Central Gst Delhi Iii vs Delhi International Airport Ltd

REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO(S). 8996 OF 2019

CENTRAL GST DELHI - III …APPELLANT(S)

VERSUS

DELHI INTERNATIONAL AIRPORT LTD …RESPONDENT(S)

WITH

CIVIL APPEAL NO. 2465 OF 2020

CIVIL APPEAL NO(S). 4751-4753 OF 2021

JUDGMENT

S. RAVINDRA BHAT, J.

1. In all these appeals, orders of the Customs, Excise and Service Tax

Appellate Tribunal1 (hereafter “CESTAT”) are impugned by the service tax

authorities (hereafter “the revenue”), who argue that user development fee

levied and collected by the airport operation, maintenance and development

entities (i.e., the Mumbai International Airport Pvt. Ltd., the Delhi International Signature Not Verified Digitally signed by NEETA SAPRA Date: 2023.05.19 1 16:57:39 IST Reason: Final Order No, ST/A/50064/2019-CUIDBI dated 18/01/2019 [by the Principal Bench, CESTAT, New Delhi];

Final Order No. A/88830- -88832/16/STB dated 28.01.2016 [by the Western Zonal Bench, CESTAT, Mumbai]; and Final Order No. A/30739/2019 dated 16.09.2019 [by the CESTAT Regional Bench at Hyderabad]. 2

Airport Pvt. Ltd., and the Hyderabad International Airport Pvt. Ltd., (hereafter

collectively called “the assessees”) is subjected to service tax levy, under the

provisions of the 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 by the Airports Authority of India Act, 1994 [hereafter

“AAI Act”]. Under OMDA, the assesses agreed to undertake some activities

enjoined upon the AAI, by the AAI Act. The assessees were authorised,

by various notifications (dated 27th February 2009) issued by the Central

Government under Section 22A of the AAI 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.

3. The Commissioner of Service Tax, through various show cause notices

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 after taking into

consideration the decisions of this court in Consumer Online

Foundation v. Union of India2, Commissioner of Central Excise v. Cochin

International Airport Ltd.,3, Acer India Ltd. and Orissa Cement Ltd. v. State 2 (2011) 5 SCC 360 3 2010 (17) STR J 79 (S.C.) 3

of Orissa4 and various instructions issued by the Central Board of Excise and

Customs (hereafter “CBEC”). The original authority disposed of all show cause

notices by confirming demands, and also levying penalties under the Act. 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.

II The relevant provisions

4. Section 65 (105) (zzm) of the Finance Act, 1994, contains the definition

of “airport service” (with effect from 01.07.2010) and states that such service is:

“any service provided or to be provided by airports authority or by any other person in any airport or a civil enclave”

Before the amendment, i.e., before 1 July 2010, the definition, of airport service

was as follows:

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

Section 65 (3d) defines airport authority as:

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

4 1991 Supp (1) SCC 430 4

5. Section 68 (1) of the Finance Act provides that every person providing

taxable service to any person shall pay service tax at the rate specified in section

66. Section 67 (1) of the Finance Act, provides that where service tax is

chargeable on any taxable service with reference to its value then such value

shall be the gross amount charged by the service provider for such service

provided or to be provided by him.

6. The relevant provisions of the Airports Economic Regulatory Authority

of India Act, 2008 and the Aircraft Rules, 1937 are extracted below:

Section 13 of the Airports Economic Regulatory Authority of India Act,

2008 sets out the functions of the authority, and inter alia, reads as follows:

“13. Functions of Authority.

(1) The Authority shall perform the following functions in respect of major airports, namely:--

(a) to determine the tariff for the aeronautical services taking into consideration--

****************

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

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

Provisions of the Aircraft Rules, 1937:

“Rule 88. Passenger Service Fee. —The licensee is entitled to collect fees to be called as Passenger Service Fee from the embarking passengers at such rate as the Central Government may specify and is also liable to pay for security component to any security agency designated by the Central Government for providing the security service. Provided that in respect of a major airport such rate shall be as determined under clause (c) of sub-section (1) of section 13 of the Airports Economic Regulatory Authority of India Act, 2008. Rule 89. User Development Fee —The licensee may, -

5 (i) levy and collect at a major airport the User Development Fee at such rate as may be determined under clause (b) of sub-section (1) of section 13 of the Airports Economic Regulatory Authority of India Act, 2008;

(ii) levy and collect at any other airport the User Development Fees at such rate as the Central Government may 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 for any other service or facility offered in connection with aircraft operations at any airport, heliport or airstrip

Explanation. -

In this sub-clause “aircraft” does not include an aircraft belonging to any armed force of the Union and “aircraft operations” does not include operations of any aircraft belonging to the said force;

(b) for providing air traffic services, ground safety services, aeronautical communications and navigational aids and meteorological services at any airports and at any aeronautical communication station;

(c) for the amenities given to the passengers and visitors at any airport, civil enclave, heliport or airstrip;

(d) for the use and employment by persons of facilities and other services provided by the authority at any airport, civil enclave heliport or airstrip;

(ii) with due regard to the instructions that the Central Government may give to the authority, from time to time, charge fees or rent from persons who are given by the authority any facility for carrying on any trade or business at any airport, heliport or airstrip. Section 22A. The Authority may, after the previous approval of the Central Government in this behalf, levy on, and collect from, the embarking passengers at an airport, the development fees at the rate as may be prescribed and such fees shall be credited to the Authority and shall be regulated and utilized in the prescribed manner, for the purposes of-

(a) funding or financing the costs of upgradation, expansion or development of the airport at which the fee is collected; or

(b) establishment or development of a new airport in lieu of the airport referred to in clause (a); or

(c) investment in the equity in respect of shares to be subscribed by the Authority in companies engaged in establishing, owning, developing, operating or maintaining a private airport in lieu of the 6

airport referred to in clause (a) or advancement of loans to such companies or other persons engaged in such activities.” III

Contentions of the parties

7. Ms. Nisha Bagchi, learned counsel for the revenue, submits that assessees

function as licensees of Airports. The airports are capable of being licensed by

the AAI to operate as aerodromes. It was submitted that grant of licenses is

subject to express conditions. Rule 88 provides for collection of fees known as

“passenger services fees” from the embarking passengers; Rule 89 provides for

collection of “User Development Fee” (hereafter “UDF”) by licensees. Ms

Bagchi argued that user development fees are nothing but amounts collected for

extending 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 that UDF is to

enhance passenger amenities, services and facilities. Those amounts are to be

used for development, management, maintenance and operation and expansion

of facilities at the airport.

8. It was urged that the nature of UDF indicates that such fees are amounts

collected for rendering various services. The amounts collected is nothing but

development fee, meant to be used for funding and financing specific

renovation, maintenance, development and upgradation of airports. These are

necessary due to cost escalation. These amounts are for services rendered, and

providing access by the airport. Such amounts are taxable. Learned counsel 7

also relied on the circular No. 106/Commr (ST)/2009 dated 08.07.2011, which

specifically stated that service tax is paid by the various airports on passenger

services fee and UDF but no tax is paid on development fees. It was argued that

CBEC has clarified that passenger service fee, user development fee and

development fee are different and development fee is to be taxed under “airport

services”.

9. Learned counsel sought to distinguish the decision of the Kerala High

Court in the case of Cochin International Airport Ltd. because in that case, what

was in issue was user fee while in the case in hand it is UDF. Counsel reiterated

that the findings of the lower authorities are correct and submits that the

impugned orders of CESTAT call for interference.

10. Learned counsel pointed out that by Section 22A of the AAI Act, the

authority “may”, after the previous approval of the Central Government “levy

on, and collect from, the embarking passengers at, an airport, the Development

Fees”. It was contended that such levy cannot be called a tax because it is

discretionary and subject to the approval of the Central Government, meant for

funding or financing the costs of upgradation, expansion or development of the

airport at which the fee is collected; or establishment or development of a new

airport in lieu of the existing airport or towards investment in the equity in

respect of “shares to be subscribed by the authority in companies engaged in

establishing, owning, developing, operating or maintaining a private airport in 8

lieu of the airport” or “advancement of loans to such companies or other

persons engaged in such activities.” It was also urged that the amounts cannot

be termed as levy, because they are not deposited with the government treasury.

11. It was submitted that from a reading of Section 22A, it is clear that it

allows for funding or financing the cost of upgradation, expansion or

development of the airport at which the fee is collected and establishment or

development of a new Airport in lieu of the airport at which the fee is collected.

This is a pre-funding collection and imposed for the facility to be provided by

the assessees and to be used for funding of project cost which ultimately would

result in creation of better facilities and amenities for passengers. The assessees

entered into agreements for the purpose of its operation, management and

development of airports (OMDA). In terms of such OMDAs, assessees are

responsible for the development, design, upgradation of airport. It is for this

purpose that they have been permitted to collect UDF from the passengers.

12. It is further submitted that the assessees are authorized to collect UDF by

the Ministry of Civil Aviation which granted approval under Section 22A of the

AAI Act. Once it is clear that the purpose and object of the UDF is for funding

or financing the costs of upgradation, expansion or development of the major

Airports, only the rate of fees are determined by the Airport Economic

Regulatory Authority. The upgradation or development of an airport results in

better infrastructure and services to passengers. Collection of the DF could 9

facilitate and provide better services to the passengers who would be the

recipient of the airport service. Therefore, the amount cannot be called a tax or

levy, but is actually a collection for service, and consequently liable to service

tax.

13. The revenue argues that the definition of airport service is wide and

includes any service provided or to be provided by any person in the airport. It

is a taxable service. Further, without payment of such levy, passengers cannot

enter the airport nor can have access to the plane. Thus, the UDF collected by

DIAL is covered by the definition of “airport service” and would be liable to

payment of service tax. The impugned order has failed to appreciate this

submission and hence, the same is liable to be set aside.

14. It was argued that the decision of this court in the case of Consumer

Online Foundation v Union of India5 had expressed the view that DF appeared

to be in the form of tax or cess, but was not a legally collected tax. It was argued

that Section 22A provided for the “levy” of DF, but the rate at which the said

levy was to be collected had not been prescribed by framing of a separate rule

by the Airports Economic Regulatory Authority (AERA) as amended by the

2008 Act. This court held that the collection of UDF by the assessees prior to

the notification issued by AERA was considered to be levied and collected

without the authority of law. It further found that the levy and collection of

5 2011 (5) SCR 911 10

UDF by the two airport concessionaires at the rates fixed by the Central

Government (by two letters dated 9.2.2009 and 27.2.2009) respectively were

ultra vires the AAI Act, and were not saved by Section 6 of the General Clauses

Act, 1897.

15. It is submitted that in the above decision, there is no clear finding that DF

is a tax or cess and the same was held to be ultra vires the AAI Act on the

ground that the rate could not have been fixed by the Central Government, but

only by making a rule by AERA which has not been done. In the present case,

we are concerned with the levy of service tax on DF collected by the

respondents from the passengers. Also in that decision, this court was not

concerned with levy or otherwise of service tax on DF. It was argued that DF

has not been collected as tax or cess and therefore, the contention that DF is a

tax on which there cannot be any service tax is incorrect. The nature of DF is

that these are the charges collected by the respondents for development of

facilities for the use of the airport. In fact, the assesses’ contention was these are

the charges for the use of the airport services by the passengers and is not a tax.

16. Learned counsel relied on the judgment reported as Krishi Upaj Mandi

Samiti v Commissioner of Central Excise6 and urged that the nature of UDF is

similar to the optional collection made by market committees who perform

services, which are not in the nature of a statutory activity or a sovereign

6 2022 (1) SCR 700 11

function, and if such services are rendered 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 the decision in

Consumer Online (supra) has concluded the nature of collections; it is a tax,

unrelated to any service provided, and has to be borne in mind that there is no

consideration. Learned counsel relied on the following observation in Consumer

Online Foundation:

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

18. It was argued by learned counsel that the taxable activity did not occur in

this case, as the collections were intended for future developments whereas the

‘airport’ referred to in Section 65(105) (zzm) is an existing airport. Counsel

urged that such statutory levies were in the nature of cess or tax and were not

liable to taxation. Counsel emphasized that the ruling of the Kerala High Court

in Cochin International Airport Limited vs. Collector Central Excise 7 has held

that 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

7 2009 (16) STR 401 (Ker.) 8 in 2010 (17) S.T.R. J79 (S.C.) 12

circumstances, there is no merit in the revenue’s submission that development

fee is collected for rendering services.

19. Learned counsel relied on the impugned orders to say that to be liable to

tax, service should be rendered to a person by a specifically described service

provider in an airport. The scope of activities of the assessee vis-a-vis

passengers who bear the burden of development fee needs a closer look.

Passengers in an airport intend to travel by an airline which has the said airport

as a scheduled port of call. The contractual nature of this relationship is

enshrined in the ticket which provides access to the airport, process through

check-in and security, space for waiting and necessary amenities and provision

for boarding an aircraft. There is nothing to show that passengers have to make

payments for any of these activities. These facilities were available without any

additional charge before the imposition of ‘development fee’. Such services

continue to be available after its quashing. No additional benefit accrues to the

passenger during the period of levy of ‘development fee.’ All facilities are basic

facilities inherent in the civil aviation sector in which the appellant, a non-

public sector entity, is a recent entrant.

20. It was emphasized that moving away from state control, airports entered

the phase of regulatory control with the advent of the AAI Act. This transition

also had to factor in the larger public interest in safety and security, which

meant that some level of control, de-regulation was limited and confined to the 13

financial aspects of airport management. Having created a statutory authority,

the statute should have been specific to contain the scope of functions of the

AAI. Despite granting financial autonomy, the need for dependence on the State

exchequer could not be eliminated and hence appropriate types of levies as well

as restrictions on their utilization were incorporated in the statute. It was

contended that Sections 22 and 22A of the AAI Act are in the context

of substitution of the constitutional funds of the Union of India, for deposit and

drawing with that of the accounts of AAI.

21. The assesses urge that Section 22 of the AAI Act enables AAI to charge

for the facilities it provides. However, the levy under Section 22A [of the AAI

Act] is compulsorily charged from passengers; it is placed in an escrow account

owing to the restricted purpose for which such fee collected can be used. Hence,

there is a substantive difference between a charge under Section 22 and levy

under Section 22A. The charge under Section 22, paid by any passenger, may

be a consideration for a service and subjected to service tax. However, the same

principles are not applicable to a levy under Section 22A, which is independent

of Section 22 and is not for any service rendered.

22. Counsel underlines that this court in Consumer Online Foundation

(Supra) has declared the law and has interpreted both Section 22 and Section

22A of the AAI Act. This court has held that charges collected under Section 22

are for different services and facilities provided to the third parties by the lessee 14

of AAI. Collections under Section 22A of the AAI Act, this court has ruled, are

"dehors the facilities that the embarking passengers get at the existing

airports". There is also a specific finding that there is no contractual

relationship between the passengers and the AAI for the funds collected under

Section 22A of the AAI Act. Further, it was highlighted that in the same

judgment, it was held that charges under Section 22A:

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

The court decisively held that development fee is “really in the nature of a cess

or a tax for generating revenue for specific purpose.” And, further, that

amounts collected are accountable to the AAI, which would ensure that such

fee levied and collected are “utilized for the purposes mentioned in Section

22A (a) of the AAI Act.”

23. It was argued that in view of the declaration of law, CESTAT correctly

held that the charges collected by the assesses under Section 22A of the AAI

Act cannot be regarded as considered for services rendered.

24. Learned counsel submitted that the decision in Krishi Upaj Mandi Samiti

(supra) is distinguishable. In that case, the court was concerned only with

Section 9 (2) of the Rajasthan Agricultural Produce Markets Act, 1961, which

was held not to relate to a statutory function but only a discretionary charge,

i.e., renting of premises. Rent for immovable property is materially different 15

from a collection under Section 22A of the AAI Act, which, according to this

court, is in the nature of cess or tax and a compulsory exaction in Consumer

Online Foundation (supra).

25. The assesses also rely on the decision of this court in Commissioner of

Service Tax vs. Bhayana Builders (P) Ltd9, where it was stated that under

Section 67 of the Finance Act, 1994, not every amount charged by the service

provider is taxable. Upon an analysis of Section 67, it was held that the amount

charged should be "for such service provided" to be taxable. The court

emphasized the connection between the service and the amount by stating that:

"the Act has provided for a nexus between the amount charged and the service provided".

26. Counsel pointed out that Consumer Online Foundation (supra) has ruled

that there is no nexus between the amounts charged under Section 22A of the

AAI Act and any service provided. In the absence of a nexus between the

amount charged as DF/UDF and any service rendered, 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 and their collection

from embarking passengers by lessees of airports, under OMDAs, including the

9 2018 (1) SCR 1128 16

DIAL in this case. The court examined the history of airport regulation in India,

including the legislation concerning it, and, after analysing the provisions of the

AAI Act, including the amendment to it, in 2003, held that:

“12. The functions of the Airports Authority under clause (aa) of sub- section (3) of Section 12 also inserted by the Amendment Act of 2003 to establish airports, or assist in the establishment of private airports by rendering such technical, financial or other assistance which the Central Government may consider necessary for such purposes cannot be assigned to the lessee under Section 12A Section 12A of the 1994 Act. The Amendment Act of 2003 which also inserted Section 12A therefore provides in sub-section (1) of Section 12A that the Airports Authority can make a lease of the premises of an airport (including buildings and structures thereon and appertaining thereto) to carry out "some" of its functions under Section 12 as the Airports Authority may, in the public interest or in the interest of better management of airports, deem fit. Obviously, "a lease of premises of an airport" as contemplated in sub-section (1) of Section 12A cannot include establishing an airport or assisting in establishment of private airports as contemplated in clause (aa) of sub-section (3) of Section 12 of the Act.

13. To enable the Airports Authority to perform its statutory function of establishing a new airport or to assist in the establishment of private airports, the legislature has thought it fit to empower the Airports Authority to levy and collect development fees as will be clear from clauses (b) and (c) of Section 22A of the 1994 Act. Such development fees levied and collected under Section 22A can also be utilized for funding or financing the costs of up-gradation, expansion and development of an existing airport at which the fees is collected as provided in clause (a) of Section 22A of the Act and in case the lease of the premises of an existing airport (including buildings and structures thereon and appertaining thereto) has been made to a lessee under Section 12A of the Act, the Airports Authority may meet the costs of up-gradation, expansion and development of such leased out airport to a lessee, but this can be done only if the rules provide for such payment to the lessee of an airport because Section 22A says that the development fees are to be regulated and utilized in the manner prescribed by the Rules. Since the lessee of an airport cannot be assigned the function of the Airports Authority to establish airports or assist in establishing private airports in lieu of the existing airports at which the development fees is being collected, the lessee cannot under sub-section (4) of Section 12A have the power of the Airports Authority under Section 22A of the 1994 Act to levy and collect development fees. This is because sub-section (4) of Section 12A provides that the lessee can have all those powers of the Airports Authority which are necessary for performance of such functions as 17

assigned to it under sub-section (1) of Section 12A in terms of the lease. Moreover, since we have held that the function of establishment and development of a new airport in lieu of an existing airport and the function of establishing a private airport are exclusive functions of the Airports Authority under the 2004 Act, and these statutory functions cannot be assigned by the Airports Authority under lease to a lessee under Section 12A of the Act, the lease agreements, namely, the OMDA and the State Support agreement could not make a provision conferring the right on the lessee to levy and collect development fees for the purpose of discharging these statutory functions of the Airports Authority. We, therefore, do not think it necessary to refer to the clauses of the OMDA and the State Support Agreements executed in favour of the two lessees to find out whether the right of levying and collecting the development fees 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 22A 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 1994 Act. The charges, fees and rent collected by the Airports Authority under Section 22 are for the services and facilities provided by the Airports Authority to the airlines, passengers, visitors and traders doing business at the airport. Therefore, when the Airports Authority makes a lease of the premises of an airport (including buildings and structures thereon and appertaining thereto) in favour of a lessee to carry out some of its functions under Section 12, the lessee, who has been assigned such functions, will have the powers of the Airports Authority under Section 22 of the Act to collect charges, fees or rent from the third parties for the different facilities and services provided to them in terms of the lease agreement. The legal basis of such charges, fees or rent enumerated in Section 22 of the 2008 Act is the contract between the Airports Authority or the lessee to whom the airport has been leased out and the third party, such as the airlines, passengers, visitors and traders doing business at the airport. But there can be no such contractual relationship between the passengers embarking at an airport and the Airports Authority with regard to the upgradation, expansion or development of the airport which is to be funded or financed by development fees as provided in clause (a) of Section 22A.

Those passengers who embark at the airport after the airport is upgraded, expanded or developed will only avail the facilities and services of the upgraded, expanded and developed airport. Similarly, there can be no contractual relationship between the Airports Authority and passengers embarking at an airport for establishment of a new airport in lieu of the existing airport or establishment of a private airport in lieu of the existing airport as mentioned in Clauses 18

(b) and (c) of Section 22A of the 1994 Act. In the absence of such contractual relationship, the liability of the embarking passengers to pay development fees has to be based on a statutory provision and for this reason Section 22A has been enacted empowering the Airports Authority to levy and collect from the embarking passengers the development fees for the purposes mentioned in clauses (a), (b) and

(c) of Section 22A of the Act. In other words, the object of Parliament in inserting Section 22A in the 2004 Act by the Amendment Act of 2003 is to authorize by law the levy and collection of development fees from every embarking passenger de hors the facilities that the embarking passengers get at the existing airports. The nature of the levy under Section 22A of the 2004 Act, in our considered opinion, is not charges or any other consideration for services for the facilities provided by the Airports Authority. This Court has held in Vijayalakshmi Rice Mills & Ors v Commercial Tax Officers, Palakot & Ors (supra) that a cess is a tax which generates revenue which is utilized for a specific purpose. 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 clauses (a),

(b) and (c) of Section 22A.

15. Once we hold that the development fees levied under Section 22A is really a cess or a tax for a special purpose, Article 265 of the Constitution which provides that no tax can be levied or collected except by authority of law gets attracted and the decisions of this Court starting from The Trustees of the Port of Madras v M/s Aminchand Pyarelal (supra), cited on behalf of the Union of India and DIAL and MIAL on the charges or tariff levied by a service or facility provided are of no assistance in interpreting Section 22A. It is a settled principle of statutory interpretation that any compulsory exaction of money by the Government such as a tax or a cess has to be strictly in accordance with law and for these reasons a taxing statute has to be strictly construed. As observed by this Court in Ahmedabad Urban Development Authority v Sharadkumar Jayantikumar Pasawalla & Ors. (supra), it has been consistently held by this Court that whenever there is compulsory exaction of money, there should be specific provision for the same and there is no room for intendment and nothing is to be read or nothing is to be implied and one should look fairly to the language used. Looking strictly at the plain language of Section 22A of 1994 Act before its amendment by the 2008 Act, the development fees were to be levied on and collected from the embarking passengers "at the rate as may be prescribed".

29. 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 19

fact, the court even underlined that the “nature of the levy under Section 22A of

the 2004 Act, in our considered opinion, is not charges or any other

consideration for services for the facilities provided by the Airports Authority.”

30. By virtue of Section 67 of the Finance Act, the basis of charge is the

value of taxable service. Section 67 as it stood, before amendment w.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 taxable service shall be the gross amount charged by the service provider for such service provided or to be provided by him.

****************** ****************** Explanation 3.-For the removal of doubts, it is hereby declared that the gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.”

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

(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration;

(iii) in a case where the provision of service is for a consideration which is not ascertainable, bet he amount as may be determined in the prescribed manner.

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

“Explanation.- For the purposes of this section.

(a) “consideration” includes any amount that is payable for the taxable services provided or to be provided;

(b) “money” includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value.”

31. After the amendment, Section 67 of the Act read as follows: 20

“Section 67. Valuation of taxable services for charging service tax (1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall-

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

(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration;

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

32. This court, in Bhayana Builders (supra), ruled that to attract service tax

levy, a taxable service has to be provided to a recipient, by a service provider,

for a consideration and in the absence of any nexus to any service rendered, an

amount charged, or value of service or goods provided without a consideration,

would not be a taxing incident. The court held that:

“Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service provided. Therefore, it is not any amount charged which can become the basis of value on which service tax becomes payable but the amount charged has to be necessarily a consideration for the service provided which is taxable under the Act. By using the words "for such service provided" the Act has provided for a nexus between the amount charged and the service provided.

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

33. On 02.08.2011, the Airports Authority of India (Major Airports)

Development Fees Rules 2011 (hereafter “the 2011 Rules”) came into force.

They, by Rule 3, authorized the collection of development fees; by Rule 4 (1),

an Escrow account had to be opened in respect of each airport into which the

development fee collections were to be deposited; by Rule 4 (2), AAI is 21

empowered to monitor and regulate the receipts and utilization of fees; by Rule

4 (3), various sub accounts were to be opened [(a) Development Fees Receipt

Account; (b) Development Fees Statutory Dues Account; (c) Development Fees

Disbursement Account; (d) Development Fees Surplus Account]. By Rule 4 (4),

the money collected as development fees is to be deposited in the Development

Fees Receipt Account.

34. Besides the rules, the assessee, in the case of DIAL, has placed on the

record, a letter issued to it, by AAI which imposes controls on the utilization of

amounts collected as development fee; apart from the fact that the amounts are

deposited in an escrow, any plan for utilization has to be approved. Unlike fees,

rent, charges etc., provided under Section 22 of AAI Act, assessee companies

are authorized on behalf of the AAI to levy and collect 'development fee' under

Section 22A of the AAI Act on behalf of the AAI and was applied for

generating revenue for utilization of 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 the assessee is to bridge the funding gap of project cost for the

development of future establishment at the airports. There is nothing on record

to show that any additional benefit has accrued to passengers, visitors, traders,

airlines etc., upon levy of UDF during the period in question in the present case.

35. There is a distinction between the charges, fee and rent etc. collected

under Section 22 of the AAI Act and the UDF levied and collected under 22 Section 22A of the AAI Act. It is that the UDF is in the form of 'tax or cess'

collected for financing the cost of future projects and there was no consideration

for services provided by the assessee to the customer, visitors, passengers,

vendors etc. The aggregate of collections in the bank accounts do not form part

of profit and loss account.

36. It is also useful to notice that by a circular issued by the CBEC 10, on

18.12.2006, it was clarified that collection of amounts, by way of taxes,

sovereign or statutory dues, would not be subjected to service tax levy:

“Subject: Applicability of service tax on fee collected by Public Authorities while performing statutory functions /duties under the provisions of a law – regarding A number of sovereign/public authorities (i.e. an agency constituted/set up by government) perform certain functions/ duties, which are statutory in nature. These functions are performed in terms of specific responsibility assigned to them under the law in force. For example, the Regional Reference Standards Laboratories (RRSL) undertake verification, approval and calibration of weighing and measuring instruments; the Regional Transport Officer (RTO) issues fitness certificate to the vehicles; the Directorate of Boilers inspects and issues certificate for boilers; or Explosive Department inspects and issues certificate for petroleum storage tank, LPG/CNG tank in terms of provisions of the relevant laws. Fee as prescribed is charged and the same is ultimately deposited into the Government Treasury. A doubt has arisen whether such activities provided by a sovereign/public authority required to be provided under a statute can be considered as ‘provision of service’ for the purpose of levy of service tax.

2. The issue has been examined. The Board is of the view that the activities performed by the sovereign/public authorities under the provision of law are in the nature of statutory obligations which are to be fulfilled in accordance with law. The fee collected by them for performing such activities is in the nature of compulsory levy as per the provisions of the relevant statute, and it is deposited into the Government treasury. Such activity is purely in public interest and it is undertaken as mandatory and statutory function. These are not in the nature of service to any particular individual for any 10 Circular No. 89/7/2006- ST dated 18.12.2006 23

consideration. Therefore, such an activity performed by a sovereign/public authority under the provisions of law does not constitute provision of taxable service to a person and, therefore, no service tax is leviable on such activities.

3. However, if such authority performs a service, which is not in the nature of statutory activity and the same is undertaken for a consideration not in the nature of statutory fee/levy, then in such cases, service tax would be leviable, if the activity undertaken 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 be a statutory

exaction or levy, but was for consideration:

“10. The aforesaid submission seems to be attractive but has no substance. Section 9(2) is an enabling provision and the words used is “market committee may”. It is to be noted that insofar as sub-section (1) of Section 9 is concerned, the word used is “shall”. Therefore, wherever the legislature intended that the particular activity is a mandatory statutory, the legislature has used the word “shall”.

Therefore, when under sub-section (2) of Section 9, the word used is “may”, the activities mentioned in Section 9(2)(xvii) cannot be said to be mandatory statutory duty and/or activity. Under Section 9(2), it is not a mandatory statutory duty cast upon the Market Committees to allot/lease/rent the shop/platform/land/space to the traders. Hence, such an activity cannot be said to be a mandatory statutory activity as contended on behalf of the appellants. Even the fees which is collected is not deposited into the Government treasury. It will go to the market committee fund and will be used by the market committee(s). In the facts of the case on hand, such a fee collected cannot have the characteristics of the statutory levy/statutory fee. Thus, under the 1961 Act, it cannot be said to be a mandatory statutory obligation of the Market Committees to provide shop/land/platform on rent/lease. If the statute mandates that the Market Committees have to provide the land/shop/platform/space on rent/lease then and then only it can be said to be a mandatory statutory obligation otherwise it is only a discretionary function 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 can be claimed.”

38. The principal holding, so to say, was that the discretionary fee could be

levied, and that there was no “duty cast upon the Market Committees to 24

allot/lease/rent the shop/platform/land/space to the traders”. The second reason

was that the amounts were credited to a market fund, which was later deposited

in the government treasury, even after which it remained a market committee

fund.

39. In the present case, undoubtedly, neither is there any compulsion to levy

development fee nor is the collection conditional upon its deposit in the

government treasury. However, the absence of these features in this court’s

opinion, does not render UDF any less a statutory levy. Firstly, the ruling in

Consumer Online Foundation (Supra) is conclusive that UDF is a statutory

levy. Secondly, the collection is not premised on rendering of any service.

Thirdly, the amounts collected are deposited in an escrow account, not within

the control of the assesses. Fourthly, the utilization of funds, is monitored and

regulated by law. In this regard, the fact that the 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, (in the sense that it may

not be necessarily levied always) render it any less a statutory levy. Airport

management has evolved; it is no longer the monopoly of the government;

private participation is recognized. This sector is now regulated through a new

regulator, i.e., the Airports Economic Regulatory Authority of India. As 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 25

practise 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 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

taking up and completion of works, rather than funding through Finance Rules,

which might entail delay, and cost overruns. However, the public nature of

these funds does not in any manner get undermined, merely because they are

kept in an escrow account, and their utilization is monitored separately.

40. In view of the foregoing reasons, this court is of opinion that the

impugned orders cannot be faulted. The revenue’s appeals therefore fail and are

dismissed; in the circumstances, without order on costs.

…………………………………. J.

[S. RAVINDRA BHAT]

.…………………………………J. [DIPANKAR DATTA] NEW DELHI;

MAY 19, 2023.

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