In Civil Appeal No(s). 8996 Of 2019 – SC - User Development Fee collected by Airports not subject to Service Tax levy: Supreme Court upholds CESTAT order
Justice S. Ravindra Bhat & Justice Dipankar Datta [19-05-2023]

Read Order: Central GST Delhi – III V. Delhi International Airport Ltd

Chahat Varma

New Delhi, May 20, 2023: The Supreme Court has upheld the order passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) regarding the user development fee (UDF) collected by airport entities. The Top Court has concluded that the UDF levied and collected by airport operation, maintenance, and development entities such as Mumbai International Airport Pvt. Ltd., Delhi International Airport Pvt. Ltd., and Hyderabad International Airport Pvt. Ltd. (assessees) is not subject to service tax levy under the provisions of the Finance Act, 1994.

Briefly stated issue involved in the case was that all the assesses had entered into a joint venture agreement (OMDA) with the Airports Authority of India (AAI). The assessees were authorised, by various notifications issued by the Central Government under Section 22A of the Airports Authority of India Act (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. The Commissioner of Service Tax issued show cause notices demanding tax payment on the development fee collected by the assessees. The original authority confirmed the demands and imposed penalties. The assessees appealed to the CESTAT, which ruled in their favor, stating that the development fee was not subject to service tax levy.

The bench of S. Ravindra Bhat and Justice Dipankar Datta held that UDF is a statutory levy. Reliance was placed on Consumer Online Foundation v. Union of India [LQ/SC/2011/629], wherein it has been 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 further examined the case of Commissioner of Service Tax & Others v. M/s. Bhayana Builders (P) Ltd. & Others [LQ/SC/2018/243], wherein the Supreme has court ruled that for service tax to be levied, there must be a taxable service provided by a service provider to a recipient in exchange for 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 observed that the UDF collected by the assessee was to bridge the funding gap of project cost for the development of future establishment at the airports. There was 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.

The court further pointed out the distinction between the charges, fees, and rent collected under section 22 of the Airports Authority of India (AAI) Act and the User Development Fee (UDF) levied and collected under section 22A of the same Act. The court emphasized 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. Furthermore, the aggregate of collections in the bank accounts do not form part of profit and loss account.

A circular issued by the Central Board of Excise and Customs (CBEC) on 18.12.2006 was also examined by the court, which clarifies that the collection of amounts in the form of taxes, sovereign dues, or statutory dues would not be subjected to service tax 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,” observed the court.