2007 (9) TMI 53 - AT - Service Tax

Stray/Dispensation of pre-deposit -Royalty and license fee collected by appellant is liable to service tax - Tribunal held the imposition of service tax on royalty and licence fee is debatable and require proper scrutiny and pre-deposit of 35 lakh ordered and balance amount waived off

Summary

Issues:
1. Applicability of Service tax on amounts received by the appellant from Air India and various parties.
2. Classification of services provided by the appellant under 'Airport services'.
3. Tax liability on royalty received from Air India.
4. Tax liability on licence fee collected by the appellant.

Analysis:

1. The appellant argued that charging Service Tax on amounts received from Air India would result in double taxation as Air India already remits Service tax on gross turnover. The appellant also contended that the income received from Air India is royalty and not directly related to services provided. Additionally, the appellant highlighted financial hardship due to operational losses. The SDR argued that the income received was in the form of licence fees, qualifying as taxable income, as per the Circular F. No. 80/10/2004-S.T. The Tribunal found the issue debatable and directed a pre-deposit of Rs. 35,00,000 to stay recovery pending appeal.

2. The appellant disputed the classification of their services under 'Airport services' as defined in Section 65(105) (zzm) of the Finance Act, 1994. They claimed not to have the charge of management of the Airport, thus not falling under the category. However, the Commissioner disagreed, stating that the appellant, being the owner of the Airport, indeed has the charge of management. The Tribunal concurred with the Commissioner's interpretation.

3. Regarding the tax liability on royalty received from Air India for ground handling services, the appellant argued that it should not be subject to Service tax as Air India had already paid tax on the amount. The Commissioner, citing a Ministry's Circular, held that the royalty was taxable. However, the Commissioner's findings lacked clarity on the nature of services rendered in exchange for the royalty. The Tribunal noted the lack of evidence regarding Air India's discharge of Service tax on the royalty.

4. The appellant contended that the licence fees collected were akin to rentals and should not be subject to Service tax. The Commissioner analyzed various agreements and concluded that the income from these agreements did not qualify as rent but as consideration for services provided. The Tribunal found the issue surrounding licence fees debatable and directed a pre-deposit to stay recovery pending appeal.

In conclusion, the Tribunal found the issues surrounding Service tax liability on royalty and licence fee to be debatable. They directed a pre-deposit to stay recovery pending appeal, considering the appellant's financial hardship. The case was set for further hearing to thoroughly scrutinize the agreements between the appellant and various parties before reaching a final decision.