2018 (2) TMI 1565 - AT - Service Tax

Franchise agreement - perations Management and Development Agreement (OMDA) with the AAI - Held that - the issue has came up before the Hon ble Delhi High Court in the case of Delhi International Airport P. Ltd. & Mumbai International Airport P. Ltd. Versus Union Of India & Ors. 2017 (2) TMI 775 - DELHI HIGH COURT where it was observed that OMDA does not constitute a franchise in terms of Section 65 (47) of the Finance Act and the transaction between the petitioners and AAI does not constitute a taxable service in terms of section 65 (105 (zze) of the Finance Act 1994 - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Interpretation of the Operations, Management and Development Agreement (OMDA) between Airport Authority of India (AAI) and the appellants.
- Determination of whether the revenue sharing between the parties was based on gross revenue or profit basis.
- Applicability of service tax on the revenue sharing under the OMDA.
- Comparison with a similar case before the Hon'ble Delhi High Court regarding the nature of OMDA.

Analysis:
The appeal before the Appellate Tribunal CESTAT NEW DELHI involved a dispute arising from the Operations, Management and Development Agreement (OMDA) between the Airport Authority of India (AAI) and the appellants. The OMDA aimed to privatize airport management by offering a long-term agreement to suitable parties for the development, operation, and maintenance of airports in India. The agreement entailed revenue sharing, with the appellants entitled to a certain percentage of the revenue collected, while the AAI retained the remaining share. The key contention was whether the revenue sharing was based on gross revenue or profit basis, leading to a disagreement on the applicability of service tax on the revenue sharing arrangement.

Upon reviewing the facts and arguments presented by both parties, the Tribunal considered a similar case before the Hon'ble Delhi High Court, where the nature of the OMDA was analyzed. The Hon'ble High Court had determined that the OMDA did not constitute a franchise under the Finance Act and that the transaction between the parties did not fall under taxable services as per the relevant provisions of the Finance Act, 1994. Relying on the High Court's decision, the Tribunal found no merit in the impugned order that had been issued before relevant amendments to the Act. Consequently, the Tribunal set aside the previous order and allowed the appeal in favor of the appellants.

The Tribunal's decision was based on the interpretation of the OMDA, the nature of revenue sharing between the parties, and the applicability of service tax in light of the High Court's ruling. The judgment highlighted the importance of legal interpretation in contractual agreements and tax implications, emphasizing the need for clarity and consistency in such matters to avoid disputes and ensure fair treatment of the parties involved.