The Supreme Court has held that no service tax is leviable on user development fees collected by Mumbai International Airport and Hyderabad Airport.
The assessees had entered into joint venture arrangements/agreements (“OMDA”) with the Airports Authority of India (AAI, a body corporate created by the Airports Authority of India Act, 1994. Under OMDA, the assesses agreed to undertake some activities enjoined upon the AAI, by the AAI Act. The assessees were authorised, by various notifications issued by the Central Government under Section 22A of the Airports Authority of India Act to collect a “development fee” @ Rs. 100/- for every departing domestic passenger and Rs. 600/- for every departing international passenger at the concerned airports for a period of 48 months.
The Commissioner of Service Tax demanded payment of tax on the development fee collected for various periods. These notices were adjudicated and confirmed. The CESTAT remanded the matter to the original authority requiring fresh adjudication. The adjudicating authority accorded the benefit of “cum-tax” valuation. These orders were challenged before the CESTAT, which, by the orders impugned, allowed the assessees’ appeals, holding that the development fee collected was not liable to service tax levy.
It was submitted that the grant of licenses is subject to express conditions. Rule 88 provides for the collection of fees known as “passenger services fees” from the embarking passengers; Rule 89 provides for the collection of “User Development Fee” (UDF) by licensees. It was submitted that user development fees are nothing but amounts collected for extending or enhancing various services like providing passenger lounges, passenger amenities, toilets, restrooms and other facilities inside airports
It was argued that the assessees are authorized to collect UDF by the Ministry of Civil Aviation which approved Section 22A of the Airports Authority of India Act. Once it is clear that the purpose and object of the UDF is for funding or finance the costs of upgradation, expansion or development of the major Airports, only the rate of fees is determined by the Airport Economic Regulatory Authority. The upgradation or development of an airport results in better infrastructure and services to passengers.
It was evident 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. Instead of the conventional practice of ensuring that amounts collected are deposited with the Government, an entirely new regulatory regime has been envisioned, under the 2011 Rules, read with specific conditions imposed by the Airports Authority of India on each assessee, which includes monitoring of amounts, nature of expenditure, submission of plans for expansion, renovation, their sanctioning etc.
It was observed that there is neither any compulsion to levy development fees nor is the collection conditional upon its deposit in the government treasury. Further viewed that UDF is a statutory levy and the collection is not premised on rendering of any service.
It was further observed that the utilization of funds is monitored and regulated by law. It was viewed that the amount is not deposited in a government treasury, per se, which does not make it any less a statutory levy or compulsory exaction.
The two-member bench comprising Justice S Ravindra Bhat and Justice Dipankar Datta upheld the order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) wherein it was held that User Development Fee collected by Mumbai International Airport Pvt Ltd, Delhi International Airport Pvt Ltd and Hyderabad International Airport Pvt Ltd were not subject to Service Tax.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
