2023 (5) TMI 867 - SC - Service Tax

Supreme Court Rules User Development Fee by Airports is Statutory Levy, Not Subject to Service Tax, Dismissing Revenue Appeals.

The SC upheld the CESTAT's orders, ruling that the User Development Fee (UDF) collected by airport operators under Section 22A of the Airports Authority ... Development fee / User Development Fee as statutory levy - Distinction between charges under Section 22 and levy under Section 22A - Airport service - Nexus between amount charged and service (valuation under Section 67) - Escrowed statutory collections and regulated utilization - Precedent in Consumer Online Foundation on nature of development feeDevelopment fee / User Development Fee as statutory levy - Airport service - Nexus between amount charged and service (valuation under Section 67) - Distinction between charges under Section 22 and levy under Section 22A - Whether the User Development Fee (UDF) collected by airport concessionaires is liable to service tax under the Finance Act, 1994. - HELD THAT: - The Court held that UDF collected under Section 22A of the AAI Act is a statutory exaction in the nature of a cess or tax for specified public purposes and is not a consideration for services rendered to passengers. The decision in Consumer Online Foundation was treated as conclusive on the character of development fees: they are levied de hors the facilities that embarking passengers get at existing airports and are intended to fund future upgradation, expansion or establishment of airports. Pursuant to Section 67 and the Court's reasoning in Bhayana Builders, service tax applies only where there is a nexus between the amount charged and a taxable service provided; Section 67 requires the gross amount charged to be consideration for the service. UDF lacks such nexus as it is collected for future projects, deposited into escrow accounts, and its utilization is monitored and regulated by statute and rules (including the 2011 Rules), rather than being payment for present services to passengers. The statutory and regulatory scheme (including escrowing and prescribed utilization) and the judicial finding that Section 22A levies are not charges for services distinguish UDF from fees or rents under Section 22 that may constitute consideration for services. Consequently, UDF does not form part of the value of any taxable service and is not subject to service tax. [Paras 34, 35, 36, 39, 40]UDF collected under Section 22A is not liable to service tax as it is a statutory levy/cess unconnected to consideration for any taxable service.Final Conclusion: The revenue's appeals are dismissed. The CESTAT orders holding that the User Development Fee is not subject to service tax are upheld; no order as to costs. Issues Involved:1. Whether the User Development Fee (UDF) collected by airport operators is subject to service tax under the Finance Act, 1994.2. Nature of UDF: Whether it is a statutory levy or a consideration for services provided.3. Applicability of the decision in Consumer Online Foundation v. Union of India to the current case.4. Distinction between charges under Section 22 and Section 22A of the Airports Authority of India Act, 1994.Summary:1. Whether the User Development Fee (UDF) collected by airport operators is subject to service tax under the Finance Act, 1994:The Supreme Court examined the orders of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) which held that the development fee collected by airport operators was not liable to service tax. The revenue argued that the UDF is subject to service tax under the Finance Act, 1994, as it constitutes a consideration for services provided by airport operators. The court analyzed the relevant provisions of the Finance Act, 1994, and the Airports Authority of India Act, 1994, and concluded that the UDF is not a consideration for services rendered, but a statutory levy.2. Nature of UDF: Whether it is a statutory levy or a consideration for services provided:The court referred to the decision in Consumer Online Foundation v. Union of India, which held that the development fee under Section 22A of the Airports Authority of India Act, 1994, is a statutory levy and not a consideration for services provided. The court emphasized that the UDF is collected for the specific purpose of funding or financing the costs of upgradation, expansion, or development of airports and is not related to any service provided to passengers.3. Applicability of the decision in Consumer Online Foundation v. Union of India to the current case:The court reiterated that the decision in Consumer Online Foundation is decisive about the nature of the development fee collected under Section 22A. The development fee is a statutory exaction and not a fee or tariff for services rendered. The court noted that there is no contractual relationship between passengers and airport operators regarding the development fee, and the fee is levied and collected as a statutory obligation.4. Distinction between charges under Section 22 and Section 22A of the Airports Authority of India Act, 1994:The court highlighted the distinction between charges, fees, and rent collected under Section 22 and the development fee collected under Section 22A. Charges under Section 22 are for services and facilities provided by the Airports Authority, whereas the development fee under Section 22A is a statutory levy for specific purposes mentioned in the Act. The court concluded that the development fee is not a consideration for services provided and, therefore, not subject to service tax.Conclusion:The Supreme Court upheld the CESTAT's orders, holding that the development fee collected by airport operators under Section 22A of the Airports Authority of India Act, 1994, is a statutory levy and not subject to service tax under the Finance Act, 1994. The revenue's appeals were dismissed.