User-fee collection rights assigned for fixed consideration were taxable as a franchise-like service, with negative-list relief denied.

Assignment of user-fee collection rights for a fixed commercial consideration was treated as a taxable franchise-like service, because the arrangement transferred an exclusive business right rather than merely collecting toll from road users. The negative-list exclusion for access to a road or bridge on payment of toll did not apply to the contractor's consideration, and the transaction was not regarded as a sovereign function. Extended limitation, interest and penalties were upheld where the taxpayer had neither registered nor filed returns despite receiving the consideration over several years.

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Issues: (i) whether transfer of user fee collection rights to contractors constituted a taxable service and, if so, whether the consideration received by NHAI was chargeable to service tax; (ii) whether the activity was excluded under the negative list under Section 66D(a) or Section 66D(h) of the Finance Act, 1994 or was protected as a sovereign function; and (iii) whether the extended period of limitation, interest and penalties were sustainable.

Issue (i): whether transfer of user fee collection rights to contractors constituted a taxable service and, if so, whether the consideration received by NHAI was chargeable to service tax.

Analysis: The contract showed that NHAI did not merely facilitate toll collection but assigned an exclusive commercial right to collect user fee to the contractor for a fixed lump sum, irrespective of actual traffic. The amount received was therefore consideration for transfer of a valuable business right and not the toll collected from road users. On the pre-negative-list regime, the arrangement answered the description of franchise service, and after 01.07.2012 it amounted to a taxable service within the expanded charging framework.

Conclusion: The transfer of user fee collection rights was taxable, and the consideration received by NHAI was chargeable to service tax.

Issue (ii): whether the activity was excluded under the negative list under Section 66D(a) or Section 66D(h) of the Finance Act, 1994 or was protected as a sovereign function.

Analysis: Section 66D(h) applies to access to a road or bridge on payment of toll, but the dispute concerned the contractual consideration paid by the contractor for assignment of collection rights, not toll collected from users. The activity was commercial in nature, undertaken for business consideration, and did not constitute an inalienable sovereign function. The exemption/negative-list provisions therefore did not cover the impugned transaction.

Conclusion: The activity was not excluded by Section 66D(a) or Section 66D(h), and it was not immune as a sovereign function.

Issue (iii): whether the extended period of limitation, interest and penalties were sustainable.

Analysis: NHAI had not obtained registration, filed returns, or discharged tax liability despite receiving substantial consideration over several years. The transaction was held to be commercially taxable, and the circumstances justified invocation of the extended period. Interest followed statutorily on delayed payment, and penalties were upheld on the facts.

Conclusion: The extended period of limitation, interest and penalties were sustainable.

Final Conclusion: The impugned demands were upheld in full, and the appeals failed.

Ratio Decidendi: Assignment of toll or user-fee collection rights for a fixed commercial consideration is a taxable franchise-like service and is distinct from the toll itself; the negative-list exclusion for road access does not extend to such contractual consideration.

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