Goods including food grains, essential agricultural inputs such as fertilisers and raw materials for meeting the countrys energy needs are likely to be exempted from service tax imposed on their transport by the Indian Railways, according to a senior finance ministry official. The government, which may garner as much as Rs 900 crore by imposing service tax on goods carriage by the Railways, plans to come out with a list of essential items that will be exempt as soon as the Finance Bill becomes an Act.

According to the ministry official, the list of goods that may get exemption is almost final. Food grains and essential agricultural inputs are likely to be exempted especially at a time when the monsoon is playing truant, the official told The Indian Express on condition of anonymity.

Expanding the base of taxable services from 106 to about 110 in Budget 2009-10, the government imposed service tax on the transport of goods by rail. Service tax has also been imposed on the transport of goods through ports, as well as inland waterways including national waterways. Goods carried by these means will now attract a service tax of 10.3 per cent, which is the current rate.

Before this, the government had levied service tax on the transport of goods by private railway players while the Indian Railways was exempt. Since the bulk of raw materials are transported through Railways, there was always a debate as to why the government should lose revenue from this channel as the services of Railways for freight carriage are being used by a variety of industries.