2007 (4) TMI 674 - AT - Service Tax

Airport 'Users Fee' not taxable as Service Tax; not for passenger services but revenue.

COCHIN INTERNATIONAL AIRPORT LTD. Versus COMMR. OF C. EX. & CUS., KOCHI

The court held that the 'Users Fee' collected by the airport from outgoing international passengers was not liable for Service Tax as it was not a ... - 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the amount collected as 'Users Fee' of Rs. 500 per outgoing international passenger is includable in the assessable value for Service Tax under the category of 'Airport Services'. 2. Whether the 'Users Fee' bears requisite nexus to any service rendered by the appellant such that it can be treated as consideration for taxable 'Airport Services'. 3. Whether services said to be provided at the airport (landing, parking, x-ray baggage inspection, air traffic services, ground handling, etc.) are rendered by the appellant to passengers so as to justify inclusion of the collected fee in the taxable value, or whether those services are rendered by airlines/Airport Authority of India and separately subject to Service Tax. 4. Whether the earlier judicial treatment (Kerala High Court decision interpreting Section 17 of the National Airports Authority Act, 1985 concerning levy of passenger-collected fees) is applicable to deny the levy by a private airport operator and, consequently, to preclude inclusion of the collected 'Users Fee' in assessable value. 5. Consequent remedial/legal consequences: whether demand for Service Tax, Education Cess, interest under Section 75 and penalties under Sections 76 and 78 are sustainable if the 'Users Fee' is not part of taxable value. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2 (Grouped): Whether the 'Users Fee' is includable in the assessable value of 'Airport Services' - Legal framework Legal framework: Service Tax liability rests on consideration received for taxable services; assessable value must reflect consideration having nexus with services rendered. 'Airport Services' is a taxable service category; inclusion of ancillary levies requires that levy constitute consideration for services rendered by the taxable service provider. Precedent Treatment: The Tribunal relies on a prior High Court decision that held unauthorized collection of a similar passenger fee by entities other than the Airport Authority was impermissible, while concluding that Airport Authority alone can charge fees for certain services; that decision interpreted Section 17 of the National Airports Authority Act, 1985. That High Court decision is treated as applicable and persuasive in assessing whether the fee is a valid consideration for services rendered by the airport operator. Interpretation and reasoning: The Tribunal examined the genesis and purpose of the 'Users Fee' (board decision to augment revenue and service debt) and found it was not a quid pro quo for any specific service rendered to passengers by the appellant. The record shows that many services at the airport (ground handling, air traffic services, baggage inspection) are rendered either by airlines, Airport Authority of India (AAI), or other specified service providers, who separately discharge Service Tax liability. The adjudicating authority's conclusion that the fee had 'nexus' with services rendered by the appellant was held to be unsupported by analysis of what particular service the fee paid for or which services the appellant provided to individual passengers. The Tribunal found no tangible relation between the collected fee and services provided by the appellant to passengers. Ratio vs. Obiter: Ratio - A levy collected merely to augment the private airport operator's revenue, without being consideration for specific services rendered by that operator to passengers, cannot be included in the assessable value of 'Airport Services'. Obiter - Observations comparing practices at other airports and noting the stoppage of collection after the High Court decision serve evidential/contextual rather than binding ratio roles. Conclusions: The 'Users Fee' was not consideration for Airport Services provided by the appellant to passengers and thus is not includable in assessable value for Service Tax under 'Airport Services'. The Adjudicating Authority's conclusion of nexus was unsustainable for lack of demonstration of a service-for-fee relationship. Issue 3: Characterisation of services - who provides taxable services at the airport Legal framework: Liability for Service Tax attaches to the provider of taxable service who receives consideration for that service. Distinct services (ground handling, air traffic, baggage inspection) are attributable to their actual providers and taxed accordingly. Precedent Treatment: The Tribunal aligns with the legal distinction that services rendered by airlines and AAI, though performed at the airport premises, are independently taxable when rendered by those entities; prior High Court reasoning that fees for such services should be levied by Airport Authority (or relevant statutory authority) and borne by airliners was followed. Interpretation and reasoning: Evidence showed airlines and AAI rendered the core services to passengers/airlines and discharged Service Tax liabilities. The appellant, being a private company operating the airport, provided infrastructure/facilities but had not linked the collected 'Users Fee' to discrete passenger services it provided. The Tribunal emphasized the absence of identification of any service rendered by the appellant to individual passengers that would justify the fee as consideration. Ratio vs. Obiter: Ratio - Where services are rendered by other entities and those entities discharge Service Tax, a separate levy collected by a private airport operator for revenue augmentation cannot be treated as consideration for services for which those entities are liable. Obiter - References to specific service lists (air traffic advisory, alerting) are explanatory. Conclusions: Services at the airport relevant to passenger facilitation are primarily rendered by airlines and AAI; the appellant did not establish that the 'Users Fee' corresponded to services it provided to passengers such that it could be taxed as 'Airport Services'. Issue 4: Applicability of the High Court decision interpreting Section 17, NAA Act - treatment and effect Legal framework: Statutory interpretation of Section 17 of the National Airports Authority Act determines who may charge certain fees; judicial precedent interpreting that provision constrains unauthorised levies by other entities. Precedent Treatment: The Tribunal treated the Kerala High Court decision as applicable and persuasive in the present facts. It followed the High Court's finding that Airport Authority alone is empowered to charge such fees and that levies meant to fund airport services should be made on airlines rather than passengers when statutory scheme so provides. Interpretation and reasoning: The Tribunal reasoned that the High Court's invalidation of a similar fee collection at another airport (even though collected on behalf of a development society there) bore directly on the legality and characterization of the 'Users Fee' here. The Tribunal noted the appellants ceased collection after that decision, reinforcing that the levy lacked lawful basis as a passenger-specific consideration. Ratio vs. Obiter: Ratio - Judicial interpretation that statutory authority (Airport Authority) is the legitimate entity to charge specified airport fees and that unauthorized collections by other entities are not lawful supports denial of inclusion of such collections in taxable value by private operators. Obiter - Comparison between different organizational arrangements (society vs. company) is context. Conclusions: The High Court decision is applicable and supports the conclusion that the private operator's 'Users Fee' was not a lawful passenger-service consideration and cannot be included in assessable value. Issue 5: Consequences for tax, cess, interest and penalties Legal framework: If an item is not part of taxable consideration, demands for Service Tax, Education Cess, interest under Section 75 and penalties under Sections 76 and 78 lack foundation. Precedent Treatment: Having determined the chargeable event is absent as to the 'Users Fee', the Tribunal applied the logical consequences to set aside the demand and associated penalties. Interpretation and reasoning: Because the 'Users Fee' did not constitute taxable consideration for 'Airport Services', the demand for Service Tax and Education Cess based on that fee failed. Penalties predicated on non-payment of tax cannot stand where tax was not exigible. The Tribunal also noted the Adjudicating Authority's failure to identify the specific service for which the fee was consideration, undermining the basis for interest/penalty demands. Ratio vs. Obiter: Ratio - A demand for tax, cess, interest and penalties predicated solely on a levy that is not taxable consideration must be set aside. Obiter - Practical note on cessation of collection after judicial decision is explanatory evidence of lack of lawful basis. Conclusions: The Tribunal set aside the impugned demand for Service Tax, Education Cess, interest and penalties relating to the 'Users Fee' and allowed the appeal with consequential relief, holding the appellant not liable to pay Service Tax on the 'Users Fee' under 'Airport Service'.