Rationalization of abatements for transportation - Impact on logistics sector
MARCH 10, 2015
By Geetika Srivastav
BY announcing the uniform abatement for transport by rail, road and vessel, the Hon'ble Finance Minister has been thoughtful enough to eliminate the disparity amongst these sectors. Vide Union Budget 2015, a uniform abatement rate has been prescribed for the three sectors with unvarying conditions of non-availment of cenvat credit on inputs, capital goods and input services (Notification No. 8/2015-ST, 01.03.2015). Such amendment is effective from 01.04.2015.
As an effect, service tax will be payable uniformly on 30% value of all the three services namely, rail, road and vessel subject to a common condition of non-availment of cenvat credit as against varied taxability on the three under the existing scenario as under:
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Services of transportation
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% of value of taxable service
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Availability of cenvat credit on inputs, capital goods and input services
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By rail
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30%
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No restriction
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By road
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25%
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Not available
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By vessel- inland water transport
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40%
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Not available
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Bringing equality in the taxability of all three sectors is going to have both constructive as well as downbeat impact on the logistics sector.
A logistics service provider is engaged in providing various logistics solutions by providing services of transportation, warehousing, handling etc. One of the major components of the cost of their services is the cost of transportation services. They hire various means of transport viz. rail, road and vessel in order to fulfill their obligations towards their customers. As a result, any change in the taxability of such services will have a direct impact on the cost of their services.
On one hand the impact of the above change would be positive as there is going to be a reduction in the taxable value of inland transportation services by 10% whereas on the other hand the same will result in 5% increase in the taxable value of road transportation services having an adverse effect. Further, though there is no change in the taxable value for rail transportation services, the major impact on this sector will be the introduction of restriction to avail cenvat credit.
As on date, this condition of non-availment of cenvat credit is restricted to all other modes of transportation except rail. But now the same will equally apply to rail transportation services. As a result, the rail services procured by the logistics service provider from a third party will become costly leading in further increase in the cost of logistics services. Similarly, the cost of services of road transportation will also increase in the hands of logistics service provider due to increased percentage of taxable value of services.
The Union Budget 2015 has also proposed to increase the basic rate of service tax from 12% to 14%, and impose Swachh Bharat Cess @ 2% on all or certain taxable services. This would straightway shoot the rate of service tax from 12% to 16%.
The above changes will have dual effect on the taxability of transportation services- increase in the taxable value of services as well as increase in the tax rate. Resultantly, the new amendments would undoubtedly amplify the cost of services in the hands of end consumers.
(The author is associated with Lakshmikumaran & Sridharan and the views expressed are personal)
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