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.

CENTRAL GST DELHI - III Versus DELHI INTERNATIONAL AIRPORT LTD

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 ... Levy of Service tax - user development fee levied and collected by the airport operation, maintenance and development entities - HELD THAT:- In the decision of this court, in CONSUMER ONLINE FOUNDATION, ETC. VERSUS UNION OF INDIA & ORS., ETC. [2011 (4) TMI 1275 - SUPREME COURT], the context was the validity of the levy of development fees 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 Development fees could not be levied and collected by the lessees of the two major airports, namely, DIAL and MIAL, on the authority of the two letters dated 09.02.2009 and 27.02.2009 of the Central Government from the embarking passengers under the provisions of Section 22A of the 1994 Act. The observations and findings 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 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.” This court, in COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. [2018 (2) TMI 1325 - SUPREME COURT], 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 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. 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 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. 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. This court is of opinion that the impugned orders cannot be faulted. The revenue’s appeals therefore fail and are dismissed. 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.