TaxTMI 
TaxTMI 
2025 (10) TMI 731
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....tegory of "rail travel agent, air, travel agent, tour operator, advertisement, outdoor catering service, business, auxiliary services and information technology services" and has been depositing service tax. For operational and accounting purposes, IRCTC is divided into separate zones and each zone is registered separately for service tax. 2. On the basis of an intelligence, investigation was initiated against the appellant that they have leased out the Food Plaza, Fast Food units to other catering/vending contractors and for which they have received the license fees on which they have not discharged the service tax under the category of 'Renting of Immovable Property' which is taxable from 1.06.2007. The allegation in the show cause notice was that under the MOU and the Policy, the properties belonging to Indian Railways [IR] were handed over to IRCTC for further licensing these properties to private contractor for which IRCTC received amount from private contractor in the form of User Charges and License Fee. The said amount has been accounted in the Trial Balance and reflected in the consolidated Profit and Loss Account as income. Therefore, the amount collected by IRCTC in r....
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....ent or the dominant intention of the parties, was not to enter into an arrangement for renting or leasing of immovable property, and the space provided to the licenses was ancillary to the dominant intention to facilitate the purpose of providing the amenities to the passengers at the railway station. Also, the consideration for the permission to operate and manage the Food Plaza cannot be considered as taxable under the category of 'renting of a property' under Section 65 (105)(zzzz) as it is not in the nature of rent earned for the immovable property, which is normally fixed amount whereas the license fee charged by the appellant from the licensee operating the food Plaza was a percentage of the sales turnover of the licenses, which means the amount could vary. The learned Counsel stressed that the agreement was in the nature of revenue sharing arrangement on principal to principal basis and not for provision of any service by one party to another. Challenge was also made to the invocation of the extended period of limitation. Firstly, on the ground that there is no allegation in the show cause notice disclosing any deliberate and conscious act of omission or commission on the pa....
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.... Further, Section 2(20) of the said Act says "Government Railway" means railway owned by the Central Government. Apart from providing the public utility service for transportation of passengers and carriage of goods, Indian Railways has been looking after catering through eating joints. This activity by the railways was not with any profit motive, but as an amenity to enable the passengers to have the facility of food and beverages. The refreshment stalls, food kiosk at the platform were run departmentally or through licenses up to the year 2005, however, there was no lease of any portion of the railway property at the railway station in technical sense of leasing the property. In their capacity as owner, Indian Railways handed over the catering facility to IRCTC, (incorporated as a company on 27.09.1999) which was formed with the object of upgrading, professionalisation, and managing catering and hospitality services at railway stations, on trains and other locations. The Railway Board introduced the Catering Policy, 2005, providing for a completely new set-up for managing and organising catering eateries so as to reduce overall congestion on the platforms and at the same time mak....
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....td. will not only continue to provide these essential services but will also induce investment in their upgradation and professionalisation. IRCTC Ltd. will with the participation of private entrepreneur manage these activities and Indian Railways' liabilities will reduce to that extent. To enable the Corporation in providing upgraded facilities and improving customers' satisfaction, IR will license land / buildings / rolling stock to the IRCTC Ltd. at mutually agreed commercial license fee / revenue sharing for specified periods." Further, the activities entrusted to IRCTC were characterised as under:- "2.3.1 Broadly the activities to be handled by IRCTC can be grouped under following four categories: - Category 1.............................. Category 2 ............................. Category 3 ............................. Category 4 ............................. The following revenue sharing arrangement for different activities to be undertaken will remain in force till the time this MoU is modified, after which the sharing ratio could be reviewed mutually between IR and IRCTC. Categories Remarks Proposed ....
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....F THE LICENSEE 9.1. Licensee will construct and operate the Food Plaza and will have the right of user only on leave and License basis. 9.2 Licensee will construct Food Plaza on the maximum area of the provided space as per building bylaws of the State." Further, Clause 13.3 of aforesaid agreement requires the licensee to vacate the space and deliver vacant possession to IRCTC. The said clause reads as:- "13.3 Upon the expiration of this agreement, or its earlier termination in accordance with the terms, conditions, obligations hereof the Licensee/SubLicensee shall take away all its belongings and effects and shall deliver vacant possession of the said space to the IRCTC." 11. For appreciating the activities performed by IRCTC pursuant to the Policy, MOU and further Licences issued in favour of 3rd parties amounts to rendering the services of 'renting of immovable property', it is necessary to produce the provisions of Section 65(90a) and 65(105)(zzzz) which are quoted below for ready reference: "Clause (90a) of Section 65 of the Finance Act, 1994 which defines 'Renting of Immovable property' as follows:- (90a) 'Renting....
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....e property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce." 12. For construing whether a particular transaction/activity would attract the levy of service tax in terms of the aforesaid provisions, it is necessary to determine the terms and conditions of the agreement entered between the parties. In the present case, the parties are governed by the MOU and the license agreement and as per the principles of interpretation of documents, the nomenclature of any contract or document is not decisive of its nature, but an overall reading of the document and its effect is to be seen-State of Orissa versus Titaghur Paper Mills Company Ltd.[1985 Supp SCC 280]. The Courts have, therefore, consistently applied the test of substance over form, requiring a close look at the contents of the agreement. As discussed above, IR is the owner of the railway land and apart from its primary function of transportation of passengers and goods, they have been engaged in providing essential public utility services for which railway prem....
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.... to provide access to the staff of the Corporation or licenses/sub-licensee to the railway premises without any entry fee. In sum and substance the MOU related exclusively to the various aspects of the Catering activity and there is not a whisper about leasing of land/space/building by IR to IRCTC. In other words, IR has not transferred the land in any manner in favour of IRCTC except the right to implement the Catering Policy by way of creating third party rights for setting up public utility facilities at the railway station/platforms. 14. In terms of the Policy and the MOU, IRCTC invited tenders and the title of the Tender Document clearly stated, "Tender for Operation and Management of Food Plaza at Pune Railway Station". The eligibility criteria of the licensee related to the duration of the experience in the catering, business, number of person having qualifications in the line of business and catering establishment. The checklist of the documents was required to mention financial statement showing minimum annual turnover and catering business proof of experience, details of in-house hygiene and food safety arrangements. Also, the special condition required the applicant t....
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....to the business, which reads as under:- "14.1 In the initial lock-in period of four years, the licensee will be bound by the projections of annual Net Sales Turnover. Following this period, the licensee may exit the business if in his view, the same is not commercially or operationally feasible. The licensee shall be required to communicate his intention of exiting the license in writing by providing a minimum of six months notice to IRCTC. IRCTC will in the meanwhile, initiate the process of fixing up a new licensee for the Food Plaza. In case of an exit under this clause, the security deposit of the licensee will be forfeited by IRCTC." Under the heading Hygiene and Quality Control, the licensee is required to provide sale of products of reputed brands only and the storage, handling of raw materials and finished products will have to be in extreme hygienic conditions. Clause 16.2 provides:- "IRCTC reserves the right to get the food samples/raw material collected and tested at approved laboratories at the cost of the Licensee". 16. Having examined the various clauses of the agreement, it is crystal clear that the agreement purely related to the transaction ....
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.... rent" that is payable as would be expected in a normal renting of immovable property transaction. On the other hand, the consideration for license to run, conduct and operate the hotel is a "license fee" equivalent to 15%/20% of the annual sales from the operation of the hotels. This being so, the license fee that would accrue to the appellant is only a percentage of the turnover. Since the turnover is never static but is dynamic and will go up or down in every succeeding year, the "lease license fees" would also wax or wane in resonance. The license fees are accruing to the appellants therefore have an umbilical card relation with the turnover and profits of the hotel business under IHCL. In our view therefore, the transaction between the appellant and IHCL is definitely not one of "renting of immovable property" but a business transaction between the two, where the consideration is not like a regular rent but is dependent on the annual performance and profits of the hotel." No doubt, the above case was related to the hotel business, however, the principles enunciated are equally applicable to the nature of dispute arising as a result of the activities in question. 18. Some....
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....ovided by GSFC to GACL for which it is charging GACL. 21. What emerges from the aforementioned decisions is that the foremost criteria is that in the process of providing service, the relationship of service provider and service recipient exist between the parties. Secondly, the dominant factor for determining whether activity falls within the ambit of renting of immovable property is the concept of 'fixed rent'. The element of consideration, i.e. the quid pro quo for services, which is a necessary ingredient of any taxable service is present. In the absence of any consideration, no service can be said to have been provided. Merely because the parties arrive at an understanding by way of an agreement to share the expenditure for availing certain facilities or for performing any activity does not amount to rendering 'services' and in the course of it, just because some amount is being charged by one party to another it cannot be treated as 'consideration'. Neither the activity performed can be stretched to rendering 'services' nor the amount received for performing the activity can be stretched to 'consideration' in the technical sense to be covered under the provisions of Sectio....