By TIOL News Service

MUMBAI, NOV 06, 2017: THESE are Revenue appeals.

The facts are that the respondent M/s IRBPL had purchased rights from M/s National Highway Authority of India and/or from Maharashtra State Road Development Corporation (MSRDC) to collect toll. M/s MEPwas created by M/s IRBPL as Special Purpose Vehicle (SPV) for the collection of Toll.

M/s MEP, M/s IRBPL and M/s MSRDC entered into tripartite agreement under which the SPV agreed to pay a fixed amount to MSRDC and collect the toll from the users of road/bridge.

M/s MEP were issued a SCNon the ground that the Respondent's annual report for the period 2007-08 to 2011-12 declares its revenue as "income from toll collection"; that as per the contract terms, they were allowed to retain part of the toll collected as consideration for such service provided to the corporation which is a taxable service falling under the category of "Business Auxiliary Service".

The adjudicating authority set aside the demand and the penalties proposed. Hence the present appeal by the Revenue.

Similarly, in the case of Respondent M/s Ideal Road Builders they were also collecting toll from various collection points and the department issued SCNdemanding service tax under the category of "Business Auxiliary Services". This demand was confirmed by the original authority but the Commissioner(A) set aside the same, both on merits as well as limitation .

Aggrieved by this order also, the department is in appeal before the CESTAT.

After hearing both sides, the Bench observed thus –

ST demand against M/s MEP:

+ In the present case the Respondents has secured the right to toll collection in auction. The Respondents being the suitable bidder were given right to collect the toll and under the terms and conditions of such auction the Respondents were liable to pay the bid amount to NHAI / MSRDC. Such bid price which the Respondents were liable to pay to the NHAI / MSRDC was in no way connected with the collection of toll or quantum of toll amount.

+ The Respondents had to pay NHAI / MSRDC the bid amount irrespective of the fact whether such activity would earn him profit or loss. The NHAI / MSRDC were in no way concerned with the collection made by the Respondents.

+ As a result of same though in case of Respondent M/s MEP income from toll collection was in negative during the year 2007-08, 2008-09 and 2011-12 but they had to pay the bid amount to NHAI / MSRDC. This leaves no doubt in our mind that the activity of toll collection by the Respondents was not on behalf of NHAI / MSRDC but on their own account once they had secured the right to collect the toll.

+ We also find that the activity of NHAI / MSRDC is of developing, maintaining and management of national state highways which is a statutory function. They have not been engaged in the said activity as business. In such case it cannot be said the Respondents has been providing auxiliary service to any business.

+ We find that NHAI / MSRDC is engaged in sovereign function and not into any business activity. It has been held in catena of judgments of Tribunal as cited above by the Respondents that NHAI / MSRDC is not into business activity. For this reason the Respondents cannot be said to be engaged in rendering business auxiliary services to any person.

+ Respondents in the present case had secured the right to collect the toll from NHAI / MSRDC in a bid for lump sum amount. This amount is to be paid to NHAI / MSRDC irrespective of any quantum of toll collection. The toll collection is not being done on commission basis or in lieu of any remuneration.

+ All the proceeds of the toll collection belong to the Respondents with no interference or right of NHAI / MSRDC. The income so generated is their own business income and NHAI / MSRDC has no right over such toll collection. The toll is not collected by the Respondents as representative or agent of NHAI / MSRDC nor any commission in terms of quantum of amount or percentage is charged by the Respondents from NHAI / MSRDC. They are liable only to pay the bid amount installment to NHAI / MSRDC irrespective of any collection which can in no way be said to be commission income. They have purchased the right to collect the toll in auction which in no way can be termed as rendering of service to NHAI or MSRDC. Rather, the Respondents in terms of the agreement are liable to pay the amount fixed at auction to the NHAI / MSRDC irrespective of the fact that such collection of Toll is profitable to them or not. This leaves no doubt that for the above reason also the toll collection by the Respondents is not arising from any "Business Auxiliary Service".

+ We further find that even M/s NHAI and MSRDC do not consider the toll collection by the Respondents on their behalf as commission agent. They consider the Respondents as in business of toll collection and even tax is collected at source u/s 206C of the Income Tax Act from the installments paid by the Respondents. The said section is in respect of collection of tax of income tax at the time of receipt of amount. The Respondents income is towards its own toll collection and they do not get any commission on account of collection of toll from NHAI / MSRDC. There is no deduction of tax at source under section 194H which is towards collection of tax on commission income . Thus the difference between the toll collection and the bid amount paid by the Respondents to M/s NHAI / MSRDC in no way can be termed as consideration for any service.

+ The reliance placed by the revenue upon Board Circular No. 152/3/2012-ST dt. 22.02.2012 is not correct for the reason that the Respondents has not collected such toll charges on commission or charges on behalf of NHAI / MSRDC. The toll collection is their own income and is not parted with NHAI/ MSRDC as they are concerned only with the bid amount finalized in auction and therefore cannot be termed as activity of Business Auxiliary Service . In view of above findings and judgments cited by the Respondents we hold that the activity of the Respondent cannot be considered as "Business Auxiliary Service" and cannot be taxed to service tax. Thus the appeals filed by the revenue is not sustainable on merits and accordingly dismissed.

ST demand against M/s IRBPL:

+ In case of M/s IRBPL we find that the demand apart from merits was also set aside by the Commissioner (Appeals) on time bar/limitation which has not been challenged by the revenue in its appeal . We also find that the demands are time barred as the show cause notices for the later period were issued earlier which clearly shows that the revenue was in knowledge of the facts.

In fine, both the appeals filed by the Revenue were dismissed.

(See 2017-TIOL-3923-CESTAT-MUM)