CENTRAL GST DELHI - III versus DELHI INTERNATIONAL AIRPORT LTD on 19 May 2023

322

SUPREME COURT REPORTS[2023] 7 S.C.R. 322

[2023] 7 S.C.R.

ACENTRAL GST DELHI - III

v.

DELHI INTERNATIONAL AIRPORT LTD

(Civil Appeal No. 8996 of 2019)

BMAY 19, 2023

[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]

Airports Authority of India Act, 1994: ss. 22, 22A – FinanceAct, 1994 – ss. 67 and 68 (1) –User development fee-UDF, leviedand collected u/s. 22A by the airport operation, maintenance andCdevelopment entities-Mumbai International Airport Pvt. Ltd., DelhiInternational Airport Pvt. Ltd., and Hyderabad International AirportPvt. Ltd., from the domestic/international passengers departing theairport – Levy of service tax – Held: User development fee leviedand collected by the airport entities is a statutory levy, thus, notDsubject to service tax levy under the provisions of the Finance Act –UDF collected by the assessee is to bridge the funding gap of projectcost for the development of future establishment at the airports –There is nothing on record to show that any additional benefit hasaccrued to passengers, visitors, traders, airlines etc., upon levy ofUDF during the said period – As part of the Union’s economicEpolicies, the upgradation and renovation of airports are fundedthrough UDF, which is a statutory levy – Airports EconomicRegulatory Authority of India Act, 2008 – s. 13 – Aircraft Rules,1937 – r. 88, 89.

Dismissing the appeals, the CourtF

HELD: 1.1 The nature of development fee, collected underSection 22A of the Airports Authority of India Act, 1994 is that ofstatutory exactions and not fees or tariffs. [Para 29][339-H]

1.2 To attract service tax levy, a taxable service has to beGprovided to a recipient, by a service provider, for a considerationand in the absence of any nexus to any service rendered, an amountcharged, or value of service or goods provided without aconsideration would not be a taxing incident. [Para 32][341-E]

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1.3 Besides the Airports Authority of India (Major Airports)Development Fees Rules 2011, the assessee, in the case ofDIAL, has placed on the record, a letter issued to it, by AAIwhich imposes controls on the utilization of amounts collected asdevelopment fee; apart from the fact that the amounts aredeposited in an escrow, any plan for utilization has to be approved.Unlike fees, rent, charges etc., provided under Section 22 of AAIAct, assessee companies are authorized on behalf of the AAI tolevy and collect ‘development fee’ under Section 22A of the AAIAct on behalf of the AAI and was applied for generating revenuefor utilization of the same for the specific purpose provided undersub- clause (a), (b) and (c) of section 22(A) of the AAI Act. TheUDF collected by the assessee is to bridge the funding gap ofproject cost for the development of future establishment at theairports. There is nothing on record to show that any additionalbenefit has accrued to passengers, visitors, traders, airlines etc.upon levy of UDF during the period in question in the presentcase. [Para 34][342-C-F]

1.4 There is a distinction between the charges, fee and rentetc. collected under Section 22 of the AAI Act and the UDF leviedand collected under Section 22A of the AAI Act. It is that theUDF is in the form of ‘tax or cess’ collected for financing the costof future projects and there was no consideration for servicesprovided by the assessee to the customer, visitors, passengers,vendors etc. The aggregate of collections in the bank accountsdo not form part of profit and loss account. [Para 35][342-F-G]

1.5 It is also useful to notice that by a circular issued by theCBEC, Circular No. 89/7/2006- ST dated 18.12.2006, it wasclarified that collection of amounts, by way of taxes, sovereign orstatutory dues, would not be subjected to service tax levy. [Para36][342-G; 343-A]

1.6 In the instant case, undoubtedly neither is there anycompulsion to levy development fee, nor is the collectionconditional upon its deposit in the government treasury. However,the absence of these features does not render User Developmentfee(UDF) any less a statutory levy. Firstly, the ruling in Consumer ABC

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AOnline Foundation’s case is conclusive that UDF is a statutorylevy. Secondly, the collection is not premised on rendering of anyservice. Thirdly, the amounts collected are deposited in an escrowamount, not within the control of the assesses. Fourthly, theutilization of funds, is monitored and regulated by law. In thisregard, the fact that the amount is not deposited in a governmentBtreasury, per se, does not make it any less a statutory levy orcompulsory extraction. Nor does its discretionary nature, renderit any less a statutory levy. Airport management has evolved; itis no longer the monopoly of the government; privateparticipation is recognized. As part of the Union’s economicCpolicies, the upgradation and renovation of airports is fundedthrough UDF, which is a statutory levy. Instead of the conventionalpractise of ensuring that amounts collected are deposited withthe Government, an entirely new regulatory regime has beenenvisioned, under the 2011 Rules, read with specific conditionsimposed by the Airport Authority India on each assessee, whichDincludes monitoring of amounts, nature of expenditure,submission of plans for expansion, renovation, their sanctioningetc. These rules and controls are in public interest, and evidentlyintended to further efficiency in funding and swift taking up andcompletion of works, rather than funding through Finance Rules, Ewhich might entail delay, and cost overruns. However, the publicnature of these funds does not in any manner get undermined,merely because they are kept in an escrow account, and theirutilization is monitored separately. Thus, the impugned ordercannot be faulted. [Paras 39, 40][345-B-H; 346-A]

FConsumer Online Foundation v Union of India 2011(5) SCR 911; Commissioner of Service Tax vs. BhayanaBuilders (P) Ltd. 2018 (1) SCR 1128 – relied on.

Krishi Upaj Mandi Samiti v Commissioner of CentralExcise 2022 (1) SCR 700 – referred to.

GCase Law Reference

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8996of 2019.

From the Judgment and Order dated 18.01.2019 of the CustomExcise Service Tax Appellate Tribunal, New Delhi in AN No. 52815 of2016.

With

Civil Appeal Nos. 2465 of 2020 and 4751-4753 of 2021.

Sanjay Jain, A.S.G., B. Krishna Prasad, Mukesh Kumar Maroria,Ms. Nisha Bagchi, Arkaj Kumar, Padmesh Mishra, Digvijay Dam, Advs.for the Appellant.

Arvind Datar, Preetesh Kapur, Tarun Gulati, Sr. Advs., Mrs. VanitaBhargava, Ajay Bhargava, Shantanu Chaturvedi, Ms. Prerna Singh, M/s. Khaitan & Co., Mahesh Agarwal, Kishore Kunal, ShubhamKulshreshtha, Ms. Runjhun Pare, Kaustubh Singh, E. C. Agrawala, Ms.Richa Kapoor, Kunal Anand, Ms. Tusharika Sharma, Kunal Kishore,Advs. for the Respondent.

The Judgment of the Court was delivered by

S. RAVINDRA BHAT, J.

1. In all these appeals, orders of the Customs, Excise and ServiceTax Appellate Tribunal[1] (hereafter “CESTAT”) are impugned by theservice tax authorities (hereafter “the revenue”), who argue that userdevelopment fee levied and collected by the airport operation,maintenance and development entities (i.e.,the Mumbai InternationalAirport Pvt. Ltd.,the Delhi International Airport Pvt. Ltd., and theHyderabad International Airport Pvt. Ltd., (hereafter collectively called“the assessees”) is subjected to service tax levy, under the provisions ofthe Finance Act, 1994 (hereafter “the Act”).

2. All the assessees had entered into joint venture arrangements/agreements (hereafter “OMDA”) with the Airports Authority of India(hereafter “AAI”, a body corporate created bythe Airports Authority ofIndia Act, 1994 [hereafter “AAI Act”]. Under OMDA, the assesses 1 Final Order No, ST/A/50064/2019-CUIDBI dated18/01/2019 [by the Principal Bench,CESTAT, New Delhi]; Final Order No. A/88830- -88832/16/STB dated 28.01.2016 [bythe Western Zonal Bench, CESTAT, Mumbai]; and Final Order No. A/30739/2019dated 16.09.2019 [by the CESTAT Regional Bench at Hyderabad].

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Aagreed to undertake some activities enjoined upon the AAI, by the AAIAct. The assessees were authorised, by various notifications (dated 27thFebruary 2009) issued by the Central Government under Section 22A ofthe AAI Actto collect a “development fee” @ Rs. 100/- for everydeparting domestic passenger and Rs. 600/- for every departinginternational passenger at the concerned airports for a period of 48 months.

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3. The Commissioner of Service Tax, through various show causenotices demanded payment of tax on the development fee collected forvarious periods. These notices were adjudicated and confirmed; theCESTAT remanded the matter to the original authority requiring freshadjudication after taking into consideration the decisions of this courtCin Consumer Online Foundation v. Union of India[2], Commissionerof Central Excise v. Cochin International Airport Ltd.,[3]AcerIndia Ltd. and Orissa Cement Ltd. v. State of Orissa[4] and variousinstructions issued by the Central Board of Excise and Customs(hereafter “CBEC”). The original authority disposed of all show causeDnotices by confirming demands, and also levying penalties under theAct. The adjudicating authority accorded the benefit of “cum-tax”valuation. These orders were challenged before the CESTAT, which, bythe orders impugned, allowed the assessees’ appeals, holding that thedevelopment fee collected was not liable to service tax levy.

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The relevant provisions

4. Section 65 (105)(zzm) of the Finance Act, 1994, contains thedefinition of “airport service” (with effect from 01.07.2010) and statesthat such service is:F

“any service provided or to be provided by airportsauthority or by any other person in any airport or a civilenclave”

Before the amendment, i.e., before 1 July 2010, the definition, ofairport service was as follows:G

“to any person, by airports authority or any personauthorised by it, in an airport or a civil enclave”

2 (2011) 5 SCC 360

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H4 1991 Supp (1) SCC 430

Section 65 (3d) defines airport authority as:

“Airports Authority of India constituted under section 3of the Airports Authority of India Act, 1994 (55 of 1994)and also includes any person having the charge ofmanagement of an airport or civil enclave”.

5. Section 68 (1) of the Finance Act provides that every personproviding taxable service to any person shall pay service tax at the ratespecified in section 66. Section 67 (1) of the Finance Act, provides thatwhere service tax is chargeable on any taxable service with referenceto its value then such value shall be the gross amount charged by theservice provider for such service provided or to be provided by him.

6. The relevant provisions of the Airports Economic RegulatoryAuthority of India Act, 2008 and the Aircraft Rules, 1937 are extractedbelow:

Section 13 of the Airports Economic Regulatory Authority of IndiaAct, 2008 sets out the functions of the authority, and inter alia, reads asfollows:

“13. Functions of Authority.

(1) The Authority shall perform the following functions inrespect of major airports, namely:—

(a) to determine the tariff for the aeronautical servicestaking into consideration—

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(b) to determine the amount of the development fees inrespect of major airports;

(c) to determine the amount of the passengers service feelevied under rule 88 of the Aircraft Rules, 1937 made underthe Aircraft Act, 1934 (22 of 1934);…”

Provisions of the Aircraft Rules, 1937:

“Rule 88. Passenger Service Fee. —The licensee is entitledto collect fees to be called as Passenger Service Fee fromthe embarking passengers at such rate as the CentralGovernment may specify and is also liable to pay forsecurity component to any security agency designated by A

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the Central Government for providing the security service.Provided that in respect of a major airport such rate shallbe as determined under clause (c) of sub-section (1) ofsection 13 of the Airports Economic Regulatory Authorityof India Act, 2008.

Rule 89. User Development Fee —The licensee may, -

(i) levy and collect at a major airport the User DevelopmentFee at such rate as may be determined under clause (b) ofsub-section (1) of section 13 of the Airports EconomicRegulatory Authority of India Act, 2008;

(ii) levy and collect at any other airport the UserDevelopment Fees at such rate as the Central Governmentmay specify.”

The relevant provisions of the AAI Act are extracted below:

“Section 22. The Authority may,-

(i) With the previous approval of the Central Government,charge fees, or rent- (a) for the landing, housing or parking of aircraft or forany other service or facility offered in connection withaircraft operations at any airport, heliport or airstrip Explanation. - In this sub-clause “aircraft” does not include an aircraftbelonging to any armed force of the Union and “aircraftoperations” does not include operations of any aircraftbelonging to the said force; (b) for providing air traffic services, ground safety services,aeronautical communications and navigational aids andmeteorological services at any airports and at anyaeronautical communication station;

(c) for the amenities given to the passengers and visitorsat any airport, civil enclave, heliport or airstrip; (d) for the use and employment by persons of facilitiesand other services provided by the authority at any airport,civil enclave heliport or airstrip;

(ii) with due regard to the instructions that the CentralGovernment may give to the authority, from time to time,charge fees or rent from persons who are given by theauthority any facility for carrying on any trade or businessat any airport, heliport or airstrip.

Section 22A. The Authority may, after the previousapproval of the Central Government in this behalf, levyon, and collect from, the embarking passengers at anairport, the development fees at the rate as may beprescribed and such fees shall be credited to the Authorityand shall be regulated and utilized in the prescribedmanner, for the purposes of- (a) funding or financing the costs of upgradation,expansion or development of the airport at which the feeis collected; or (b) establishment or development of a new airport in lieuof the airport referred to in clause (a); or

(c) investment in the equity in respect of shares to besubscribed by the Authority in companies engaged inestablishing, owning, developing, operating or maintaininga private airport in lieu of the airport referred to in clause(a) or advancement of loans to such companies or otherpersons engaged in such activities.”

III

Contentions of the parties

7. Ms. Nisha Bagchi, learned counsel for the revenue, submitsthat assessees function as licensees of Airports. The airports are capableof being licensed by the AAI to operate as aerodromes. It was submittedthat grant of licenses is subject to express conditions. Rule 88 providesfor collection of fees known as “passenger services fees” from theembarking passengers; Rule 89 provides for collection of “UserDevelopment Fee” (hereafter “UDF”) by licensees. Ms Bagchi arguedthat user development fees are nothing but amounts collected forextending or enhancing various services like providing passenger lounges,passenger amenities, toilets, rest rooms and other facilities inside airports.Even the agreement entered by the assessees with AAI, indicates A

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AthatUDFisto enhance passenger amenities, services and facilities. Thoseamounts areto be used for development, management, maintenance andoperation and expansion of facilities at the airport.

8. It was urged that the nature of UDF indicates that such feesare amounts collected for rendering various services. The amountsBcollected is nothing but development fee, meant to be used for fundingand financing specific renovation, maintenance, development andupgradation of airports. These are necessary due to cost escalation.These amounts are for services rendered, and providing access by theairport. Such amounts are taxable. Learned counsel also relied on theCcircular No. 106/Commr(ST)/2009 dated 08.07.2011, which specificallystated that service tax is paid by the various airports on passenger servicesfee and UDF but no tax is paid on development fees. It was argued thatCBEC has clarified that passenger service fee, user development feeand development fee are different and development fee is to be taxedunder “airport services”.D

9. Learned counsel sought to distinguish the decision of the KeralaHigh Court in the case of Cochin International Airport Ltd. because inthat case, what was in issue was user fee while in the case in hand it isUDF. Counsel reiterated thatthe findings of the lower authorities arecorrect and submits that the impugned orders of CESTAT call forEinterference.

10. Learned counsel pointed out that by Section 22A of the AAIAct, the authority “may”, after the previous approval of the CentralGovernment“levy on, and collect from, the embarking passengersat, an airport, the Development Fees”. It was contended that suchFlevy cannot be called a tax because it is discretionary and subject to theapproval of the Central Government, meant for funding or financing thecosts of upgradation, expansion or development of the airport at whichthe fee is collected; or establishment or development of a new airport inlieu of the existing airport or towards investment in the equity in respectGof “shares to be subscribed by the authority in companies engagedin establishing, owning, developing, operating or maintaining aprivate airport in lieu of the airport” or “advancement of loans tosuch companies or other persons engaged in such activities.” Itwas also urged that the amounts cannot be termed as levy, because theyare not deposited with the government treasury.H

11. It was submitted that from a reading of Section 22A, it is clearthat it allows for funding or financing the cost of upgradation, expansionor development of the airport at which the fee is collected andestablishment or development of a new Airportin lieu of the airport atwhich the fee is collected. This is apre-funding collection and imposedfor the facility to be provided by the assessees and tobe used for fundingof project cost which ultimately would result in creation of better facilitiesand amenities for passengers. The assessees entered into agreementsfor the purpose of its operation, management and development of airports(OMDA). In terms of such OMDAs, assessees are responsible for thedevelopment, design, upgradation of airport. It is for this purpose thatthey have been permitted to collect UDF from the passengers.

12. It is further submitted that the assessees are authorized tocollect UDF by the Ministry of Civil Aviation which granted approvalunder Section 22A of the AAI Act. Once it is clear that the purpose andobject of the UDF is for funding or financing the costs of upgradation,expansion or development of the major Airports, only the rate of feesare determined by the Airport Economic Regulatory Authority. Theupgradation or development of an airport results in better infrastructureand services to passengers. Collection of the DF could facilitate andprovide better services to the passengers who would be the recipient ofthe airport service. Therefore, the amount cannot be called a tax or levy,but is actually a collection for service, and consequently liable to servicetax.

13. The revenue argues that the definition of airport service iswide and includes any service provided or to be provided by any personin the airport. It is a taxable service. Further, without payment of suchlevy, passengers cannot enter the airport nor can have access to theplane. Thus, the UDF collected by DIAL is covered by the definition of“airport service” and would be liable to payment of service tax. Theimpugned order has failed to appreciate this submission and hence, thesame is liable to be set aside.

14. It was argued that the decision of this court in the case ofConsumer Online Foundation v Union of India[5] had expressed theview that DF appeared to be in the form of tax or cess, but wasnot alegally collected tax. It was argued that Section 22 Aprovided for the AB

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A“levy” of DF, but the rate at which the said levy was to be collected hadnot been prescribed by framing of a separate rule by the AirportsEconomic Regulatory Authority (AERA) as amended by the 2008 Act.This court held that the collection of UDF by the assessees prior to thenotification issued by AERA was considered to be levied and collectedwithout the authority of law. It further found that the levy and collectionBof UDF by the two airport concessionairesat the rates fixed by the CentralGovernment (by two letters dated 9.2.2009 and 27.2.2009) respectivelywere ultra vires the AAI Act, and were not saved by Section 6 of theGeneral Clauses Act, 1897.

15. It is submitted that in the above decision, there is no clearCfinding that DF is a tax or cess and the same was held tobe ultra viresthe AAI Act on the ground that the rate could not have been fixed by theCentral Government, but only by making a rule by AERA which hasnotbeen done. In the present case, we are concerned with the levy ofservice taxon DF collected by the respondents from the passengers.DAlso in that decision, this court was not concerned with levy or otherwiseof service tax on DF. It was argued that DF has not been collected astax orcess and therefore, the contention that DF is a tax on which therecannot be any service tax is incorrect. The nature of DF is that theseare the charges collected by the respondents for development of facilitiesfor the use ofthe airport. In fact, the assesses’ contention was these areEthe charges for the use of the airport services by the passengers and isnot a tax.

16. Learned counsel relied on the judgment reported as KrishiUpaj Mandi Samiti v Commissioner of Central Excise[6]and urgedthat the nature of UDF is similar to the optional collection made byFmarket committees who perform services, which are not in the natureof a statutory activity or a sovereign function, and if such services arerendered for a consideration, they are subjected to levy.

17. Mr. Arvind Datar, Mr. Tarun Gulati and Mr. Pritesh Kapoor,learned senior counsel appearing for the assessees, contended that theGdecision in Consumer Online (supra) has concluded the nature ofcollections; it is a tax, unrelated to any service provided, and has to beborne in mind that there is no consideration. Learned counsel relied onthe following observation in Consumer Online Foundation:

H6 2022 (1) SCR 700

“the object 8 of Parliament in inserting Section 22A in the2004 Act by the Amendment Act of 2003 is to authorize bylaw the levy and collection of development fees from everyembarking passenger de hors the facilities that the embarkingpassengers get at the existing airports. The nature of the levyunder Section 22A of the 2004 Act, in our considered opinion,is not charges C or any other consideration for services forthe facilities provided by the Airports Authority.”

18. It was argued by learned counsel that the taxable activity didnot occur in this case, as the collections were intended for futuredevelopments whereas the ‘airport’ referred to in Section 65(105)(zzm)is an existing airport. Counsel urged that such statutory levies were inthe nature of cess or tax and were not liable to taxation. Counselemphasized that the ruling of the Kerala High Court in CochinInternational Airport Limited vs. Collector Central Excise[7]has heldthat UDF is collected to fulfil the funding gap for development of airports,and cannot be termed as service. This ruling was upheld by this court[8] .In these circumstances, there is no merit in the revenue’s submissionthat development fee is collected for rendering services.

19. Learned counsel relied on the impugned orders to say that tobe liable to tax, service should be rendered to a person by a specificallydescribed service provider in an airport. The scope of activities of theassessee vis-a-vis passengers who bear the burden of development feeneeds a closer look. Passengers in an airport intend to travel by an airlinewhich has the said airport as a scheduled port of call. The contractualnature of this relationship is enshrined in the ticket which provides accessto the airport, process through check-in and security, space for waitingand necessary amenities and provision for boarding an aircraft. There isnothing to show that passengers have to make payments for any ofthese activities. These facilities were available without any additionalcharge before the imposition of ‘development fee’. Such services continueto be available after its quashing. No additional benefit accrues to thepassenger during the period of levy of ‘development fee.’ All facilitiesare basic facilities inherent in the civil aviation sector in which theappellant, a non-public sector entity, is a recent entrant.

7 2009 (16) STR 401 (Ker.)

8 in 2010 (17) S.T.R. J79 (S.C.)

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A20. It was emphasized that moving away from state control, airportsentered the phase of regulatory control with the advent of the AAI Act.This transition also had to factor in the larger public interest in safetyand security, which meant that some level of control, de-regulation waslimited and confined to the financial aspects of airport management.Having created a statutory authority, the statute should have been specificBto contain the scope of functions of the AAI. Despite granting financialautonomy, the need for dependence on the State exchequer could not beeliminated and hence appropriate types of levies as well as restrictionson their utilization were incorporated in the statute. It was contendedthat Sections 22 and 22A of the AAI Actare in the context of substitutionCof the constitutional funds of the Union of India, for deposit and drawingwith that of the accounts of AAI.

21. The assesses urge that Section 22 of the AAI Act enablesAAI to charge for the facilities it provides. However, the levy underSection 22A [of the AAI Act] is compulsorily charged from passengers;Dit is placed in an escrow account owing to the restricted purpose forwhich such fee collected can be used. Hence, there is a substantivedifference between a charge under Section 22 and levy under Section22A. The charge under Section 22, paid by any passenger, may be aconsideration for a service and subjected to service tax. However, theEsame principles are not applicable to a levy under Section 22A, which isindependent of Section 22 and is not for any service rendered.

22. Counsel underlines that this court in Consumer OnlineFoundation (Supra) has declared the law and has interpreted bothSection 22 and Section 22A of the AAI Act. This court has held thatFcharges collected under Section 22 are for different services and facilitiesprovided to the third parties by the lessee of AAI. Collections underSection 22A of the AAI Act, this court has ruled, are “dehors thefacilities that the embarking passengers get at the existing airports”.There is also a specific finding thatthere is no contractual relationshipGbetween the passengers and the AAIfor the funds collected underSection 22A of the AAI Act. Further, it was highlighted that in the samejudgment, it was held that charges under Section 22A:

“are not charges or any other consideration for services forthe facilities provided by the Airports Authority.”

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The court decisively held that development fee is “really in thenature of a cess or a tax for generating revenue for specificpurpose.” And, further, that amounts collected are accountable to theAAI, which would ensure that such fee levied and collected are “utilizedfor the purposes mentioned in Section 22A (a) of the AAI Act.”

23. It was argued that in view of the declaration of law, CESTATcorrectly held that the charges collected by the assesses under Section22A of the AAI Act cannot be regarded as considered for servicesrendered.

24. Learned counsel submitted that the decision in Krishi UpajMandi Samiti (supra) is distinguishable. In that case, the court wasconcerned only with Section 9 (2) of the Rajasthan Agricultural ProduceMarkets Act, 1961, which was held not to relate to a statutory function butonly a discretionary charge, i.e., renting of premises. Rent for immovableproperty is materially different from a collection under Section 22A of theAAI Act, which, according to this court, is in the nature of cess or tax anda compulsory exaction in Consumer Online Foundation (supra).

25. The assesses also rely on the decision of this court inCommissioner of Service Tax vs. Bhayana Builders (P) Ltd[9], whereit was stated that under Section 67 of the Finance Act, 1994,not everyamount charged by the service provider is taxable. Upon an analysis ofSection 67, it was held that the amount charged should be “for suchservice provided” to be taxable. The court emphasized the connectionbetween the service and the amount by stating that:

“the Act has provided for a nexus between the amount chargedand the service provided”.

26. Counsel pointed out that Consumer Online Foundation (supra)has ruled that there is no nexus between the amounts charged underSection 22A of the AAI Act and any service provided. In the absence ofa nexus between the amount charged as DF/UDF and any servicerendered, such amounts cannot be liable to service tax.

IV

Analysis and Conclusions

27. In the decision of this court, in Consumer Online Foundation(Supra), the context was the validity of the levy of development fees 9 2018 (1) SCR1128

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Aand their collection from embarking passengers by lessees of airports,under OMDAs, including the DIAL in this case. The court examinedthe history of airport regulation in India, including the legislation concerningit, and, after analysing the provisions of the AAI Act, including theamendment to it, in 2003, held that:

B“12. The functions of the Airports Authority under clause(aa) of sub-section (3) of Section 12 also inserted by theAmendment Act of 2003 to establish airports, or assist in theestablishment of private airports by rendering such technical,financial or other assistance which the Central Governmentmay consider necessary for such purposes cannot be assignedCto the lessee under Section 12A Section 12A of the 1994 Act.The Amendment Act of 2003 which also inserted Section12A therefore provides in sub-section (1) of Section 12A thatthe Airports Authority can make a lease of the premises of anairport (including buildings and structures thereon andDappertaining thereto) to carry out “some” of its functionsunder Section 12 as the Airports Authority may, in the publicinterest or in the interest of better management of airports,deem fit. Obviously, “a lease of premises of an airport” ascontemplated in sub-section (1) of Section 12A cannot includeestablishing an airport or assisting in establishment of privateEairports as contemplated in clause (aa) of sub-section (3)of Section 12 of the Act.

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13. To enable the Airports Authority to perform its statutoryfunction of establishing a new airport or to assist in theestablishment of private airports, the legislature has thoughtit fit to empower the Airports Authority to levy and collectdevelopment fees as will be clear from clauses (b) and (c)of Section 22A of the 1994 Act. Such development fees leviedand collected under Section 22A can also be utilized forfunding or financing the costs of up-gradation, expansionand development of an existing airport at which the fees iscollected as provided in clause (a) of Section 22A of the Actand in case the lease of the premises of an existing airport(including buildings and structures thereon and appertainingthereto) has been made to a lessee under Section 12A of theAct, the Airports Authority may meet the costs of up-gradation, F

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expansion and development of such leased out airport to alessee, but this can be done only if the rules provide for suchpayment to the lessee of an airport because Section 22A saysthat the development fees are to be regulated and utilized inthe manner prescribed by the Rules. Since the lessee of anairport cannot be assigned the function of the AirportsAuthority to establish airports or assist in establishing privateairports in lieu of the existing airports at which thedevelopment fees is being collected, the lessee cannot undersub-section (4) of Section 12A have the power of the AirportsAuthority under Section 22A of the 1994 Act to levy and collectdevelopment fees. This is because sub-section (4) of Section12A provides that the lessee can have all those powers of theAirports Authority which are necessary for performance ofsuch functions as assigned to it under sub-section (1)of Section 12A in terms of the lease. Moreover, since we haveheld that the function of establishment and development of anew airport in lieu of an existing airport and the function ofestablishing a private airport are exclusive functions of theAirports Authority under the 2004 Act, and these statutoryfunctions cannot be assigned by the Airports Authority underlease to a lessee under Section 12A of the Act, the leaseagreements, namely, the OMDA and the State Supportagreement could not make a provision conferring the righton the lessee to levy and collect development fees for thepurpose of discharging these statutory functions of theAirports Authority. We, therefore, do not think it necessary torefer to the clauses of the OMDA and the State SupportAgreements executed in favour of the two lessees to find outwhether the right of levying and collecting the developmentfees has been assigned to the lessees or not.”

28. This court further held as follows:

“It will be clear from a bare reading of Sections 22 and 22Athat there is a distinction between the charges, fees and rentcollected under Section 22 and the development fees leviedand collected under Section 22A of the 1994 Act. The charges,fees and rent collected by the Airports Authority under Section22 are for the services and facilities provided by the Airports AB

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Authority to the airlines, passengers, visitors and tradersdoing business at the airport. Therefore, when the AirportsAuthority makes a lease of the premises of an airport(including buildings and structures thereon and appertainingthereto) in favour of a lessee to carry out some of its functionsunder Section 12, the lessee, who has been assigned suchfunctions, will have the powers of the Airports Authorityunder Section 22 of the Act to collect charges, fees or rentfrom the third parties for the different facilities and servicesprovided to them in terms of the lease agreement. The legalbasis of such charges, fees or rent enumerated in Section 22 ofthe 2008 Act is the contract between the Airports Authorityor the lessee to whom the airport has been leased out and thethird party, such as the airlines, passengers, visitors andtraders doing business at the airport. But there can be nosuch contractual relationship between the passengersembarking at an airport and the Airports Authority with regardto the upgradation, expansion or development of the airportwhich is to be funded or financed by development fees asprovided in clause (a) of Section 22A. Those passengers whoembark at the airport after the airport is upgraded, expandedor developed will only avail the facilities and services of theupgraded, expanded and developed airport. Similarly, therecan be no contractual relationship between the AirportsAuthority and passengers embarking at an airport forestablishment of a new airport in lieu of the existing airportor establishment of a private airport in lieu of the existingairport as mentioned in Clauses (b) and (c) of Section 22A ofthe 1994 Act. In the absence of such contractual relationship,the liability of the embarking passengers to pay developmentfees has to be based on a statutory provision and for thisreason Section 22A has been enacted empowering theAirports Authority to levy and collect from the embarkingpassengers the development fees for the purposes mentionedin clauses (a), (b) and (c) of Section 22A of the Act. In otherwords, the object of Parliament in inserting Section 22A inthe 2004 Act by the Amendment Act of 2003 is to authorize bylaw the levy and collection of development fees from everyembarking passenger de hors the facilities that the embarking passengers get at the existing airports. The nature of the levyunder Section 22A of the 2004 Act, in our considered opinion,is not charges or any other consideration for services for thefacilities provided by the Airports Authority. This Court hasheld in Vijayalakshmi Rice Mills &Ors v Commercial TaxOfficers, Palakot&Ors (supra) that a cess is a tax whichgenerates revenue which is utilized for a specific purpose.The levy under Section 22A though described as fees is reallyin the nature of a cess or a tax for generating revenue for thespecific purposes mentioned in clauses (a), (b) and (c)of Section 22A.

15. Once we hold that the development fees leviedunder Section 22A is really a cess or a tax for a specialpurpose, Article 265 of the Constitution which provides thatno tax can be levied or collected except by authority of lawgets attracted and the decisions of this Court starting fromThe Trustees of the Port of Madras v M/s Aminchand Pyarelal(supra), cited on behalf of the Union of India and DIAL andMIAL on the charges or tariff levied by a service or facilityprovided are of no assistance in interpreting Section 22A. Itis a settled principle of statutory interpretation that anycompulsory exaction of money by the Government such as atax or a cess has to be strictly in accordance with law and forthese reasons a taxing statute has to be strictly construed. Asobserved by this Court in Ahmedabad Urban DevelopmentAuthority v Sharadkumar Jayantikumar Pasawalla & Ors.(supra), it has been consistently held by this Court thatwhenever there is compulsory exaction of money, there shouldbe specific provision for the same and there is no room forintendment and nothing is to be read or nothing is to be impliedand one should look fairly to the language used. Lookingstrictly at the plain language of Section 22A of 1994 Act beforeits amendment by the 2008 Act, the development fees were tobe levied on and collected from the embarking passengers“at the rate as may be prescribed”.

29. The observations and findings extracted above are decisiveabout the nature of development fee, collected under Section 22A; theyare statutory exactions and not fees or tariffs, as was contended by the AB

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AUnion of India. In fact, the court even underlined that the “nature of thelevy under Section 22A of the 2004 Act, in our considered opinion,is not charges or any other consideration for services for thefacilities provided by the Airports Authority.”

30. By virtue of Section 67 of the Finance Act, the basis of chargeBis the value of taxable service. Section 67 as it stood, before amendmentw.e.f. April 18, 2006, read as follows:

“67. Valuation of taxable services for charging service tax. -For the purposes of this Chapter, the value of any taxableservice shall be the gross amount charged by the serviceCprovider for such service provided or to be provided by him.******************

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Explanation 3.-For the removal of doubts, it is hereby declaredthat the gross amount charged for the taxable service shallDinclude any amount received towards the taxable servicebefore, during or after provision of such service.”

(i) in a case where the provision of service is for a considerationin money, be the gross amount charged by the service providerfor such service provided or to be provided by him; E

(ii) in a case where the provision of service is for aconsideration not wholly or partly consisting of money, besuch amount in money as, with the addition of service taxcharged, is equivalent to the consideration; F(iii) in a case where the provision of service is for aconsideration which is not ascertainable, bet he amount asmay be determined in the prescribed manner.

After Section 67 (4), the following explanation to the entiresection read as follows:

G“Explanation.- For the purposes of this section.

(a) “consideration” includes any amount that is payable forthe taxable services provided or to be provided; (b) “money” includes any currency, cheque, promissory note,letter of credit, draft, pay order, travellers cheque, money H

order, postal remittance and other similar instruments but doesnot include currency that is held for its numismatic value.”

31. After the amendment, Section 67 of the Act read as follows:

“Section 67. Valuation of taxable services for charging servicetax (1) Subject to the provisions of this Chapter, service taxchargeable on any taxable service with reference to its valueshall-

(i) in a case where the provision of service is for a considerationin money, be the gross amount charged by the service providerfor such service provided or to be provided by him;

(ii) in a case where the provision of service is for aconsideration not wholly or partly consisting of money, besuch amount in money, with the addition of service taxcharged, is equivalent to the consideration;

(iii) in a case where the provision of service is for aconsideration which is not ascertainable, be the amount asmay be determined in the prescribed manner.”

32. This court, in Bhayana Builders (supra), ruled that to attractservice tax levy, a taxable service has to be provided to a recipient, by aservice provider, for a consideration and in the absence of any nexusto any service rendered, an amount charged, or value of service or goodsprovided without a consideration, would not be a taxing incident. Thecourt held that:

“Section 67 clearly indicates that the gross amount chargedby the service provider has to be for the service provided.Therefore, it is not any amount charged which can becomethe basis of value on which service tax becomes payable butthe amount charged has to be necessarily a considerationfor the service provided which is taxable under the Act. Byusing the words “for such service provided” the Act hasprovided for a nexus between the amount charged and theservice provided.

Therefore, any amount charged which has no nexus with thetaxable service and is not a consideration for the serviceprovided does not become part of the value which is taxableunder Section 67.”

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A33. On 02.08.2011, the Airports Authority of India (Major Airports)Development Fees Rules 2011 (hereafter “the 2011 Rules”) came intoforce. They, by Rule 3, authorized the collection of development fees;by Rule 4 (1), an Escrow account had to be opened in respect of eachairport into which the development fee collections were to be deposited;by Rule 4 (2), AAI is empowered to monitor and regulate the receiptsBand utilization of fees; by Rule 4 (3), various sub accounts were to beopened [(a) Development Fees Receipt Account; (b) Development FeesStatutory Dues Account; (c) Development Fees Disbursement Account;(d) Development Fees Surplus Account]. By Rule 4 (4), the moneycollected as development fees is to be deposited in the DevelopmentCFees Receipt Account.

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34. Besides the rules, the assessee, in the case of DIAL, hasplaced on the record, a letter issued to it, by AAI which imposes controlson the utilization of amounts collected as development fee; apart fromthe fact that the amounts are deposited in an escrow, any plan for utilizationDhas to be approved. Unlike fees, rent, charges etc., provided under Section22 of AAI Act, assessee companies are authorized on behalf of the AAIto levy and collect ‘development fee’ under Section 22A of the AAI Acton behalf of the AAI and was applied for generating revenue for utilizationof the same for the specific purpose provided under sub- clause (a), (b)and (c) of section 22(A) of the AAI Act. The UDF collected by theEassessee is to bridge the funding gap of project cost for the developmentof future establishment at the airports. There is nothing on record toshow that any additional benefit has accrued to passengers, visitors,traders, airlines etc., upon levy of UDF during the period in question inthe present case.F

35. There is a distinction between the charges, fee and rent etc.collected under Section 22 of the AAI Act and the UDF levied andcollected under Section 22A of the AAI Act. It is that the UDF is in theform of ‘tax orcess’ collected for financing the cost of future projectsand there was no consideration for services provided by the assessee toGthe customer, visitors, passengers, vendors etc. The aggregate ofcollections in the bank accounts do not form part of profitand loss account.

36. It is also useful to notice that by a circular issued by theCBEC[10], on 18.12.2006, it was clarified that collection of amounts, by way of taxes, sovereign or statutory dues, would not be subjected toservice tax levy:

“Subject: Applicability of service tax on fee collected by PublicAuthorities while performing statutory functions /duties underthe provisions of a law – regarding A number of sovereign/public authorities (i.e. an agencyconstituted/set up by government) perform certain functions/duties, which are statutory in nature. These functions areperformed in terms of specific responsibility assigned to themunder the law in force. For example, the Regional ReferenceStandards Laboratories (RRSL) undertake verification,approval and calibration of weighing and measuringinstruments; the Regional Transport Officer (RTO) issuesfitness certificate to the vehicles; the Directorate of Boilersinspects and issues certificate for boilers; or ExplosiveDepartment inspects and issues certificate for petroleumstorage tank, LPG/CNG tank in terms of provisions of therelevant laws. Fee as prescribed is charged and the same isultimately deposited into the Government Treasury. A doubthas arisen whether such activities provided by a sovereign/public authority required to be provided under a statute canbe considered as ‘provision of service’ for the purpose oflevy of service tax.

2. The issue has been examined. The Board is of the view thatthe activities performed by the sovereign/public authoritiesunder the provision of law are in the nature of statutoryobligations which are to be fulfilled in accordance with law.The fee collected by them for performing such activities is inthe nature of compulsory levy as per the provisions of therelevant statute, and it is deposited into the Governmenttreasury. Such activity is purely in public interest and it isundertaken as mandatory and statutory function. These arenot in the nature of service to any particular individual forany consideration. Therefore, such an activity performed bya sovereign/public authority under the provisions of law doesnot constitute provision of taxable service to a person and,therefore, no service tax is leviable on such activities.

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3. However, if such authority performs a service, which is notin the nature of statutory activity and the same is undertakenfor a consideration not in the nature of statutory fee/levy,then in such cases, service tax would be leviable, if the activityundertaken falls within the ambit of a taxable service.”

37. This circular was interpreted in Krishi Upaj Samiti (supra).The court held that the fee collected in that case could not be said to bea statutory exaction or levy, but was for consideration:

“10. The aforesaid submission seems to be attractive but hasno substance. Section 9(2) is an enabling provision and thewords used is “market committee may”. It is to be noted thatinsofar as sub-section (1) of Section 9 is concerned, the wordused is “shall”. Therefore, wherever the legislature intendedthat the particular activity is a mandatory statutory, thelegislature has used the word “shall”. Therefore, when undersub-section (2) of Section 9, the word used is “may”, theactivities mentioned in Section 9(2)(xvii) cannot be said to bemandatory statutory duty and/or activity. Under Section 9(2),it is not a mandatory statutory duty cast upon the MarketCommittees to allot/lease/rent the shop/platform/land/spaceto the traders. Hence, such an activity cannot be said to be amandatory statutory activity as contended on behalf of theappellants. Even the fees which is collected is not depositedinto the Government treasury. It will go to the market committeefund and will be used by the market committee(s). In the factsof the case on hand, such a fee collected cannot have thecharacteristics of the statutory levy/statutory fee. Thus, underthe 1961 Act, it cannot be said to be a mandatory statutoryobligation of the Market Committees to provide shop/land/platform on rent/lease. If the statute mandates that the MarketCommittees have to provide the land/shop/platform/space onrent/lease then and then only it can be said to be a mandatorystatutory obligation otherwise it is only a discretionaryfunction under the statute. If it is discretionary function, then,it cannot be said to be a mandatory statutory obligation/statutory activity. Hence, no exemption to pay service tax canbe claimed.”

38. The principal holding, so to say, was that the discretionary feecould be levied, and that there was no “duty cast upon the MarketCommittees to allot/lease/rent the shop/platform/land/space to thetraders”. The second reason was that the amounts were credited to amarket fund, which was later deposited in the government treasury, evenafter which it remained a market committee fund.

39. In the present case, undoubtedly, neither is there anycompulsion to levy development fee nor is the collection conditionalupon its deposit in the government treasury. However, the absence ofthese features in this court’s opinion, does not render UDF any less astatutory levy. Firstly, the ruling in Consumer Online Foundation(Supra) is conclusive that UDF is a statutory levy. Secondly, thecollection is not premised on rendering of any service. Thirdly, theamounts collected are deposited in an escrow account, not within thecontrol of the assesses. Fourthly, the utilization of funds, is monitoredand regulated by law. In this regard, the fact that the amount is notdeposited in a government treasury, per se, does not make it any lessa statutory levy or compulsory exaction. Nor does its discretionarynature, (in the sense that it may not be necessarily levied always)render it any less a statutory levy. Airport management has evolved; itis no longer the monopoly of the government; private participation isrecognized. This sector is now regulated through a new regulator, i.e.,the Airports Economic Regulatory Authority of India. As part of theUnion’s economic policies, the upgradation and renovation of airportsare funded through UDF, which is a statutory levy. Instead of theconventional practise of ensuring that amounts collected are depositedwith the Government, an entirely new regulatory regime has beenenvisioned, under the 2011 Rules, read with specific conditions imposedby the AAI on each assessee, which includes monitoring of amounts,nature of expenditure, submission of plans for expansion, renovation,their sanctioning etc. These rules and controls are in the public interest,and evidently intended to further efficiency in funding and swift takingup and completion of works, rather than funding through Finance Rules,which might entail delay, and cost overruns. However, the public natureof these funds does not in any manner get undermined, merely becausethey are kept in an escrow account, and their utilization is monitoredseparately.

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346SUPREME COURT REPORTS

[2023] 7 S.C.R.

A40. In view of the foregoing reasons, this court is of opinionthat the impugned orders cannot be faulted. The revenue’s appealstherefore fail and are dismissed; in the circumstances, without orderon costs.

BNidhi Jain(Assisted by : Rakhi, LCRA)

Appeals dismissed.

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