New Delhi: With the exit of Trinamool Congress from UPA, Finance Ministry has decided to levy service tax on AC and freight services fares, which are set to increase by 3.7 percent from October 1.

Fares of AC First Class, Executive Class, AC-2 tier, AC-3 tier, AC Chair Car will go up by 3.708 percent from October 1 and a notification to this effect will be issued on Thursday, a senior Railway Ministry official said.

The decision for levying service tax on AC classes and freight and auxiliary services was taken yesterday at a meeting between Railway Minister CP Joshi and Finance Minister P Chidambaram.

The service tax will apply to tickets issued in advance for journeys to commence on or after the date of its implementation. In case of tickets already issued excluding service tax, it will be ensured that the same is recovered either by TTEs in the train or by the booking offices before commencement of journey.

In case of cancellation of tickets by the passengers, service tax will not be refunded by railways, the official said. On concessional tickets, service charges will be 30  percent of the total fare.

The service tax is 12.36  percent but after the abetment of 70  percent it will be 3.708  percent on passenger fares in AC classes and freight.

Passengers traveling in AC classes were brought under service tax from July this year as per the Finance Bill 2012 but the levy had since been kept in abeyance because of opposition by the TMC.

Freight rate will also go up by 3.708  percent from October. However, auxiliary services rendered at stations like catering and parking will have to bear the burden of 12.36  percent as there will be no abetment on these services.

Service tax on freight was announced in 2009-10 Union Budget but then Railway Minister Mamata Banerjee had protested the move.The exemption of the service tax was applicable till September 30 and with no further exemption granted, the hike in freight services and AC classes will be effective from October 1.
"The freight operators can reclaim the service tax after the submission of their tax returns," the official said, adding that "there will be no respite in auxiliary services as
they cannot reclaim it."
Railways had already increased the freight rates by more than 20 per cent before the Rail Budget presented by then Railway Minister Dinesh Trivedi in March. Passenger fares in AC-2 and AC-1 tiers were also hiked by about 30 percent during this time.
Railways is expected to mop up about Rs 3,000 crore from
the hike in the fares.


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