TaxTMI 
TaxTMI 
2015 (1) TMI 1049
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....perated 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 Act., 1994. In terms of section 2(2) of th....
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....y 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 Rule 6(4) of Service Tax Rules 1994 for the month ....
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....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 Watch Hours, which is under dispute, is about Rs. 169.....
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.... 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 would not include the services which are not taxable, that for th....
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.... & 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 after inviting competitive bids, that in respect of the appella....
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....se 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/ advertisements has been correctly dropped by the Commissioner, as t....
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....rcial 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 of a Larger Bench of Hon'ble Delhi High Court in case of Home So....
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....ice 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 mostly installed outside the Airports/Civil Enclaves, and that since ....
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....ney 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 the Act, defined and enumerated), when provided within an airport or a civil enc....
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....ervices 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 legitimately invited, how is the restriction to be crafted?" 8. The matter was further heard on 2nd, 3rd ....
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....f 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 services provided by Airport Authority or its Authorised persons in terms of infrastructure creation, facilitie....
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....ssion, 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 respect of various points raised in the interim Order dated 20.02.2014 as under:- &....
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.... 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 within Section 65(105)(zzm) would include the service falling within the negative list as well? Submission: With effect from 2012, ....
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....ous 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 while defining the activity with reference to the place of performance, does not define the activity itself, it is vague and therefore does not satisfy the basic canons ....
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....dian 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 from the Airlines for parking of their Aircrafts at the Airport/Civil Enclave (bay/apron) beyond the normal time of 2.5 hours which is free time. Rental for hanger space is charg....
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....s/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 parking. Season tickets and temporary passes are required to be issued by the appellant on charging a fee to the proprietors/employees of various contractors, Airlines, licensees or business establishme....
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....ned 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 that the effect of the judgment of the Apex Court in this case is prospective and in the cases where the appeals have been dismissed for the want of or refusal of clearance from the committee on disputes, the s....
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....934. 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 services from such Airport or for handing of baggage or cargo by such services and includes land comprising of any building and structure on such area. 14.1 With effect from 01.07.2010, a Proviso was added to clause ....
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....harges 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 rendering of service and for this reason no service tax would be chargeable on rental/lease charge for part of Airport/Civil Enclave leased out/rented out, is based on wrong understanding of law, as subsequently a larger bench of H....
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....bay 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 legislature intended something which it omitted to express or the ordinary meaning of the words and phrases by following the rules of grammar leads to a meaning which is at variance with the objective of the statute, as mentioned in the statute ....
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.... 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 navigational aid to the aircrafts in the air including terminal navigation prior to landing; (c) providing all the necessary facilities of the landing of aircrafts; (d) providing air safety services, including air traffic con....
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....n 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 contention is that this expression would also cover the services provided "from an Airport or a Civil Enclave" and accordingly the services of Route Navigation and Terminal Navigation would be covered by section 65(105) (zzm). 17.1 As mentioned above, the main services provided by AAI (the....
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....d 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 the behest of the AAI (Appellant) and the Airlines after collecting this fee along with amount charged for the Airfare, remit the same to the appellants. According to the appellant this amount is divided into two parts: (a) Facilitation charges (Rs.70/- per ticket) represent the charges for up keep ....
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....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 from Kolkata to Delhi, are also located at Aligarh and Sikandrabad which are not the Airports and that in Delhi also, these stations are located at Bijwasan and Hauz Khas area which are outside the Airport area. It is also pleaded by the appellant that Terminal Navigational Landing Facility starts from the area when the Aircraft ....
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....quipment 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 to be remanded to him for de-novo adjudication after ascertaining as to whether the Route Navigation Aid and Terminal Navigational Landing Aid to the Aircrafts is provided entirely by the persons deployed by the appellant at the Airports/Civil Enclaves. If this is not so and for providing Navigational Aids to the overflying Aircra....
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....estaurants, 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 furtherance of business or commerce is a service and accordingly upheld the levy of service tax on this activity with effect from 01.06.07 by introducing clause (zzzz) to section 65(105) of the Finance Act 1994. It has, therefore, been pleaded by the Department that since renting of immovable property for business or commerce has been held to be a ser....
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.... 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(105)(zzm), as it has been provided by the AAI within the premises of the Airports/Civil Enclaves. 22.7 The question as to whether letting of immovable property for business or commerce is a service or not, was considered by a Larger Bench of Hon'ble Delhi High Court in case of Home Solution Retails (India) Pvt. Ltd. & Others Vs. Union of Indi....
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....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 furtherance of business or commerce be liable to service tax. 63. The Division Bench in the first Home Solution case (supra), as we have reproduced hereinbefore, has opined that renting of immovable property for use in the course or furtherance of business or commerce by itself would not constitute service as there is no value addition. In....
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.... 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. Ricardo fundamentally considered rent as a surplus accruing to superior land over inferior land called "marginal land". It also depended upon shifting of population. Be it noted, the rent varies depending upon advantages. To give an example, two decades back, a market is established in zone "A", thereafter, a railway station starts in another zone called "B"....
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....nsfer 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 use. Thus, it comes within the concept activity and the value addition is inherent. It is worth noting that the language employed in the dictionary clause and the charging section, that is, "commercial use for business purposes" have their own significance. In Black's law dictionary, "commercial" has been defined as "relates to or is connected with trade....
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....s 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 or are based on the concession made by the Government counsel based on above mentioned Circular. This Circular of the Board states that no service tax under section 65(105)(zzm) would be chargeable on the rental/lease charges received by the AAI for rental of part of the premises of an Airport/Civil Enclave, as the activity "letting out premises is not rendering of service".....
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....ing 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) only and could not be classified as a non taxable service by invoking Section 65A. 22.9 Next comes the question as to whether fixed amount received by the appellant as license fee/royalty from the concessionaries/licensees operating, car parking facility, managing visitors' entry into the Airports/ Civil Enclaves and issue of season tickets and temporary passes would attract ser....
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....fied 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 dispute, in absence of definition of "Service" in the Finance Act, 1994, the meaning of this term has to be ascertained on the basis of how it is understood in commercial or economic parlance and on this basis, this term can be understood as an activity by a person for another person for some consideration; the activity here need not be only a physical activity resulting in value additio....
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.... 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 related to passenger amenities and, therefore, it is not covered by section 65(105)(zzm) is also wrong, as is discussed in para 16.6 above, this clause covers all the services which AAI is expected to provide in terms of the provisions of Section 12 of the Airports Authority of India Act, 1994 and as per commercial practices, if the same have been provided by AAI or person authorized by it in the an A....
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....le, 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;" has held that penalty under section 78 is not imposable, it would have to be held that for the purpose of proviso to section 73(1) also, there was no fraud, suppression of facts or wilful mis-statement or intention to evade the tax on the part of the Appellant, as the language of proviso to Section 73(1) and of Section 78 of Finance Act, 1994 is identical. Therefore, the service tax demand for the period beyond th....
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....s 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 certain issues which was replied by the Department on 15.03.05. It is also seen that the Appellant vide their letters dt. 28.03.05 and 18.10.05 to the Assistant Commissioner had requested for treating the assessments for period from 10.09.04 to 31.03.05 as provisional and from March'05 had stated paying service tax on provisional basis and had also paid some amount for period prior to March'05. In view of thes....