TaxTMI 
TaxTMI 
2017 (2) TMI 775
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.... said Finance Act, 1994 as amended by Finance Act, 2007 are ultra-vires Entry 18 Entry 45 and Entry 49 of List-II of Schedule VII of the Constitution of India and/or Entry 92-C read with Entry 97 of List-I of Schedule VII of the Constitution of India and/or Articles 14, 19(1)(g), 265 and 300A of the Constitution of India and/or Section 66 of the Finance Act, 1994; 2. Further a Writ of Prohibition is sought, prohibiting the Respondents or their servants, agents and subordinates from, directly or indirectly giving effect to the impugned provisions i.e. Section 65(90a) read with Section 65(105)(zzzz) of the Finance Act, 1994 as amended by Finance Act, 2007 and from charging and collecting Service Tax on the Annual Fee payable by the Petitioners (i.e. Delhi International Airport P. Ltd. {DIAL for short}, petitioner in W.P. (C) 2516/2008 & Mumbai International Airport P. Ltd {MIAL for short}, petitioner in W.P. (C) 2707/2008) to the Respondent no.4 (Airports Authority of India {AAI for short}); 3. Further, quashing and setting aside of the adjudication order, being Order-In-Original No. DEL-SVTAX-ADJ-COM-035 to 038-1314 dated 26.03.2014, to the extent it holds that benefit of CENVAT C....
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....of the AAI being the functions of operation, maintenance, development, design, construction up gradation, modernization, finance and management of the respective Airports. 10. Article 2.1.1 of the OMDA reads as under: "AAI hereby grants to the JVC, the exclusive right and authority during the Term to undertake some of the functions of the AAI being the functions of operation, maintenance, development, design, construction, up gradation, modernization, finance and management of the Airport and to perform services and activities constituting Aeronautical Services, and Non- Aeronautical Services (but excluding Reserved Activities) at the Airport and the JVC hereby agrees to undertake the functions of operation, maintenance, development, design, construction, up gradation, modernization, finance and management of the Airport and at all times keep in good repair and operating condition the Airport and to perform service and activities constituting Aeronautical Services and Non- Aeronautical Services (but excluding Reserved Activities) at the Airport in accordance with the terms and conditions of this Agreement (the "Grant")." 11. The Petitioners provide various Aeronautical Services....
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....he case of DIAL and Rs. 13,28,10,338/- in the case of MIAL, on account of balance dues towards Service Tax on Annual Fee payable under OMDA. 18. The Petitioners protested to the said action of AAI on the ground that AAI does not render any service to the Petitioners and no Service Tax could be charged on the Annual Fee. It pointed out to AAI that it was not liable to pay Service Tax on the Annual Fees. The petitioner contended that, the liability of Service Tax could not be charged from the Petitioner and if the same was payable, AAI had to discharge the same from its own revenue share. 19. It may be noted that the constitutional validity of the taxing entry relating to "rent on immovable property" has been upheld in the case of M/s Home Solution Retail India Ltd Vs. UOI and Ors. 182 (2011) DLT 548. 20. Respondent No. 1 to 3 the Revenue Department has taken a stand that the Annual Fee payable by the Petitioner to the AAI is exigible to service tax under the taxable entry relating to "Franchise Service" and not under the taxable entry of "Renting of immovable property Service". 21. By the Order-in-Original dated 26.03.2014, the Commissioner of Service Tax adjudicated the show ca....
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....ontended that where there is a complete divestation of rights, it can never be a 'Franchise'. 27. It is submitted that the Petitioner Companies were required to invest their own funds to build, operate and maintain the airport and consequently get a right to charge customers for rendering aeronautical and non-aeronautical services on which the Petitioners pay Service Tax under the head "Airport services". It is contended that the Petitioners run their own operations and do not act in the capacity of a Franchisee . AAI, in addition to being a shareholder of the Petitioner Company is entitled to receive a specified percentage of the gross revenue earned by the Petitioners, which is termed as Annual Fee. In addition, AAI was paid an Upfront Fee of Rs. 150 crore each by the petitioners. 28. It is further submitted that the AAI's share is not relatable to any Franchise but is a 'revenue share' and the Annual Fees is paid out to the AAI through an escrow mechanism even before any portion of the gross revenue is received by the Petitioners. It is contended that the Annual Fees is not a 'consideration' paid by the Petitioner to AAI for any service, but is an appropriation of Revenue by A....
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.... such a case can never have a right to represent itself as State or its instrumentality. It is contended that it is nobody's case that factually, the Petitioners have represented themselves as AAI or have any such representational right. 36. It is contended that the very concept of "Franchise" has no applicability when it comes to the issue of revenue sharing and grant of license by the State, wherein, the State permits a private party to do an activity for profit, which act the private party would not have any right to do but for such a grant by the State. 37. In the present case, the revenues are at the first instance deposited in the escrow account and from there to the respective accounts of the AAI and the Petitioners. 38. It is further contended that it is not enough for the contract to be a Franchise but should also be a taxable service within the meaning of Section 65(105)(zze) of the Finance Act, 1994 and it thus requires that AAI ought to have provided services to the Petitioners. It is submitted that there is no service, which has been provided or is being provided by AAI to the Petitioners. 39. It is further contended that the reference to "renting of immovable ....
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....o the petitioners, strict standards have been prescribed for performance and an element of control has been retained by the Franchisor. 46. It is submitted that AAI is a statutory body, which has been constituted for and is identified with the function of administration and management of airports and civil enclaves in India. It is contended that this function is so unique to AAI that even without the petitioners using the trademark, service mark, and logo etc. the function of airport operation remains identifiable with AAI. 47. Relying upon the decision in Home Solutions (Supra) it is contended that even if a transaction between the parties is in the form of an agreement to lease or rent an immovable property for carrying out a specific purpose but leads to value addition then the same shall be amenable to the imposition of service tax. 48. It is submitted that for the purpose of the service tax law, the term 'service' needs to be construed in a broad sense and not in the traditional sense of the term. In the present scenario where AAI has entered into franchise agreements with the Petitioners to operate, develop and maintain the airports, there is a significant amount of value ....
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....uld necessarily qualify all the three possibilities i.e., (i) to sell or manufacture goods, (ii) to provide service and (iii) undertake any process identified with the franchisor. 58. A representational right would mean that a right is available with the franchisee to represent the franchisor. When the Franchisee represents the franchisor, for all practical purposes, the franchisee loses its individual identity and would be know by the identity of the franchisor. The individual identity of the franchisee is subsumed in the identity of the franchisor. In the case of a franchise, anyone dealing with the franchisee would get an impression as if he were dealing with the franchisor. 59. It would be necessary to refer to some of the terms and conditions of OMDA to ascertain as to what kind of operational right, if any, has been given by AAI to the Petitioners and what kind of services, if any, are being provided by AAI to the Petitioners. 60. Some of the relevant clauses of the OMDA are as under: "TRANSFER OF RIGHTS IN RELATION TO AIRPORT ON EFFECTIVE DATE AND TRANSITION PHASE 5.1 Upon satisfaction or waiver, as the case may be, of the Conditions Precedent, on and from the Effective....
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....f land and/or building at the Airport and Public Sector oil companies in respect of common hydrant infrastructure for aircraft fuelling at the Airport, for which no express written contract has been executed or presently exists, such existing arrangements shall continue for a period of six(6) months from the Effective Date and the JVC shall during such period mutually agree with Indian Airlines Ltd., Air India Ltd. and Public Sector Oil companies in respect of such arrangements going forward. Provided however that any third party contract that cannot be specifically novated to the JVC for any reason whatsoever shall be performed by the JVC (at its own risk and cost) for and on behalf of AAI (as if the JVC was an original party to the said contracts, in place of AAI). Provided further that JVC shall indemnify and keep indemnified the AAI against any liability or costs arising under such contracts (including, for the avoidance of doubt, contracts relating to capital work-in-progress included in the list of Mandatory Capital Projects), including specifically, payments due to the counter-parties of such contracts or to any other Entities pursuant to such contracts. Any benefits arising....
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....) provided, in each case, the person's acts or omissions would justify disciplinary action under the terms of his employment with AAI. Upon receipt of such complaint, AAI shall initiate proceedings against such General Employee in accordance with its rules and regulations. ***** ***** ***** 6.2 Personnel During the Transition Phase, JVC along with the Airport Operator shall put in place, in a phased manner increasing numbers of senior management (employees above the level of Deputy General Managers or equivalent of AAI on the date hereof) to manage the Airport in conjunction with existing AAI senior management (employees above the level of Deputy General Managers or equivalent of AAI on the date hereof) at the Airport. During the Transition Phase, AAI senior management would continue to manage the Airport in conjunction with personnel of the JVC. JVC shall have the right to appoint its senior management at the Airport. Consequently upon such appointments by the JVC, AAI shall reduce (at....
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....acle limitation surfaces for the airport and approach and takeoff areas. (h) Noise exposure contours for areas surrounding the Airport for the traffic level forecast for the 20 year Master Plan period. (i) Such other matters that may be specified by the GOI. Notwithstanding anything to the contrary contained in this Agreement, the Parties hereby acknowledge and agree that nothing in this Article 8.3 shall be deemed to be an approval by AAI of any Master Plan (or any part thereof) submitted by the JVC in accordance with the aforesaid provisions, including but not limited to any minimum projected traffic. It is expressly agreed that it shall be sole responsibility and obligation of the JVC to ensure that the final Master Plan is in full compliance with the requirements of this Agreement and is, additionally, in accordance with the parameters set out in the State Support Agreement and nothing in this Agreement shall, in any way, absolve the JVC of its obligation to ensure that the final Master Plan is in accordance with the provisions of the OMDA and the State Support Agreement or any other obligations under any of the Project Agreements. ***** &nb....
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....ole) of the Airport Site to third parties for the purpose of performance of its obligations hereunder. ***** ***** ***** (ii) Management and Control (a) Notwithstanding anything contained in Article 8.5.7 (i) above, under no circumstances shall the JVC subcontract the overall operation and management of the Airport and the JVC shall at all times exercise and be responsible for overall management control and supervision of the Airport through its senior management staff, irrespective of any sub-contracting of activities and/or services. The JVC shall further under no circumstances sublease or license the whole Airport Site." 61. From the perusal of the terms and conditions of OMDA, it is clear that no representational right has been granted by AAI to the petitioners. Clause 5.1 records that the rights and obligations associated with the operation and management of the Airports have been transferred to the petitioners. The Petitioners are liable to perform all Aeronautical services, Ess....
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....nctions entrusted to AAI under the Airports Authority of India Act can be effectively carried out. AAI has 26% equity stake in the Joint Ventures, (i.e. the petitioners). 66. The Petitioners, under the OMDA, had to develop, operate and manage the Airports. AAI handed over the demised premises (under the lease deeds) at the Airports to the Petitioners. The Petitioners have spent their own money for designing, developing, constructing, upgrading, modernizing, financing etc., of the airports. The airports are being operated, maintained and developed by the Petitioners in their own right and in their own name. The Petitioners have been granted "exclusive right and authority" to undertake the functions mentioned in para 2.1.1 and particularly those relating to operation, maintenance, development, design, construction, upgradation, modernization, finance and management of the airport and to perform services and activities constituting aeronautical services and nonaeronautical services at the airport. 67. It is clear that the Petitioners do not undertake any process identified with AAI. The Petitioners run their own operations using their own processes, policies, methods, design, techni....