DECEMBER 04, 2023

By K Raji Reddy, IRS, Assistant Director, NACIN, Hyderabad

IMPORTANT changes with regard to payment of GST on supply of various services and sale of old and used goods, waste and scrap by the Railways have been brought in by the Government through various notifications issued on 19.10.2023. The notifications cited in the article can also be accessed at https://taxinformation.cbic.gov.in/. The crux of these notifications is to make Railways, a Government organization, to pay GST on goods and services supplied by them on forward charge basis from 20.10.2023 onwards. It is to note that the Central Government is also defined as 'person' under Section 2(84)(k) of the CGST Act, 2017 and Railways as a Central Government organisation and is required to pay GST on the supplies made by them by taking registration.

2. Till 19.10.2023, all the services provided by the Railways as a Central Government organization, except the services of transport of passengers and goods were taxable on reverse charge basis as per notification No. No.13/2017-CT (Rate) dt 28.6.2017. Sale of old and used goods, waste and scrap by the Railways used to attract tax on reverse charge basis under Notification No. No.4/2017-CT (Rate). The Railways were paying applicable goods and services tax on forward charge basis only on transport of passengers other than in sleeper class/ general class and on transport of goods like any other suppliers of goods and services as required under Section 9 of CGST Act, 2017 right from the beginning.

3. Reverse charge is defined under the law. As per Section 2(98) of the CGST Act, 2017, reverse charge basis means the liability to pay tax by the recipient of supply of goods or services or both under sub-section (3) or sub-section (4) of Section 9 or under sub-section (3) or sub-section (4) of Section 5 of the Integrated Goods and Services Tax Act.

4. The issue of Notification No. 13/2023-CT (Rate) amending entries at Sl. No 6,7,8 and 9 of the Notification No. 12/2017-CT (Rate) and Notification No. 14/2023-CT (Rate) amending Sl. No 5 and 5A of the Notification No. 13/2017-CT (Rate), paved the way for a paradigm shift in the manner of payment of goods and services tax by Railways. Now, all services provided by the Railways like giving licences to various sellers of books on the platforms, to those running canteens at Railway stations etc., commercial renting of the premises, Railway engineering services and other services provided by the Railways are made taxable on forward charge basis from 20.10.2023 onwards. It is pertinent to note that commercial renting services supplied by the Government and Local authorities to GST registered persons continue to attract tax on reverse charge basis as per entry No. 5A of the Notification No. 13/2017-CT (Rate). However, the Railways are made to pay GST on commercial renting services supplied to GST registered persons also on forward charge basis by making suitable amendment to the entry at Sl. No. 5A of the notification.

5. We are aware that rate of GST is 5% without utilizing input tax credit on goods used in supplying transport service of passengers and goods as per Sl. No. 8 and 9 of the Notification No. 11/2017-CT (Rate) dt 28.6.2017 respectively. Though the notification issued under Section 9 of CGST Act, 2017 prescribes 2.5% as central tax, equal rate of state tax is to be taken into account. Therefore, the rate 5% prescribed is with a condition not to utilize input tax credit accrued on goods used as inputs to discharge their tax liability. The entries at Sl. No 8 and 9 of the notification are extracted hereunder;

Sl.No. 8 (i) Transport of passengers, with or without accompanied belongings, by rail in first class or air conditioned coach.

2.5% CGST+2.5% SGST

Provided that credit of input tax charged in respect of goods used in supplying the service is not utilised for paying central tax or integrated tax on the supply of the service.

Sl.No 9 (i) Transport of goods by rail (other than services specified at item no.(iv)).

2.5% CGST+2.5% SGST

Provided that credit of input tax charged in respect of goods in supplying the service is not utilised for paying central tax or integrated tax on the supply of the service.

6. Importantly, exemption available to Indian Railway Finance Corporation (IRFC) on leasing of assets like rolling stock assets including wagons, coaches, locos to Railways which was a main input service, was withdrawn from 1.10.2021 onwards through Notification No. 7/2021-CT (Rate) dt 30.9.2021 making IRFC to pay applicable goods and services tax on leasing services. Thus, Railways get input tax credit (ITC) on leasing services which can be used for payment of tax on goods and services supplied by the Railways from 20.10.2023 onwards. However, the restriction of not utilizing input tax credit on goods used for supplying services for payment of tax on transport of passengers and goods as per entries at Sl. No 8 and 9 of the Notification No. 11/2017-CT (Rate) continue to apply even now after making Railways to pay tax on forward charge basis.

7. Coming to supply of goods, sale of old and used goods, waste and scrap by the Railways is made taxable on forward charge basis by making suitable amendment to the reverse charge notification for goods. Like in the case of the notified services, notified goods also attract tax on reverse charge basis as per the Notification No. 4/2017- CT (Rate) dt 28.6.2017 issued under Section 9(3) of the CGST Act, 2017. It is relevant to note that the buyers of goods are required to pay tax on goods like cotton, seized goods by the Government and sale of old and used goods, waste and scrap by the Railways etc. as per the Notification No. 4/2017-CT (Rate). The said notification was amended making suitable changes to entry No. 6 vide Notification No. 19/2023-CT (Rate) dt 19.10.2023 from 20.10.2023 onwards so as to make the Railways pay tax on the sale of old and used goods, waste and scrap on forward charge basis. In other words, Railways are entitled to utilize the input tax credit on the inward supplies of goods (except on goods used for transport of passengers and goods attracting GST @ 5%) and services they receive for payment of their tax liability on their outward supplies on forward charge basis.

8. Now we understand that all services provided by the Railways in addition to sale of old and used goods, waste and scrap, are brought under forward charge mechanism from 20.10.2023 onwards with the issue of Notification Nos. 13/2023-CT (Rate) and 14/2023-CT (Rate) and 19/2023-CT (Rate), all dated 19.10.2023.

9. In view of the major changes with regard to the manner of payment by the Railways, it is only fair to ask if the services provided to individuals like purchasing platform tickets would attract GST from 20.10.2023 onwards as entry at Sl.No.9 of the notification 12/2017-CT (Rate) on services provided to the individuals was also amended.

(The views expressed are strictly personal.)