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Prime Minister Manmohan Singh, in his capacity as Finance Minister, acceded to the request of Railway Minister Mukul Roy.

The Finance Ministry issued a notification to the effect exempting high-end passenger fares and cargo freight from the purview of service tax till September 30.

Mr. Roy told Dr. Singh the railways did not operate with a profit motive and that it was the preferred mode of transportat for both passengers and carrying essential commodities. Hence the imposition of service tax would adversely impact a large section of society with spiralling inflationary pressure.

The Finance Ministry under Pranab Mukherjee had ignored all requests from the Railways, including a letter from Mr. Roy to desist from the decision, and stuck to the budgetary proposal of imposing the service tax, which though was deferred till June 30.

The Railway Board issued a circular on June 27 intimating the zonal offices to be prepared to impose 12 per cent service tax amounting to 3.708 per cent, given the 70 per cent abatement allowed from July 1.

The circular, however, said the zonal offices should wait for a final word from the Railway Board.

It, however, was not issued till June 30, leading to confusion on the applicability of the service tax.

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