By TIOL News Service

NEW DELHI, FEB 05, 2019: M/S DELHI International Airport (P) Ltd., in pursuance of privatization process of Ministry of Civil Aviation, entered into an "Operation, Management and Development Agreement" (OMDA) with Airport Authority of India (AAI) for Delhi Airport on 04.04.2006 and under the Agreement the appellant had exclusive rights to undertake some of the functions like operating, maintaining, developing, designing, constructing, upgrading IGI Airport and to perform services relating to aeronautics and non aeronautics.

Under the OMD Agreement, DIAL also had at its disposal vacant land situated at the Hospitality District termed 'Aero City'.

For development of these areas, DIAL entered into two agreements – one, termed as 'Development Agreement' and the other termed as 'Infrastructure Development and Service Agreement' (IDSA).

As per Article 3 of the Agreement the 'Advance development cost' was allocated to various successful bidders by allocating and working out the same on the basis of Rs.1,100/- per Sq Ft. of maximum gross built up area.

DGCEI viewed that the element of 'Advance Development Cost' received from Developers towards development of common infrastructure facilities is classifiable as Renting of immovable property services.

SCN was issued on 10.10.2014 for recovery of Service tax.

The said Show Cause Notice was adjudicated and the demand of Rs. 54,31,68,584/-was confirmed, interest demanded u/s 75 and penalties u/ss 77 and 78 of Finance Act, 1994 were imposed.

The appellant is before the CESTAT and argues on merits as well as on limitation.

The Bench considered the submissions and inter alia observed thus –

Merits:

+ The treatment of reimbursement of cost, of common facilities, as 'Renting Service' by the Adjudicating Authority is not legal because such common facilities were developed by taking advances as a pool of fund, for the infrastructure to be used by common beneficiaries and the account was to be settled as per Agreement by returning excess, if any, or charging deficit, etc. if any, if the cost of the works exceeded or was less than the amount collected as advance.

+ From the definition of Renting of Immovable Property Services as contained in Section 65(105)(zzzz), it is evident that in order to be covered under renting of immovable property services, the nature of the activity should be that of renting or letting or leasing or licensing or other similar arrangements of immovable property for use in the course or furtherance of business.

+ The term 'rent' means letting out or use by another person usually for fixed periodical return. It cannot encompass Development and Maintenance of common facilities, which was to be defrayed on the basis of actual expense incurred.

+ Again, lease involves transfer of rights by transferor to the transferee. In this case, there is no right vested in immovable property to be transferred to Developer.

+ In this case, however, the common area is meant for public use and such immovable property is neither the property of DIAL nor the developer. The road network, metro facilities, etc. are for the general/common use of public and do not confer any rights, either on DIAL or on any Developers. Advance Development Cost is not consideration for any services rendered.

+ There is no Service Provider-Service Recipient relationship between the appellant and the Developers, as regards the Advance development cost, because common facilities developed belong to none (held in trust) and the benefit is derived by all the 13 developers, as well as the public. Hence the same is not liable to Service Tax.

+ The whole Advance Development Cost under the IDSA contract was required to be either spent as per the estimates and excess, if any, was to be returned.

+ Since there is only development of common infrastructure facilities involved (as trustee), there is no service flowing from any party to other.

+ The common facilities developed are also outside the asset area which is in the nature of infra development and the same is neither renting of immovable property, nor in relation to renting of immoveable property.

+ Development of common infra outside asset area cannot be said to be in relation to renting of immoveable property, as no interest in common area is transferred under IDSA to developer. In fact the services which can be in relation to renting of immoveable property are in the nature of broker services etc., and not infrastructure facilities which become part of immoveable property in common areas.

+ In fact Section 65(105)(zzzz) explanation 1 sub clause 4 includes within the ambit of immoveable property, only such common areas and facilities which are within complex of such estates. The area outside and common facilities outside such area, are certainly not included.

+ Advance development cost is not consideration for any services rendered, therefore, Section 67 has been improperly invoked to take gross value as consideration for alleged services provided, even when whole of the deposit is liable to be spent and nothing retained as per the IDSA agreement.

+ A quid pro quo has to be established before levying service tax. Thus the recovery of cost cannot be made liable to service tax. [U.O.I vs. Intercontinental Consultants and Technocrats Pvt. Ltd. - 2018-TIOL-76-SC-ST & Ahmedabad Management Association - 2009-TIOL-214-CESTAT-AHM relied upon.]

+ It is settled law that service tax, if any, is not applicable on the Advance Development Cost received prior to 01.07.2010. In the instant case taxable event happened even prior to the date when licensing of vacant land was included in the renting of immovable services w.e.f 01.07.2010. Therefore, taxable event having occurred earlier to the point of levy of service tax, the same cannot be levied. [Bajaj Allianz General Insurance Co. Ltd. - 2008-TIOL-1894 -CESTAT- MUM relied upon.]

+ In any case the development of land or common facilities for commercial exploitation and usage by public cannot be termed as Renting of Immovable Property as it is the case of Land Development.

Limitation:

+ There is nothing brought out on record that the appellant had any intent to evade payment of Service Tax on the consideration paid by the Developers for renting, as alleged. In fact the Appellant had paid Service Tax on the consideration being Licence Fees.

+ There appears no suppression as everything was revealed and was available in Balance Sheet submitted to the Department during Audit conducted from July, 2012 to 2013 and also the same were reflected in ST-3 Returns. It is clear that the appellant nurtured a bonafide belief and it involves interpretation.

+ It was the appellant who had sought clarification from the Department regarding taxability or otherwise for various services provided by them. On 16.05.2011, Office of Commissioner gave interim reply, stating opinion was not final. On 18.11.2011 an Assistant Commissioner after visiting the site gave the opinion that tax was dischargeable as renting of immovable property. Again on 08.02.2012 an Assistant Commissioner opined that 'Licence Fee is taxable as Airport Service'. Lastly on 02.05.2012 Deputy Commissioner of Service Tax on re-examination gave opinion that the alleged service is taxable as renting of immovable property but at the same time the matter has been referred to the Board Office. Till date, no clarification from the Board has been received.

+ It is thus clear that the matter involved both physical verification as well as examination of legal issue on which even within the Department, different sets of opinion existed.

+ All agreements IDSA and Development Agreement were entered from June, 09 to Feb, 2010 i.e prior to date of lease rent of vacant land becoming taxable. Renting of vacant land was brought under service tax net w.e.f. 1.07.2010. Therefore, no tenable assertion can be made that the appellant, with deliberate intent, entered into two sets of agreements on same date, as alleged by the department, thereby ignoring the vital fact that there is a vast difference in nature and activities covered by Development Agreement and IDSA.

+ As far as non-taxability of Advance Development Cost is concerned, appellant had acted on legal opinion given by PWC which had clearly opined in 2007 that since what has been developed was infrastructure for common facilities and no exclusive rights has been vested in one or any developer, therefore, such ADC was not taxable as renting of immoveable property.

+ Therefore, we hold that extended period of limitation cannot be invoked in the facts and circumstances of the case in hand.

The impugned order was set aside and the appeal was allowed with consequential relief.

(See 2019-TIOL-685-CESTAT-DEL)