TaxTMI 
TaxTMI 
2015 (1) TMI 1049
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.... India whereat air transport services are operated and also for control of aeronautical communication stations for civil aviation. With effect from 10.09.04, sub clause (zzm) was added to clause (105) of section 65 of the Finance Act, 1994 and in terms of this sub clause, "any service provided to any person in an airport or a civil enclave by AAI or any person authorised by it", was brought within the definition of "taxable service" and accordingly such services became taxable. In terms of section 65(3d) of the Finance Act, 1994, "Airport Authority" means Airport Authority of India constituted under section 3 of the Airports Authority of India Act, 1994 and includes any person having charge of management of an Airport or a Civil Enclave. In terms of section 65(3c) and 65 (24a) of Finance Act, 1994, the words Airport' and 'Civil Enclave' have meaning assigned to them in clause (b) and (i) respectively of section 2 of the Airports Authority of India Act, 1994. Accordingly 'Airport' means landing or taking off area for aircrafts, usually with runways and aircraft maintenance and passenger facilities and includes Aerodrome, as defined in section 2(2) of the Aircraft....
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....e fees, would also be covered by the term "any service provided by Airport Authority of India or a person authorised by it in the airport/Civil Enclave" and would be taxable under section 65(105)(zzm). In respect of Revenue from non-traffic activities, the Department was of the view that all the activities including activities of renting of space inside Airports/Civil Enclaves to various persons for commercial activities would also be covered by Section 65(105)(zzm) and would be taxable. 1.3 During the inquiry by the DGCEI Officers, the AAI vide their letter dt.28.03.05 requested the Jurisdictional Assistant Commissioner, service tax, that the assessment of service tax for the period from 10.09.04 to 31.03,05 may be considered to be provisional in terms of Rule 6(4) of the Service Tax Rules, 1994, and that for subsequent period, the assessment may be done on provisional basis. Subsequently a similar request was made by AAI vide their letter dt. 18.10.05 for provisional assessment for period from 01.04.05 to 30.09.05. On the basis of these letters, the Assistant Commissioner vide letter dt. 29.03.05 directed AAI to pay service tax on provisional basis under Rul....
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....ollector reported in 1992 (61) ELT-3 (SC) for filing of appeal to the Tribunal or any court by a Government Department or a Central Public Sector Undertaking, clearance from a high power committee (Committee on Disputes) constituted by the Central Government was required, the appellant placed their case before the COD for seeking Clearance for challenging the Commissioner's order. In terms of the minutes of the COD Circulated vide Cabinet Secretariat letter dt. 21.11.07, the Appellant were allowed to challenge the Commissioner's Order on the issue of demand of service tax on "Route Navigation Facility Charges" (RNFC), received by the Appellant from various Airlines and on the revenue earned by the appellant from other activities namely-: "Passenger Service Fee" (PSF), "X-Ray Baggage Inspection Charges", "Licensing of Space" and "Extension of Watch Hours". According to the Minutes of COD meeting, service tax was payable on charges for "Terminal Navigation Landing Charges", and "Landing & Parking Charges". According to the Appellant the total amount of service tax involved in respect of RNFC, X-Ray Baggage Inspection Systems Charges, PSF, Licensing of Space and Extension of W....
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....) and passenger service fee and Non-Traffic Revenue from Public Admission Fees, Trading and Concession, Rent & Services, Car Parking, Rest Room facility, Left Luggage Facilities, Retiring Room facility, issue of Season Ticket and Temporary Passes, Supply of Trolleys for Courier Services and miscellaneous income, that the total service tax involved on the charges received for Route Navigational Facilities provided to the Airlines in respect of their overflying aircrafts is about Rs. 108.20 Crore and the service tax involved on the charges for Terminal Navigation Landing Facility is about Rs. 15.20 Crore, that the service tax involved on Non-Traffic Revenue as mentioned above is about Rs. 53.35 Crores out of which the service tax demand of about Rs. 7.05 Crore on the amount received for letting out the space for display of hoardings/advertisement has been dropped by the Commissioner, that in terms of section 65(105)(zzm) read with section 65(3c), 65(3d) and 65 (24a), service tax is attracted in respect of any service provided in an Airport/Civil Enclave by AAI or by a person authorised by AAI, to any person, that expression "any Service" would include only the taxable services and wo....
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....4,657/-, on the amount of Rs. 513,67,74,817/- received as "Rent & Service" and "Trading & Concession" is not sustainable, that Service Tax demand of Rs. 86,74,775/- has been made on the miscellaneous income of Rs. 9,37,21,958/- of the Appellant, that this amount received consists of Staff Recruitment Fee, Unclaimed Earnest Money/ Security Deposit, Liquidated damages, sale of scrap etc. and the same has nothing to do with provision of any service in Airports/Civil Enclaves, that supply of Trolleys by the Appellant to Couriers in respect of which there is service tax demand of Rs. 3,73,463/- was not taxable at ail during the period of dispute as this activity is supply of tangible goods services which became taxable only w.e.f. 16.05.2008 and therefore no service tax can be charged in respect of this activity under section 65(105)(zzm) as service provided in the Airport, that service tax of Rs. 2,04,78,248/-has been demanded on the amount of Rs. 22,12,45,387/- received under Head "Public Admission Fee", that Public Admission Fee at specified rate is charged from the visitors entering into the Airport, that licence for management of Airport entry is given by the appellant to a person ....
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....as not taxable, no service tax can be charged in respect of these activities, that as regards the service of Route Navigation provided to the Aircrafts of various Airlines overflying the Airports/Civil Enclaves and the Terminal Navigation Landing Facility provided to the Aircrafts, landing at a particular Airport/ Civil Enclave, this is not a service provided in Airports/Civil Enclaves, as this service is provided from the Aeronautical Communication Stations which are not necessarily situated in the Airport area, that the necessary equipment for providing Route Navigation Facility and Terminal Navigation Landing Facility is not always installed within the areas, of the Airports/Civil Enclaves and, hence, this service cannot be said to be the service provided in the Airports/Civil Enclaves and would not be exigible to service tax that in this regard, the words " in an airport or a civil enclave" in clause (zzm) of Section 65(105) cannot be read as "from an airport or a civil enclave", and hence the Service Tax demand of about Rs. 123.40 Crore is without any basis, that the service tax demand of Rs. 7.05 Crore in respect of charges for letting out space for display of hoardings/ adve....
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.... of the premises of an Airport/Civil Enclave to him for any commercial activity, that same view has been taken by the Hon'ble Kerala High Court in case of CCE Cochin Vs. Cochin International Airport [CE Appeal No. 16/2008] and that in view of this, neither any service tax can be charged by the Department on the rental/lease amount received by the Appellant (AAI) from them, nor AAI can recover any amount representing service tax from them. 5. Sh. Amresh Jain, learned DR, defending the impugned order confirming the Service Tax demand, pleaded that Section 65(105)(zzm) read with Section 65(3c), 65(3d) and 65(24a) of the Finance Act, 1994 covers any service provided by AAI or by a person authorised by AAI to any person in an Airport/Civil Enclave, that the expression "any service" would include any service whether it is taxable or non-taxable, that Board's clarification vide Circular No.80/10/04-ST dt. 17.09.04 clarifying that in case, a part of Airport/Civil Enclave premises are rented out or leased out, the rental/lease charge would not be subject to service tax under Section 65(105)(zzm) as the activity of letting out premises is not service, is contrary to the decision o....
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....provided in an Airports/Civil Enclaves, the same would attract service tax under section 65(105)(zzm) and that the appellant's plea that car parking areas are not within the boundary in an Airports/Civil Enclaves is factually incorrect, as these areas being appurtenant to Airports/Civil Enclaves are part of the Airports/Civil Enclaves. As regards the service of Route Navigation Facility and Terminal Navigation Landing Facility, being provided by the Appellant, he pointed out to the Commissioner's findings in para 61.9.1 & 61.9.2 of the impugned order and pleaded that these services have to be treated as provided within Airports/Civil Enclaves in as much as the same were rendered by the Airport Authority of India by using the equipments installed in the Airports/Civil Enclaves and even though the signals were to be received across the air by the Aircrafts for their safe Navigation, the service would have to be treated as provided in the Airports/Civil Enclaves and would be covered by Section 65(105)(zzm). He further pleaded that in course of hearing before the Commissioner, the appellant did not make any plea that the equipments for providing these Navigation services are mo....
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....the Airports/Civil Enclaves by charging fee and paid a fixed amount of money to the Appellant, it is those concessionaires/licensees who are providing the taxable service, who would be liable to pay the service tax, not the Appellant. 7. Though on conclusion of hearing on 13.12.13, the order was reserved, the Bench was subsequently of the view that since the issues arising in this case in the context of Airport Services involved principles which have wider application as well, this matter should be heard further by inviting Bar Association. Accordingly the matter was fixed for hearing on 20.02.2014 and on this date, a miscellaneous Order No. 120/2014 dt. 20.02.2014 was passed by which the Bench appointed Sh. N. Venkatraman- Senior Advocate and Sh. V. Laxmikumaran- Advocate to assist the court in this matter as amicus curiae on the following issues. "(1). Does the provision, [Section 65(105)(zzm)] bring within the tax net all services, defined and enumerated as taxable services elsewhere and even unremunerated and undefined services? (2). Is the provision a mere consolidation endeavour, encompassing only taxable services (elsewhere in t....
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....ive only w.e.f. 01.07.2012, whether service falling within Section 65(105)(zzm) would include services falling within the negative list as well. (8) Services in relation to an aircraft, inside or outside the precincts of an airport; and services by way of transportation of goods by an aircraft from a place outside India to the customs station of clearance in India, are enumerated in Clause (a)(ii) and (p)(ii) of the negative list in Section 65D. Whether these transactions are also within the ambit of "airport service", prior to the negative list regime. (9) In the absence of a definition of "service" in Section 65(105)(zzm), if "any service" is to be interpreted as an undefined service as well, whether the provision would be open to challenge of constitutionality on the ground of vagueness; abdication of legislative functions under Article 265; or excessive delegation of essentially legislative function to the executive branch. If so, whether a restricted meaning to "any service" must be applied, to save the provision from the voice of unconstitutionality? (10). If a restrictive interpretation (reading down) is legit....
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....cessary for the courts to intervene and provide the boundaries of this service, impute the legislative intent of taxing service in relation to Airport and accordingly provide some method in the madness. In order to do so, the court may take assistance from section 12 of Airports Authority of India Act, 1944 which enumerates the functions of Airport Authority. While subsection (1) of section 12 provides that the function of the Authority is to manage the Airports, Civil Enclaves and Aeronautical communication centers, sub-section (2) of Section 12 provides that it shall be the duty of the Authority to provide Air Traffic Service and Air Transport Service in any Airport and Civil Enclave. Sub Section (3) of Section 12 enumerates various functions to be undertaken by the Authority which include planning, developing, constructing and maintaining runways, terminals etc. at the Airports/Civil Enclaves, preparing Airports plans, procure install and maintain Navigational aids and communication equipments etc. and provide such facilities at the Airports/ civil enclave as are necessary to the passengers travelling by Air. Thus the services covered under section 65(105)(zzm) are the back end ....
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.... by the Authority of India or any other person acting as alter ego of Airport Authority i.e. under authorization, permission, licenses to airlines or passengers as per their mandate and in relation to airport services would be taxable. However, if any enumerated service such as legal services, spa or massage services is provided to any person within the airport by any person authorized by Airport Authority, the same would not be covered by the Airport Service for the reason that the service has to be relation to the airport services, which as explained earlier, are back end services for efficient running and maintenance of the airport and it must be rendered by Airport Authority or its alter ego. In this regard, the decision of the Apex Court in the case of P.C. Poulose, Sparkway Enterprises Vs. Commissioner of Central Excise & Customs - 2011 (21) STR 353 (SC) also supports the proposition that only those activities, which are to be performed by the Airport Authority of India or its alter ego in terms of the Airport Authority of India Act are covered within the scope of Section 65(105)(zzm). 8.1.1. Shri Laxmikumaran, ld. Advocate, accordingly summarized his submissions in respec....
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....y the Airport Authority of India in relation to Airport services are covered under this definition. These services can be identified with the aid of Section 12 of Airport Authority of India and commercial practice. (VI) Question: In light of Section 65(121), whether services such as commercial or industrial construction (25b); construction of complex (30a); sale of space or time for advertisement (zzm); renting of immovable property (zzzz); and works contract (zzzza) are required to be interpreted without reference to the exclusionary elements embedded in the definition of these respective services defined elsewhere in the Act when the same are considered under Section 65(105)(zzm)? Submission: After 2010 amendment - Yes. Prior to 2010 amendment - such services could be classified either as airport services or by applying Section 65A. Thus, those services would continue to be read with the inherent exclusions and eligible exemptions if classifiable outside Section 65(105)(zzm). (VII) Question: Since the negative list under Section 66 D is operative only w.e.f. 1.7.2012, whether services falling with....
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....Venkataraman, Sr. Advocate, the amicus curiae, made the following submissions:- (1) During the period prior to 1.7.2012, various clauses of Section 65(105) defined the term "taxable services" and Clause (zzm) of Section 65(105) covered the taxable services provided to any person by the Airport Authority or any person authorizes by it in an Airport or a civil enclave. With effect from 1.7.2010, the phrase "by any person authorized by it" was replaced by "by any other person" and also a proviso was added providing that when the service has been wholly performed inside the Airport/civil enclave, the provisions of Section 65A would not be applicable. The period of dispute in this case is prior to 1.7.2010. During the period of dispute, any service to be covered by Section 65(105)(zzm) should be performed in Airport/Civil Enclave and should be provided by Airport Authority or by the person authorized by the Authority. However, there was no definition of the word "service", which was introduced only in the negative list based regime w.e.f. 1.7.2012 and this definition of service cannot be adopted during pre 01.07.2012 period. Since this clause whil....
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.... all the domestic as well as international Airports and Civil Enclaves in India and besides this, it is also responsible for providing navigational services to Aircrafts in Indian airspace during their flight. Before the coming to the specific points of dispute in this case it would be worthwhile having a look at the various sources of Revenue of the Appellant i.e. Airport Authority of India on which the service tax in dispute has been demanded. 12. The Appellant in their letter dt. 13.04.04 to the Chairman, CBEC have explained in detail the various source of their traffic and non traffic revenue. 12.1 One source of Revenue of the appellant is Traffic Revenue which consists of landing fees, Aircraft Parking & housing Charges, Route Navigation facility charges(RNFC),Terminal Navigation Landing Charges (TNLC),Passenger Service Fee and rent for hanger space. Landing fees are charged from the Airlines for assistance provided to their Aircrafts in landing at the Airports/Civil Enclaves. Terminal Navigation Landing Charges (TNLC) are for providing navigational aid to an aircraft which intends to land at a particular Airport/Civil Enclave. The parking and housing charges are charged....
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....de the Airports/Civil Enclaves for setting up and operating their business. These charges are in the nature of rental of immovable property inside the Airports/Civil Enclaves, rented/leased for business/commercial activity. 12.3.2 Public Admission Fee is charged from the visitors who want access to the Airport/Civil Enclave. However, for this purpose instead of the appellant selling the tickets to the visitors, the appellant after inviting bids entered into the licence/concession agreement with the successful bidder who pays a lump sum amount to the appellant for a fixed tenure and the Appellant for that period have transferred the right of collecting charges for entry into the Airport to him. It is the successful bidder/licensee who after payment of a lump sum amount to the Appellant, sells the entry tickets to the visitors and manages the visitor's entry. Similar arrangement has been made by the appellant in respect of car parking and as such the appellant charge a fixed lump sum amount for a specific tenure from the successful bidder and confer the right upon that person to manage the car parking facility by charging parking fee from the visitors and other persons for car....
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...., X-ray baggage inspection System Charges, Licensing of space and extension of watch hours, the appellant in the appeal filed by them have challenged the Commissioner's Order, in addition to the above mentioned points, on all other points including the demand of service tax on the Terminal Navigation Landing Charges (TNLC). Though at the time of filing of appeal, Apex Court's judgment in case of Oil & Natural Gas Commission (Supra) was in force and in terms of this judgment, all the Govt. Departments and Central Public Sector Undertakings, while filing appeal to the Tribunal needed COD's clearance, the Apex Court in the case of Electronic Corporation of India Ltd. Vs. Union of India, reported in 2011 (265) ELT-11(SC) has recalled its earlier judgments in the case of ONGC Ltd. (Supra) observing that the committee on dispute as a mechanism has failed and was causing/leading to delay in litigation and that it had outlived its utility. Hon'ble Jharkhand High Court in case of Union Steel Works & Construction Vs. Union of India, reported in 2013 (293) ELT-651 (Jhrk.) interpreting the Apex Courts judgment in the case of Electronic Corporation of India Ltd. (Supra) has held....
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....dingly the "Airport" means landing and taking off area for Aircrafts, usually with runways, Aircraft Maintenance and Passenger Facilities and includes Aerodrome as defined under section 2(2) of the Aircraft Act, 1934. In term of section 2(2) of the Aircraft Act, 1934, an "Aerodrome" means any definite or limited ground or water area intended to be used either wholly or in part, for landing or departure of Aircraft and includes all buildings, sheds, vessels, piers and other structures thereon or appertaining thereto. Thus the term 'Airport' includes not only the area for landing and taking off for Aircrafts and for Aircraft maintenance and passenger facility and the buildings upon such area, but also the buildings or structures which are appertaining there to i.e. are connected with the functioning of the Airport. The term "Civil Enclave" in terms of its definition under section 65(24a) means the Civil Enclave as defined in section 2(i) of Airports Authority of India Act, 1994 and in term of section 2(i) of the Airports Authority of India Act, it means the area allotted at an Airport belonging to any armed forces of the union for use by persons availing of air transport serv....
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.... clarified that only the services provided in the Airport by the AAI or persons authorised by it would attract service tax under the entry under section 65(105)(zzm) and that no service tax would be chargeable on rental/lease charges for part of Airport/Civil Enclave premises leased out/rented out as the activity of letting out of premises is not rendering of services. They also rely upon the judgment of Hon'ble Delhi High Court in case of Flamingo Dutyfree Shops Private Limited Vs. Union of India (supra), judgment of Hon'ble Bombay High Court in case of Sahara Airlines Ltd. Vs. Union of India judgment dt. 17.07.12 in respect of Writ Petition No.421/07) and also the judgment of Hon'ble Kerala High Court in case of C.C.E. Vs. Cochin International Airport Pvt. Ltd., (Supra). However, the contention of the Department is that for attracting service tax under section 65(105)(zzm), any service, whether taxable or non taxable, should have been provided to any person in the Airports/Civil Enclaves by AAI or its authorised person, that the clarification in the Board's Circular No.80/10/04-ST dt. 17.09.04 clarifying that the activity of letting out of the premises is not rend....
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....uld cover only those services which are covered by other clauses of section 65(105). An interpretation of a statutory provision, which renders the same redundant is not a correct interpretation and has to be avoided. Moreover Hon'ble Bombay High Court in case of Indian National Shipowers Associates Vs. Union of India reported in 2009 (14) STR-289 (Bom.), in para 38 of the judgment has held that the introduction of a new entry and inclusion of certain services in that entry presupposes that there were no earlier entry covering such services. 16.2 One of the basic principle of construction of statues is that the intention of the statute must be deduced from the language of the statute, as the legislature is deemed to have intended what they have expressed and accordingly unless the statute is in respect of a technical matter, the same has to be construed on the basis of ordinary meaning of the words and phrases used by following the rules of grammar. A corollary to this general rule of literal interpretation is that a statute must be construed without adding any words to it or subtracting any words from it, unless there are adequate grounds to justify the inference that the le....
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....d by AAI or a person authorised by it to any person; and (b) the service should have been. provided in the Airport/ civil enclave; in our view, the very condition that the service should be provided by AAI or a person authorised by it, would restrict the scope of this clause to only those services, which AAI is expected to provide in the Airports/ civil enclaves as per the provisions of Section 12 of the Airports Authority of India Act, 1994 or as per the commercial practice. Therefore, this clause would cover all the services provided by AAI or person authorised by it to any person in the Airports/ Civil enclaves which are in relation to- (a) maintenance of runways, taxiways, aprons and terminals and ancillary buildings at the Airports/ civil enclaves; facility for parking of Aircraft at Bay/ apron, hanger facility, and repair facility for Aircraft; (b) installation, maintenance and operation of navigational aids, communication equipment, beacons and ground aids at the airports/ civil enclaves or at such locations as may be considered necessary for safe navigation all operation of aircrafts and providing navigati....
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....ort/ civil enclave. During the period prior to 01.07.2010, when provision to Section 65(105)(zzm) making the provisions of Section 65A inapplicable to this clause was not there, the services specifically covered by other clauses of Section 65(105), even if provided by AAI or a person authorised by it in an airport/ civil enclave, would be taxable as the service covered by the respective clauses, but w.e.f. 01.07.2010, even if a service, on the basis of Section 65A is covered by some other clause of Section 65(105), it would be treated as service covered by clause (zzm) of Section 65(105) if it has been provided in an airport/ civil enclave by AAI or by a person authorised by it. 17. The other point of dispute is the interpretation of the expression- "in any airport or a civil enclave". According to the appellant, this expression would cover only the services provided within an Airport or Civil Enclave and would not cover the Route Navigation service provided to Airlines in respect of overflying Aircrafts or Terminal Navigation Landing services provided to the Airlines in respect of their Aircrafts which intend to land at an Airport or a Civil Enclave. The Department's conten....
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....usions in para 16.6 and 17.1 above. 19. The demand of Service Tax on the Revenue from Left Luggage Facility, Rest Rooms/Retiring Rooms and supply of Trolleys for courier service: 19.1 These services in terms of Appellant's submissions are provided by the AAI and charges for the same are directly collected by them. Though these services during the period of dispute, were not covered by clauses of Section 65(105), other than (zzm), since these services have been provided by the AAI (Appellant) within the area of Airports/Civil Enclaves, and are in relation to passenger amenities/ facilities as discussed in para 16.6 above, the same would be taxable under section 65(105)(zzm) as service provided to any person by AAI in the Airport/Civil Enclave. Thus the service tax demand of Rs. 14,77,164/- has to be upheld. 20. Service tax on Revenue from Passenger Service Fee: 20.1 In terms of Appellant's submissions under their letter 15.09.06 presented to Commissioner in course of adjudication and as recorded in para 56 in the impugned order, Passenger Service Fee is charged @ Rs. 200/- by the respective Airlines as part of fare mentioned in the Air tickets issued by them at t....
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....rt/Civil Enclave and the Terminal Navigational Landing Facility (TNLF) is the Navigational Aid to the Aircrafts which intend to land at a particular Airport/Civil Enclave. In both the cases, the Navigation Aid is provided to the Aircraft while the same is in the air. The contention of the Appellant is that providing Navigation Aid to the Aircrafts which are in the air is not the service provided by them or their authorised person in the Airports/Civil Enclaves. It has also been pleaded that Route Navigational Facility is provided enroute from the starting point to the vicinity of the arrival station and this Navigational Facility is provided with the help of equipments installed at the Aeronautical Communication Stations which may not be necessarily within the area of Airport/Civil Enclaves, and that majority of the Aeronautical Communication Stations providing Route Navigational Aid to the Overflying Aircrafts are located outside the Airport, as these stations have to be located after every 100Km between the departure station and arrival station, that this is clear from the fact that Aeronautical Communication Stations for providing Route Navigational Aid to an Aircrafts flying fr....
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....ute Navigation Facility involves providing Navigational Aid to an Aircraft which is flying in the air from the starting point to the vicinity of the arrival station. This Navigational Aid is provided with the aid of equipments installed at the Aeronautical Communication Stations located on the ground and now, also with the Aid of equipment installed in the satellites orbiting earth. Providing Navigational Aid from the ground Aeronautical Communication Centres involves transmission of radio signals which can be received by the equipments/instruments on board the Aircrafts and from which the Aircraft can determine its exact bearing from a particular Aeronautical communication station. Some Aeronautical Communication Stations also have distance measuring equipments which allows the equipment installed in the Aircrafts to determine the exact distance from the station. However, the appellant's plea is that the Aeronautical Communication Stations which provide Navigational Aid to the Aircrafts and the persons manning them are not always located in the Airport/Civil Enclave area. This point of fact has to be determined by the Adjudicating Authority and for which this matter would have....
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.... from the users of the facilities. In this case the demand of service tax is on the amount which the appellant received from the concessionaires/licensee managing the car parking, access to the Airport and issue a season tickets/temporary passes. 22.3 Inside an Airports/Civil Enclaves there are a number of business establishments like Restaurants, Duty free Shops, Book Shops and other Shops, Counters of the Airlines, Money Changers etc. All these persons have been given space inside the Airports/Civil Enclave on rent, which is to be used for the purpose of their business. Some spaces have been given for display of hoardings/advertisements. 22.4 According to the Department, the rent for letting out of the space would attract service tax as letting out of immovable property for furtherance of business and commerce is service and in this regard, reliance is placed Larger Bench judgment of Hon'ble Delhi High Court in case of Home Solutions (India) Vs. Union of India reported in 2011 (27) STR- 109 (Del.) wherein Hon'ble High Court overruling its earlier judgment on the same issue reported in 2009(14) STR-443 (Del.) has held that renting of immovable property for furtheranc....
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....ary passes and season tickets for fix amount of licensing fee/royalty is like renting of business and on the amount of licence fee/royalty being received by the appellant from the concessionaires/licensees managing the visitor's entry, car parking and issue of season tickets & temporary passes, service tax would be chargeable under section 65(105)(zzm). 22.6 Coming first to the question as to whether letting out/leasing out of the space inside the Airports/Civil Enclaves to various Airlines and business establishments for their business for rent/lease charges is service and if so, whether it will be covered under section 65(105)(zzm), we are of the view to key question to be decided in this regard is as to whether the letting out of the space inside the Airports/Civil Enclaves to various Airlines and other business establishments for their business activities inside an Airport Civil Enclaves is a service or not. If it is a service which the Appellant (AAI) is expected to provide in terms of its functions enumerated in Section 12 of the Airports Authority of India Act, 1994 or as per commercial practice, as discussed in para 16.6 above, it will be covered by the section 65(10....
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....mmovable property. The learned senior counsel for the petitioner would contend that the Parliament cannot, by deeming fiction, create a tax liability to bring it within the purview of Entry 97 of List I as that would be an indirect entrenchment on Entry 49 of List II. Per-contra, Mr. Chandhiok, relying on the decision in Tamil Nadu Kalyana Mandapam Assn. (supra), submits that the concept of service, as is understood by a layman, is not applicable to the concept of taxing statute under the constitutional framework. He would further contend that once this Court holds that the levy does not pertain to a tax on land or building but an activity like renting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce, it would come within the residuary power of the Parliament and the same should put the controversy to rest. 62. As presently advised, we shall dwell upon the concept of value addition. The hub of the matter is when a premise is let out for use, should a person who rents an immovable property or renders any other service in relation to such letting for use in the course or furthera....
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....s. In the economic concept, rent can be categorized into two heads, namely, contract rent and economic rent. Contract rent fundamentally refers to the total amount of money paid for use of the land and economic rent is a part of the total payment which is made for the use of land and it is estimated on many a ground. The economic rent can be contract rent minus interest on the capital invested. To give an example, a tenant pays Rs. 20,000/- per year as contract rent but the interest on capital invested is Rs. 3,000/- per year. Thus, the remaining amount, that is, Rs. 17,000/- (Rs.20,000.00 - Rs. 3,000.00) is paid for the use of the land. 65. The concept of economic rent can also represent an amount which a factor can earn in its next best alternative use. To give an example, a piece of land yields in a particular use Rs. 5,000 in a year. If it is transferred to its next best use, it can earn a better income. At one point of time, the Theory of Rent was propagated by David Ricardo. According to the Ricardian theory, rent has differential surplus and the same arises due to certain facets relating to fertility, productivity, extensive cultivation, quality, etc. R....
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....mand and supply. In this analysis, rental is hiked because supply of land is scarce in relation to its demand. This economic concept is called "scarcity theory of rent". This includes the fact of competition and quality. According to the modern theory, rent is not peculiar to land alone but arises in the case of many a factor which earn over and above the transfer earnings. There is a distinction between "actual earnings" and "transfer earnings". According to the modern analysis of rent, it is not peculiar to land alone and the concept of transfer earning is more attracted towards the building depending upon its use. As an economic concept, it has been developed that rent qua building or premises or, for that matter, land has a nexus, an inseparable one, with the potentiality of its use in a competitive market. The economic growth has an effect on rent. In this regard, modern economists have evolved certain methods, namely, technical progress in methods of production, development in means of transportation and population growth. We have referred to these concepts only to highlight that the legislature has not imposed tax on mere letting but associated it with business or commercial....
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.... the said decision, it has been categorically laid down that even if a land/building is let out for commercial purposes, there is no value addition. Being of this view, we overrule the said decision." 22.7.1 Thus in this judgment, Hon'ble High Court has held that:- (a) once there is value addition, element of service is involved and service is associated with value addition, as evolved by the judgments of the Apex Court (para 68 and 69); and (b) in renting of immovable property for use for business or commerce the economic rent portion of the total rent which represents the money paid for use of the property for a particular business can be treated as representing value addition and hence service (para 65 & 68 of the above judgment). 22.8 It will be seen that the judgment of Hon'ble Delhi High Court in case of Flammingo Duty free Shops Pvt. Ltd. (Supra), judgment of Bombay High Court in case of Sahara Airlines Ltd. Vs. Union of India (Supra) and judgment of Hon'ble Kerala High Court in case of C.C.E. Vs. Cochin International Airport Pvt Ltd.(Supra) are based either on the Board's Circular No. 18/10/04-ST dt.17.09.04 ....
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...., the same by applying Section 65A(2) would not fall within the taxable service of "airport services" under clause (zzm) of Section 65(105), as "letting out of immovable property" was more specifically covered under clause (zzzz) of Section 65(105) and Section 65A(2) mandates that the sub-clause which provides the most specific description would be preferred to a sub-clause providing a much general description. However, this judgment is not applicable to this case as- (a) the period of dispute in this case is of prior to 01.06.2007 when clause (zzzz) of Section 65(105) covering renting of immovable property for business or commercial was not there and such transactions of renting of immovable property were not specifically covered by any clause of Section 65(105); and (b) As is clear from the wordings of Section 65A, this section can be invoked only for classification of "taxable service" i.e. the services enumerated in various clauses of Section 65(105) and a service provided to any person by AAI /its authorized person in an Airport/ Civil Enclave if not specifically covered by any clause other than (zzm) would be covered by clause (zzm)....
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....n the Airports/Civil Enclaves, as a result of which there is a premium on this business. When instead of the Appellant operating these businesses at the Airports/Civil Enclaves, they authorise other persons to operate these business and provide these services under licence/concession agreements under which the Appellant receive fixed amounts from the licensees/ concessionaires for a specified period against licence/ permission to them to operate these businesses and sell the tickets/passes during that period the Appellant have rented the business, in question, to the licensees/concessionaires. The lump sum amount/ licence fee charged by the Appellant from licensees/Concessionaires is in the nature of royalty. According to Encyclopedia Britannica, royalty is -'the payment made to the owners of certain types of rights by those who are permitted by the owners to exercise the rights". Therefore, the licence fee being received by the Appellant from licensees/ concessionaires operating the facilities mentioned above in the Airports/Civil Enclaves is "economic rent" which represents value addition and therefore this activity has to be treated as service. Moreover, during the period of....
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....on authorised by it. He has also observed that the activity of service of sale of time or space for advertisement became taxable w.e.f. 01.05.06 and that for this reason also, no service tax could be charged during the period of dispute on the Revenue from this service. The appellant support the Commissioner's Order on this point. 23.2. We are of the view that both the reasons given by the Commissioner for dropping the service tax demand in respect of Revenue earned by the appellant from the letting out space at the Airports/Civil Enclaves for display of Hoardings etc. are wrong. Even if this is treated as service of sale of space for advertisement, which as such was not taxable during the period of dispute and become taxable w.e.f. 01.05.06, since it is a service provided in the Airport/Civil Enclave by the AAI to a person and is a service which AAI is mandated to provide in terms of Section 12 of the Airports of India Act, 1994 (as the same is in the best commercial interests of Ml), the same as discussed in para 16.6, would be covered by the provisions of section 65(106)(zzm) and would be taxable. The other reason given by the Commissioner that this is not a service relat....
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....he Finance Act, 1994 as in para 46 of the Show Cause Notice, it is alleged that "in view of its such commissions and omissions, it appears that provisions of proviso to Section 73(1) of the said Act are squarely applicable in the case against M/s. AAI". The demand for period beyond the normal limitation period of one year would survive only if the extended period under proviso to Section 73(1) is invokable, or there is provisional assessment. 25.2 Though the issue of limitation has not been argued by either side, in our view, this issue also has to be considered, as interveners would be adversely affected to the extent, the service tax demand is confirmed against the Appellant (AAI). 25.3 Since in para 82 of the impugned order, the commissioner observing that:- (a) this is not a case, where the Appellant AAI intended to defraud the exchequer or purposely evaded the payment of service tax; and (b) he does not see the element of mens rea, as AAI is a body formed under an Act of the parliament and AAI, being a government body, cannot be said to have a pre-determined attitude and wilful intention to evade the payment of service tax;" ha....
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....e remanded. If the assessments for this period can be treated as provisional, the service tax demand for this period would not be hit by limitation. The demand for the remaining period i.e. from March'05 to 31.03.06 is not hit by limitation. 26. Penalty on the Appellant under Section 76 and 77 of the Finance Act, 1994: 26.1 While the Commissioner for the reasons recorded in para 82 of the impugned order has refrained from imposing penalty on the Appellant under Section 78, he has still imposed penalty on them of Rs. 1000/- under Section 77 for various omissions and penalty under Section 76 of Rs. 200/-per day for the period during which the failure to pay the service tax also continues subject to the penalty not exceeding the amount of service tax demanded. In our view, this is a fit case for invoking Section 80 according to which notwithstanding anything contained in Section 76, 77 & 78, no penalty shall be imposable on an assessee for any failure referred to in the said provisions if the assessee prove that there was reasonable cause for the said failure. In this case, the Appellant as early as on 13.09.04 had addressed a letter to the Department for clarification on ce....