In CST v Mumbai International Airport Private Ltd, the Supreme Court of India recently held that a Development Fee collected under section 22A of the Airports Authority of India Act 1994 was not liable to service tax.
After the privatisation of airports, the operators of Delhi, Mumbai and Hyderabad International Airports were entitled to collect a Passenger Service Fee (PSF) and a Development Fee (DF). The PSF was charged for providing services to passengers at the terminal and was subject to service tax. The DF collected was to be used for the upgradation and future expansion of the airports; it had to be kept in a separate account and its use was monitored by the airport regulatory authority.
Following notices issued to the three major international airports demanding service tax on the DF, a two-judge Bench of the Supreme Court examined the nature of the DF and held that it was not for providing services to any outgoing passenger. It ruled that the DF was similar to a cess or tax and it was therefore impermissible to levy a service tax on this amount.
The Supreme Court ultimately decided that service tax, being an indirect tax, can be passed on. But a demand of service tax on a DF which had been collected in the past and utilised would have had serious financial consequences.
Arvind Datar SA appeared for the Mumbai International Airport in this batch of appeals.
