Railway Accounts Department Examinations

Tuesday, December 25, 2018

Letter of Credit - Most Important Question

LC - Letter of Credit

(Most important question for Expenditure and Stores optional)

·         New initiative in Indian Railways

·         With effect from - 01.04.2018

·          Applicable for supplies/ works, including all service and maintenance contracts

·         letter of credit (LC)  - mode of payment as an option in supply/works contracts to improve transparency and the ease of doing business.

·         Apply for tenders having an estimated value of or above Rs. 10 Lakhs

·         Shall include in tender conditions an option for the contractors to take payment from railways through LC arrangements

·         The incidental costs towards issue and operation of LC shall be borne by the supplier /contractor.

·         SBI - State Bank of India - to assess the value of LC and terms and conditions of LC.

·         The DA - Document of Authorisation will be issued against each bill submitted for payment by supplier/ contractor after exercising laid down checks as per Railway codes and manuals in executive and accounts offices .

·          Accounts Officer responsible for passing claim will issue the DA. issue of they will be captured in IPAS and IREPS to ensure that there is no duplicate payment against the said bill.

·         The introduction of the Letter of Credit (LC) payment method for supply/work contracts will significantly increase transparency and improve the ease of doing business.

·         The Sellers should bear a cost of 0.15 %

oo   How it works:  Flow of Letter of Credit transactions:

1.      SBI issues LC to a Seller

2.      Railways will issue DA - Document of Authorisation to the supplier/contractor for completed work

3.      The supplier /contractor will present the DA to his banker for necessary payment

4.      After release of payment to the supplier/contractor, the banker will send this DA to the Railways' banker (SBI) for release of payment to them

5.      The Railways banker (SBI) will reimburse the supplier/contractor bank, against the original DA issued by railway and the bill of exchange issued by the supplier/ contractor, after verifying the signatures.


Composition Scheme in GST

Composition Scheme

ü  Opted by any Taxpayer whose turnover is less than Rs. 1.5 Crores  (Rs.75 Lakhs in case of North Eastern States).

ü  A simple and easy scheme under GST for taxpayers.

ü  Taxpayers who opted Composition scheme can get rid of tedious GST formalities

ü  Pay GST at a fixed rate of turnover.

ü  Service Providers are not eligible for Composition Scheme.  But Restaurants are eligible.

ü  GST rates under Composition scheme are as follows.

Type of Business
Manufacturer and Trader
0.5 %
1 %
5 %

Who cannot opt for Composition Scheme

ü  Supplier of services
ü  Manufacturer of ice cream, pan masala, or tobacco
ü  Businesses which supply goods through an e-commerce operator
ü  A dealer, who carrying out Inter-State transactions.


ü  Lesser compliance i.e., returns, maintaining books of record, Issuance of invoices.
ü  Limited tax liability.
ü  High liquidity as taxes are at a lower rate i.e., 5% or 1%.


ü  A limited territory of business. The dealer is barred from carrying out inter-state transactions
ü  No Input Tax Credit available to composition dealers
ü  The taxpayer will not be eligible to supply exempt goods or  goods through an e-commerce portal.

ITC - Input Tax Credit

Input Tax Credit
·         What is Input Tax Credit ? 

Ans:  Input Tax Credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs and pay the balance amount.

Example: A is a manufacturer.  Tax payable on the manufactured product is Rs. 200 /-.  However he already paid tax Rs. 75/- at the time of purchase of Raw materials.  So he can pay balance tax Rs. 125/- (i.e., Rs. 200 - Rs.75/-). duly availing the Input Tax Credit to the extent of Rs. 75/-.  Otherwise, he would be liable to pay the tax two times i.e., at the time of purchasing Raw Materials and Selling of manufactured product.

On manufacture of goods
Tax liability
On purchase of Raw materials
Rs. 75 /-
Already paid.
Balance Tax to be paid
Rs. 125/-
To be paid (duly availing Rs.75/- as ITC)

·         ITC is one of the fundamental features of GST

·         Seamless flow of input credit across the chain (from the manufacture of goods till it is consumed) and across the country.

·         A person registered under composition scheme in GST cannot claim ITC.

ü  ITC can be claimed only for business purposes. ITC will not be available for goods or services exclusively used for: a. Personal use b. Exempt supplies c. Supplies for which ITC is specifically not available

Social Service Obligations /Social costs in Indian Railways and CSR in India

Social Service Obligations /Social costs in Indian Railways

ü  What is social service Obligation or Social cost ?

Ans: To carry out certain transport activities  which are essentially uneconomic in nature, but in the larger interest of the economically disadvantaged sections of the society. Losses incurred on this account fall under Social Service Obligations of IR.

ü  Losses incurred on this account fall under Social Service Obligation of IR.

ü  Social Service Obligations by IR - 2016-17  - Approx  29,600 Crores.

The main elements of Social Service Obligation in IR are losses relating to:

(i) Essential Commodities carried below cost;

(ii) Passenger and Other Coaching services;

(iii) Operation of Uneconomic Branch Lines;

(iv) New Lines opened for Traffic during the last 15 years.

1.    Losses on transportation of Essential Commodities carried below cost:

ü  As part of the Railways’ Social Service Obligation, certain essential commodities of mass consumption like fruits and vegetables, sugarcane, paper, charcoal, bamboos, cotton raw pressed etc. are carried below cost of operation in order to contain their market prices.

ü   Approximately 42 crore in 2016-17. 

2.    Losses on Passenger and Other Coaching services:

ü  Analysis of the profitability of Coaching Services in 2016-17 has revealed an overall loss of ` 39500 crore. Out of which, Net suburban losses in Chennai, Kolkata, Mumbai & Secunderabad – Rs.5,389 Crores

ü  Low Second class ordinary fares (sub & non sub) constitutes 79 % of total traffic but provide only 17% of total passenger earnings.

ü  Season tickets – Non suburban constitutes 23 % of Total Non suburban traffic But provides only 1 % of Earnings

ü  Season tickets – Suburban constitutes 61 % of total traffic but provide only meager 40 % of total passenger earnings.

ü  Commuters availing concession Monthly and Quarterly Season Tickets on Suburban Sections of Chennai, Kolkata, Mumbai and Secunderabad.

ü  (iv) Concessions in Fare extended to various categories such as (i) Recipients of gallantry awards (ii) National sports awards (iii) Participants in National and State sports tournaments (iv) Teachers honored with National awards (v) Shram awardees (vi) War widows (vii) Patients suffering from cancer, tuberculosis and other serious diseases (viii) Handicapped persons (ix) Press correspondents (x) Film technicians etc. (v) Concessions are also extended to (i) Military traffic (ii)Postal traffic (iii) Transportation of registered newspapers & magazines etc. and (iv) Traffic to the North East.

ü   IR also steps in to provide emergency relief by transporting materials like food, water, fodder etc. to areas affected by natural disasters like drought, cyclone, earthquake etc.

3.    Operation of Uneconomic branch lines

ü  Despite concerted efforts to enhance earnings on branch lines, most of these lines remain commercially unviable.

ü  The Railway Reforms Committee recommended closure of 40 such lines but due to stiff public resistance and opposition by State Governments towards withdrawal of such services, only 15 lines have been closed permanently by the Railways.

ü  As on date 99 uneconomic branch lines existed

ü  On an original investment of Rs.4,476Crores on Uneconomic Branch lines, the losses during the year 2016-17 amounted to Rs. 1,855 crore.

4.    New lines opened for traffic during the last 15 years:

ü  The Railway Convention Committee (RCC) in its 9th Report on this subject has noted that in the present state of Railway finances and prevalent high costs of construction, the Railways are not in a position to inject adequate capital investment in under-developed areas.

ü  Therefore, they have felt that reliefs like making available land free of cost and waiver of dividend payment on such lines for a minimum period of twenty years are justified.

ü   Periodic reviews have revealed that of the 17 lines examined in 2016-17, as part of Social Service Obligations of the Railways for development of backward areas, all lines are showing either negative or unremunerative returns

Compensation for Social Service Obligations in Other Countries:

Railways, the world over, are called upon to meet certain public service obligations at lower tariffs for which they are adequately compensated for by the government. Such support is provided in various forms and for different purposes like:

(i) Compensation for losses on account of concessional tariffs;

(ii) Out-right grant to cover deficits;

(iii) Soft loans to meet the deficits;

(iv) Financial support to maintain viability of the system and to earn marginal profits;

(v) Writing off of accumulated debts and unproductive capital; and

(vi) Support for investment and infrastructure maintenance.

Corporate Social Responsibility

Corporate social responsibility is the responsibility of the corporate entity towards the society in consideration of the support given and sacrifices made by the society. The corporations exploit the natural resources of the country, cause incidental damage to environment and inconvenience to the people of the project area. Therefore, they have a responsibility towards the society to share a part of their profit.

CSR and India 

·          Section 135 & Schedule VII of Companies Act, 2013

·          2 % of the average net profits of the last 3 years.

·         Activities of reduction of poverty, education, health, environmental sustainability, gender equality, vocation skills etc

·         Railways wish to use CSR funds of Railway PSUs such as CONCOR, IRCTC, IRCON, RITES & RVNL

·         For utilising the CSR amounts to upgrade passenger amenities in major stations such as Mumbai, Howrah, New Delhi, Guwahati, Patna, Varanasi, Vadodara, Chennai, Agra and Bengaluru.

WTR - Wagon Turn Around with Practical example


ü  Definition:  The interval of time between two successive loadings of a wagon is called Wagon Turn Round.

ü  Wagon Turn Round performance is denoted in terms of "Days".

ü  If the No. of Wagon Turn Round days is reduced, the performance considered to be more  or vice versa.

ü  In simple terms, "calculated from the time a wagon is placed for loading till the time it again becomes available for reloading", is the actual wagon turn-round.

ü  Thus, all detentions to a wagon, from the time it is placed for loading till it is again placed for reloading after passing through the cycle of loading, dispatch, transit, unloading and again made available for reloading, enter into the calculation of turn-round.

ü  Means wagon turn round is 11 days means, the wagon could be loaded around 32 times a year. (360 days/11 days). 

ü  If wagon turn round is reduced from 6 days to 5 days, the same wagon could be loaded around 72 times a year. (360 days/5days).

Wagon Turn Round
11 days
5.13  days

ü  This (Reduction of Wagon Turn Round days) has been achieved as a result of
a)    improved mobility of wagons.
b)    quick loading & unloading of wagons.
c)    reduction in detentions.
d)    and improvement in speed of goods trains.

ü  Formulae for WTR - Wagon Turn Round  = WB/(L+R)   

ü  WB is Wagon Balance (effective average),  L is Daily average number of wagons Loaded, R is Daily average number of wagons Received.

Practical example of WTR:

Calculate Wagon Turn Round from the following data:

1.    Daily Average Wagon balance: 15500
2.    Average daily non effective wagons  A) Sick - 200 B) Departmental -300
3.    Average daily loading - 800
4.    Average daily received - 700
1.    Effective average wagon balance daily = Wagon balance minus Sick & Dept
                                                              = 15500 - (200+300)
                                                               = 15000
2.    WTR = WB/(L+R)   

WTR= 15000/(800+700)

WTR= 10

ü  Wagon is the bread earning horse of the Railways, load it adequately. Make it run and don’t stable it.