GST — Bane or Boon Vis-a-Vis Railway Vendors about:rcader url-hitps://axguru in/goods-and-service-tax/est-bane-
1of7
taxguru.in
GST - Bane or Boon Vis-a-Vis
Railway Vendors
TG Team
9-11 minutes
Indian Railway is one of the world’s largest public-sector
organizations and its network, traffic, organization and extent of
vertical integration are gigantic. It is the world’s largest Railway
passenger transport organization, carrying 23 million passengers
daily. It is also the world’s third largest Railway freight transport
organization 115,000 kilometres of track over a route of 66,000
kilometres and 7,100 stations. It manufactures about 250 electric
locomotives, 250 diesel-electric locomotives and 3000 passenger
coaches annually at six manufacturing units for its own use and
for export.
Indian Railway procures goods and services for manufacturing
and maintaining locomotives. Lacs of Vendors supply these
goods and services to Indian Railway. There are vendors who
exclusively supply goods or services to Indian Railway.
Now we are going to discuss some of the vibrant issues, which
these vendors are facing under GST. Now the vendors are bound
to think whether GST is a bane or boon for them.
09/05/2019, 16:4GST ~ Bane or Boon Vis-a-Vis Railway Vendors
20f7
Inverted duty structure
Notification No. 1/2017- Integrated Tax (Rate) dated 28.06.2017.
as amended, vide Sr. No. 241 provides for the applicable rate of
Integrated Goods and Service Tax that shall be levied on inter-
state supply of Parts of railway or tramway locomotives or rolling-
stock; such as Bogies, bissel-bogies, axles and wheels, and
parts thereof falling under Chapter Heading 8607. As of now rate
of IGST on goods falling under Sr. No. 241 is 5%.
Vendors supplying goods to Indian Railway falling under HSN
8607 charges 5% IGST in case of Inter State Supply or 2.5%
CGST + 2.5% SGST in the case of Intra State Supply. Whereas,
goods or services required to manufacture the goods to be
supplied to Indian Railway falling under Chapter Heading 8607 in
most of cases attracts 18% as they do not fall under chapter
heading 8607. There is gap of 13% between outward supply vis-
a-vis inward supply. This gap will be reduced little bit to the
extent GST charged on profit margin. Hence, Railway Vendors
are facing inverted duty structure under GST.
Section 54(3) (ii) of CGST Act, 2017 read with Section 20 of
IGST Act, 2017 allows refund of accumulated credit on account
of rate of tax on inputs being higher than the rate of tax on output
supplies i.e. Inverted Duty Structure. Whereas, Notification No.
05/2017 — Integrated Tax (Rate) dated 28.06.2017 notifies the
goods and Chapter Heading in respect of which no refund of
unutilised input tax credit shall be allowed, where the credit has
accumulated on account of rate of tax on inputs being higher
than the rate of tax on the output supplies of such goods i.e.
about:reader?url=https’/taxguru.in/goods-and-service-tax/est-bane-GST—Bane or Boon Vis-a-Vis Railway Vendors about:reader?uri~hitps://taxgura in/goods-and-service-tax/gst-bane-
30f7
Inverted Duty Structure. Sr. No. 14 of the Table appended to this
Notification notifies chapter heading 8607 with description Parts
of railway or tramway locomotives or rolling-stock; such as
Bogies, bissel-bogies, axles and wheels, and parts thereof
meaning thereby Vendors supplying goods to Indian Railway
falling under chapter heading 8607 cannot claim refund of
unutilized accumulated input tax credit on account of inverted
duty structure.
This provision is impacting a lot to Railway vendors. They are not
able to encash this input tax credit and there working capital is
permanently blocked. Vendors are in loop whether to expense it
out or keep it in books as current assets. Further, Vendors
‘supplying goods to Indian Railway as well as other industry are in
advantageous position as compared to those supply goods
exclusively to Indian Railway as they will be able to utilize this
unutilized accumulated input tax credit towards supply to other
industry.
As per the news published on live mint on dated 10.04.2019,
railways losing 400-500 crore per month and the railway
vendors too are losing an equivalent amount on account of not
passing the ITC benefits. Therefore, the total loss to the railway
ecosystem is more than 21,000 crore per month.
Railway vendors are demanding increase in GST rate on the
goods falling under chapter heading 8607 so that input tax credit
is encashed or Refund of unutilized input tax credit on account of
inverted duty structure be allowed.
09/05/2019, 16:4GST — Bane or Boon Vis-s-Vis Railway Vendors. about:reader?url=https://taxguna in/goods-and-service-tax/gst-bane-
40f7
tds u/s. 51
TDS provisions under Section 51 of CGST Act, 2017 read with
section 20 of IGST Act, 2017 enforced with effect from 0.10.2018
in respect of Government supplies. This further added to the
problems of Railway Vendors.
Now Railway is deducting 2% GST TDS while making payment
to vendors. This 2% GST TDS deducted comes into electronic
cash ledger of the vendor after filing of TDS return by Railway.
Vendors are not able to utilize this amount as they are already
victim of Inverted duty structure and not able to utilize their input
tax credit. This is also blocking their working capital.
As, Vendors are not able to utilize this amount, they are filing
applications for refund of CASH lying in their electronic cash
ledger. We already know it is not easy to get refund from the
department. It is also increasing their problems.
Hence, TDS provisions under GST should not be applied in case
of Inverted duty structure because vendors in all these cases will
have to approach department for refund of CASH accumulated
on account of TDS provisions.
Classification
Classification of various parts supplied by Railway Vendors has
become more important after implementation of GST. In Pre-GST
era, Rate of Excise duty on goods falling under chapter heading
8607 was 12% up to 28.02.2016 and 6% from 01.03.2016 to
30.06.17. Before 01.03.2016 there was no difference of excise
duty between goods supplied to Indian Railway falling under
09/05/2019, 16:GST —Bane or Boon Vis-a-Vis Railway Vendors
50f7
chapter heading 8607 and the goods falling under other chapter
heading. Hence, the question of classification was not relevant
from revenue point of view. It became relevant from 01.03.2016
when rate of excise duty on goods falling under chapter heading
8607 reduced from 12% to 6%.
After implementation of GST, classification has become very
important as rate of GST on goods falling under chapter heading
8607 is 5% whereas goods falling under other chapter heading
attracts 18% or 28% GST.
Indian Railway is insisting to supply all goods under chapter
heading 8607 with 5%. A large number of Vendors to Railways
have received purchase orders with 5% GST and have supplied
goods against these purchase orders with 5%.
Now, teams of officers from Directorate General of GST
Intelligence are making rounds at such vendors raising demand
of differential of duty (13%) with interest. It has left the MSME
suppliers panic stricken. The suppliers of parts and components
to the Railways, mostly MSMEs, have been caught in a bind due
to confusion in classification in GST regime. This is an issue
affecting a large number of vendors to Railways who have
supplied material charging 5% GST rate. It is obvious that
suppliers did not have any mala fide intention. They collected 5%
tax as directed by Railways and deposited the same.
Central Board of Indirect Taxes and Customs vide Circular No.
30/04/2018 - GST dated 25.01.2018 clarified that only the goods
falling under chapter 86 supplied to the railways attract 5% GST
bout:reader?url=https:/taxguru.in/goods-and-service-tax/est-bane
(09/05/2019, 16:GST ~ Bane or Boon Vis-a-Vis Railway Vendors about:reader?url=https/taxgunt.in/goods-and-service-tax/gst-bane
Gof?
rate and other goods falling in any chapter would attract the
general applicable GST rates to such goods, even if supplied to
railways. Circular No. No. 80/54 /2018-GST dated 31.12.2018
clarified that ‘Turbo charger’ even if supplied to Railways will
remain classified under heading 8414.
There are thousands of items being supplied to Indian Railway
by Lacs of vendors on daily basis. There is difference of opinion
between various judgements and Advance Authority Rulings. It is
not possible for MSME vendors to classify all these items
correctly and take a stand before Indian Railway.
Government should come out with end user base notification to
notify lower of rate of GST for goods supplied to Indian Railway
or Rate of GST need to be increased to 18% being most
common rate of GST. If vendor had to pay 13% along with
interest, it will finish vendor.
Al
erin
Anti-Profiteering is another problematic area for railway vendors.
Section 171 says any reduction in rate of tax on any supply of
goods or services or the benefit of input tax credit shall be
passed on to the recipient by way of commensurate reduction
Anti-Profiteering itself is not clear on many counts like (1) it will
be calculated entity wise or product wise. (2) How to calculate
commensurate reduction etc.
Now, Railway vendors are not clear how to treat unutilized
accumulated input tax credit in view of Anti-Profiteering. Whether
increased accumulated input tax credit can be treated as benefit
09/05/2019, 16:GST ~ Bane or Boon Vis-a-Vis Railway Vendors about:reader urlhitps:/taxguru in/goods-and-service-tax/gst-bane-
70f7
to Vendor specially when vendor is not able to take refund of this
input tax credit. This is just an artificial asset in books of
accounts. If this artificial asset is treated as benefit to vendor and
vendor is required to reduce its price to that extent, it will finish
the vendor sooner or later. Further, what will be the treatment if
vendor expense it out in books of account.
GST council is requested through this article to address the
problems of Railway Vendors highlighted above in view of fact
the Lacs of people are going to be impacted
Anish Jain, B.Com.; LL.M.
Prashant Bhardwaj, B.A.; LL.B.
09/05/2019, 16: