Tight spot: Ministry of Railways, DFCC on parallel tracks over GST

Ministry of railways, DFCC planning revenue model for latter as current apparatus has put an 18% GST on the corporation

The Ministry of Railways and its undertaking Dedicated Freight Corridor Corporation of India (DFCC) are considering a different revenue model for the latter because its current apparatus has put an 18 per cent goods and services tax (GST) obligation on the corporation, multiple sources said.

The corporation’s consultants have prepared a report and submitted it to the Railway Board.

Under the present revenue model between the ministry and DFCC, the railways pays the public sector undertaking (PSU) for its services of maintaining and operating freight corridors through a track access charge (TAC). It is through this revenue, among other allocations from the government, that the corporation undertakes projects and repays its foreign debt.

TACs cover part of DFCC’s fixed costs, variables (fuel charges, staff cost), and finance (depreciation, cost of capital, and interest) costs.

A GST of 18 per cent is applicable on the TAC, which has essentially increased the outgo from the ministry for the DFCC. While taxes on such transactions have always been in place, the current model is not the most tax-efficient one for the PSU, according to sources familiar with the matter.

While DFCC is a special purpose vehicle, it is considered a zonal rail body for administrative purposes. The TAC setup is different from how a zonal railway operates. However, the similarity is that DFCC also cannot generate any revenue from actual transportation of goods, and all freight income is directly credited to the Railway Board. This is then redistributed in the form of TACs and other provisions. 

The matter has become important because TACs are what DFCC will use to service its debt to multilateral agencies such as the World Bank and Japan International Cooperation Agency (JICA), which have provided roughly Rs 52,000 crore for the eastern and western freight corridors.

“The discussion on this issue is going on with the Ministries of Railways and Finance and the final decision is awaited. We are awaiting clarity on the tax implications. What we know as of now is that if an item has not been accorded a GST slab, it is automatically taxed at 18 per cent,” DFCC Managing Director R K Jain said on Friday.

“The current TACs towards DFCC are about Rs 5,000 crore,” another top executive of the corporation told Business Standard. The corporation will pay around Rs 900 crore as GST in this scenario.

The current model of TAC has also created problems for the corporation in claiming input tax credit on the GST it pays, which is being seen as a loss to the corporation.