The Supreme Court of India, in a significant ruling, has held that all services provided by the Airports Authority of India (AAI) within an airport are subject to service tax under the category of “Airport Services,” including those related to the handling of export cargo. A bench comprising Justice Pankaj Mithal and Justice Prasanna B. Varale dismissed an appeal filed by the AAI, thereby upholding the order of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) which had confirmed the service tax liability.
The appeal, filed under Section 35L of the Central Excise Act, 1944, challenged the CESTAT’s order dated March 1, 2017. The central legal issue was whether services provided by the AAI concerning export cargo are exempt from service tax because “handling of export cargo” is excluded from the definition of “cargo handling service” under the Finance Act, 1994. The Supreme Court affirmed that these services are indeed taxable under the broader head of “Airport Services” effective from September 10, 2004.
Background of the Case
The Airports Authority of India, a Government of India organization, is responsible for managing airports across the country and is registered for payment of service tax. As part of its functions, the AAI handles various types of cargo, including export cargo, which involves activities such as unloading, carting, X-ray screening, and packing.
The Commissioner (Adjudication), Service Tax, Delhi, had issued an order on March 17, 2010, confirming a service tax liability on the AAI for the period from October 1, 2003, to March 31, 2007. The liability was initially categorized under “Storage and Warehousing Service” up to September 9, 2004, and subsequently under “Airport Services” from September 10, 2004.
Aggrieved by this, the AAI appealed to the CESTAT. The tribunal, in its impugned order, confirmed the service tax liability under the category of “Airport Services” for the period starting from September 10, 2004. The AAI then brought the matter before the Supreme Court.
Arguments of the Parties
Appearing for the appellant AAI, counsel Mr. Y. K. Kapur argued that the services in question were exclusively related to the handling of export cargo. He contended that such services are explicitly excluded from the definition of “cargo handling service” as provided in the Proviso to Section 65(23) of the Finance Act, 1994. Therefore, he submitted, these services could not be considered a “taxable service” under Section 65(105) of the Act.
Ms. Nisha Bagchi, senior counsel, represented the respondent, the Commissioner of Service Tax.
Court’s Analysis and Reasoning
The Supreme Court began its analysis by clarifying the distinction between the definitional provisions and the charging section of the Finance Act, 1994. The Court noted that Section 65 of the Act is a provision that defines various terms, and is not the charging section. Justice Pankaj Mithal, writing for the bench, observed that Section 65(23) “simply defines ‘cargo handling service'” and that while it excludes “handling of export cargo,” this provision “does not speak about charging of service tax upon cargo handling service.”
The judgment identified Section 66 of the Act as the charging section, which levies service tax on “taxable services.” The definition of “taxable services” is provided under Section 65(105). The Court focused on sub-clause (zzm) of this section, which was introduced with effect from September 10, 2004. This sub-clause defines a taxable service as any service provided “to any person by Airports Authority or by any other person, in any airport or a civil enclave.”
The Court found the scope of this sub-clause to be exceptionally broad. It stated, “The aforesaid sub-clause (zzm) is wide enough to cover any kind of service provided to any person by the Airport Authorities in any airport or a civil enclave. Therefore, whatever services are provided by the Airports Authority in any airport falls under ‘taxable service’ in view of sub-clause (zzm).”
Elaborating further, the bench held that a conjoint reading of Section 65(105) and its sub-clause (zzm) makes it clear that all services rendered by the AAI in an airport are taxable. The judgment emphasized that the exclusion of “handling of export cargo” from the specific definition of “cargo handling service” does not remove it from the purview of taxable “Airport Services.” The Court stated, “The exclusion of ‘export cargo’ from the definition of ‘cargo handling service’ makes no difference as to the chargeability of service tax on the services so rendered falls under the taxable service.”
The Court also dismissed the circulars relied upon by the appellant, noting that “they are merely circulars and cannot override the express statutory provisions.”
Final Decision
Concluding its analysis, the Supreme Court found no error in the decisions of the lower authorities. The bench held, “Accordingly, we are of the opinion that the CESTAT or the Authorities below have not erred in taxing the services rendered by the appellant in relation to export cargo as taxable service under sub-clause (zzm) of Sub-section (105) of Section 65 of the Act with effect from 10.09.2004.”
Finding the appeal to be without merit, the Court dismissed it, thereby confirming the service tax liability on the Airports Authority of India for services related to export cargo under the head of “Airport Services.”
