P.C.Paulose,M/S Sparkway Enterprises vs Commr.Of Cen.Exc.& Customs

1 REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 483 OF 2011 [Arising out of SLP (C) No. 26577 of 2009]

P.C. Paulose, M/s. Sparkway Enterprises ....Appellant

Versus

Commissioner of Central ...Respondent Excise & Customs

JUDGMENT

Dr. MUKUNDAKAM SHARMA, J.

2

1. Leave granted.

2. The issue that falls for consideration in this appeal is whether the

appellant, who is a licencee, could be held liable for payment of

service tax when actually the service provided by them could

and should be said to be provided by the Airport Authority of

India (for short "AAI"). It was contended on behalf of the

assessee that the role of the licensee-appellant was the role of

an agent and was therefore limited to collecting of fees for the

services rendered by AAI. In order to answer the aforesaid

issue it would be necessary to set out certain basic facts giving

rise to the aforesaid issue.

3. The AAI entered into a licence agreement with the appellant by 3 which the appellant was entrusted with the responsibility and

the activity of collecting airport admission ticket charges on

behalf of AAI Limited at Karipur Airport, Calicut. As per the

said agreement the appellant was permitted to collect Rs. 50/-

per visitor as airport admission ticket charges for which the

appellant was required to pay an amount of Rs. 2,66,797/- per

month as licence fee.

4. As per the aforesaid agreement the appellant was collecting the

admission ticket charges as mentioned above for the period

from 10.09.2004 to 31.03.2005. Some of the relevant terms

and conditions of the said licence agreement which would have

a bearing to the facts and circumstances of the present case 4 are extracted hereinbelow: -

5.

"Licence Agreement Subject ------- AAT Contract ITB

This Agreement made the 2nd day of April of Two thousand four between the Airports Authority of India......... ...................................................

........................................................................

Whereas the Authority is entitled in `Law' to grant licence at its Calicut Airport for the purpose of Airport Admission at ITB so as to provide amenities and facilities to the passengers and visitors at Airport and is in possession of space, more fully described in the plan annexed to this agreement, even after referred to as the premises. ........................................................................ ........................................................................

Now, therefore, this indenture witnesseth:

........................................................................

5 ........................................................................

4. That the Licensee shall pay all rates, assessment, out goings and other taxes as leviable on the Licensee in `Laws'.

........................................................................ ........................................................................

9. That the Licensee shall equipped himself with all necessary permits, licenses and such other permissions as may be required under law in force at any time with regard to the operation of the Subject licence.

10. That the Licensee shall maintain such regular and proper account books along with other supporting documents regarding sales effected by the Licensee in the said premises and said accounts/documents shall all the times be kept open for inspection by Authority in such manner as may be prescribed. The Licensee shall provide to the Authority, if so required by the Authority, Statements of audited Accounts in such manner and within such period as the Authority may prescribe. ........................................................................ ........................................................................ 6

12. That Authority shall provide bare space for the subject services and other expenses shall be incurred by the Licensee. However, provisions of electricity, water and drainage connections, as the case may be, if so required, for the smooth operation of the services shall be provided by the Authority.

13. All the times during the currency of the licence agreement, it shall be the responsibility of the licensee to obtain proper fire insurance coverage including theft and burglary in respect of all the movable and immovable assets stored or used in the licensed premises and

authority shall not be responsible for any loss or damage caused to the licensee on any accounts whatsoever.

14. That Licensee shall operate the subject facility by charging the rate from users, as may be approved in advance by the Authority. Licensee shall exhibit the said approved charges at a conspicuous pl inside the licensed premises.

........................................................................ .................................................................." 7

1. It is evident from the aforesaid terms and conditions of the

agreement that the appellant was granted licence by AAI to

collect the admission ticket charges so as to provide amenities

and facilities to the passengers and visitors at the Airport.

Under the said agreement, the appellant was also required to

pay all rates, assessment, out goings and other taxes as

leviable on the Licensee as per law. It is also clear therefrom

that AAI has only provided bare space and all expenses for

providing services to passengers / visitors are to be borne by

the appellant.

2. As per Clause 105 (zzm) of Section 65 of Finance Act, 1994

`taxable service' means any service provided to any person, by 8 Airport Authority or any person authorized by it, in an Airport

or a Civil Enclave. As per Clause (3d) of Section 65 of the

Finance Act, 1994 `Airport Authority' means AAI constituted

under Section 3 of the Airports Authority of India Act, 1994 and

also includes any person having charge of management of an

airport or a civil enclave.

3. The

Central Board of Excise and Customs by issuing a circular No.

80/10/2004 ST dated 17.09.2004 stated by way of clarification

on the scope of service tax on airport services by making it

clear that services provided in an airport or civil enclave to any

person by AAI or by a person authorized by it or any other

person having charge of management of an Airport are taxable 9 under the aforesaid category. On the satisfaction that the

appellant was required to pay service tax on airport services

rendered by it under the aforesaid provisions as `authorized

person' of AAI at Karipur Airport, Calicut for the period from

10.09.2004 to 31.03.2005 a show cause notice was issued to

the appellant demanding service tax amounting to Rs.

1,80,845/- and education cess amounting to Rs. 3,617/-.

There was also a proposal to demand interest under Section 75

of the Finance Act, 1994 on the above service tax and

education cess as well as penalty under Section 76 of the

Finance Act, 1994.

4. On receipt of the aforesaid show cause notice, the appellant 10 submitted a reply before the original authority contending inter

alia that the Airport Authority only is responsible for the

collection of service tax as the appellant was not permitted to

collect the service tax from the public. It was also contended

that the implementation of the service tax and responsibility of

the collection of service tax was that of AAI as the principal

service provider of the Airport and that the appellant was only

authorized to collect the prescribed admission charges and

remit the fixed licence fees to AAI.

5. The adjudicating authority considered the entire matter and after

careful consideration of the reply of the appellant and after

giving a hearing to the appellant confirmed the demand of 11 service tax of Rs. 1,64,106/- and education cess of Rs. 3,282/-

with interest under Section 75 of the Finance Act, 1994.

6. Being aggrieved by the said order, appellant filed an appeal before

the Commissioner of Central Excise & Customs (Appeals),

Cochin. The Commissioner (Appeals), however, dismissed the

said appeal, aggrieved by which, the appellant filed second

appeal before the Customs Excise & Service Tax Appellate

Tribunal [for short `CESTAT'], South Zonal Bench, Bangalore.

The Tribunal, allowed the appeal filed by the appellant by

holding that the appellant is only a collecting agent and

therefore the liability to pay the service tax rest on AAI which is

the actual service provider.

12

7. Being aggrieved by the said judgment and order passed by

CESTAT, the department filed Central Excise Appeal No.

28/2008 before the Kerala High Court. By the impugned

judgment and order the High Court allowed the appeal with a

direction to the original authority to verify whether AAI has paid

service tax on the admission tickets during the relevant period

and, if in case, AAI had paid the said service tax, the appellant

would stand exonerated from the liability; otherwise, service tax

would be recovered from the appellant as per the provisions of

the Act. Being aggrieved by the aforesaid impugned judgment

and order of the High Court the present appeal was filed by the

appellant on which we heard the counsel appearing for the 13 parties.

8. We have already set out the issue which falls for our consideration

in the present appeal. In our opinion as to whether or not the

appellant is a service provider and, therefore, liable to pay the

service tax rest on the interpretation of the aforementioned

circular and also the aforesaid provisions which are already

referred to hereinbefore.

9. The licence agreement clearly stipulates that AAI is entitled in law

to grant licence at its Calicut Airport for the purpose of airport

admission so as to provide amenities and facilities to

passengers and visitors at the Airport and that the licensee,

i.e., appellant, has agreed under the licence agreement to 14 render such services to AAI on the terms and conditions

mentioned in the said licence agreement. One of such

stipulations was that the licensee would pay all rates,

assessment, out goings and other taxes as leviable on the

licensee in laws.

10.Another responsibility that vested on the licensee was to maintain

regular and proper account books along with other supporting

documents regarding sales effected by the licensee in the said

premises which could be inspected by AAI in such manner as

may be prescribed. The licensee was also responsible under the

licence agreement to operate the subject facility by charging the

rate from users, as may be approved in advance by AAI. 15

11. Albeit, it is true that the appellant deposits a licence fees of Rs.

2,66,797/- per month to AAI but it collects the required fees

from the users of the facility and provide all facilities to such

customers. Section 65 Clause 105(zzm) of Finance Act, 1994

defines `taxable service' to mean any person, by airports

authority or any person authorised by it, in an airport or a civil

enclave. It is thus crystal clear that the appellant being a

person authorized by AAI to provide service in express terms

and conditions, it becomes liable to pay such tax as it was an

authorized person to provide taxable service and collect the

admission ticket charges on a contract basis.

12.Under the terms and conditions set out hereinbefore of the 16 agreement the appellant is authorized to provide all the services

as mentioned therein and, therefore, as per the statutory

definition the appellant steps into the shoes of AAI for the service

provided on the basis of the authorization and becomes liable to

pay such taxes in terms of the operation of Section 65 Clause 105

(zzm) of the Finance Act, 1994.

1.

Consequently, we find no merit in this appeal and the same is

dismissed without any order as to costs.

..........................................J [Dr. Mukundakam Sharma ]

............................................J 17 [ Anil R. Dave ]

New Delhi, January 13, 2011.