By TIOL News Service

NEW DELHI, AUGUST 04, 2014: THE petitioner is Airport Retail Pvt. Ltd.

They have challenged the constitutional validity of section 65(90a) read with section 65(105)(zzzz) of the FA, 1994 as amended by the FA, 2010 whereby service tax has been imposed inter alia on renting of immovable property by the Delhi International Airport Pvt. Ltd. (‘DIAL’) to the petitioner. Also under challenge is the validity of the Notification No.24/2007 dated 22.05.2007 and Board Circular No. 98/1/2008/ST dated 04.01.2008.

The High Court observed that the issue as to whether imposition of service tax on renting of immovable property is ultra vires the Constitution of India is no longer res integra in view of the decision by a Full Bench of this court in HomeSolutions Retails Ltd. v. Union of India &Ors: 2011-TIOL-610-HC-DEL-ST-LB.

And, therefore, the only question that remains for consideration is whether in the given facts the transaction entered into between DIAL and the petitioner could be construed as DIAL providing services to the petitioner which fall within the meaning of 'airport services'.

The petitioner was required to pay to DIAL a fixed monthly licence fee and also a share of the gross revenue generated by the various product categories which were to be sold at the said duty free shops. Pursuant to the licence granted by DIAL, petitioner established a duty free outlet at the Delhi Airport. The petitioner closed its operations at the Delhi Airport with effect from 30.06.2010.

In view of the retrospective amendment to the provisions of the Act by the Finance Act, 2010, DIAL addressed a letter dated 03.06.2010 to the petitioner informing them about the retrospective amendment with regard to levy of service tax on the license fee/concession fee including fixed rent, royalty and revenue share etc. and called upon the petitioner to remit the entire amount of service tax w.e.f. 01.06.2007.

The petitioner being aggrieved with the same preferred the present writ petition.

During the pendency of the petition, DIAL again addressed a letter dated 28.06.2010 demanding the payment of service tax from the petitioner. The petitioner, thereafter, amended the present writ petition and also challenged the levy of service tax as 'airport services' under clause (zzm) of Section 65(105) of the Act as well as the Circular dated 01.07.2010.

Thereafter, the respondent Revenue issued a SCN dated 22.10.2010 to DIAL demanding service tax from DIAL for the period covering 2006-2007 to 2009-2010 including tax on the consideration received/receivable for providing commercial outlets and space at the airport to various parties. The respondent authorities issued another SCN dated 28.11.2011 to DIAL demanding the service tax for the period April 2010 to June 2010.

While demands on account of service tax were made on DIAL being the alleged service provider, DIAL asserted that the liability was that of the petitioner. The disputes between DIAL, petitioner and petitioner's holding company, namely, Autogrill Holdings, U.K. PLC were settled and an arbitration award was passed with the consent of the said parties which recorded that the service tax, interest and penalty, if any, on the transaction between DIAL and the petitioner was liable to be paid by the petitioner in terms of the arbitration award.

The High Court extracted the meaning of the clauses pertaining to 'Airport services' & ‘Renting of Immovable Property Service’, the Board 80/10/2004-ST dated 17.09.2004 clarifying the scope of “Airport Services” and observed -

++ The service in relation to letting out of immovable property was sought to be taxed for the first time w.e.f. 01.06.2007. In view of the above circular there can be no dispute that prior to 01.06.2007, there could be no levy of tax on the license fee payable by the petitioner as 'airport services'.

In the matter of the retrospective effect from 01.06.2007 given by the FA, 2010 to the taxability of services of renting of immovable property, the High Court observed –

++ The aforesaid amendment was upheld by this Court in Home Solutions Retail -II. Thus, in the event the transaction between DIAL and petitioner is considered to be a simple letting out of immovable property, as is contended by the learned ASG, then the same would be exigible to service tax as taxable service defined under Clause (zzzz) of Section 65(105) of the Act.

The High Court further observed that the controversy that needs to be addressed is whether the arrangement between DIAL and the petitioner could be considered as 'airport services', provided by DIAL to the petitioner, within the definition Clause (zzm) of Section 65(105) of the Act.

Adverting to the provisions of Section 65A of the FA, 1994, relating to “Classification of Taxable Services”, the High Court noted –

++ By virtue of the retrospective amendment under clause 65(105)(zzzz) introduced by the Finance Act, 2010, the transaction entered into between DIAL and petitioner could be subjected to service tax with effect from 01.06.2007, as taxable service defined under Clause 65(105)(zzzz), provided that the transaction was determined as a simple letting out of premises.

++ In our view, the license arrangement between DIAL and the petitioner could not be subject to service tax under Clause 65(105)(zzm) prior to 01.07.2010, as in no event could the same be considered as 'airport services' under Clause (zzm) of Section 65(105) of the Act. This is so, because letting of immovable property was specifically covered under Clause (zzzz) of Section 65(105) and Section 65A(2) mandates that the sub-clause which provides the most specific description would be preferred to sub-clauses providing a more general description. Indisputably, if the transaction between DIAL and the petitioner is considered merely as letting of immovable property, then by virtue of Section 65A(2)(a) the same would be considered as taxable service under Clause 65(105)(zzzz) and could not be classified as 'airport services' under clause (zzm) of Section 65(105) of the Act.

++ In addition to amending Clause (zzzz) of Section 65(105), the Finance Act, 2010 also brought about an amendment in Clause 65(105)(zzm). However, this amendment was not retrospective and came into effect from 01.07.2010. The said clause as amended by Finance Act, 2010 reads as under:-

"(105) "taxable service" means any service provided or to be provided

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(zzm) to any person, by airports authority or by any other person, in any airport or a civil enclave:

Provided that the provisions of section 65A shall not apply to any service when the same is rendered wholly within the airport or civil enclave;"

++ With the introduction of the proviso to Clause (zzm) of Section 65(105) of the Act, recourse to Section 65A was no longer available to determine whether any service rendered within the airport or civil enclave was more appropriately covered by any specific clause of Section 65(105) of the Act. Thus, after 01.07.2010, if any service which was otherwise taxable under the Act was rendered within the airport or civil enclave the same could be chargeable to service tax as 'airport services'.

++ In view of the above discussion, even if the transaction between DIAL and the petitioner is considered as a simple letting out of immovable property, the same would not fall within the taxable service of 'airport services' under clause (zzm) of Section 65(105) prior to 01.07.2010. Since it is stated that the petitioner closed its operations w.e.f. 30.06.2010, the transaction between DIAL and petitioner would in any event not be exigible to tax as 'airport services'.

The writ petition was disposed of.

(See 2014-TIOL-1292-HC-DEL-ST)