GST breather for Railways; no tax on transfer of goods for self-consumption

In a welcome break for the Indian Railways, no goods and services tax (GST) will be applicable on inter- or intra-state transfer of equipment/materials (without transfer of title) for self-consumption. This is a major relief for the railways, with annual internal consumption estimated to be about Rs 20,000 crore.

In a notification to field units on July 11, the railways said, “Transfer of goods/stores from one state/Union Territory (UT) to another state/UT is considered to be an exempted activity.” The notification cited section 7 (1) of the CGST Act 2017, along with clause 1(b) the Schedule II of the CGST Act, 2017 for the said exemption.

Experts corroborated this, claiming that according to the GST Act, transfer of goods by any government — Centre or state — or local authority to a similar government unit, is exempt from the indirect tax.

“Transfer of such equipment (without transfer of title) qualifies as a service as per the CGST Act,” said Saloni Roy, senior director, Deloitte Haskins & Sells. 

But here’s the catch: GST experts said the railways claiming transfer of goods as a service could lead to disputes. 

“The supply transaction between two interstate branches may not necessarily be accepted as a transfer of right in goods (defined as ‘service’), and more likely to be treated as the transfer of goods,” said Sachin Menon, partner and head, indirect tax at KPMG in India. 

No exemption would be available if the transaction is classified as a good.

Roy, however, added such exemption has been provided specifically to services between government agencies. If the claim of the railways is accepted, then the inter-state transfer of all goods for self-consumption will be exempted in the case of supply between governments and local bodies, noted experts. 

In June this year, the Ministry of Railways had pitched with Ministry of Finance and the GST Council that the transporter should be considered as a unified entity for purpose of the indirect tax, as it will have to register each of its 17 zones or 73 divisions in all the states under the new regime. It seems this request by the railways has not been accepted.

R Sivadasan, the former financial commissioner of railways, pointed out despite its complex structure of several zones and division, Railways has adapted itself well to the GST regime.

“The exemption is going to be a huge boost for the railways,” he added. 

Earlier this year, the railways appointed law firm Lakshmikumaran & Sridharan to advise it on GST implementation.