While elaborating that undoubtedly in the present case, neither is there any compulsion to levy development fee nor is the collection conditional upon its deposit in the government treasury, the Supreme Court yesterday held that simply because the User Development Fee (UDF) is not deposited in a government treasury, per se, does not make it any less a statutory levy.

A Two Judge Bench of Justice S. Ravindra Bhat and Justice Dipankar Datta observed that “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”.

Advocate Mukesh Kumar Maroria appeared for the Appellant, whereas, Advocate Richa Kapoor appeared for the Respondent.

In the nutshell, the Revenue Department had approached the Apex Court and preferred the present appeal challenging the order passed by the Central Excise and Service Tax Appellate Tribunal (CESTAT), whereby it was held that UDF levied and collected by the airport operation, maintenance and development entities (i.e., the Mumbai International Airport Pvt Ltd., the Delhi International Airport Pvt Ltd., and the Hyderabad International Airport Pvt Ltd.) are not liable to service tax levy, under the provisions of the Finance Act, 1994.

After considering the evidence and submissions, the Apex Court noted that the UDF collected by the assessee is to bridge the funding gap of project cost for the development of future establishment at the airports, and 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.

Clarifying that there is a distinction between the charges, fee and rent etc. collected under Section 22 of the Airports Authority of India Act, 1994 (AAI Act) and the UDF levied and collected under Section 22A of the AAI Act, the Apex Court explained 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 Bench therefore stated that the aggregate of collections in the bank accounts do not form part of profit and loss account.

“By a circular issued by the CBEC Circular No. 89/7/2006-ST dated 18.12.2006, 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”, added the Bench.

The Bench went on to elaborate that, undoubtedly in the present case, neither is there any compulsion to levy development fee nor is the collection conditional upon its deposit in the government treasury.

However, the Bench made it clear that 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 [(2011) 5 SCC 360] 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 assessees. 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 render it any less a statutory levy”, added the Bench.

While explaining that as part of the Union's economic policies, the upgradation and renovation of airports are funded through UDF, which is a statutory levy, the Apex Court highlighted that the public nature of these funds however does not in any manner get undermined, merely because they are kept in an escrow account, and their utilization is monitored separately.

Accordingly, the Apex Court upheld the order of CESTAT and dismissed the appeal.

Cause Title: Central GST Delhi – III v. Delhi International Airport Ltd.

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Justice S Ravindra BhatJustice Dipankar DattaService Tax

Pankaj Bajpai