Case title:
Central GST Delhi III Vs Delhi International Airport Ltd
Date of Order:
19th May, 2023
Bench:
Hon’ble Justice S. Ravindra Bhat & Justice Dipankar Datta
Parties:
Appellant: Central GST Delhi – III
Respondent: Delhi International Airport Ltd.
SUBJECT
The appeal filed by the appellant is to challenge the impugned orders passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT). In which, the Supreme Court denied the appeal and concluded that the Airports Authority of India (AAI) is not liable to pay the Service Tax on the development fee asked by the State tax department.
IMPORTANT PROVISIONS
The Constitution of India, 1950
- Article 265 – A constitutional provision that states that no tax can be levied or collected except under the authority of law.
The Finance Act, 1994
- Section 65 (105) (zzm) – A specific section of the Finance Act that defines the category of taxable service known as "transport of goods by air" for the purpose of taxation.
- Section 68 (1) – This section of the Finance Act deals with the determination of the value of taxable services for the purpose of calculating taxes.
- Section 66 – A crucial provision in the Finance Act that empowers the government to levy and collect service tax on taxable services provided within India.
- Section 67 (1) – This section of the Finance Act outlines the procedure for payment of service tax, including the time and manner of payment, as well as related compliance requirements.
- Section 67 (4) – A provision in the Finance Act that specifies penalties and consequences for non-compliance with the payment of service tax, including penalties for late payment, evasion, or incorrect reporting.
The Aircraft Act, 1934
- Rule 88 – A specific rule under the Aircraft Act that lays down provisions related to the inspection, examination, and maintenance of aircraft to ensure their safety and airworthiness.
- Rule 89 – This rule under the Aircraft Act pertains to the detention, release, and disposal of aircraft in cases involving violations, accidents, or safety concerns.
The Rajasthan Agricultural Produce Markets Act, 1961
- Section 9 (2) – A section of the aforesaid Act that deals with the regulation and imposition of market charges, including fees and commissions, in agricultural markets.
The General Clauses Act, 1897
- Section 6 – A significant section of the General Clauses Act that defines the term "person" for the purposes of legal interpretation, encompassing individuals, corporations, and other legal entities.
The Airports Economic Regulatory Authority of India (AERA), 2008
- Section 13 – This section of the AERA Act empowers the Airports Economic Regulatory Authority to fix and regulate tariffs for aeronautical services, passenger facilities, and other services provided at airports under its jurisdiction.
Airports Authority of India Act, 1994
- Section 22(A) – A provision that grants the Airports Authority the power to make regulations pertaining to matters such as airport operations, safety, security, and other related aspects.
- Section 65 (3d) – This section specifies the powers of the Airports Authority to provide various airport services, including terminal services, ground handling, and other facilities required for the operation of airports.
- Section 3 – It specifies the governing body, functions, and powers of the authority. This section provides the foundational framework for the authority's organizational structure and its role in managing airports in India.
- Section 22 – This section enables the authority to create regulations that govern matters such as airport infrastructure, services, and procedures.
- Section 12 (A) – It grants the authority the ability to delegate specific powers, functions, and responsibilities to its members, officers, and employees. This provision allows for the efficient distribution of authority and decision-making within the organization.
BRIEF FACTS
- In this case, the Customs, Excise and Service Tax Appellate Tribunal (hereafter referred as CESTAT), the service tax should be referred as “the revenue”, Airport Authority of India hereafter referred as “AAI” and Mumbai Airport, Delhi Airport, and Hyderabad Airport hereafter “the assessees”.
- All the assessees had entered into a joint venture agreements with the AAI, Under the agreement the assessees are agreed to do some activities prohibited upon the AAI by the AAI Act.
- The assessees were authorized by various notifications issued by the Central Government to collect a development fee of Rs. 100 from every departing domestic passenger and Rs. 600 for International Passenger for a time span of 48 months.
- Later, the Commissioner of Service Tax, through various notices demanded the tax on the development fee collected by the AAI. Thereafter, the CESTAT remanded the matter to the actual authority for fresh adjudication.
- There were also various instructions Issued by the Central Board of Excise and Customs (CBEC). The initial authority resolved all show cause notifications by approving requests and imposing fines in accordance with the Act. The adjudicating authority provided the "cum-tax" value benefit. These rulings were contested before the CESTAT, which by the contested orders granted the assessees' appeals and held that the development charge paid was exempt from service tax taxation.
ISSUES RAISED
- Whether the appeal filed by the appellant against the impugned order passed by the CESTAT is valid or not?
- Whether the AAI is liable to pay the Service Tax on the development fee asked by them or not?
ARGUMENTS ADVANCED BY THE APPELLANT
- The Learned Counsel claimed that assessees take on the role of airport licensees, as airports may get an AAI license to function as aerodromes. Licences are provided subject to requirements, and the licensees charge users "User Development Fees" (UDF) and "Passenger Services Fees" (PSF). According to learned Counsel, UDF is gathered to improve a variety of services and amenities offered by airports. It is also utilized for the development, administration, upkeep, and growth of airport infrastructure. These charges are regarded as taxable since they represent payments made to the airport for access and services.
- Learned Counsel asserts, using Section 22A of the AAI Act, that the levying and collecting of UDF cannot be regarded as a tax because it is discretionary and subject to Central Government approval. UDF is being collected in order to cover the costs associated with airport expansion, development, and upkeep, as well as the construction or development of new airports. UDF is not placed with the government treasury, according to Learned Counsel.
- Learned Counsel contends further that UDF is collected for the amenity offered by the assessees and is put towards improving passenger services and infrastructure. UDF should be seen as a service collection as a result, and as such, is liable to service tax.
- According to the revenue, every service offered in an airport qualifies as an "airport service," and without payment of UDF, travellers are unable to visit the airport or board an aircraft. As a result, service tax is applicable to the UDF that DIAL (Delhi International Airport Limited) collects because it qualifies as a "airport service".
- Learned Counsel makes the point that the collection of UDF before the AERA (Airports Economic Regulatory Authority) announcement was deemed to be outside the bounds of the law, using the ruling in the case of Consumer Online Foundation v. Union of India. The court's ruling did not, however, decide whether UDF is a tax or cess, and it was unrelated to the imposition of service tax on UDF.
- Learned Counsel claims that the nature of UDF is comparable to voluntary collections made by market committees for services given. Such services are liable to charge if they are rendered in exchange for payment.
ARGUMENTS ADVANCED BY THE RESPONDENT
- The Learned Counsel defending the assessees contend that the disputed revenues should be viewed as a tax, unrelated to any services rendered. They base their argument on the ruling in Consumer Online Foundation, which finds that the tax imposed by Section 22A of the 2004 Act is neither a fee nor payment for the services rendered by the Airports Authority.
- They contend that because the "airport" mentioned in the pertinent part is an existing airport and the collections are for future development, the taxable activity did not take place and that the money was collected for future developments. They claim that these statutory levies are taxes or cess in character and shouldn't be taxed.
- The Learned Counsel also mentioned that because the airport's amenities were free to use prior to the implementation of the development fee, no additional fee was assessed to passengers for their use. They claim that because the appellant, a non-public sector organization, is a newcomer to the civil aviation industry, all the amenities offered are fundamental and intrinsic to the industry.
- The kind of fees and assessments under Sections 22 and 22A of the AAI (Airports Authority of India) Act were also highlighted by the learned counsel. They claim that although giving the authority financial independence, the AAI Act nonetheless mandates dependency on the State Treasury and includes particular taxes and limitations on their use.
- According to the assessors, Section 22 permits AAI to charge for the amenities it offers, which may be liable to service tax. They contend, however, that the tax under Section 22A is compelled to be collected from passengers and deposited in an escrow account for defined reasons rather than for any particular service provided.
- The Learned Counsel Finally mentioned that the revenues collected under Section 22A are not subject to service tax since there is no contractual agreement between passengers and AAI, and there is no connection between the amount charged and any services rendered.
JUDGEMENT ANALYSIS
- In this case, the User Development Fee (UDF) is a statutory levy, according to the Court, notwithstanding the fact that it is not required to be levied and that its collection is not dependent on its deposit in the government treasury.
- According to the judgement in Consumer Online Foundation Case, UDF is a statutory charge, and its collection is not dependent on the provision of any particular service. The use of the cash is governed by law and the collected monies are put in an escrow account beyond the assessors' jurisdiction. The amount's discretionary character and the fact that it is not placed in a government treasury do not change the fact that it is a statutory charge or obligatory exaction.
- The court also emphasizes the development of airport administration, corporate involvement, and the regulatory function of the Airports Economic Regulatory Authority of India.
- The funding of airport upgradation and renovation through UDF is part of the Union's economic policies. Instead of following conventional practices, a new regulatory regime has been established, which includes specific conditions imposed by the Airports Authority of India (AAI) and monitoring of amounts and expenditures. The fee was only aimed to increase productivity and hasten project completion.
- Hence, The Court declared that there was no basis for challenging the orders passed by the CESTAT, and that the revenue's appeals were denied without a cost order.
CONCLUSION
The Apex Court in this case denied the appeal filed by the Central GST Delhi – III against the impugned orders passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) concluding that the developing fee charges by the AAI Rs.100 from every departing domestic traveler and Rs. 600 from International traveler is for the purpose of airport’s development, maintenance and renovation is through UDF, which is part of the Union's economic policies. However, instead of following conventional practices, a new regulatory regime has been established, which includes specific conditions imposed by the Airports Authority of India (AAI) and monitoring of amounts and expenditures. The fee was only aimed to increase productivity and hasten project completion. Hence, the AAI was not liable to pay the same.
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