used in-

house (captive consumption) from one distinct unit or different State will subject to
IGST.

12. Input Tax Credit

IR has two major inputs, i.e., High-Speed Diesel (HSD)/Light Diesel Oil (LDO) and
electricity for a rendition of output services. Under GST regime both inputs have
been kept out of the purview of GST. Therefore, IR can not avail credit of tax paid
on such inputs.

Under GST regime, certain conditions have been prescribed for availing of credit,
i.e., the taxable person should have taxpaying documents and should have received
goods/services and tax charged by the supplier, on which the recipient is entitled
to credit should be paid to the appropriate Government. This shall bring onerous
compliance requirements upon the recipient to verify whether the supplier has
discharged its tax liability.

While the GSTN system will enable fulfillment of this requirement based on the
matching principle, inserting this as a condition may require the discharge of
responsibility on the recipient of supplies.

As per Model GST law, 'Capital goods' has been liberally defined for being eligible to
claim input tax credit in respect of capital goods. 'Capital goods' means goods, the

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value of which is capitalized in the books of accounts of the person claiming the
credit and which are used or intended to be used in the course or furtherance of
business. Accordingly, input tax credit will be eligible for capital goods only on
those goods, the value of which is capitalized in the books of accounts.

As per existing law, a 'good' can be considered as 'capital goods' if it is covered in

specified chapters of Central Excise Tariff Act, 1985 read with Cenvat Credit Rules,
2004. Locos, train coaches, railway tracks, electronic signals etc. are not
considered as capital goods.

Now, under GST law, there will not be any restriction to take input tax credit of tax
paid on capital goods. This will enable IR to claim input tax on capital goods and
other inputs except for HSD and electricity.

However, Indian Railway may take up the matter for input credit on other items
with MOF.

13. Reconciliation of Inward and Outward Supplies

(matching of invoices)

If there is a mismatch between the details of outward supplies uploaded on the

GST Network (GSTN) by vendors and the inward supplies uploaded by the
recipient, such mismatches will be communicated to the recipient.

If the mismatch is not rectified by the vendor in the month of communication, the
recipient will be liable to pay the differential GST along with interest in the
subsequent month. This provision places the liability for non-compliance on the
recipient, i.e., IR, as against their vendors.

Similar provisions have been prescribed wherein details of credit notes issued by a
supplier have to match with the corresponding reduction of input tax credit
claimed by the recipient. Accordingly, if the recipient does not adjust the input tax
credit, the tax and interest would be recovered from the supplier. This provision
places liability on taxpayers for non-compliance by vendors.

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14. Transitional Credits

To transfer the existing cenvat / input credits in the GST regime, the condition has
been kept that such credit must have been admissible in the GST regime.

Following points may be borne in mind:

· Credits of Service Tax must be properly reflected in the last service tax returns
filed before appointed day and documentation must be in place to establish the
same. Further, service tax credit pertaining to inputs in stock can also be
availed.
· Currently, persons who are not availing the credit of excise duty and CVD may
need to ascertain the value of the stock as on the appointed day and based on
the availability of the invoice, input credit may be availed.
· Similarly, if a person is not availing the credit of VAT currently due to restriction
in the state VAT law, then the credit can be availed based on the ascertainment
of stock and as on the invoices appointed day.

However, if the credit of VAT is being currently availed then the same needs to be
properly reflected in the last VAT return to transfer such credits to the GST regime.

15. Input Service Distributor Concept (ISD)

As in the present Cenvat Credit Rules, ISD concept is proposed for transfer of credit
of input services between two or more locations. ISD can transfer credit of all types
of GST (CSGT, SGST or IGST). Considering the possibility of multiple registrations
State-wise, ISD could be used as a tool to ensure optimal utilization of head office-
related input tax credits, resulting in an effecitve reduction in cost.

16. Invoice

A tax invoice shall include a ticket for the supply of services. Suitable changes need
to be made in respect of discount/concession given to specified categories of
persons and goods transportation so that such relief shall not become part of the
transaction value for the purpose of GST.

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However, in the case of free pass cards, invoice of the same to be prepared by
showing 100% discount from normal fares.

It may be noted that the ticket should contain prescribed information such as:
· name, address and GSTIN of the supplier.
· date of its issue.
· name, address, and GSTIN/ Unique ID Number, if registered, of the recipient
etc.

Indian Railway my take up the issue of considering tickets as invoice with

exception of certain information which may not be captured in tickets. Further,
scope for consolidated daily invoice may also be explored for matching purposes.

17. Returns

Under existing service tax laws, the assessee has to submit 2 half-yearly returns
under Service Tax. Model GST law provides for following returns which are required
to be submitted by a tax payer:
S.No. Return Periodic return to being filed for To be filed by
Outward supplies made by 10th day of succeeding
1. GSTR-1
taxpayer month
Inward supplies received by a 15th day of succeeding
2. GSTR-2
taxpayer month
Monthly return 20th day of succeeding
3. GSTR-3
month
Quarterly return for 18th of the month next to
4. GSTR-4
compounding Taxpayer quarter
Periodic return by Non-Resident last day of registration
5. GSTR-5
Foreign Taxpayer
Return for Input Service 15th of the next month
6. GSTR-6
Distributor(ISD)
Return for Tax Deducted at 10th of the next month
7. GSTR-7
Source(TDS)
8. GSTR-8 Annual Return By 31st December of next FY

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18. Rate of Tax

Currently, under service tax, IR has been paying service tax on the abated value of
services. Abatement at a glance is as follows:
· Transport of goods by Rail: 30% (i.e., tax to be levied on percentage of taxable
value)
· Transport of passengers by Rail: 40% (i.e., tax to be levied on percentage of
taxable value)

Under GST law, GST Council has proposed four-tier rate structures, i.e., 5%, 12%,
18% and 28%. However, no abatements have been prescribed yet. Therefore, prima
facie, it appears that IR would need to pay GST at the rate as may be prescribed for
the transportation of goods and/or services. Further, it is estimated that if no
abatement is given or exemptions allowed to the IR, then GST payable by IR may be
around Rs. 20,000/- crores(@18%).

19. Payment of Tax

Any tax, interest, penalty, fee, etc., shall be paid via internet banking or by using
credit/debit cards or NEFT or RTGS. This amount shall be credited to the
electronic cash ledger of the dealer and no cash payments or other modes are
allowed. There are two modes of payment of tax, are as follows:

(a) Payment through electronic cash ledger

· Manner of payment
§ Internet Banking
§ Debit or credit card
§ NEFT
§ RTGS
§ TDS
§ TCS : In case of e-commerce operators
§ RCM
§ By any other mode subject to condition & restrictions
· The amount paid shall be credited to electronic cash ledger of taxable
person

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· Date of deposit to be date of credit to the account of appropriate

Government.

(b) Payment through electronic credit ledger

· Tax paid by utilizing ITC shall be credited to electronic credit ledger of
taxable person.
· The amount available in the electronic cash ledger may be used for making
any payment towards tax, interest, penalty, fees or any other amount
payable.
· The amount available in the electronic credit ledger may be used for making
any payment towards tax payable.

20. Tax Deduction at Source (TDS)

Under GST regime, IR will need to deduct Tax Deducted at Source (TDS) @2% (1%
each for CGST and SGST or 2% for IGST) from the payments made or credited to
the supplier of taxable goods and/or services under a contract where it exceeds INR
five lakhs. This will be over and above the TDS required to be deducted under
Income Tax.

It may be noted that TDS shall not be required to be deducted from the payments
made to a supplier for supplying of HSD and electricity as they have been kept out
of the purview of GST.

Deducted TDS amount should be deposited to the appropriate Government within

ten (10) days from the end of the month in which such deduction is made.

21. Tax Collection at Source (TCS)

IR also provides service in relation to booking of cab or bus, booking of flights,

accommodation etc. to the general public through its IT portal ‘irctc.co.in’ for which
it may receive funds directly in to its bank account and then further remitted to the
supplier of service.

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As per model GST law, there is a requirement to Tax Collect at Source (TCS)
@2%(1% each for CGST/SGST) of the net value of taxable supplies made through it
where the consideration with respect to such supplies is to be collected by the
operator.

'Net value of taxable supplies' shall mean the aggregate value of taxable supplies of
goods or services( excluding service on which e-commerce operator only will have to
pay tax) made during any month by all registered taxable persons through the
operator reduced by the aggregate value of taxable supplies returned to the
suppliers during the said month.

‘Electronic commerce operator’ means any person who owns, operates or manages
the digital or electronic facility or platform for electronic commerce.

‘Electronic commerce’ means the supply of goods and/or services including digital
products over a digital or electronic network.

Therefore, IR will be required to collect TCS @2% of the net value of taxable
supplies where consideration in respect of supplies received by the IR. TCS is to be
deposited to the appropriate Government by 10th of succeeding month in which
TCS has collected.

22. Refund of Tax

Time limit for making application for refund is two years from the relevant date in
prescribed form and manner. In some cases, the refundable amount shall, instead
of being credited to the Consumer Welfare Fund, be paid to the applicant such as
in the case of export of services etc.

Refund application has to be disposed of by way of a proper order within 60 days

from the date of receipt of application (which is complete in all respects), else the
Tax Department would be required to pay interest on delay beyond 60 days. Issues
could arise as to when the application can be considered as complete in all
respects, and therefore show-cause notices for rejection of refund claims may still
be issued in order to obtain further details, thereby extending this time limit.

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Any refund found eligible would be paid in cash. However, where any refund is fully
or partially rejected, the provision mentions that such amount shall lapse. All
pending refunds under the earlier law would be processed and disposed of as per
the provisions of earlier law.

23. Job works under GST

The principal (IR) has the option to send taxable goods without payment of GST to
a job worker and bring it back, after processing, to any of his own place of
business, for supplying such goods on payment of GST or export it. The principal
also has the option to directly supply final products to end customers on payment
of GST or export from the premises of job worker itself, subject to fulfillment of
applicable conditions. GST credit is allowed in case of direct receipt of inputs or
capital goods by the job worker, subject to receipt of goods back to the principal
within specified period i.e., one year/ three years.

Therefore, if IR has dispatched some goods like locos, coaches etc for job work of
repairs, maintenance etc, then such transfer can be made without payment of GST
on such transfer. But in the case where job worker directly supplies the coaches or
locos to the distinct units on behalf of principal, then such supply would be subject
to GST.

24. Transactions between Head office and Branch offices located

outside/inside India

Services provided to the overseas branch would not be eligible for export of services
due to specific exclusion for such transactions in the definition of “export of
service”. This is similar to the existing provisions for export of service to overseas
branches.

Model GST law provides that an establishment of a person in India and any of his
other establishments outside India shall be treated as establishments of distinct
persons. Accordingly, the supply of services to the branch would not be eligible for
export of services, and as such, benefits available to exporter would be restricted to
the supply of services to other persons. This could entail a reversal of input credits
as such supply would be treated as non-taxable and not as zero rated.

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When, IR provids services in Nepal, Pakistan, Bangladesh etc, such services will be
considered as export of services subject to fulfillment of prescribed conditions.

However, supply provided to domestic branch in other States shall be considered as

a supply to distinct person. Accordingly, IGST would be leviable on such supplies.

25. Inter-State or Intra-State Supplies?

Any supply where the location of the supplier and the place of supply are in
different States then, such supply shall be considered as interstate supply,
accordingly, provisions of IGST will be applicable. On another hand, any supply
where the location of the supplier and the place of supply are in same State then,
such supply shall be considered as intra-state supply.

26. Place of Supply of Goods and Services

Provisions related to place of supply of goods and/or services are contained in

following sections, namely-
a) Section 7: Place of supply of goods other than supply of goods imported into, or
exported from India,
b) Section 8: Place of supply of goods imported into, or exported from India,
c) Section 9: Place of supply of services where the location of supplier of service
and the location of the recipient of service is in India, and
d) Section 10: Place of supply of services where the location of the supplier or the
location of the recipient is outside India.

Provisions of the place of supply applicable to railways are as follows:

Situation Place of supply
Place of supply of goods other than supply of goods imported into or
exported from India
Where supply involves movement of goods Location of goods when movement
of goods terminate for delivery to
recipient

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Where goods are delivered on directions of Principal place of business of the

third person (transfer of documents) third person who shall be deemed to
have received the goods
Where no movement of goods is involved Location of goods at the time of
delivery to the recipient
Where goods are assembled/installed at Place of installation or assembly
site
Where goods are supplied on board a Location at which goods are taken
conveyance on board.
Place of supply of goods imported into or exported from India
Goods imported into India Location of the importer.
Goods exported from India Location outside India.
Place of supply of services where the location of supplier of service and
the location of the recipient of service is in India
General Rule Location of the recipient of the
supply, if available otherwise
location of the supplier of supply.
Service in relation to immovable property The location of such immovable
property
Service by way of lodging accommodation The location of such property (hotel,
houseboat, etc.
Accommodation of immovable property for The location of such immovable
functions property.
Services on board a conveyance The location of the first scheduled
point of departure.
Services by way of transportation of goods, 1. a registered person: the location
including by mail or courier to, of such person
1. a registered person 2. other than a registered person:
2. other than a registered person the location at which such goods
are handed over for their
transportation
Supply of passenger transportation service 1. a registered person: the location
to, of such person
1. a registered person 2. other than a registered person:
2. other than a registered person the place where the passenger

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embarks on the conveyance for a

continuous journey
Place of supply of services where the location of the supplier or the
location of the recipient is outside India
General Location of the recipient of the
supply, if available otherwise
location of the supplier of supply.

27. Managing procurement vendors

As prices may be expected to come down over a period in GST regime, every
customer would like to procure goods/services at a cheaper price, given the brand,
quality and other parameters. In this aspect, purchase department of IR has to be
more proactive to manage their procurements/ suppliers better and to crack a
better deal from their vendors. GST offers an opportunity for the Purchase /
Procurement department to enhance operational efficiency and negotiate better.

28. Impact on ongoing contracts

Specific transition provisions have been stipulated vide Section 187 for periodic
supplies as under:

‘187. Notwithstanding anything contained in section 12 and 13, no tax shall

be payable on the supply of goods and/or services made on or after the
appointed day where the consideration, whether in full or in part, for the said
supply has been received prior to the appointed day and the duty or tax
payable thereon has already been paid under the earlier law.’

It appears that in the case of periodic supply of goods/ services, GST provisions
would not apply even on advances received prior to GST law for goods/ services to
be provided during GST regime, provided tax has been paid on the same under the
earlier law. This provision does not cater to a scenario where tax has not been paid
but is payable under the earlier law post-enactment of GST regime.

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Also, there is no provision for treatment of supplies prior to GST law where, either
the invoice has not been raised, or payment has not been received, or tax has not
been paid prior to enactment of the GST law. This could result in dual taxation
both, under the present tax regime as well as under the GST regime.

29. Captive Consumption

As per Central Excise law, Railway locos/coaches being used in- house (captive
consumption) is subject to excise duty. The situation is likely to remain same
under GST law. Stock transfers between two distinct units will be subject to GST.
However, input tax credit can be availed on such payment of such tax paid.

30. Works Contracts

A significant part of railways capital expenditure is through works contracts. As per

model GST law, activities of works contract are specifically classified as the supply
of services. GST Council has proposed four-tier rate structure, i.e., 5%, 12%, 18%
and 28%. It is expected that services may be taxed @18% or lower rate. Works
contract also be taxed @18% which will lead to services become costlier. It is not
known whether abatements would be allowed or not.

31. Exemption from GST as available in Service Tax?

(a) Construction, Erection, Commissioning, or Installation

Under service tax law, construction, erection, commissioning, or installation of
original works pertaining to railways, excluding monorail and metro is exempted
from service tax vide Notification No. 25/2012-dated 20.06.2012.

(b) Transportation of certain Goods

Under service tax law, services by way of transportation by rail from one place
in India to another of the certain goods are exempt from levy of service tax vide
Notification No. 25/2012-dated 20.06.2012.

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(c) Transportation of Passengers

Under service tax, service of transportation of passengers, with or without
accompanied belongings, by railways in a class other than first class or an AC
coach, metro, monorail or tramway are covered under the negative list (section
66D of the Finance Act, 1994). Therefore, there is no levy of service taxes on
these services.

Under GST law, above mentioned services will be covered under the scope of the
term ‘supply’. Therefore, these activities would be subject to GST. No exemptions
have been prescribed in relation to such activities so far.

Taxability of certain services in existing regime and GST regime is summarised

below:
Services Service Tax GST
Transportation of goods Taxable (subject to Taxable (no
abatement) exclusion prescribed
yet)
Transport of passengers Taxable (subject to Taxable
abatement)
Loading and unloading of Taxable Taxable
goods except related to
agricultural produce, rice
cotton, ginned or baled
Maintenance charges for Taxable (subject to Taxable
railway private sidings abatement)
Godown / rental charges in Taxable Taxable
lieu of leasing / licensing of
premises.
Work contracts (EPC) Exempt Taxable

32. GST on activities of YTSK

Yatri Ticket Suvidha Kendra have been appointed or set up by the IR for the
facilitation of issuing tickets and rendition of other services. These services will be
covered under the scope of GST. Provisions of GST will apply accordingly.

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33. Cleaning/sanitation services

According to model GST law, supply also includes cleaning/sanitation services and
no exemptions are proposed so far. Therefore, these services would be subject to
GST.

34. Taxability of long-term lease arrangements

Under service tax law, leasing of any type is covered by the term renting. Declared
Services as defined under section 66E of the Finance Act, 1994 includes the
activity of renting of immovable property. As such, leasing of immovable property is
covered under service tax net, via declared service.

Long term lease arrangement would be subject to GST as they are specifically
covered under supply of services as prescribed in Schedule-II of model GST law and
no specific exemptions are proposed so far.

35. Taxability of General Sales Agent(GSA)

General Sales Agent (GSA) is the commission agent who works on behalf of the
Indian Railways. As per model GST law, all forms of supply for consideration in the
course or furtherance of business shall be subject to GST. So in such scenario, as
the supply of services by commission agent is covered under the scope of GST
therefore, GST will be applicable on commission paid/payable to GSA. The liability
to discharge GST will rest upon GSA and not on Railways.

However, according to the place of supply of services where the location of the
supplier(i.e., GSA) is outside India and the location of the recipient(i.e., recipient of
the supply of services) is in India. Accordingly, where GSA is located in the non-
taxable territory, GST liability may be on Indian Railways.

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36. Specific Services provided by Railways – Taxability under GST

(a) Annual Maintenance Contracts (AMC) entered by Railways for its equipment
maintenance i.e. computer, machinery etc. will liable to GST.
(b) Maintenance charges collected by Railways from private parties to maintain
their private sidings will liable to GST.
(c) Amount charged in the name of interest on the capital cost of sidings by
Railways from private parties will liable to GST.
(d) Supply of manpower for loading/unloading of goods from or to railway wagons
for private parties will liable to GST.
(e) Maintenance charges collected from the National Highway Authorities of India
(NHAI) or State Government for maintenance of the road and under/over
bridges by Railways be subject to GST. However, no exemptions have provided
yet.
(f) Cleaning and sanitation services received by Railways in relation to railway
platform may be taxable under GST.
(g) Warehousing facilities provided by the Railways to Food Corporation of India
(F.C.I) etc. may be taxable under GST.

37. Other Implications

(i) Use of IT resources

With the introduction of GST, IR will be required to use information technology
resources extensively as GST working is totally based on IT network.

(ii) Imparting training to manpower for preparation of GST

Comprehensive training will be required to the staff members of the business
community, both at senior level and also at the junior level. Further, the scope
of such training should be extended to the marketing personnel, apart from
accountants and legal Department. Initially, there could be investment costs,
costs of training in GST of people at each level starting from junior/mid to
higher level managerial staff, management group/stakeholders will be required.

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(iii) Changes in the Accounting Software

Dealers and service providers need to modify/replace the accounting and
taxation software

(iv) Impact on outsourcing the facilities

Today, the railways outsource a number of things like housekeeping, water
supply, manpower supply, cleaning services etc. on which appropriate liability
of tax is to be paid. At present, theses supply either liable to VAT or service tax.

In the proposed Model GST Act, theses services would be covered under taxable
supply. It may have a higher tax impact on IR. Therefore, it is advisable to
consider other options.

38. Way Forward

The implementation of GST may take place anytime from April, 2017 to September
2017. Migrating to the new tax regime will have a substantial impact on the
business of IR. There may be a positive impact for those who are vigilant and have
full preparedness. The negative impact of the GST can largely be averted if counter-
measures/ preparedness are in place. IR need to re-look and action must be taken
on the following areas to reduce the adverse impact of GST:
· Contracts/ Agreements re-alignment to suit the needs of GST of breaking up
into the immovable part which is complete and construction to be completed.
· Business restructuring/ transaction re-structuring.
· Understanding the impact on various business departments including
procurement, sales & marketing, finance & accounts, IT, Administration
operations & HR etc. and re-structuring the same to suit the needs of the GST.
· Optimizing the transitional credits, future credits.
· Ensuring original entries are verified, keep evidence of tax payments etc.
· Representing to MOF and GSTC directly to seek specific reliefs for IR, given its
specific nature and status.
· Representing through various bodies/ associations on various adverse
provisions of the GST law impacting IR to MOF.
· Conducting in-house training programs for learning & development of staff /
manpower to ensure smooth implementation into the GST regime.

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39. Abbreviations Used

GST Goods and Services Tax

IGST Integrated Goods and Services Tax
SGST State Goods and Services Tax
CGST Central Goods and Services Tax
IR Indian Railway
mi. Mile
J&K Jammu and Kashmir
BCD Basic Custom Duty
CVD Countervailing Duty
SAD Special Additional Duty
EC Education Cess
SHEC Secondary Higher and Education Cess
HSD High-Speed Diesel
LDO Light Diesel Oil
ISD Input Service Distributor
TDS Tax Deducted at Source
TCS Tax Collection at Source
GSTN GST Network
YTSK Yatri Ticket Suvidha Kendra
GSA General Sales Agent
AMC Annual Maintenance Contracts
NHAI National Highway Authorities of India
FCI Food Corporation of India
IT Information Technology

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