Indian Railways has not paid service tax on catering and advertising for years

Chances are the authorities would immediately go after you if you refuse to pay taxes. But if you are Indian Railways, they could choose to look the other way. Well, that's what has been happening with the Indian Railways which has not paid service tax on catering and advertising for years, despite the levy being first mandated through the Finance Act. 

Probably emboldened by that, the railways is now refusing to pay excise duty on manufacture of rolling stock though it became effective earlier this year. What's more, the Central Board of Excise and Customs only woke up to it in recent months but has failed to initiate action. 

To top it, railway officials have written to the finance ministry enquiring if the government had indeed levied excise on rolling stock. The railways is arguing that it should not be paid since most of it is used by it. The finance ministry is, however, arguing that this will help vendors get refund on taxes paid by them. 

In case of services such as advertising, the railways has come up with the argument that it has not collected the tax from those who availed of it. 

Officials in the finance ministry as well as the railways confirmed that taxes were not being paid though the government's largest departmental enterprise did not comment on the matter. "We are discussing the matter with the finance ministry. It is a transaction between two government departments. If need arises, we will pay whatever is the required tax," said an official in Rail Bhawan. 

Government officials, however, said there might be more than meets the eye and the finance ministry could have let railways get away as the UPA was banking heavily on Mamata Banerjee, who till two months ago was railway minister before moving to West Bengal as chief minister. In any case, Banerjee had managed to convince finance minister Pranab Mukherjee about the need to keep service tax on hold till December 2011. 

Service tax and excise duty put together could help the government raise around Rs 4,000 crore at a time when it is looking to raise resources from all possible sources, including increasing the fee and charges on services such as passports used by common citizens. Finance ministry officials said they were pushing the issue with the railways and some notices on excise duty had also been issued. 

In the past too, the railways had problems with tax officials over payment of tax deducted at source in case of direct taxes and it took considerable effort to solve the matter.