Airport Entry-Ticket Licensee Liable For Service Tax Only From June 1, 2007: Madras High Court

The Madras High Court has ruled that an airport entry-ticket licensee was liable to pay service tax only from June 1, 2007, and not for the earlier period.

The court observed that the law was amended from that date to specifically bring the renting of immovable property within the service tax net.

For the period before June 1, 2007, it noted that the Delhi High Court had ruled that service tax did not apply to the rental/licence fee in question.

“...the appellant is liable to pay service tax as an authorised person for and on behalf of the principal AAI with effect from 01.06.2007, in view of the amendment brought to Section 65(105) by including clause (zzzz) introducing 'renting immovable properties' as a taxable service,” the court ruled.

"So far as the period prior to 01.06.2007 is concerned, the appellant is armed with the judgment of the Division Bench of the Delhi High Court dated 17.07.2012 ruling that the scope of levy of service tax as per the circular dated 17.09.2004 does not include levy of service tax on rental/license fee collected by AAI.", it added.

A Division Bench of Justice P. Velmurugan and Justice G.K. Muthukumar partly modified an earlier order in a dispute between Karnataka Commercial and Industrial Corporation (P) Ltd., which managed airport admission tickets, and the Airports Authority of India (AAI).

The company had secured a five-year licence in 2006 to manage the sale of airport admission tickets at Chennai Airport. Under the arrangement, it paid licence fees to AAI and furnished a bank guarantee of about ₹4.22 crore as security for performing the contract.

AAI later raised debit notes seeking service tax amounts it had paid to the tax department. The company disputed the demand and relied on a September 17, 2004 circular issued by the Central Board of Excise and Customs.

The circular drew a distinction between different payments collected at airports. It stated that certain royalty and licence fees collected by AAI from airport service providers were subject to service tax. However, charges for premises rented or leased out were not taxable because merely letting out premises was not treated as providing a service.

The company approached the Madras High Court and obtained an interim order restraining AAI from imposing or collecting service tax from it while its case was pending. Similar cases filed by airport licensees were later transferred to the Delhi High Court.

In 2012, the Delhi High Court ruled that service tax was not leviable on the services in question until June 1, 2007. It quashed the debit notes raised by AAI and directed it to refund amounts retained from the affected licensees, including the present appellant.

AAI, however, did not withdraw the debit notes or release the bank guarantee. The company then invoked the arbitration clause in its agreement with AAI. The Arbitrator ruled that the company was not liable to pay service tax before June 1, 2007 and directed AAI to withdraw the debit notes relating to that period and release the bank guarantee.

An earlier single judge of the Madras High Court later set aside the arbitration award. The company then challenged that decision before the Division Bench.

Before the Division Bench, the company relied on the Delhi High Court judgment and argued that the Supreme Court's ruling in P.C. Paulose, Sparkway Enterprises v. Commissioner of Central Excise & Customs, dealt with a different aspect of the dispute.

The Supreme Court had held that a person authorised by AAI to provide taxable airport services could itself be liable to pay service tax. The appellant, however, argued that the present case involved two distinct questions: whether it was liable to pay service tax and, separately, the date from which that liability arose.

The Bench held that the position changed from June 1, 2007, when the law was amended to specifically include the renting of immovable property as a taxable service. The company was therefore liable to pay service tax from that date.

For the earlier period, the court noted the Delhi High Court's ruling that the September 17, 2004 circular did not cover the levy of service tax on the rental/licence fee collected by AAI. That judgment had not been stayed by the Supreme Court, although an appeal against it was still pending.

The court accordingly modified the earlier order and ruled that the company was liable to pay service tax with effect from June 1, 2007. It also recorded that the company had admittedly paid the tax from that date without protest.

The Bench added that the parties could work out their remedies after the Supreme Court decides the pending appeal.

For Appellant: Advocate I. Jaya Singh Manoharan

For Respondent: Advocate S. Venkatesan