New Delhi: The Supreme Court has said all kinds of services rendered by the Airports Authority of India (AAI) in any airport are taxable and liable to service tax, as it dismissed the appeal of the airport regulator against the service tax liability between 2003 and 2007.
A bench of Justices Pankaj Mithal and P B Varale upheld the March 1, 2017 order of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) that approved the service tax demand from the AAI on services, including export cargo, it provides.
The AAI, in the discharge of its duties, handles cargo at airports, including export cargo which involves several activities like unloading, carting, X-ray, export packing, etc.
The dispute arose from a Commissioner (Adjudication), Service Tax order dated March 17, 2010, which confirmed a service tax liability on the AAI for the period of October 1, 2003, to March 31, 2007. The initial levy was categorized as “Storage and Warehousing Service” until September 9, 2004, and then as “Airport Services” thereafter. The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) had previously upheld the tax liability under the “Airport Services” category, effective from September 10, 2004.
The AAI’s counsel, Y. K. Kapur, argued that the services fell under the definition of “cargo handling service” in Section 65(23) of the Finance Act, 1994, which explicitly excludes “handling of export cargo.” The AAI contended that this exclusion meant the services were not taxable. However, the Supreme Court, after hearing the arguments, found this interpretation to be flawed. The Court clarified that Section 65 is a definitional section, not a charging section.
The charging provision for service tax is Section 66, which levies tax on “taxable services” as defined in Section 65(105). The Court highlighted that Section 65(105)(zzm) defines “taxable service” as “any service provided or to be provided to any person by Airports Authority or by any other person, in any airport or a civil enclave.” The Supreme Court concluded that Section 65(105)(zzm) is broad and encompasses any service provided by the AAI at an airport. This provision was introduced with effect from September 10, 2004.
Therefore, any service, including those related to export cargo, provided by the AAI after this date is considered a taxable service. The Court explained that the exclusion of “export cargo” from the definition of “cargo handling service” in Section 65(23) does not exempt it from the broader category of “taxable service” as defined in Section 65(105)(zzm). The Court also disregarded several circulars cited by the AAI, stating that they could not override the clear statutory provisions.
The judgment confirms that the intent of the charging section, Section 66, is to levy tax on all services covered by the sub-clauses, including (zzm). The Court found no error in the CESTAT’s decision and affirmed that the services provided by the AAI in relation to export cargo are taxable under the “Airport Services” category.
This ruling underscores a key principle of tax law, distinguishing between definitional sections and charging sections, and confirming that the broader, more specific charging provision can override a narrower definitional exclusion. The Court’s decision effectively dismissed the AAI’s appeal, cementing the tax liability on its cargo handling activities.
