Fuel Throughput Charge Collected Till 2019 Was Aeronautical Service – Supreme Court Upholds TDSAT's Decision [Read Judgment]
The Supreme Court in the case of Delhi International Airport Ltd. v. Airport Economic Regulatory Authority of India & Ors. adjudicated upon the issue of whether the Fuel Throughput Charge (FTC) which was a fee collected by the airport operators from Oil Marketing Companies (OMCs) till 2019 for providing fuel to the aircraft, was a service or an access fee and if FTC was a service, whether FTC fell within the category of aeronautical services.
The two-judge Bench of Justice SK Kaul and Justice MM Sundresh concurred with the findings of the Airports Economic Regulatory Authority of India (AERA) and Telecom Disputes Settlement and Appellate Tribunal (TDSAT) to hold that FTC was a part of the 'Aeronautical Service.'
"…We thus have no hesitation in upholding the view taken by the AERA and the TDSAT opining that the FTC was a part of the "Aeronautical Service," the Court observed.
Advocate Alok Tripathi appeared for the Appellants before the Apex Court.
In this case, the Airports Authority of India (AAI) in the year 2002, had initiated a competitive bidding process, which resulted in the award for the operation and management, and development of Indira Gandhi International Airport (IGIA) and Chhatrapati Shivaji Maharaj International Airport (CSIA) to consortiums led by GMR and GVK respectively.
Pursuant to this, a JV agreement was executed between the GMR consortium and AAI for Delhi International Airport Ltd. (DIAL) and between the GVK consortium and AAI for Mumbai International Airport Ltd. (MIAL). The two agreements were executed on the same day with AAI holding 26% shareholding in each of the JVs.
DIAL and MIAL (Airport Operators) thereafter entered into the Operation, Management, and Development Agreement (OMDA) with AAI and executed other project agreements including the State Support Agreement (SSA). DIAL was required to pay AAI an annual fee of 45.99 percent of the revenue received by DIAL while MIAL was required to pay AAI an annual fee of 38.7 percent of the revenue received by MIAL.
Both the airport operators (DIAL and MIAL) primarily earn their revenues from two sources viz., Aeronautical and Non-Aeronautical.
For non-aeronautical services, the airport operators are free to fix charges while for aeronautical services, it is controlled by AERA (the authority).
The history of the litigation dates back to the year 2012 when AERA determined the aeronautical tariffs for the First Control Period with respect to DIAL and also for MIAL in 2013, which led to DIAL filing its first AERA appeal in 2012 under Section 18(2) of Airports Economic Regulatory Authority of India Act (the Act) challenging various decisions taken by AERA in the DIAL Tariff Order. This was followed by MIAL also filing its AERA appeal in 2013.
From the period 2012-2015, various Benches of the Airports Economic Regulatory Authority Appellate Tribunal (AERAAT) were constituted under the Act but on account of the composition of the Tribunal changing from time to time, it never worked out. Then NCDRC also came into play where they were given an additional charge to function as AERAAT. While the process of hearing was on, the Ministry of Finance notified that TDSAT would be the appellate tribunal under the said Act.
By this time, the tariff determination for the Second Control Period also took place wherein the Apex Court had to step in. The Court directed TDSAT to conclude hearings for the appeals filed by DIAL relating to the first control period within two months from the date of the said order.
TDSAT adjudicated upon the following issues, namely, - i) Relating to determination of Hypothetical Asset Regulatory Base (HRAB), ii) Imposition of Development Fee (DF) with regards to MIAL and DIAL respectively.
All the orders passed by TDSAT were assailed before the Supreme Court.
In the appeals filed by DIAL and MIAL before the Apex Court, Federation of Indian Airlines (for short 'FIA'), Lufthansa German Airlines (for short 'Lufthansa'), and AERA were also Respondents, and some appeals were filed by FIA, Lufthansa and others on similar issues in respect of the impugned orders.
It is pertinent to note that if FTC is treated as an aeronautical charge, it would be covered within the Target Revenue (TR) and in case it is treated as non-aeronautical revenue, only 30% of the fee recovered from FTC will be covered in the TR.
The Airport Operators had urged before the Apex Court that the FTC was an access/concession fee and that they were not providing any service of any nature for supplying fuel to an aircraft nor were the OMCs selling or marketing or providing any service to the airlines, hence FTC is a non-aeronautical service.
On the other hand, AERA urged that if fuel throughput service is a complete service in itself and the Airport Operators are merely delegating the service to OMCs and taking a concession fee. It was urged that the fuel throughput service is an aeronautical service as it is a service for providing fuel to the aircraft on tarmac through common hydrant infrastructure and into plane agents.
The Apex Court noted, "We have examined this controversy carefully and find no reason to interfere with the concurrent views taken by the AERA and the appellate tribunal."
"The mere fact that the FTC has been discontinued subsequently from 2020 would not give rise to an interpretation that it was a nonessential service and was thus also a non-aeronautical service. The AERA is right in its submissions that all that has been done is that the Airport Operators are delegating the service to provide fuel to the OMCs and are taking a concession fee and pocketing the same. The significance of supply of fuel to be provided to the aircraft on tarmac cannot be lost sight of. Obviously, the aircraft does not work without fuel. It is being provided through a common hydrant. There is no mention of FTC in Schedule 6 of OMDA and thus, there is a complete lack of connection between FTC and services mentioned therein as non-aeronautical services," the Court held.
The Bench also opined that a reading of OMDA/SSA does not give rise to a view that FTC is a non-aeronautical service.
Additionally, the Court in this context observed, "There is also substance in the contention of AERA that the methodology of Airport Operators would amount to a manner of subterfuge to somehow pass on the FTC to the airlines with only 30 per cent of it being covered in the TR. Forget the aspect of advantage to the Airport Operators, the issue is one also of a number of other stakeholders being adversely affected. The airlines are bound to pass this charge on to the passengers. It would thus have a cascading effect. If one may say, the Australian Competition and Consumer Commission also looks into this aspect as has been noted by the AERA in the MIAL Tariff Order and, in fact, categorises it with stronger words as "abuse of market power." One cannot use the ICAO documents selectively in different contexts to derive the conclusion as was sought to be done on behalf of the Airport Operators."
Thus, the Bench upheld the decision of AERA and TDSAT opining that FTC was a part of the 'Aeronautical Service.'