In a significant ruling, the Supreme Court has provided relief to private airport developers by stating that they are not obligated to pay service tax on the user development fee (UDF) charged to passengers for the operation, maintenance, and development of Mumbai, Delhi, and Hyderabad international airports.
The court's decision takes into account a 2006 tax circular that clarifies that amounts collected as taxes, sovereign or statutory dues are exempted from service tax. A bench led by Justice S Ravindra Bhatt, while dismissing appeals by the goods and services tax (GST) authorities, emphasised that the UDF is a statutory levy, despite the absence of a requirement to impose the development fee or deposit it in the government treasury.
Previously, the customs, excise, and service tax appellate tribunal (CESTAT) had allowed appeals, stating that the development fee collected by the three airport operators was not subject to service tax. The revenue department, which had imposed tax demands and penalties on the development fee, approached the Supreme Court, arguing that the UDF constitutes an amount collected for enhancing various airport services, such as passenger lounges and amenities.
Advocate Kishore Kunal hailed the court's decision as a resolution to a long-standing tax dispute.
While the ruling pertains to the service tax period, it is expected to have implications for the current collection of GST on this fee as well. This verdict provides clarity and relief to private airport developers and highlights the importance of the tax circular in exempting the UDF from service tax.
