TaxTMI 
TaxTMI 
2023 (5) TMI 867
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....ese appeals, orders of the Customs, Excise and Service Tax Appellate Tribunal Final Order No, ST/A/50064/2019-CUIDBI dated 18/01/2019 [by the Principal Bench, CESTAT, New Delhi]; Final Order No. A/88830- -88832/16/STB dated 28.01.2016 [by the Western Zonal Bench, CESTAT, Mumbai]; and Final Order No. A/30739/2019 dated 16.09.2019 [by the CESTAT Regional Bench at Hyderabad]. (hereafter "CESTAT") are impugned by the service tax authorities (hereafter "the revenue"), who argue that user development fee levied and collected by the airport operation, maintenance and development entities (i.e., the Mumbai International Airport Pvt. Ltd., the Delhi International Airport Pvt. Ltd., and the Hyderabad International Airport Pvt. Ltd., (hereafter collectively called "the assessees") is subjected to service tax levy, under the provisions of the Finance Act, 1994 (hereafter "the Act"). 2. All the assessees had entered into joint venture arrangements/agreements (hereafter "OMDA") with the Airports Authority of India (hereafter "AAI", a body corporate created by the Airports Authority of India Act, 1994 [hereafter "AAI Act"]. Under OMDA, the assesses agreed to undertake some activities enjoined ....
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.... 66. Section 67 (1) of the Finance Act, provides that where service tax is chargeable on any taxable service with reference to its value then such value shall be the gross amount charged by the service provider for such service provided or to be provided by him. 6. The relevant provisions of the Airports Economic Regulatory Authority of India Act, 2008 and the Aircraft Rules, 1937 are extracted below: Section 13 of the Airports Economic Regulatory Authority of India Act, 2008 sets out the functions of the authority, and inter alia, reads as follows: "13. Functions of Authority. (1) The Authority shall perform the following functions in respect of major airports, namely:-- (a) to determine the tariff for the aeronautical services taking into consideration-- **************** (b) to determine the amount of the development fees in respect of major airports; (c) to determine the amount of the passengers service fee levied under rule 88 of the Aircraft Rules, 1937 made under the Aircraft Act, 1934 (22 of 1934);..." Provisions of the Aircraft Rules, 1937: "Rule 88. Passenger Service Fee. -The licensee is entitled to c....
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.... passengers at an airport, the development fees at the rate as may be prescribed and such fees shall be credited to the Authority and shall be regulated and utilized in the prescribed manner, for the purposes of- (a) funding or financing the costs of upgradation, expansion or development of the airport at which the fee is collected; or (b) establishment or development of a new airport in lieu of the airport referred to in clause (a); or (c) investment in the equity in respect of shares to be subscribed by the Authority in companies engaged in establishing, owning, developing, operating or maintaining a private airport in lieu of the airport referred to in clause (a) or advancement of loans to such companies or other persons engaged in such activities." III Contentions of the parties 7. Ms. Nisha Bagchi, learned counsel for the revenue, submits that assessees function as licensees of Airports. The airports are capable of being licensed by the AAI to operate as aerodromes. It was submitted that grant of licenses is subject to express conditions. Rule 88 provides for collection of fees known as "passenger services fees" from the embarking passengers....
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....owards investment in the equity in respect of "shares to be subscribed by the authority in companies engaged in establishing, owning, developing, operating or maintaining a private airport in lieu of the airport" or "advancement of loans to such companies or other persons engaged in such activities." It was also urged that the amounts cannot be termed as levy, because they are not deposited with the government treasury. 11. It was submitted that from a reading of Section 22A, it is clear that it allows for funding or financing the cost of upgradation, expansion or development of the airport at which the fee is collected and establishment or development of a new Airport in lieu of the airport at which the fee is collected. This is a pre-funding collection and imposed for the facility to be provided by the assessees and to be used for funding of project cost which ultimately would result in creation of better facilities and amenities for passengers. The assessees entered into agreements for the purpose of its operation, management and development of airports (OMDA). In terms of such OMDAs, assessees are responsible for the development, design, upgradation of airport. It is for thi....
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.... is no clear finding that DF is a tax or cess and the same was held to be ultra vires the AAI Act on the ground that the rate could not have been fixed by the Central Government, but only by making a rule by AERA which has not been done. In the present case, we are concerned with the levy of service tax on DF collected by the respondents from the passengers. Also in that decision, this court was not concerned with levy or otherwise of service tax on DF. It was argued that DF has not been collected as tax or cess and therefore, the contention that DF is a tax on which there cannot be any service tax is incorrect. The nature of DF is that these are the charges collected by the respondents for development of facilities for the use of the airport. In fact, the assesses' contention was these are the charges for the use of the airport services by the passengers and is not a tax. 16. Learned counsel relied on the judgment reported as Krishi Upaj Mandi Samiti v Commissioner of Central Excise 2022 (1) SCR 700 and urged that the nature of UDF is similar to the optional collection made by market committees who perform services, which are not in the nature of a statutory activity or a sover....
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....menities and provision for boarding an aircraft. There is nothing to show that passengers have to make payments for any of these activities. These facilities were available without any additional charge before the imposition of 'development fee'. Such services continue to be available after its quashing. No additional benefit accrues to the passenger during the period of levy of 'development fee.' All facilities are basic facilities inherent in the civil aviation sector in which the appellant, a nonpublic sector entity, is a recent entrant. 20. It was emphasized that moving away from state control, airports entered the phase of regulatory control with the advent of the AAI Act. This transition also had to factor in the larger public interest in safety and security, which meant that some level of control, de-regulation was limited and confined to the financial aspects of airport management. Having created a statutory authority, the statute should have been specific to contain the scope of functions of the AAI. Despite granting financial autonomy, the need for dependence on the State exchequer could not be eliminated and hence appropriate types of levies as well as restrictions on....
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....cision in Krishi Upaj Mandi Samiti (supra) is distinguishable. In that case, the court was concerned only with Section 9 (2) of the Rajasthan Agricultural Produce Markets Act, 1961, which was held not to relate to a statutory function but only a discretionary charge, i.e., renting of premises. Rent for immovable property is materially different from a collection under Section 22A of the AAI Act, which, according to this court, is in the nature of cess or tax and a compulsory exaction in Consumer Online Foundation (supra). 25. The assesses also rely on the decision of this court in Commissioner of Service Tax vs. Bhayana Builders (P) Ltd 2018 (1) SCR 1128, where it was stated that under Section 67 of the Finance Act, 1994, not every amount charged by the service provider is taxable. Upon an analysis of Section 67, it was held that the amount charged should be "for such service provided" to be taxable. The court emphasized the connection between the service and the amount by stating that: "the Act has provided for a nexus between the amount charged and the service provided". 26. Counsel pointed out that Consumer Online Foundation (supra) has ruled that there is no nexus betw....
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....ded in clause (a) of Section 22A of the Act and in case the lease of the premises of an existing airport (including buildings and structures thereon and appertaining thereto) has been made to a lessee under Section 12A of the Act, the Airports Authority may meet the costs of up-gradation, expansion and development of such leased out airport to a lessee, but this can be done only if the rules provide for such payment to the lessee of an airport because Section 22A says that the development fees are to be regulated and utilized in the manner prescribed by the Rules. Since the lessee of an airport cannot be assigned the function of the Airports Authority to establish airports or assist in establishing private airports in lieu of the existing airports at which the development fees is being collected, the lessee cannot under sub-section (4) of Section 12A have the power of the Airports Authority under Section 22A of the 1994 Act to levy and collect development fees. This is because sub-section (4) of Section 12A provides that the lessee can have all those powers of the Airports Authority which are necessary for performance of such functions as assigned to it under sub-section (1) of Sec....
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....xpansion or development of the airport which is to be funded or financed by development fees as provided in clause (a) of Section 22A. Those passengers who embark at the airport after the airport is upgraded, expanded or developed will only avail the facilities and services of the upgraded, expanded and developed airport. Similarly, there can be no contractual relationship between the Airports Authority and passengers embarking at an airport for establishment of a new airport in lieu of the existing airport or establishment of a private airport in lieu of the existing airport as mentioned in Clauses (b) and (c) of Section 22A of the 1994 Act. In the absence of such contractual relationship, the liability of the embarking passengers to pay development fees has to be based on a statutory provision and for this reason Section 22A has been enacted empowering the Airports Authority to levy and collect from the embarking passengers the development fees for the purposes mentioned in clauses (a), (b) and (c) of Section 22A of the Act. In other words, the object of Parliament in inserting Section 22A in the 2004 Act by the Amendment Act of 2003 is to authorize by law the levy and collection....
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....the "nature of the levy under Section 22A of the 2004 Act, in our considered opinion, is not charges or any other consideration for services for the facilities provided by the Airports Authority." 30. By virtue of Section 67 of the Finance Act, the basis of charge is the value of taxable service. Section 67 as it stood, before amendment w.e.f. April 18, 2006, read as follows: "67. Valuation of taxable services for charging service tax. - For the purposes of this Chapter, the value of any taxable service shall be the gross amount charged by the service provider for such service provided or to be provided by him. ****************** ****************** Explanation 3.-For the removal of doubts, it is hereby declared that the gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service." (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not....
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....hich is taxable under the Act. By using the words "for such service provided" the Act has provided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67." 33. On 02.08.2011, the Airports Authority of India (Major Airports) Development Fees Rules 2011 (hereafter "the 2011 Rules") came into force. They, by Rule 3, authorized the collection of development fees; by Rule 4 (1), an Escrow account had to be opened in respect of each airport into which the development fee collections were to be deposited; by Rule 4 (2), AAI is empowered to monitor and regulate the receipts and utilization of fees; by Rule 4 (3), various sub accounts were to be opened [(a) Development Fees Receipt Account; (b) Development Fees Statutory Dues Account; (c) Development Fees Disbursement Account; (d) Development Fees Surplus Account]. By Rule 4 (4), the money collected as development fees is to be deposited in the Development Fees Receipt Account. 34. Besides the rules, the assessee, in the case....
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....ues fitness certificate to the vehicles; the Directorate of Boilers inspects and issues certificate for boilers; or Explosive Department inspects and issues certificate for petroleum storage tank, LPG/CNG tank in terms of provisions of the relevant laws. Fee as prescribed is charged and the same is ultimately deposited into the Government Treasury. A doubt has arisen whether such activities provided by a sovereign/public authority required to be provided under a statute can be considered as 'provision of service' for the purpose of levy of service tax. 2. The issue has been examined. The Board is of the view that the activities performed by the sovereign/public authorities under the provision of law are in the nature of statutory obligations which are to be fulfilled in accordance with law. The fee collected by them for performing such activities is in the nature of compulsory levy as per the provisions of the relevant statute, and it is deposited into the Government treasury. Such activity is purely in public interest and it is undertaken as mandatory and statutory function. These are not in the nature of service to any particular individual for any consideration. Therefo....
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....ry activity. Hence, no exemption to pay service tax can be claimed." 38. The principal holding, so to say, was that the discretionary fee could be levied, and that there was no "duty cast upon the Market Committees to allot/lease/rent the shop/platform/land/space to the traders". The second reason was that the amounts were credited to a market fund, which was later deposited in the government treasury, even after which it remained a market committee fund. 39. In the present case, undoubtedly, neither is there any compulsion to levy development fee nor is the collection conditional upon its deposit in the government treasury. However, the absence of these features in this court's opinion, does not render UDF any less a statutory levy. Firstly, the ruling in Consumer Online Foundation (Supra) is conclusive that UDF is a statutory levy. Secondly, the collection is not premised on rendering of any service. Thirdly, the amounts collected are deposited in an escrow account, not within the control of the assesses. Fourthly, the utilization of funds, is monitored and regulated by law. In this regard, the fact that the amount is not deposited in a government treasury, per se, does not....