CENTRAL GST DELHI - III versus DELHI INTERNATIONAL AIRPORT LTD
[2023] 7 S.C.R. 322, Supreme Court of India, 2023
Outcome: Dismissed (Dismissed)
Segment: Ratio
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CENTRAL GST DELHI - III
v.
DELHI INTERNATIONAL AIRPORT LTD
(Civil Appeal No. 8996 of 2019)
MAY 19, 2023
[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]
Airports Authority of India Act, 1994: ss. 22, 22A – Finance
Act, 1994 – ss. 67 and 68 (1) –User development fee-UDF, levied
and collected u/s. 22A by the airport operation, maintenance and
development entities-Mumbai International Airport Pvt. Ltd., Delhi
International Airport Pvt. Ltd., and Hyderabad International Airport
Pvt. Ltd., from the domestic/international passengers departing the
airport – Levy of service tax – Held: User development fee levied
and collected by the airport entities is a statutory levy, thus, not
subject to service tax levy under the provisions of the Finance Act –
UDF collected by the assessee is to bridge the funding gap of project
cost for the development of future establishment at the airports –
There is nothing on record to show that any additional benefit has
accrued to passengers, visitors, traders, airlines etc., upon levy of
UDF during the said period – As part of the Union’s economic
policies, the upgradation and renovation of airports are funded
through UDF, which is a statutory levy – Airports Economic
Regulatory Authority of India Act, 2008 – s. 13 – Aircraft Rules,
1937 – r. 88, 89.
Dismissing the appeals, the Court
HELD: 1.1 The nature of development fee, collected under
Section 22A of the Airports Authority of India Act, 1994 is
that of
statutory exactions and not fees or tariffs. [Para 29][339-H]
1.2 To attract service tax levy, a taxable service has to be
provided to a recipient, by a service provider, for a consideration
and in the absence of any nexus to any service rendered, an amount
charged, or value of service or goods provided without a
consideration would not be a taxing incident. [Para 32][341-E]
322
[2023] 7 S.C.R. 322
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1.3 Besides the Airports Authority of India (Major Airports)
Development Fees Rules 2011, the assessee, in the case of
DIAL, has placed on the record, a letter issued to it, by AAI
which imposes controls on the utilization of amounts collected as
development fee; apart from the fact that the amounts are
deposited in an escrow, any plan for utilization has to be approved.
Unlike fees, rent, charges etc., provided under Section 22 of AAI
Act, assessee companies are authorized on behalf of the AAI to
levy and collect ‘development fee’ under Section 22A of the AAI
Act on behalf of the AAI and was applied for generating revenue
for utilization of the same for the specific purpose provided under
sub- clause (a), (b) and (c) of section 22(A) of the AAI Act. The
UDF collected by the assessee is to bridge the funding gap of
project cost for the development of future establishment at the
airports. There is nothing on record to show that any additional
benefit has accrued to passengers, visitors, traders, airlines etc.
upon levy of UDF during the period in question in the present
case. [Para 34][342-C-F]
1.4 There is a distinction between the charges, fee and rent
etc. collected under Section 22 of the AAI Act and the UDF levied
and collected under Section 22A of the AAI Act. It is that the
UDF is in the form of ‘tax or cess’ collected for financing the cost
of future projects and there was no consideration for services
provided by the assessee to the customer,
visitors, passengers,
vendors etc. The aggregate of collections in the bank accounts
do not form part of profit and loss account. [Para 35][342-F-G]
1.5 It is also useful to notice that by a circular issued by the
CBEC, Circular No. 89/7/2006- ST dated 18.12.2006, it was
clarified that collection of amounts, by way of taxes, sovereign or
statutory dues, would not be subjected to service tax levy. [Para
36][342-G; 343-A]
1.6 In the instant case, undoubtedly neither is there any
compulsion to levy development fee, nor is the collection
conditional upon its deposit in the government treasury. However,
the absence of these features does not render User Development
fee(UDF) any less a statutory levy. Firstly, the ruling in Consumer
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AIRPORT LTD
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Online Foundation’s case is conclusive that UDF is a statutory
levy. Secondly, the collection is not premised on rendering of any
service. Thirdly, the amounts collected are deposited in an escrow
amount, not within the control of the assesses. Fourthly, the
utilization of funds, is monitored and regulated by law. In this
regard, the fact that the amount is not deposited in a government
treasury, per se, does not make it any less a statutory levy or
compulsory extraction. Nor does its discretionary nature, render
it any less a statutory levy. Airport management has evolved; it
is no longer the monopoly of the government; private
participation is recognized. As part of the Union’s economic
policies, the upgradation and renovation of airports is funded
through UDF, which is a statutory levy. Instead of the conventional
practise of ensuring that amounts collected are deposited with
the Government, an entirely new regulatory regime has been
envisioned, under the 2011 Rules, read with specific conditions
imposed by the Airport Authority India on each assessee, which
includes monitoring of amounts, nature of expenditure,
submission of plans for expansion, renovation, their sanctioning
etc. These rules and controls are in public interest, and evidently
intended to further efficiency in funding and swift taking up and
completion of works, rather than funding through Finance Rules,
which might entail delay, and cost overruns.
However, the public
nature of these funds does not in any manner get undermined,
merely because they are kept in an escrow account, and their
utilization is monitored separately. Thus, the impugned order
cannot be faulted. [Paras 39, 40][345-B-H; 346-A]
Consumer Online Foundation v Union of India 2011
(5) SCR 911; Commissioner of Service Tax vs. Bhayana
Builders (P) Ltd. 2018 (1) SCR 1128 – relied on.
Krishi Upaj Mandi Samiti v Commissioner of Central
Excise 2022 (1) SCR 700 – referred to.
Case Law Reference
2011 (5) SCR 911
relied on
Para 27, 28, 29
2018 (1) SCR 1128
relied on
Para 32
2022 (1) SCR 700
referred to
Para 37
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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8996
of 2019.
From the Judgment and Order dated 18.01.2019 of the Custom
Excise Service Tax Appellate Tribunal, New Delhi in AN No. 52815 of
2016.
With
Civil Appeal Nos. 2465 of 2020 and 4751-4753 of 2021.
Sanjay Jain, A.S.G., B. Krishna Prasad, Mukesh Kumar Maroria,
Ms. Nisha Bagchi, Arkaj Kumar, Padmesh Mishra, Digvijay Dam, Advs.
for the Appellant.
Arvind Datar, Preetesh Kapur, Tarun Gulati, Sr. Advs., Mrs. Vanita
Bhargava, Ajay Bhargava, Shantanu Chaturvedi, Ms. Prerna Singh, M/
s. Khaitan & Co., Mahesh Agarwal, Kishore Kunal, Shubham
Kulshreshtha, Ms. Runjhun Pare, Kaustubh Singh, E. C. Agrawala, Ms.
Richa Kapoor, Kunal Anand, Ms. Tusharika Sharma, Kunal Kishore,
Advs. for the Respondent.
The Judgment of the Court was delivered by
S. RAVINDRA BHAT, J.
1. In all these appeals, orders of the Customs, Excise and Service
Tax Appellate Tribunal1 (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 bythe Airports Authority of
India Act, 1994 [hereafter “AAI Act”]. Under OMDA, the assesses
1 Final Order No, ST/A/50064/2019-CUIDBI dated18/01/2019 [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].
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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 Actto 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 v. Union of India2, Commissioner
of Central Excise v. Cochin International Airport Ltd.,3 Acer
India Ltd. and Orissa Cement Ltd. v. State of Orissa4 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”
2 (2011) 5 SCC 360
3 2010 (17) STR J 79 (S.C.)
4 1991 Supp (1) SCC 430
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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:
Section 13 of the Airports Economic Regulatory Authority of India
Act, 2008 sets out the functions of the authority, and inter alia, reads as
follows:
“13. Functions of Authority.
(1) The Authority shall perform the following functions in
respect of major airports, namely:—
(a) to determine the tariff for the aeronautical services
taking into consideration—
****************
(b) to determine the amount of the development fees in
respect of major airports;
(c) to determine the amount of the passengers service fee
levied under rule 88 of the Aircraft Rules, 1937 made under
the Aircraft Act, 1934 (22 of 1934);…”
Provisions of the Aircraft Rules, 1937:
“Rule
88. Passenger Service Fee. —The licensee is entitled
to collect fees to be called as Passenger Service Fee from
the embarking passengers at such rate as the Central
Government may specify and is also liable to pay for
security component to any security agency designated by
CENTRAL GST DELHI - III v. DELHI INTERNATIONAL
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the Central Government for providing the security service.
Provided that in respect of a major airport such rate shall
be as determined under clause (c) of sub-section (1) of
section 13 of the Airports Economic Regulatory Authority
of India Act, 2008.
Rule 89. User Development Fee —The licensee may, -
(i) levy and collect at a major airport the User Development
Fee at such rate as may be determined under clause (b) of
sub-section (1) of section 13 of the Airports Economic
Regulatory Authority of India Act, 2008;
(ii) levy and collect at any other airport the User
Development Fees at such rate as the Central Government
may specify.”
The relevant provisions of the AAI Act are extracted below:
“Section 22. The Authority may,-
(i) With the previous approval of the Central Government,
charge fees, or rent-
(a) for the landing, housing or parking of aircraft or for
any other service or facility offered in connection with
aircraft operations at any airport, heliport or airstrip
Explanation. -
In this sub-clause “aircraft” does not include an aircraft
belonging to any armed force of the Union and “aircraft
operations” does not include operations of any aircraft
belonging to the said force;
(b) for providing air traffic services, ground safety services,
aeronautical communications and navigational aids and
meteorological services at any airports and at any
aeronautical communication station;
(c) for the amenities given to the
passengers and visitors
at any airport, civil enclave, heliport or airstrip;
(d) for the use and employment by persons of facilities
and other services provided by the authority at any airport,
civil enclave heliport or airstrip;
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(ii) with due regard to the instructions that the Central
Government may give to the authority, from time to time,
charge fees or rent from persons who are given by the
authority any facility for carrying on any trade or business
at any airport, heliport or airstrip.
Section 22A. The Authority may, after the previous
approval of the Central Government in this behalf, levy
on, and collect from, the embarking passengers at an
airport, the development fees at the rate as may be
prescribed and such fees shall be credited to the Authority
and shall be regulated and utilized in the prescribed
manner, for the purposes of-
(a) funding or financing the costs of upgradation,
expansion or development of the airport at which the fee
is collected; or
(b) establishment or development of a new airport in lieu
of the airport referred to in clause (a); or
(c) investment in the equity in respect of shares to be
subscribed by the Authority in companies engaged in
establishing, owning, developing, operating or maintaining
a private airport in lieu of the airport referred to in clause
(a) or advancement of loans to such companies or other
persons engaged in such activities.”
III
Contentions of the parties
7. Ms. Nisha Bagchi, learned counsel for the revenue, submits
that assessees function as licensees of Airports. The airports are capable
of being licensed by the AAI to operate as aerodromes. It was submitted
that grant of licenses is subject to express conditions. Rule 88
provides
for collection of fees known as “passenger services fees” from the
embarking passengers; Rule 89 provides for collection of “User
Development Fee” (hereafter “UDF”) by licensees. Ms Bagchi argued
that user development fees are nothing but amounts collected for
extending or enhancing various services like providing passenger lounges,
passenger amenities, toilets, rest rooms and other facilities inside airports.
Even the agreement entered by the assessees with AAI, indicates
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thatUDFisto enhance passenger amenities, services and facilities. Those
amounts areto be used for development, management, maintenance and
operation and expansion of facilities at the airport.
8. It was urged that the nature of UDF indicates that such fees
are amounts collected for rendering various services. The amounts
collected is nothing but development fee, meant to be used for funding
and financing specific renovation, maintenance, development and
upgradation of airports. These are necessary due to cost escalation.
These amounts are for services rendered, and providing access by the
airport. Such amounts are taxable. Learned counsel also relied on the
circular No. 106/Commr(ST)/2009 dated 08.07.2011, which specifically
stated that service tax is paid by the various airports on passenger services
fee and UDF but no tax is paid on development fees. It was argued that
CBEC has clarified that passenger service fee, user development fee
and development fee are different and development fee is to be taxed
under “airport services”.
9. Learned counsel sought to distinguish the decision of the Kerala
High Court in the case of Cochin International Airport Ltd. because in
that case, what was in issue was user fee while in the case in hand it is
UDF. Counsel reiterated thatthe findings of the lower authorities are
correct and submits that the impugned orders of CESTAT call for
interference.
10. Learned counsel pointed out
that by Section 22A of the AAI
Act, the authority “may”, after the previous approval of the Central
Government “levy on, and collect from, the embarking passengers
at, an airport, the Development Fees”. It was contended that such
levy cannot be called a tax because it is discretionary and subject to the
approval of the Central Government, meant for funding or financing the
costs of upgradation, expansion or development of the airport at which
the fee is collected; or establishment or development of a new airport in
lieu of the existing airport or towards investment in the equity in respect
of “shares to be subscribed by the authority in companies engaged
in establishing, owning, developing, operating or maintaining a
private airport in lieu of the airport” or “advancement of loans to
such companies or other persons engaged in such activities.” It
was also urged that the amounts cannot be termed as levy, because they
are not deposited with the government treasury.
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11. It was submitted that from a reading of Section 22A, it is clear
that it allows for funding or financing the cost of upgradation, expansion
or development of the airport at which the fee is collected and
establishment or development of a new Airport in lieu of the airport at
which the fee is collected. This is apre-funding collection and imposed
for the facility to be provided by the assessees and tobe used for funding
of project cost which ultimately would result in creation of better facilities
and amenities for passengers. The assessees entered into agreements
for the purpose of its operation, management and development of airports
(OMDA). In terms of such OMDAs, assessees are responsible for the
development, design, upgradation of airport. It is for this purpose that
they have been permitted to collect UDF from the passengers.
12. It is further submitted that the assessees are authorized to
collect UDF by the Ministry of Civil Aviation which granted approval
under Section 22A of the AAI Act. Once it is clear that the purpose and
object of the UDF is for funding or financing the costs of upgradation,
expansion or development of the major Airports, only the rate of fees
are determined by the Airport Economic Regulatory Authority. The
upgradation or development of an airport results in better infrastructure
and services to passengers. Collection of the DF could facilitate and
provide better services to the passengers who would be the recipient of
the
airport service. Therefore, the amount cannot be called a tax or levy,
but is actually a collection for service, and consequently liable to service
tax.
13. The revenue argues that the definition of airport service is
wide and includes any service provided or to be provided by any person
in the airport. It is a taxable service. Further, without payment of such
levy, passengers cannot enter the airport nor can have access to the
plane. Thus, the UDF collected by DIAL is covered by the definition of
“airport service” and would be liable to payment of service tax. The
impugned order has failed to appreciate this submission and hence, the
same is liable to be set aside.
14. It was argued that the decision of this court in the case of
Consumer Online Foundation v Union of India5 had expressed the
view that DF appeared to be in the form of tax or cess, but wasnot a
legally collected tax. It was argued that Section 22 Aprovided for the
5 2011 (5) SCR 911
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“levy” of DF, but the rate at which the said levy was to be collected had
not been prescribed by framing of a separate rule by the Airports
Economic Regulatory Authority (AERA) as amended by the 2008 Act.
This court held that the collection of UDF by the assessees prior to the
notification issued by AERA was considered to be levied and collected
without the authority of law. It further found that the levy and collection
of UDF by the two airport concessionairesat the rates fixed by the Central
Government (by two letters dated 9.2.2009 and 27.2.2009) respectively
were ultra vires the AAI Act, and were not saved by Section 6 of the
General Clauses Act, 1897.
15. It is submitted that in the above decision, there is no clear
finding that DF is a tax or cess and the same was held tobe ultra vires
the AAI Act on the ground that the rate could not have been fixed by the
Central Government, but only by making a rule by AERA which has
notbeen done. In the present case, we are concerned with the levy of
service taxon DF collected by the respondents from the passengers.
Also in that decision, this court was not concerned with levy or otherwise
of service tax on DF. It was argued that DF has not been collected as
tax orcess and therefore, the contention that DF is a tax on which there
cannot be any service tax is incorrect. The nature of DF is that these
are the charges collected by the respondents for development of facilities
for the use ofthe airport. In fact, the assesses’ contention was these are
the charges for the use of the airport services by the passengers and is
not a tax.
16. Learned counsel relied on the judgment reported as Krishi
Upaj Mandi Samiti v Commissioner of Central Excise6 and urged
that the nature of UDF is similar to the optional collection made by
market committees who perform services, which are not in the nature
of a statutory activity or a sovereign function, and if such services are
rendered for a consideration, they are subjected to levy.
17. Mr. Arvind Datar, Mr. Tarun Gulati and Mr. Pritesh Kapoor,
learned senior counsel appearing for the assessees, contended that the
decision in Consumer Online (supra) has concluded the nature of
collections; it is a tax, unrelated to any service provided, and has to be
borne in mind that there is no consideration. Learned counsel relied on
the following observation in Consumer Online Foundation:
6 2022 (1) SCR 700
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“the object 8 of Parliament in inserting Section 22A in the
2004 Act by the Amendment Act of 2003 is to authorize by
law the levy and collection of development fees from every
embarking passenger de hors the facilities that the embarking
passengers get at the existing airports. The nature of the levy
under Section 22A of the 2004 Act, in our considered opinion,
is not charges C or any other consideration for services for
the facilities provided by the Airports Authority.”
18. It was argued by learned counsel that the taxable activity did
not occur in this case, as the collections were intended for future
developments whereas the ‘airport’ referred to in Section 65(105)(zzm)
is an existing airport. Counsel urged that such statutory levies were in
the nature of cess or tax and were not liable to taxation. Counsel
emphasized that the ruling of the Kerala High Court in Cochin
International Airport Limited vs. Collector Central Excise7 has held
that UDF is collected to fulfil the funding gap for development of airports,
and cannot be termed as service. This ruling was upheld by this court8 .
In these circumstances, there is no merit in the revenue’s submission
that development fee is collected for rendering services.
19. Learned counsel relied on the impugned orders to say that to
be liable to tax, service should be rendered to a person by a specifically
described service provider in an airport. The scope of activities of the
assessee vis-a-vis passengers who
bear the burden of development fee
needs a closer look. Passengers in an airport intend to travel by an airline
which has the said airport as a scheduled port of call. The contractual
nature of this relationship is enshrined in the ticket which provides access
to the airport, process through check-in and security, space for waiting
and necessary amenities and provision for boarding an aircraft. There is
nothing to show that passengers have to make payments for any of
these activities. These facilities were available without any additional
charge before the imposition of ‘development fee’. Such services continue
to be available after its quashing. No additional benefit accrues to the
passenger during the period of levy of ‘development fee.’ All facilities
are basic facilities inherent in the civil aviation sector in which the
appellant, a non-public sector entity, is a recent entrant.
7 2009 (16) STR 401 (Ker.)
8 in 2010 (17) S.T.R. J79 (S.C.)
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20. It was emphasized that moving away from state control, airports
entered the phase of regulatory control with the advent of the AAI Act.
This transition also had to factor in the larger public interest in safety
and security, which meant that some level of control, de-regulation was
limited and confined to the financial aspects of airport management.
Having created a statutory authority, the statute should have been specific
to contain the scope of functions of the AAI. Despite granting financial
autonomy, the need for dependence on the State exchequer could not be
eliminated and hence appropriate types of levies as well as restrictions
on their utilization were incorporated in the statute. It was contended
that Sections 22 and 22A of the AAI Actare in the context of substitution
of the constitutional funds of the Union of India, for deposit and drawing
with that of the accounts of AAI.
21. The assesses urge that Section 22 of the AAI Act enables
AAI to charge for the facilities it provides. However, the levy under
Section 22A [of the AAI Act] is compulsorily charged from passengers;
it is placed in an escrow account owing to the restricted purpose for
which such fee collected can be used. Hence, there is a substantive
difference between a charge under Section 22 and levy under Section
22A. The charge under Section 22, paid by any passenger, may be a
consideration for a service and subjected to service tax.
However, the
same principles are not applicable to a levy under Section 22A, which is
independent of Section 22 and is not for any service rendered.
22. Counsel underlines that this court in Consumer Online
Foundation (Supra) has declared the law and has interpreted both
Section 22 and Section 22A of the AAI Act. This court has held that
charges collected under Section 22 are for different services and facilities
provided to the third parties by the lessee of AAI. Collections under
Section 22A of the AAI Act, this court has ruled, are “dehors the
facilities that the embarking passengers get at the existing airports”.
There is also a specific finding that there is no contractual relationship
between the passengers and the AAI for the funds collected under
Section 22A of the AAI Act. Further, it was highlighted that in the same
judgment, it was held that charges under Section 22A:
“are not charges or any other consideration for services for
the facilities provided by the Airports Authority.”
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The court decisively held that development fee is “really in the
nature of a cess or a tax for generating revenue for specific
purpose.” And, further, that amounts collected are accountable to the
AAI, which would ensure that such fee levied and collected are “utilized
for the purposes mentioned in Section 22A (a) of the AAI Act.”
23. It was argued that in view of the declaration of law, CESTAT
correctly held that the charges collected by the assesses under Section
22A of the AAI Act cannot be regarded as considered for services
rendered.
24. Learned counsel submitted that the decision in Krishi Upaj
Mandi Samiti (supra) is distinguishable. In that case, the court was
concerned only with Section 9 (2) of the Rajasthan Agricultural Produce
Markets Act, 1961, which was held not to relate to a statutory function but
only a discretionary charge, i.e., renting of premises. Rent for immovable
property is materially different from a collection under Section 22A of the
AAI Act, which, according to this court, is in the nature of cess or tax and
a compulsory exaction in Consumer Online Foundation (supra).
25. The assesses also rely on the decision of this court in
Commissioner of Service Tax vs. Bhayana Builders (P) Ltd9, where
it was stated that under Section 67 of the Finance Act, 1994,not every
amount charged by the service provider is taxable. Upon an analysis of
Section 67, it was held that the amount charged should be “for such
service provided” to be
taxable. The court emphasized the connection
between the service and the amount by stating that:
“the Act has provided for a nexus between the amount charged
and the service provided”.
26. Counsel pointed out that Consumer Online Foundation (supra)
has ruled that there is no nexus between the amounts charged under
Section 22A of the AAI Act and any service provided. In the absence of
a nexus between the amount charged as DF/UDF and any service
rendered, such amounts cannot be liable to service tax.
IV
Analysis and Conclusions
27. In the decision of this court, in Consumer Online Foundation
(Supra), the context was the validity of the levy of development fees
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and their collection from embarking passengers by lessees of airports,
under OMDAs, including the DIAL in this case. The court examined
the history of airport regulation in India, including the legislation concerning
it, and, after analysing the provisions of the AAI Act, including the
amendment to it, in 2003, held that:
“12. The functions of the Airports Authority under clause
(aa) of sub-section (3) of Section 12 also inserted by the
Amendment Act of 2003 to establish airports, or assist in the
establishment of private airports by rendering such technical,
financial or other assistance which the Central Government
may consider necessary for such purposes cannot be assigned
to the lessee under Section 12A Section 12A of the 1994 Act.
The Amendment Act  of 2003 which also inserted Section
12A therefore provides in sub-section (1) of Section 12A that
the Airports Authority can make a lease of the premises of an
airport (including buildings and structures thereon and
appertaining thereto) to carry out “some” of its functions
under Section 12 as the Airports Authority may, in the public
interest or in the interest of better management of airports,
deem fit. Obviously, “a lease of premises of an airport” as
contemplated in sub-section (1) of Section 12A cannot include
establishing an airport or assisting in establishment of private
airports as contemplated in clause (aa) of sub-section (3)
of Section 12 of the Act.
13.
To enable the Airports Authority to perform its statutory
function of establishing a new airport or to assist in the
establishment of private airports, the legislature has thought
it fit to empower the Airports Authority to levy and collect
development fees as will be clear from clauses (b) and (c)
of Section 22A of the 1994 Act. Such development fees levied
and collected under Section 22A can also be utilized for
funding or financing the costs of up-gradation, expansion
and development of an existing airport at which the fees is
collected as provided in clause (a) of Section 22A of the Act
and in case the lease of the premises of an existing airport
(including buildings and structures thereon and appertaining
thereto) has been made to a lessee under Section 12A of the
Act, the Airports Authority may meet the costs of up-gradation,
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expansion and development of such leased out airport to a
lessee, but this can be done only if the rules provide for such
payment to the lessee of an airport because Section 22A says
that the development fees are to be regulated and utilized in
the manner prescribed by the Rules. Since the lessee of an
airport cannot be assigned the function of the Airports
Authority to establish airports or assist in establishing private
airports in lieu of the existing airports at which the
development fees is being collected, the lessee cannot under
sub-section (4) of Section 12A have the power of the Airports
Authority under Section 22A of the 1994 Act to levy and collect
development fees. This is because sub-section (4) of Section
12A provides that the lessee can have all those powers of the
Airports Authority which are necessary for performance of
such functions as assigned to it under sub-section (1)
of Section 12A in terms of the lease. Moreover, since we have
held that the function of establishment and development of a
new airport in lieu of an existing airport and the function of
establishing a private airport are exclusive functions of the
Airports Authority under the 2004 Act, and these statutory
functions cannot be assigned by the Airports Authority under
lease to a lessee under Section 12A of the Act, the lease
agreements, namely, the OMDA and the State Support
agreement could not make a provision conferring the right
on the lessee to levy and collect
development fees for the
purpose of discharging these statutory functions of the
Airports Authority. We, therefore, do not think it necessary to
refer to the clauses of the OMDA and the State Support
Agreements executed in favour of the two lessees to find out
whether the right of levying and collecting the development
fees has been assigned to the lessees or not.”
28. This court further held as follows:
“It will be clear from a bare reading of Sections 22 and 22A
that there is a distinction between the charges, fees and rent
collected under Section 22 and the development fees levied
and collected under Section 22A of the 1994 Act. The charges,
fees and rent collected by the Airports Authority under Section
22 are for the services and facilities provided by the Airports
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Authority to the airlines, passengers, visitors and traders
doing business at the airport. Therefore, when the Airports
Authority makes a lease of the premises of an airport
(including buildings and structures thereon and appertaining
thereto) in favour of a lessee to carry out some of its functions
under Section 12, the lessee, who has been assigned such
functions, will have the powers of the Airports Authority
under Section 22 of the Act to collect charges, fees or rent
from the third parties for the different facilities and services
provided to them in terms of the lease agreement. The legal
basis of such charges, fees or rent enumerated in Section 22 of
the 2008 Act is the contract between the Airports Authority
or the lessee to whom the airport has been leased out and the
third party, such as the airlines, passengers, visitors and
traders doing business at the airport. But there can be no
such contractual relationship between the passengers
embarking at an airport and the Airports Authority with regard
to the upgradation, expansion or development of the airport
which is to be funded or financed by development fees as
provided in clause (a) of Section 22A. Those passengers who
embark at the airport after the airport is upgraded, expanded
or developed will only avail the facilities and services of the
upgraded, expanded and developed airport. Similarly, there
can be no contractual relationship between the Airports
Authority and passengers embarking at an airport for
establishment of a new airport in lieu of the existing airport
or establishment of a private airport in lieu of the existing
airport as mentioned in Clauses (b) and (c) of Section 22A of
the 1994 Act. In the absence of such contractual relationship,
the liability of the embarking passengers to pay development
fees has to be based on a statutory provision and for this
reason Section 22A has been enacted empowering the
Airports Authority to levy and collect from the embarking
passengers the development fees for the purposes mentioned
in clauses (a), (b) and (c) of Section 22A of the Act. In other
words, the object of Parliament in inserting Section 22A in
the 2004 Act by the Amendment Act of 2003 is to authorize by
law the levy and collection of development fees from every
embarking passenger de hors the facilities that the embarking
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passengers get at the existing airports. The nature of the levy
under Section 22A of the 2004 Act, in our considered opinion,
is not charges or any other consideration for services for the
facilities provided by the Airports Authority. This Court has
held in Vijayalakshmi Rice Mills &Ors v Commercial Tax
Officers, Palakot&Ors (supra) that a cess is a tax which
generates revenue which is utilized for a specific purpose.
The levy under Section 22A though described as fees is really
in the nature of a cess or a tax for generating revenue for the
specific purposes mentioned in clauses (a), (b) and (c)
of Section 22A.
15. Once we hold that the development fees levied
under Section 22A is really a cess or a tax for a special
purpose, Article 265 of the Constitution which provides that
no tax can be levied or collected except by authority of law
gets attracted and the decisions of this Court starting from
The Trustees of the Port of Madras v M/s Aminchand Pyarelal
(supra), cited on behalf of the Union of India and DIAL and
MIAL on the charges or tariff levied by a service or facility
provided are of no assistance in interpreting Section 22A. It
is a settled principle of statutory interpretation that any
compulsory exaction of money by the Government such as a
tax or a cess has to be strictly in accordance with law and for
these reasons a taxing statute has to be strictly construed. As
observed by this Court in Ahmedabad Urban Development
Authority v Sharadkumar
Jayantikumar Pasawalla & Ors.
(supra), it has been consistently held by this Court that
whenever there is compulsory exaction of money, there should
be specific provision for the same and there is no room for
intendment and nothing is to be read or nothing is to be implied
and one should look fairly to the language used. Looking
strictly at the plain language of Section 22A of 1994 Act before
its amendment by the 2008 Act, the development fees were to
be levied on and collected from the embarking passengers
“at the rate as may be prescribed”.
29. The observations and findings extracted above are decisive
about the nature of development fee, collected under Section 22A; they
are statutory exactions and not fees or tariffs, as was contended by the
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Union of India. In fact, the court even underlined that the “nature of the
levy under Section 22A of the 2004 Act, in our considered opinion,
is not charges or any other consideration for services for the
facilities provided by the Airports Authority.”
30. By virtue of Section 67 of the Finance Act, the basis of charge
is the value of taxable service. Section 67 as it stood, before amendment
w.e.f. April 18, 2006, read as follows:
“67. Valuation of taxable services for charging service tax. -
For the purposes of this Chapter, the value of any taxable
service shall be the gross amount charged by the service
provider for such service provided or to be provided by him.
******************
******************
Explanation 3.-For the removal of doubts, it is hereby declared
that the gross amount charged for the taxable service shall
include any amount received towards the taxable service
before, during or after provision of such service.”
(i) in a case where the provision of service is for a consideration
in money, be the gross amount charged by the service provider
for such service provided or to be provided by him;
(ii) in a case where the provision of service is for a
consideration not wholly or partly consisting of money, be
such amount in money as, with the addition of service tax
charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a
consideration which is not ascertainable,
bet he amount as
may be determined in the prescribed manner.
After Section 67 (4), the following explanation to the entire
section read as follows:
“Explanation.- For the purposes of this section.
(a) “consideration” includes any amount that is payable for
the taxable services provided or to be provided;
(b) “money” includes any currency, cheque, promissory note,
letter of credit, draft, pay order, travellers cheque, money
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order, postal remittance and other similar instruments but does
not include currency that is held for its numismatic value.”
31. After the amendment, Section 67 of the Act read as follows:
“Section 67. Valuation of taxable services for charging service
tax (1) Subject to the provisions of this Chapter, service tax
chargeable on any taxable service with reference to its value
shall-
(i) in a case where the provision of service is for a consideration
in money, be the gross amount charged by the service provider
for such service provided or to be provided by him;
(ii) in a case where the provision of service is for a
consideration not wholly or partly consisting of money, be
such amount in money, with the addition of service tax
charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a
consideration which is not ascertainable, be the amount as
may be determined in the prescribed manner.”
32. This court, in Bhayana Builders (supra), ruled that to attract
service tax levy, a taxable service has to be provided to a recipient, by a
service provider, for a consideration and in the absence of any nexus
to any service rendered, an amount charged, or value of service or goods
provided without a consideration, would not be a taxing incident. The
court held that:
“Section 67 clearly indicates that the gross amount charged
by the service provider has to be for the service provided.
Therefore, it is not any amount charged which
can become
the basis of value on which service tax becomes payable but
the amount charged has to be necessarily a consideration
for the service provided which is taxable under the Act. By
using the words “for such service provided” the Act has
provided for a nexus between the amount charged and the
service provided.
Therefore, any amount charged which has no nexus with the
taxable service and is not a consideration for the service
provided does not become part of the value which is taxable
under Section 67.”
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33. On 02.08.2011, the Airports Authority of India (Major Airports)
Development Fees Rules 2011 (hereafter “the 2011 Rules”) came into
force. They, by Rule 3, authorized the collection of development fees;
by Rule 4 (1), an Escrow account had to be opened in respect of each
airport into which the development fee collections were to be deposited;
by Rule 4 (2), AAI is empowered to monitor and regulate the receipts
and utilization of fees; by Rule 4 (3), various sub accounts were to be
opened [(a) Development Fees Receipt Account; (b) Development Fees
Statutory Dues Account; (c) Development Fees Disbursement Account;
(d) Development Fees Surplus Account]. By Rule 4 (4), the money
collected as development fees is to be deposited in the Development
Fees Receipt Account.
34. Besides the rules, the assessee, in the case of DIAL, has
placed on the record, a letter issued to it, by AAI which imposes controls
on the utilization of amounts collected as development fee; apart from
the fact that the amounts are deposited in an escrow, any plan for utilization
has to be approved. Unlike fees, rent, charges etc., provided under Section
22 of AAI Act, assessee companies are authorized on behalf of the AAI
to levy and collect ‘development fee’ under Section 22A of the AAI Act
on behalf of the AAI and was applied for generating revenue for utilization
of the same for the specific purpose provided under sub- clause (a), (b)
and (c) of
section 22(A) of the AAI Act. The UDF collected by the
assessee is to bridge the funding gap of project cost for the development
of future establishment at the airports. There is nothing on record to
show that any additional benefit has accrued to passengers, visitors,
traders, airlines etc., upon levy of UDF during the period in question in
the present case.
35. There is a distinction between the charges, fee and rent etc.
collected under Section 22 of the AAI Act and the UDF levied and
collected under Section 22A of the AAI Act. It is that the UDF is in the
form of ‘tax orcess’ collected for financing the cost of future projects
and there was no consideration for services provided by the assessee to
the customer, visitors, passengers, vendors etc. The aggregate of
collections in the bank accounts do not form part of profitand loss account.
36. It is also useful to notice that by a circular issued by the
CBEC10, on 18.12.2006, it was clarified that collection of amounts, by
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way of taxes, sovereign or statutory dues, would not be subjected to
service tax levy:
“Subject: Applicability of service tax on fee collected by Public
Authorities while performing statutory functions /duties under
the provisions of a law – regarding
A number of sovereign/public authorities (i.e. an agency
constituted/set up by government) perform certain functions/
duties, which are statutory in nature. These functions are
performed in terms of specific responsibility assigned to them
under the law in force. For example, the Regional Reference
Standards Laboratories (RRSL) undertake verification,
approval and calibration of weighing and measuring
instruments; the Regional Transport Officer (RTO) issues
fitness certificate to the vehicles; the Directorate of Boilers
inspects and issues certificate for boilers; or Explosive
Department inspects and issues certificate for petroleum
storage tank, LPG/CNG tank in terms of provisions of the
relevant laws. Fee as prescribed is charged and the same is
ultimately deposited into the Government Treasury. A doubt
has arisen whether such activities provided by a sovereign/
public authority required to be provided under a statute can
be considered as ‘provision of service’ for the purpose of
levy of service tax.
2. The issue has been examined. The Board is of the view that
the activities performed by the sovereign/public authorities
under the provision of law are in the nature of statutory
obligations which are to be
fulfilled in accordance with law.
The fee collected by them for performing such activities is in
the nature of compulsory levy as per the provisions of the
relevant statute, and it is deposited into the Government
treasury. Such activity is purely in public interest and it is
undertaken as mandatory and statutory function. These are
not in the nature of service to any particular individual for
any consideration. Therefore, such an activity performed by
a sovereign/public authority under the provisions of law does
not constitute provision of taxable service to a person and,
therefore, no service tax is leviable on such activities.
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3. However, if such authority performs a service, which is not
in the nature of statutory activity and the same is undertaken
for a consideration not in the nature of statutory fee/levy,
then in such cases, service tax would be leviable, if the activity
undertaken falls within the ambit of a taxable service.”
37. This circular was interpreted in Krishi Upaj Samiti (supra).
The court held that the fee collected in that case could not be said to be
a statutory exaction or levy, but was for consideration:
“10. The aforesaid submission seems to be attractive but has
no substance. Section 9(2) is an enabling provision and the
words used is “market committee may”. It is to be noted that
insofar as sub-section (1) of Section 9 is concerned, the word
used is “shall”. Therefore, wherever the legislature intended
that the particular activity is a mandatory statutory, the
legislature has used the word “shall”. Therefore, when under
sub-section (2) of Section 9, the word used is “may”, the
activities mentioned in Section 9(2)(xvii) cannot be said to be
mandatory statutory duty and/or activity. Under Section 9(2),
it is not a mandatory statutory duty cast upon the Market
Committees to allot/lease/rent the shop/platform/land/space
to the traders. Hence, such an activity cannot be said to be a
mandatory statutory activity as contended on behalf of the
appellants. Even the fees which is collected is not deposited
into the Government
treasury. It will go to the market committee
fund and will be used by the market committee(s). In the facts
of the case on hand, such a fee collected cannot have the
characteristics of the statutory levy/statutory fee. Thus, under
the 1961 Act, it cannot be said to be a mandatory statutory
obligation of the Market Committees to provide shop/land/
platform on rent/lease. If the statute mandates that the Market
Committees have to provide the land/shop/platform/space on
rent/lease then and then only it can be said to be a mandatory
statutory obligation otherwise it is only a discretionary
function under the statute. If it is discretionary function, then,
it cannot be said to be a mandatory statutory obligation/
statutory activity. Hence, no exemption to pay service tax can
be claimed.”
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38. The principal holding, so to say, was that the discretionary fee
could be levied, and that there was no “duty cast upon the Market
Committees to allot/lease/rent the shop/platform/land/space to the
traders”. The second reason was that the amounts were credited to a
market fund, which was later deposited in the government treasury, even
after which it remained a market committee fund.
39. In the present case, undoubtedly, neither is there any
compulsion to levy development fee nor is the collection conditional
upon its deposit in the government treasury. However, the absence of
these features in this court’s opinion, does not render UDF any less a
statutory levy. Firstly, the ruling in Consumer Online Foundation
(Supra) is conclusive that UDF is a statutory levy. Secondly, the
collection is not premised on rendering of any service. Thirdly, the
amounts collected are deposited in an escrow account, not within the
control of the assesses. Fourthly, the utilization of funds, is monitored
and regulated by law. In this regard, the fact that the amount is not
deposited in a government treasury, per se, does not make it any less
a statutory levy or compulsory exaction. Nor does its discretionary
nature, (in the sense that it may not be necessarily levied always)
render it any less a statutory levy. Airport management has evolved; it
is no longer the monopoly of the government; private participation is
recognized. This sector is now regulated through a new
regulator, i.e.,
the Airports Economic Regulatory Authority of India. As part of the
Union’s economic policies, the upgradation and renovation of airports
are funded through UDF, which is a statutory levy. Instead of the
conventional practise of ensuring that amounts collected are deposited
with the Government, an entirely new regulatory regime has been
envisioned, under the 2011 Rules, read with specific conditions imposed
by the AAI on each assessee, which includes monitoring of amounts,
nature of expenditure, submission of plans for expansion, renovation,
their sanctioning etc. These rules and controls are in the public interest,
and evidently intended to further efficiency in funding and swift taking
up and completion of works, rather than funding through Finance Rules,
which might entail delay, and cost overruns. However, the public nature
of these funds does not in any manner get undermined, merely because
they are kept in an escrow account, and their utilization is monitored
separately.
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40. In view of the foregoing reasons, this court is of opinion
that the impugned orders cannot be faulted. The revenue’s appeals
therefore fail and are dismissed; in the circumstances, without order
on costs.
Nidhi Jain
Appeals dismissed.
(Assisted by : Rakhi, LCRA)