No Service Tax Applicable on User Development Fee collected From Passengers by Delhi, Mumbai and Hyderabad International Airports: Supreme Court

The Supreme Court has ruled that “user development fee” (UDF) levied and collected by the airport operation, maintenance, and development entities from passengers departing the concerned airports, is a statutory levy, and thus, it is not subjected to levy of service tax under the provisions of the Finance Act, 1994.The bench comprising Justices S. Ravindra Bhat and Dipankar Datta were hearing an appeal against the decision of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), who had ruled that the UDF levied and collected by the assesses- the Mumbai International Airport Pvt Ltd, Delhi International Airport Pvt Ltd, and Hyderabad International Airport Pvt Ltd- under Section 22A of the Airports Authority of India Act, 1994 (AAI Act), was not liable to service tax.While holding that there is a distinction between the charges, fee and rent collected under Section 22 of the AAI Act and the UDF levied and collected under Section 22A of the AAI Act, the top court said that the UDF is in the form of a ‘tax or cess’ collected for financing the cost of future projects. The court said that there was no consideration for the services provided by the assessee-entities to the customers, visitors, passengers, and vendors, etc.Noting that as a part of the Union’s economic policies, the upgradation and renovation of airports are funded through UDF, which is a statutory levy, the court remarked that the fact that the UDF amount is not deposited in a government treasury, per se, does not make it any less a statutory levy or compulsory exaction. Nor does its discretionary nature render it any less a statutory levy. The bench said that merely because the funds are kept in an escrow account, and their utilization is monitored separately, it does not undermine the public nature of the funds in any manner.The assessees entered into joint venture arrangement/agreements with the Airports Authority of India (AAI), where they had agreed to undertake some activities enjoined upon the AAI by the AAI Act, for the purpose of operation, management and development of the airports (OMDA). The assessees were authorised by various notifications issued by the Central Government under Section 22A of the AAI Act, to collect a “development fee” for every departing domestic and international passenger at the concerned airports for a period of 48 months.The Commissioner of Service Tax issued show cause notices demanding payment of tax on the development fee collected by the assessees for various periods. The demand raised was thereafter confirmed. The appeal filed by the assessee before the CESTAT was allowed, who held that the development fee collected was not liable to service tax levy.Against this, the revenue department filed an appeal before the Supreme Court.The department argued that the in terms of the OMDA agreements, the assessees were responsible for the development, design, and upgradation of airport. It is for this purpose that they have been permitted to collect UDF from the passengers, which are to be used for extending or enhancing various services and facilities inside the airport.The department contended that under Section 22A of the AAI Act, the AAI “may”, after the previous approval of the Central Government, “levy on, and collect from, the embarking passengers at, an airport, the Development Fees”.The department claimed that such levy cannot be called a tax because it is discretionary and subject to the approval of the Central Government. Further, it is meant for funding or financing the costs of upgradation, expansion, or development of the airport, and establishment or development of a new Airport. It further argued that the amounts cannot be termed as levy, because they are not deposited with the government treasury.The Supreme Court reckoned that in Consumer Online Foundation vs Union of India, (2011) 5 SCC 360, the top court was dealing with the issue regarding the validity of the development fees levied and collected from embarking passengers, by lessees of airports under the OMDAs. The court had held that there is a distinction between the charges, fees and rent collected under Section 22 and the development fees levied and collected under Section 22A of the AAI Act. In Consumer Online Foundation (2011), the court had concluded that the levy under Section 22A, though described as fees, is really in the nature of a cess or a tax for generating revenue for the specific purposes mentioned in Section 22A (a), (b) and (c) of the AAI Act. Thus, Article 265 of the Constitution of India, which provides that no tax can be levied or collected except by authority of law, gets attracted.In light of the observations made in Consumer Online Foundation (2011), the court said, “The observations and findings extracted above are decisive about the nature of development fee, collected under Section 22A; they are statutory exactions and not fees or tariffs, as was contended by the Union of India. In fact, the court even...

No Service Tax Applicable on User Development Fee collected From Passengers by Delhi, Mumbai and Hyderabad International Airports: Supreme Court

Parina Katyal

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