Whether non taxable services would be liable to tax under Port/Airport Services!

[Anil Kumar]

Whether non-taxable services would be liable to tax under Port/Airport Services?

We were of the view that the recent amendments to 'airport service' and 'port service' would set at rest all the litigations that arose from various interpretation by reading the definition. In the circular dated 26.2.2010 it was clarified that since divergent practices were being followed regarding classification of services being performed within port/airport area and to remove the difficulties it was felt necessary to amend the port/airport services so that all services provided entirely within the port/airport premises would fall under these services. The amended definition reads as under:

"(zn) to any person, by any other person, in relation to port services in a port, in any manner:

Provided that the provisions of section 65A shall not apply to any service when the same is rendered wholly within the port;'';

"(zzl) to any person, by any other person, in relation to port services in other port, in any manner:

Provided that the provisions of section 65A shall not apply to any service when the same is rendered wholly within other port;'';

"(zzm) to any person, by airports authority or by any other person, in any airport or a civil enclave:

Provided that the provisions of section 65A shall not apply to any service when the same is rendered wholly within the airport or civil enclave;";

By adding a proviso to the above definitions that the provisions of Section 65A would not apply, it was evident that the intention of the Parliament was to cover only a 'taxable service' rendered within the port/airport premises under the phrase 'any service' since Section 65A covered classification of only taxable services and not services which are not taxable.

With this amendment it was our expectation that all litigations related to port/airport services would be set to rest. Alas that was to be only until the Government issued the recent notifications exempting a few services from the purview of the above said services opening a Pandora's box.

Notification No.31/2010-ST dated 22.6.2010 exempted the following services:

(i) repair of ships or boats or vessels belonging to the Government of India including Navy or Coast Guard or Customs but does not include Government owned Public Sector Undertakings;

(ii) repair of ships or boats or vessels where such process of repair amounts to 'manufacture' and has the meaning assigned to it in clause (f) of Section 2 of the Central Excise Act, 1944;

(iii) supply of water;

(iv) supply of electricity;

(v) treatment of persons by a dispensary, hospital, nursing home or multi-specialty clinic (except cosmetic or plastic surgery service);

(vi) services provided by a school or centre to provide formal education other than those services provided by commercial coaching or training centre;

(vii) services provided by fire service agencies.

(viii) pollution control services

Except for the first two activities which fall within the definition of Section 65(105) under the taxable category of 'management, maintenance or repair' all the other services listed in the Notification are services which are not taxable. However, by exempting the services such as supply of water, supply of electricity, treatment of persons by a dispensary, hospital or nursing home or multi-speciality clinic, formal education provided by a school, services provided by fire agency services and pollution control services the Government has sought to bring in services which are erstwhile non-taxable within the taxable net. By doing so the departmental officials would be justified in now seeking to levy service tax on various other services provided within the port/airport which are not taxable otherwise, in terms of Section 65(105).

Some of the services that immediately come to mind are services rendered by post offices, police services, defence services, individual doctors, ambulances, hotels and restaurants, cultural and entertainment services, social services, veterinary services, wholesale trade and retailing services, sewage, sanitation, refuse disposal and other similar services. All these are services which are hitherto not taxable, would be considered taxable under port/airport services since these are not covered in the Notification No.31/2010-ST dated 22.6.2010 wherein select few non taxable services have been exempted.

It is altogether another issue whether all the above services including education for which exemption is granted vide Notification No.31/2010 is rendered within the port/airport or outside the port/airport premises, necessitating such an exemption. Schools in any case cannot be within the premises of airport or port, but however, exemption has been sought to be given. This raises another question is whether the port premises would also include the civil areas outside the port premises and precincts thereof although the definition does not contemplate the same.

Incidentally it may be mentioned here that the Circular dated 26.2.2010, issued immediately after the Budget was presented, also states that all services (not just taxable services) provided entirely within the port/airport premises would fall under the amended definition which the departmental officers would use to justify their actions in future.

"1.4 In order to remove these difficulties, the definitions of the relevant taxable services are being amended to clarify that all services provided entirely within the port/airport premises would fall under these services. Further, specific authorisation from the port/airport authority would now not be a pre-condition for the levy."

The reason for amending the definitions of port/airport services was to reduce litigation but with this Notification are we heading for another round of litigation???

Discussions to this article

[Anuj Bansal]

You have very rightly said in this article this is leading to more litigation. Further, i may also add that as your rightly said all the services provided in the Airport are chargeable to service tax, but there are certain services like excess baggage service by Airline Operators where part of the service is provided in the Airport. Whether such kind of service is also chargeable to service tax?