The Indian Railways, Container Corporation of India (Concor), a navratna PSU, and 17 private companies, including the Adani group, are facing investigations for evasion of service tax to the tune of Rs 1,000 crore.

Indian Railways and Concor along with a private company have even been slapped with a show-cause notice of Rs 700 crore by director general of central excise intelligence (DGCEI).

According to sources, the companies (also called Private Container Train Operators or PCTOs) in connivance with the Indian Railways allegedly evaded paying service tax by taking advantage of the relaxation given by the government for goods transported by train.

To ease pressure on its infrastructure, Indian Railways in 2006 allowed private companies to run their container rakes using railways' tracks, engines and crew. While the private companies earned freight charges through their customers, they paid "haulage charges" to railways. Till 2012, government had given "transportation of goods by rail" 100% exemption from service tax.

However, in October 2012, the government brought it under service tax with a relaxation of 70%, i.e. only 30% of the service tax due on the train transport had to be paid. So while railways paid the 30% tax on goods it transported on its own, it transferred the same benefit to private players for use of its services (i.e. track, engine etc).

DGCEI has argued that while "transport of goods by rail" enjoys exemption, the payment for services provided by railways to private players must be fully taxed. "In this case, certain railway officials connived with the private players to help them evade tax. Any service tax to be paid for goods transported by private players had to be done by them. But in this case it's the railways which collected the service tax and that too only 30% of the due amount to unduly help the private parties," said a DGCEI official.

In all 17 PCTOs are being investigated for evasion of service tax which include Adani Logistics Ltd, Gateway Railfreight Limited, Hind Terminals Ltd, India Infrastructure and Logistics Ltd among others, he said.