By TIOL News Service

MUMBAI, OCT 09, 2013: THE appellants are a joint venture company undertaking the operations of Mumbai International Airport and are registered service providers in respect of various taxable services.

The appellant was collecting Development Fee (DF in short) from every departing passenger in the airport in terms of Section22A of the Airport Authority of India Act,1994 (AAI Act in short). The first such levy of DF was authorized by the Government of India w.e.f 1.4.2009 and the Ministry of Civil Aviation vide letter dated 27.2.2009 had conveyed the approval of the Central Government u/s 22A of the AAI Act, 1994 for levy of DF at Mumbai Airport @ Rs.100/- per departing domestic passenger and Rs.600/- per departing International passenger w.e.f 1.4.2009.

The department was of the view that the appellant was allowed to collect DF on the condition that such receipts are treated as capital receipts for the future expansion of the airport. Therefore, the consideration received as fees from the departing passengers are in relation to taxable services rendered to them or to be rendered by the appellant. Since the appellant was paying Service Tax on passenger Service Fee and User Development Fee, which are statutory levies imposed under Rule 86 and 89 of the Air Craft Rules, 1934, on DF collected also the appellant is liable to pay Service Tax, the department alleged.

The appellant did not discharge any Service Tax liability on the said DF on the ground that the purpose of collection of DF is funding and financing the cost of up-gradation, expansion or development of the airport and the appellant does not have any obligation to provide any services to the passengers from whom the DF is collected. They were also of the view that the DF collection is a mode of capital funding for the project and in the absence of rendering any service, no Service Tax is liable to be paid.

The department was not convinced and hence a SCN dated 18/04/2011 came to be issued for recovery of Service Tax on this “Development Fee” by classifying the same under “Airport Services” – the period is April, 2009 to January, 2011 and the tax amount involved is a whopping Rs.54.68 Crores.

The Commissioner of Service Tax, Mumbai did the needful and hence the appellant is before the CESTAT.

The appellant inter alia submitted the following –

+ Development Fee, though described as a fee, is in reality in the nature of Cess or Tax for generating revenue for the purposes specified in section 22 of the AAI Act, 1994 and, therefore, no Service Tax is payable on such collection of tax. The following decisions were relied upon in their support - Consumer Online Foundation Vs. Union of India (2011) 5 SCC 360& Commissioner of Central Excise, Cochin Vs. Cochin International Airport Ltd. - 2009-TIOL-710-HC-KERALA-ST.

+ Since the Development Fee is a tax levied and collected from the passenger, it cannot form part of the value of consideration of a taxable service. Reliance is placed on the decisions in India Cement Ltd. Vs. State of Tamil Nadu- AIR 1990 SC 85, Orissa cement Ltd. Vs. State of Orissa & Ors.- AIR 1991 SC 1676, State of Orissa &Ors. Vs. Mahanadi Coalfield Ltd. – AIR 1995 SC 1868 where it is held that levy of tax on a tax is illegal and bad in law.

+ Revenue had made a reference to the Ministry of Law & Justice, Department of Legal Affairs and the Solicitor General of India seeking to know as to whether Service Tax can be levied on DF and the Law Ministry as also the Solicitor General of India had opined that DF is not a consideration for services rendered at the airport or for the use of the airport and, therefore, no service Tax is chargeable. In spite of such an advice from the Law Ministry and Solicitor General of India, the department has proceeded to demand Service Tax ignoring such advice.

Since high revenue stakes were involved, the respondent Revenue was represented by the Addl. Solicitor General of India. In his submissions, he justified the department stand.

The Bench after considering the submissions extracted paragraph 14 of the decision of the apex Court in the case of Consumer Online Foundation(supra) and adverting to the Kerala High court decision in Cochin International Airport Ltd. (supra) & s. 22A of the AAI Act, 1994 observed –

“5.4 …, it is clear that the amount collected from the embarking passengers is to be used for funding and financing the cost of up-gradation, expansion or development of the airport at which the fee is collected or establishment of a new airport inlieu of the existing airport or investment inequity to be so be subscribed by the Airport Authority in the company engaged in establishing, owning, developing, operating or maintaining a private airport. Thus, the purpose for which the DF is collected and its utilization is clearly laid down under Section 22A. Notification No. 25/2012-ST dated 20.6.2012, service by way of construction, erection, commissioning or installation of original works pertaining to airport is exempted. Prior to 2012 and during the impugned period, these activities were specifically excluded from the purview of Service Tax levy both under commercial or industrial construction services as defined under Section 65 (25b) and also under Works Contract Service as defined under Section 65(105) (zzzza). If that be so, we do not understand how Service Tax can be levied on this activity in the guise of providing ‘access to passengers to the airport, so as to enable them to board the aircraft'. In other words, the Revenue is trying to levy Service Tax indirectly what has been specifically excluded under the Construction Service and Works Contract Service.”

The Bench also referred to the Constitutional Bench decision of the Supreme Court in Commissioner of Central Excise, Pondicherry Vs. Acer India Ltd.- 2004-TIOL-81-SC-CX-LB where it was held that when goods cannot be taxed directly, it cannot be permitted to be taxed indirectly.

In the matter of the reliance placed by the adjudicating authority on the decision of New Zealand High Court in the case of Rotorua Regional Airport Ltd. vs. Commissioner of Inland Revenue, the CESTAT observed that scope and coverage of GST in New Zealand and the scope of Service Tax in India are vastly different and so also the legal provisions and, therefore, blind reliance on a decision rendered in a different context is neither healthy nor desirable. Reliance is placed on the Apex Court's advice extracted from decision cited at AIR 1981 Patna 309 at p 311(FB) and in Alnoori Tobacco Products - 2004-TIOL-85-SC-CX.

 Adverting to the Board Circular 80/2004-ST 17/09/2004 and the clarification given in the matter of Airport Services, the Bench remarked that if an activity is not taxable service as defined in law, even if it is rendered within the airport, it would not be taxable. The Bench further observed -

“5.9 It is also relevant to note that in the present case, the DF is charged as part of the air fare or the cost of the ticket by the Airlines. When a ticket is issued to a passenger, it pre-supposes access to the aero plane, where the access is provided by an Airline or by any other agency. Otherwise, the issue of a ticket becomes meaningless. It is like asking a passenger who has a ticket to travel by train/bus to take platform/entry ticket so that he can board the train/bus. If that be so, the consideration received for travel by air becomes taxable under the category of Air Transport service to passengers of domestic or international air journey, which came under the tax net for international travel w.e.f. 1.5.2006 other than economy travel and in respect of all domestic and international journey w.e.f. 1.7.2010. If that be so, the said activity could not have been taxed under the ‘Airport Service' at all.”

 Referring to the Board Circular 152/3/2012-ST dated 22/02/2012 on the subject of “Toll paid by road users”, the CESTAT noted that if the access to a road is not leviable to Service Tax, it does not stand to any logic or reason that access to the airport/airplane by a passenger should be subjected to levy of Service Tax.

The CESTAT thereafter referred to the apex Court decision in Consumer Online Foundation and Orissa Cement Ltd. and observed that if DF is in the nature of a cess or a tax, the question of levying Service Tax thereon would not arise at all.

The Bench concluded thus -

“6. In the impugned order, we find that none of these issues, germane to the exigibility to service tax has been considered by the adjudicating authority at all. Therefore, the matter needs fresh consideration. Accordingly, we remand the matter back to the adjudicating authority for de novo consideration of the various issues involved as discussed above, taking into account, inter alia, the decisions of the Hon'ble Apex Court in the case of Consumer Online Foundation, Cochin International Airport Ltd., Acer India Ltd., Orissa Cement Ltd. and the various instructions issued by the CBE&C (cited supra) and thereafter, pass a fresh order after granting the appellant a reasonable opportunity of being heard. The appellant is also directed to co-operate with the department and make their submissions without resorting to any dilatory tactics. Since the revenue involved is significant, we direct the adjudicating authority to pass a denovo order within a period of three months from the date of communication of this order.”

The appeal was allowed by way of remand.

(See 2013-TIOL-1487-CESTAT-MUM)