1. Dispute over whether user development fees collected under Section 22A of the Airports Authority of India Act are subject to service tax under the Finance Act, 1994. (Para 1 , 2 )
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2023 Supreme(SC) 548
SUPREME COURT OF INDIA
S. RAVINDRA BHAT, DIPANKAR DATTA, JJ.
Central GST Delhi-III – Appellant
Versus
Delhi International Airport Ltd. – Respondent
Civil Appeal No. 8996 of 2019, Civil Appeal No. 2465 of 2020, Civil Appeal Nos. 4751-4753 of 2021
Decided On : 19-05-2023
Important Points
IMPORTANT POINT
To attract service tax levy, a taxable service has to be provided to a recipient, by a service provider, for a consideration.
To attract service tax levy, a taxable service has to be provided to a recipient, by a service provider, for a consideration.
Subject
SERVICE TAX - AIRPORT SERVICE
Act Referred
AIRCRAFT RULES: R.88
AIRPORTS AUTHORITY OF INDIA ACT: S.22(a)(c), S.3, S.12(3)(a)(a)
Airports Authority of India Major Airports Development Fees Rules: R.3
Airports Economic Regulatory Authority of India Act: S.13
CONSTITUTION OF INDIA: Art.265
FINANCE ACT: S.65(105)(z)(z)(m), S.68(1), S.67(1), S.66
GENERAL CLAUSES ACT: S.6
RAJASTHAN AGRICULTURAL PRODUCE MARKETS ACT: S.9(2)
AIRPORTS AUTHORITY OF INDIA ACT: S.22(a)(c), S.3, S.12(3)(a)(a)
Airports Authority of India Major Airports Development Fees Rules: R.3
Airports Economic Regulatory Authority of India Act: S.13
CONSTITUTION OF INDIA: Art.265
FINANCE ACT: S.65(105)(z)(z)(m), S.68(1), S.67(1), S.66
GENERAL CLAUSES ACT: S.6
RAJASTHAN AGRICULTURAL PRODUCE MARKETS ACT: S.9(2)
Headnote
Finance Act, 1994 – Sections 22A and 67 – Levy of service tax on user development fee levied and collected by airport operation, maintenance and development entities – To attract service tax levy, a taxable service has to be provided to a recipient, by a service provider, for a consideration – In absence of any nexus to any service rendered, amount charged, or value of service or goods provided without a consideration, would not be a taxing incident – In present case, neither is there any compulsion to levy development fee nor is collection conditional upon its deposit in government treasury – However, absence of these features does not render UDF any less a statutory levy – Impugned orders cannot be faulted – Revenue’s appeals dismissed. (Paras 32, 39 and 40)
Result : Appeals dismissed.
Judgement Key Points
Key Points: - UDF is a statutory levy collected under Section 22A of the AAI Act for funding airport development, and not a consideration for services rendered (!) . - For service tax to apply, there must be a nexus between the amount charged and the taxable service provided (!) . - In the absence of any consideration or service rendered, amounts charged without such nexus are not taxable (!) . - The court held that development fees under Section 22A are in the nature of a cess or tax, not charges or tariffs for services (!) . - The revenue’s contention that UDF qualifies as an airport service taxable under Section 65(105)(zzm) was rejected due to lack of service consideration (!) . - The characterization of the levy as a statutory exaction means it does not attract service tax merely because it is collected by a service provider (!) . - The principles in Consumer Online Foundation were applied to distinguish statutory levies from service-based charges (!) . - Section 67 requires a direct link between the amount charged and the taxable service provided (!) . - The escrow mechanism and regulatory control over UDF do not convert it into a taxable service (!) . - The appeals were dismissed based on the above legal principles (!) .
What is the nature of the user development fee (UDF) collected by airport operators and whether it attracts service tax?
What are the conditions under which a statutory levy like UDF is subject to service tax?
What determines whether a charge is taxable as a service tax under the Finance Act?
Legal Category Hierarchy
Advocates appeared:
For Appellant(s) Mr. B. Krishna Prasad, AOR Mr. Sanjay Jain, A.S.G. Mr. Mukesh Kumar Maroria, AOR Ms. Nisha Bagchi, Adv. Mr. Arkaj Kumar, Adv. Mr. Padmesh Mishra, Adv. Mr. Digvijay Dam, Adv.
For the Respondent(s): Mr. Arvind Datar, Sr. Adv. Mr. Preetesh Kapur, Sr. Adv. Mrs. Vanita Bhargava, Adv. Mr. Ajay Bhargava, Adv. Mr. Shantanu Chaturvedi, Adv. Ms. Prerna Singh, Adv. M/S. Khaitan & Co., AOR Mr. Tarun Gulati, Sr. Adv. Mr. Mahesh Agarwal, Adv. Mr. Kishore Kunal, Adv. Mr. Shubham Kulshreshtha, Adv. Ms. Runjhun Pare, Adv. Mr. Kaustubh Singh, Adv. Mr. E. C. Agrawala, AOR Mr. Tarun Gulati, Sr. Adv. Ms. Richa Kapoor, AOR Mr. Kunal Anand, Adv. Mr. Kunal Kishor, Adv. Ms. Tusharika Sharma, Adv. Ms. Eesha Sharma, Adv.
For Appellant(s) Mr. B. Krishna Prasad, AOR Mr. Sanjay Jain, A.S.G. Mr. Mukesh Kumar Maroria, AOR Ms. Nisha Bagchi, Adv. Mr. Arkaj Kumar, Adv. Mr. Padmesh Mishra, Adv. Mr. Digvijay Dam, Adv.
For the Respondent(s): Mr. Arvind Datar, Sr. Adv. Mr. Preetesh Kapur, Sr. Adv. Mrs. Vanita Bhargava, Adv. Mr. Ajay Bhargava, Adv. Mr. Shantanu Chaturvedi, Adv. Ms. Prerna Singh, Adv. M/S. Khaitan & Co., AOR Mr. Tarun Gulati, Sr. Adv. Mr. Mahesh Agarwal, Adv. Mr. Kishore Kunal, Adv. Mr. Shubham Kulshreshtha, Adv. Ms. Runjhun Pare, Adv. Mr. Kaustubh Singh, Adv. Mr. E. C. Agrawala, AOR Mr. Tarun Gulati, Sr. Adv. Ms. Richa Kapoor, AOR Mr. Kunal Anand, Adv. Mr. Kunal Kishor, Adv. Ms. Tusharika Sharma, Adv. Ms. Eesha Sharma, Adv.
Table of Contents
2. Revenue contends development fees are consideration for airport services; assessees argue they are statutory levies without a nexus to any specific service provided to passengers. (Para 7 , 8 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 )
3. The court distinguished charges for services under Section 22 from statutory levies under Section 22A, finding no nexus between development fees and specific services rendered. (Para 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 )
4. A statutory levy collected for specific development purposes without a nexus to a taxable service provided for consideration is not subject to service tax. (Para 29 , 32 , 35 , 39 )
5. Appeals dismissed; the impugned orders holding that development fees are not liable to service tax are upheld. (Para 40 )
6. Is the development fee collected under Section 22A of the AAI Act considered consideration for services?
No. It is a statutory exaction in the nature of a cess or tax for generating revenue for specific purposes, such as airport upgradation and expansion, rather than a charge for services provided to passengers. (Para 28 , 29 , 35 )
7. What is the requirement for an amount charged to be taxable under Section 67 of the Finance Act, 1994?
There must be a nexus between the amount charged and the taxable service provided. Any amount charged without such a nexus, and not as consideration for a service, does not form part of the taxable value. (Para 30 , 31 , 32 )
8. Does the deposit of fees in escrow accounts or the discretionary nature of the levy affect its status as a statutory exaction?
No. The public nature of funds is maintained if utilization is monitored and regulated by law, regardless of whether funds are kept in escrow accounts or the levy is discretionary. (Para 39 )
9. How do charges under Section 22 differ from levies under Section 22A of the AAI Act?
Section 22 allows charges for specific services and facilities provided to third parties based on contractual relationships, whereas Section 22A empowers the levy of development fees as a statutory exaction independent of such contracts. (Para 28 , 35 )
JUDGMENT :
S. RAVINDRA BHAT, J.
1. In all these appeals, orders of the Customs, Excise and Service Tax Appellate Tribunal 1 [Final Order No. ST/A/50064/2019-CUIDBI dated 18.01.2019 (by the Principal Bench, CESTAT, New Delhi); Final Order No. A/88830-88832/16/STB dated 28.01.2016 (by the Western Zonal Bench, CESTAT, Mumbai) and Final Order No. A/30739/2019 dated 16.09.2019 (by the CESTAT Regional Bench at Hyderabad)] (hereafter “CESTAT”) are impugned by the service tax authorities (hereafter “the revenue”) who argue that user development fee levied and collected by the airport operation, maintenance and development entities (i.e. the Mumbai International Airport Pvt. Ltd. the Delhi International Airport Pvt. Ltd. and the Hyderabad International Airport Pvt. Ltd. (hereafter collectively called “the assessees”) is subjected to service tax levy, under the provisions of the Finance Act, 1994 (hereafter “the Act”).
2. All the assessees had entered into joint venture arrangements/agreements (hereafter “OMDA”) with the Airports Authority of India (hereafter “AAI” a body corporate created by the Airports Authority of India Act, 1994 [hereafter “AAI Act”]. Under OMDA, the assesses agreed to undertake some activities enjoined upon the AAI, by the AAI Act. The assessees were authorised, by various notifications (dated 27th February 2009) issued by the Central Government under Section 22A of the AAI Act to collect a “development fee” @ Rs. 100/- for every departing domestic passenger and Rs. 600/- for every departing international passenger at the concerned airports for a period of 48 months.
3. The Commissioner of Service Tax, through various show cause notices demanded payment of tax on the development fee collected for various periods. These notices were adjudicated and confirmed; the CESTAT remanded the matter to the original authority requiring fresh adjudication after taking into consideration the decisions of this court in Consumer Online Foundation vs. Union of India, (2011) 5 SCC 360, Commissioner of Central Excise vs. Cochin International Airport Ltd. 2010 (17) STR J 79 (SC) and Acer India Ltd. and Orissa Cement Ltd. vs. State of Orissa, 1991 Supp. (1) SCC 430 and various instructions issued by the Central Board of Excise and Customs (hereafter “CBEC”). The original authority disposed of all show cause notices by confirming demands, and also levying penalties under the Act. The adjudicating authority accorded the benefit of “cum-tax” valuation. These orders were challenged before the CESTAT, which, by the orders impugned, allowed the assessees’ appeals, holding that the development fee collected was not liable to service tax levy.
(II) The relevant provisions
4. Section 65 (105) (zzm) of the Finance Act, 1994, contains the definition of “airport service” (with effect from 01.07.2010) and states that such service is:
“any service provided or to be provided by airports authority or by any other person in any airport or a civil enclave.”
Before the amendment, i.e. before 1 July 2010, the definition, of airport service was as follows:
“to any person, by airports authority or any person authorised by it, in an airport or a civil enclave.”
Section 65 (3d) defines airport authority as:
“Airports Authority of India constituted under section 3 of the Airports Authority of India Act, 1994 (55 of 1994) and also includes any person having the charge of management of an airport or civil enclave.”
5. Section 68 (1) of the Finance Act provides that every person providing taxable service to any person shall pay service tax at the rate specified in section 66. Section 67 (1) of the Finance Act, provides that where service tax is chargeable on any taxable service with reference to its value then such value shall be the gross amount charged by the service provider for such service provided or to be provided by him.
6. The relevant provisions of the Airports Economic Regulatory Authority of India Act, 2008 and the Aircraft Rules, 1937 are extracted below:
