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SUPREME COURT OF INDIA
SANJAY KISHAN KAUL, M.M. SUNDRESH, JJ.
Delhi International Airport Ltd. - Appellant
Versus
Airport Economic Regulatory Authority Of India & Ors. - Respondents
Civil Appeal No.8378, 10902 of 2018, 6658-6659, 5738, 5401 of 2019, 145, 7331, 7334 of 2021, 3675 of 2020
Decided on : 11-07-2022
The Supreme Court of India ruled on several issues related to the Airports Economic Regulatory Authority of India Act, 2009 (AERA Act), including the treatment of fuel throughput charges (FTC), the calculation of hypothetical regulatory asset base (HRAB), the application of CPI-X methodology for tariff determination, revenue from disallowed area, calculation of tax for determining the target revenue, development fee, cargo and ground handling services, levy of user development fee (UDF), conduct of AERA, and project cost.
Fact of the Case:
The case involved multiple appeals and cross-appeals arising from tariff determinations made by the Airports Economic Regulatory Authority of India (AERA) and the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) in relation to two major airports in India, Indira Gandhi International Airport (IGIA) and Chhatrapati Shivaji Maharaj International Airport (CSIA). The appeals challenged various aspects of the tariff determination process, including the treatment of FTC, the calculation of HRAB, the application of CPI-X methodology, the inclusion of revenue from a disallowed area, the calculation of tax for determining the target revenue, the imposition of development fee, the treatment of cargo and ground handling services, the levy of UDF, the conduct of AERA, and the determination of project cost.
Finding of the Court:
The Supreme Court upheld the AERA's and TDSAT's decisions on most of the issues, finding that the authorities had acted within their statutory powers and had followed the principles of reasonableness and transparency in making their determinations. However, the Court did find merit in the Airport Operators' contention that the Annual Fee paid by them should not be deducted from expenses pertaining to aeronautical services before calculating the 'T' element in the formula for determining the target revenue. The Court held that this deduction was not supported by the language of the AERA Act or the underlying principles of taxation.
Issues: 1. Treatment of Fuel Throughput Charges (FTC) 2. Calculation of Hypothetical Regulatory Asset Base (HRAB) 3. Application of CPI-X Methodology for Tariff Determination 4. Revenue from Disallowed Area 5. Calculation of Tax for Determining the Target Revenue 6. Development Fee 7. Cargo and Ground Handling Services 8. Levy of User Development Fee (UDF) 9. Conduct of AERA 10. Project Cost
Ratio Decidendi: The Supreme Court's decision was based on the following principles: 1. The AERA and TDSAT are expert bodies with specialized knowledge in the field of airport regulation, and their decisions are entitled to deference by the Court. 2. The AERA Act is a comprehensive statute that provides a detailed framework for the regulation of airport tariffs, and the authorities have acted within their statutory powers in making their determinations. 3. The principles of reasonableness and transparency require that the authorities provide clear and reasoned explanations for their decisions, and that they take into account the views of all stakeholders. 4. The Court should not interfere with the authorities' decisions unless they are found to be arbitrary, unreasonable, or in violation of the law.
Final Decision: The Supreme Court dismissed all appeals and cross-appeals except for the issue relating to the treatment of the Annual Fee in the calculation of the 'T' element for determining the target revenue. On this issue, the Court allowed the appeals to the extent of modifying the impugned order to exclude the deduction of the Annual Fee from expenses pertaining to aeronautical services.
JUDGMENT :
SANJAY KISHAN KAUL, J.
1. The economic liberalisation of the 1990s brought in many regime changes. One of the sectors which required a re-look was civil aviation infrastructure. Modernisation of airports all over the world required India to also step up in its efforts towards the development of international level airports. One can say with some pride that this modernisation effort has raised the status of the airports in India not only to an international level but has also resulted in them being rated as amongst the best in the world.
2. In furtherance of the modernisation effort, the Government of India introduced the Airport Infrastructure Policy in 1997 with the objective of augmenting India’s airport infrastructure and with a view towards its modernisation, development and upgradation. The policy promoted private sector participation by way of Public Private Partnership Model and in furtherance of the same, the Airports Authority of India Act, 1994 (hereinafter referred to as the ‘AAI Act’) was amended with effect from 01.07.2004 to enable the setting up of private airports and leasing of existing airports to private operators.
3. A new policy on airport infrastructure was introduced in 2002. The Airports Authority of India (for short ‘AAI’) initiated a competitive bidding process, which culminated into the award for the operation, management and development of the Indira Gandhi International Airport (for short ‘IGIA’) and Chhatrapati Shivaji Maharaj International Airport (for short ‘CSIA’) to consortiums led by GMR and GVK respectively.
4. A Joint Venture (for short ‘JV’) agreement was executed between the GMR Consortium and the AAI for Delhi International Airport Limited (for short ‘DIAL’), and on similar pattern between the GVK Consortium and the AAI for Mumbai International Airport Limited (for short ‘MIAL’). These agreements were executed simultaneously on the same date with the AAI holding 26 per cent shareholding in each of the JVs. DIAL and MIAL thereafter entered into the Operation, Management and Development Agreement (for short ‘OMDA’) dated 04.04.2006 with AAI and executed other project agreements including the State Support Agreement (for short ‘SSA’) dated 26.04.2006. The fee sharing was, however, different in view of economic logistics and, thus, DIAL was required to pay AAI an annual fee of 45.99 per cent of the revenue received by DIAL while MIAL was required to pay AAI an annual fee of 38.7 per cent of the revenue received by MIAL. An Airport Operator Agreement was signed on 01.05.2006 and in pursuance of the same, DIAL and MIAL were handed over management of the respective airports in Delhi and Mumbai and operations commenced on 03.05.2006.
For the purpose of this judgment, DIAL and MIAL shall collectively be referred to as “Airport Operators”.
5. It was only after a hiatus period of about three years that the Airports Economic Regulatory Authority of India Act (hereinafter referred to ‘said Act’) came into force on 01.01.2009 with the exception of Chapters III and VI, which were made effective from 01.09.2009.
Contractual and Regulatory Framework:
6. In order to appreciate the controversy being dealt with by us, it is necessary to appreciate the contractual and regulatory framework. DIAL and MIAL both broadly earn their revenue from two sources, viz., Aeronautical and Non-aeronautical. While they are free to fix charges towards the latter, the former component is controlled by the Airports Economic Regulatory Authority of India (for short ‘AERA/the Authority’), which regulates tariff and other charges for aeronautical services rendered at airports. Aeronautical services are defined in Section 2(a) of the said Act and are enumerated in Schedule 5 of the OMDA. The calculation of tariff was to be carried out in accordance with Section 13 of the said Act, which inter alia provided that the determination of tariff had to be made in accordance with the concession offered by the Central Government in any
Regulator must use actual costs/revenues from competitive processes, adhere to binding precedents without stay, respect concessions, and ensure economic viability via true-up; cannot impose normative....
AERA must determine aeronautical tariffs using actual/prudent costs via CAPM per airport, allow financing/soft costs/actual recoveries without caps/deferrals/penalties, true-up on incurrence; consist....
The Airports Economic Regulatory Authority can appeal against TDSAT orders as it has a vital interest in tariff determinations, establishing its role as a necessary party in such appeals.
To attract service tax levy, a taxable service has to be provided to a recipient, by a service provider, for a consideration.
It would be difficult to have a re-appreciation of evidence and facts by Supreme Court when two specialist authorities/tribunals having applied their mind to it.
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