The Indian Railways has escaped from the service tax net thrown around it by the Finance Minister, Mr Pranab Mukherjee, in Budget 2009-10.

The Finance Ministry on Tuesday exempted transport of goods by Government Railway from service tax. The Finance Ministrys latest move to exempt Indian Railways from service tax came at the behest of the Railway Ministry, it is reliably learnt.

This exemption is a U turn by the Finance Ministry, which had on August 31 gone ahead with the implementation of the 2009-10 Budget announcement.

In fact, the Centre had on August 31 exempted certain essential items transported by rail from service tax, as part of the effort to cushion the impact of this levy on the common man.

The Revenue Department had also announced an abatement rate of 70 per cent for the purpose of levy of service tax on goods transported by rail.

This has now been reversed, with abatement of 70 per cent now available only for transport of goods in containers by rail.

From 2008, transport of goods in containers by rail was under service tax net. While Concor and other container rail companies will continue to pay service tax and be under the tax net, Indian Railways (as a Government department) has now been specifically exempt, a Finance Ministry official said.

In Budget 2009-10, the Government had said that transport of goods by rail will attract service tax, extending the coverage of this tax to Indian Railways (Government Railway). This was done to provide a level playing field in the goods transport sector.

The Finance Minister had noted in his Budget speech that, in the goods transport sector, service tax was levied on transport of goods by road, by air, through pipelines and in containers.

However, goods carried by Indian Railways or those carried as coastal cargo or through inland waterways were not charged service tax.