2018 (5) TMI 880 - AT - Service Tax

Liability of service tax - Franchise agreement - Operations, Management and Development Agreement (OMDA) with the AAI - sharing of revenue collection - Held that - the identical issue has come up before the Tribunal in assessee s own case M/s. Airport Authority of India Versus Commissioner of Service Tax (Adjn) 2018 (2) TMI 1565 - CESTAT NEW DELHI , where it was held 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 franchise agreement for revenue sharing at airports under OMDA; Applicability of service tax on revenue sharing; Judicial precedent on OMDA as a taxable service.

Analysis:
The case involved appeals against Order-in-Original No. 14/AKJ/ST-1/2015 and DLI-SVTAX-001-COM-004-15-16, where the issue was the same and addressed in a common order. The Airports Authority of India (AAI) was responsible for airport development under the Airports Authority of India Act, 1994. A policy decision led to privatization of airports, with the AAI offering Operations, Management and Development Agreements (OMDA) to suitable parties for airport management. The AAI entered into an OMDA with M/s. GMR/GVR, entitling them to share revenue at 74% and the appellant at 26%. New entities like DIAL and MIAL were formed, with the airports handed over to them, except for certain services. The appellant contended that revenue sharing was based on gross revenue, not profit, and service tax was already paid on gross revenue. However, the department viewed it as a franchise agreement, making service tax applicable, leading to a demand for service tax and penalty.

The Tribunal referred to a previous case where the issue was discussed, citing a High Court observation that OMDA did not constitute a franchise or taxable service under the Finance Act. Following this precedent, the Tribunal found no merit in the earlier order due to the Amendment in the Act and set it aside. Consequently, the impugned orders were overturned, and the appeals were allowed. The decision was based on the interpretation of the OMDA and the applicability of service tax on revenue sharing, aligning with the High Court's ruling on the non-taxable nature of OMDA transactions.