Holding

The licencee, as an authorized person of AAI providing airport services, steps into AAI’s shoes and is liable to pay service tax under Section 65 Clause 105(zzm) of the Finance Act, 1994.

Summary

The appellant, Sparkway Enterprises, held a licence from the Airports Authority of India (AAI) to collect airport admission ticket charges at Karipur Airport and paid a monthly licence fee to AAI. The Central Board of Excise and Customs issued a show‑cause notice demanding service tax and education cess on the collected charges, asserting that the appellant, as an authorized person, was liable to pay tax. The appellant argued it was merely a collecting agent and that AAI, as the actual service provider, should bear the tax liability. The Supreme Court examined the licence agreement, the definitions in Section 65 of the Finance Act, 1994, and the circular issued by the Board, concluding that the licencee stepped into AAI’s shoes and was therefore a taxable service provider. Consequently, the Court held the appellant liable for service tax and dismissed the appeal.

Issues considered

Whether a licencee authorized by the Airports Authority of India to collect airport admission charges is liable to pay service tax under the Finance Act, 1994.
Whether the appellant is merely a collecting agent and thus not a service provider for tax purposes.
Interpretation of Section 65 Clause 105(zzm) and the definition of "taxable service" and "airport authority".

Legislation cited

Airports Authority of India Act, 1994s. 3
Finance Act, 1994s. 65, s. 75, s. 76

Subjects

service taxairport serviceslicence agreementauthorized persontaxable serviceFinance Act 1994Airports Authority of Indialiabilitycollecting agent

Judgment

[2011] 1 S.C.R. ~72

A P.C. PAULOSE, M/S. SPARKWAY ENTERPRISES
v. --1- ~

COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS
(Civil Appeal No. 483 of 2011)
JANUARY 13, 2011
B
[DR. MUKUNDAKAM SHARMA AND
ANIL R. DAVE, JJ.]
~
Finance Act, 1994 - s. 65 - Clause 105 (zzm) and 3d -
c Licence granted by Airport Authority of lndia(AAI) to appellant
for collecting airport admission ticket charges on behalf of AA/
for which the appellant was required to pay monthly licence
fees - Liability of the appellant to pay service tax - Held:
Though the appellant deposited monthly licence fees to AA/
D but it collected the required fees from the users of the facility
and provided all facilities to such customers - Appellant ~
being a person authorized by AA/ to provide service in
express terms and conditions, it became liable to pay tax as
it was an authorized person to provide taxable service and
E collect the admission ticket charges on contract basis - The
appellant stepped into the shoes ofAAI for the service
provided on the basis of the authorization and became liable
to pay tax in terms of the operation of s. 65, Clause 105 (zzm) ~
- Service Tax.
F
Words and Phrases - 'Airport authority' and 'taxable
service' - Meaning of - Finance Act, 1994 - s.65, Clauses
(3d) and 105(zzm) - Airports Authority of India Act, 1994 -
s.3.

G The Airport Authority of India '(AAI) entered Into a
licence agreement with the appellant by which the 'I-
appellant was entrusted with the responsibility and the
activity of collecting airport admission ticket charges on
behalf of AAI Limited at Karipur Airport, Calicut. The
H 872
P.C. PAULOSE, MIS. SPARKWAYENTERPRISES v. . 873
COMMNR. OF C.E.C.

.. -Jr-
appellant was permitted to collect Rs. 50/- per visitor as
airport admission ticket charges for which the appellant
was required to pay an amount of Rs. 2,66,797/- per
A

month as licence fee. The appellant collected the
admission ticket charges for the period from 10.09.2004
to 31.03.2005. B
The Central Board of Excise and Customs issued
circular No. 80/10/2004 ST dated 17.09.2004 in regard to
~ service tax on airport services stating that services
provided in an airport or civil enclave to any person by
AAI or by a person authorized by it or any other person c
having charge of management of an Airport are taxable
under the aforesaid category. On the satisfaction that the
appellant was required to pay service tax on airport
services rendered by it as 'authorized person' of AAI at
Karipur Airport, Calicut for the period from 10.09.2004 to D
31.03.2005 a show cause notice was issued to the
appellant demanding service tax and education cess.
There was also a proposal to demand interest under
Section 75 of the Finance Act, 1994 on the above service
tax and education cess as well as penalty under Section E
76 of the Finance Act, 1994. The appellant submitted
reply pursuant to which the adjudicating authority
confirmed the demand of service tax and education cess
with interest under Section 75 of the Finance Act, 1994.
Aggrieved, the appellant filed appeal before the F
Commissioner of Central Excise & Customs (Appeals)
which was, however, dismissed. The appellant filed
second appeal before the Customs Excise & Service Tax
Appellate Tribunal [CESTAT]. The Tribunal allowed the
appeal holding that the appellant was only a collecting G
...,, agent and therefore the liability to pay the service tax
rested .on AAI which was the actual service provider.
Aggrieved, the department filed appeal before the High
Court. By the Impugned judgment, the High Court
allowed the appeal with a direction to the original
H
874 SUPREME COURT REPORTS (2011] 1 S.C.R.

A authority to verify whether AAI had paid service tax on the
admission tickets during the relevant period and, if in
case, AAI had paid the said service tax, the appellant
would stand exonerated from the liability; otherwise,
service tax would be recovered from the appellant as per
B the provisions of the Act.
The questiOn which arose for consideration in the·
instant appeal was whether the appellant-licencee could
be held liable for payment of sdrvice tax.
C Dismissing the appeal, the Court
HELD:1. The licence agreement clearly stipulates that
Airport Authority of India (AAI) Is entitled in law to grant
· licence at its Calicut Airport for the purpose of airport ·
0 admission so as to provide .amenities and facilities to
passengers and visitors at the Airport and that the
licensee, i.e., appellant, has agreed under the licence
agreement to render such services to AAI on the terms
and conditions mentioned in the said licence agreement.
E One of such stipulations was that the licensee would pay
all rates, assessment, out goings and other taxes as
levlable on the licensee in law. [Para 13) [881-C-D]
2. Another responsibility that vested on the licensee·
was to maintain regular and proper account books along
F with other supporting documents regarding sales
effected by the licensee In the said premises which could
be Inspected by AAI In such manner as may be
prescribed. The licensee was also responsible under the
licence agreement to operate the subject facility by
G charging the rate from users, as may be approved In
advance by AAI. [Para 14) [881-E]
3. Albeit, It Is true that the appellant deposits a licence
fees of Rs. 2,66,797~- per month to AAI but It collects the
H
P.C. PAULOSE, MIS. SPARKWAY ENTERPRISES v. 875
COMMNR. OF C.E.C.

required fees from the users of the facility and provide A
_;.-
all facilities to such customers. As per Clause 105 (zzm)
of Section 65 of Finance Act, 1994 'taxable service' mean_s
any service provided to any person, by Airport Authority
or any person authorized by it, in an Airport or a Civil
Enclave. As per Clause (3d) of Section 65 of the Finance B
Act, 1994 'Airport Authority' means AAI constituted under

~
-
Section 3 of the Airports Authority of India Act, 1994 and
also includes any person having charge of management
of an airport or a civil enclave. It is thus crystal clear that
the appellant being a person authorized by AAI to provide c
service in express terms and conditions, it becomes liable
to pay such tax as it was an authorized person to provide
taxable service and collect the admission ticket charges
on a contract basis. [Paras 6, 15) [881-F-H; 879-C]

-->( 4. Under the terms and conditions of the agreement, D
the appellant is authorized to provide all the services as
mentioned therein and, therefore, as per the statutory
definition the appellant steps into the shoes of AAI for the
service provided on the basis of the authorization and
becomes liable to pay such taxes in terms of the E
operation of Section 65 Clause 105 (zzm) of the Finance
Act, 1994. [Para 16] [882-C]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 483
of 20.11. F
From the Judgment & Order.dated 9.7.2009 of the High
Court of Kerala at Ernakulam in CE Appeal No. 28 of 2008.

Raghenth Basant, Liz Mathew for the Appellant.
·+ P.P. Malhotra, ASG, Harish Chandra, Aruna Gupta, B.
G
.' Krishna Prasad for the Respondents .

The Judgment of the Court was delivered by

HI
876 SUPREME COURT REPORTS [2011] 1 S.C.R.

A Dr. MUKUNDAKAM SHARMA, J. 1. Leave granted.

2. The issue that falls for consideration in this appeal is
whether the appellant, who is a licencee, could be held liable
for payment of service tax when actually the service provided
by them could and should be said to be provided by the Airport
B
Authority of India (for short "AAI"). It was contended on behalf
of the assessee that the role of the licensee-appellant was the
role of an agent and was therefore limited to collecting of fees
for the services rendered by AAI. In order to answer the ~
aforesaid issue it would be necessary to set out certain basic
c facts giving rise to the aforesaid issue.

3. The AAI entered into a licence agreement with the
appellant by which the appellant was entrusted with the
responsibility and the activity of collecting airport admission
D ticket charges on behalf of AAI Limited at Karipur Airport,
Calicut. As per the said agreement the appellant was permitted
to collect Rs. 50/- per visitor as airport admission ticket
charges for which the appellant was required to pay an amount
of Rs. 2,66,797/- per month as licence fee.
E
4. As per the aforesaid agreement the appellant was
collecting the admission ticket charges as mentioned above for
the period from 10.09.2004 to 31.03.2005. Some of the relevant
terms and conditions of the said licence agreement which
would have a bearing to the facts and circumstances of the
F present case are extracted hereinbelow: -

"Licence Agreement

Subject AAT Contract ITB
G This Agreement made the 2nd day of April of Two -4..
thousand four between the Airports Authority' of
India ............................................................

H
P.C. PAULOSE, MIS. SPAR'r<NVAY ENTERPRISES v. ~77
COMMNR. OF CJ:.C._(DR. MU!<UNDAKAM SHARMA, J.]
A

Whereas the Authority is entitled in 'Law' to grant
licence at its Calicut Airport for the purpose of Airport
Admission at ITB so as to provide amenities and facilities
to the passengers and visitors at Airport and is in 8
possession of space, more fully described in· the plan
annexed to this agreement, even after referred to as the
premises .

••• ••• ••• ••• ••• ""! • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

c

Now, therefore, this indenture witnesseth:

D

4. That the Licensee shall pay all rates, assessment, out
goings and other taxes as leviable on the Licensee in
'Laws'.
E

9. That the License~ shall equipped himself with all F
necessary permits, licenses and such other
permissions as may be required under law in force
at any time with regard to the operation of the
Subject licence.

a.r- 10. That the Licensee shall maintain such regular and G
proper account books along with other supporting
documents regarding sales effected by the
Licensee in the said premises and said accounts/
documents shall all the times be kept open for
inspection by Authority in such manner as may be H
878 SUPREME COURT REPORTS [2011] 1 S.C.R.

A prescribed. The Licensee shall provide to the
...._
Authority, if so required by the Authority, Statements
of audited Accounts in such manner and within such
period as the Authority may prescribe.

B ........................................................................
... ... ... ... ... ... ... ... ... ... ...... ... ... ... ... ... ······ ...............
12. That Authority shall provide bare space for the >-
subject services and other expenses shall be
c incurred by the Licensee. However, provisions of
electricity, water and drainage connections, as the
case may be, if so required, for the smooth
operation of the services shall be provided by the
Authority.
D
13. All the times during the currency of the licence >r-
agreement, it shall be the responsibility of the
licensee to obtain proper fire insurance coverage
including theft and burglary in respect of all the
movable and immovable assets stored or used in
E the licensed premises and authority shall not be
responsible for any loss or damage caused to the
licensee on any accounts whatsoever.

14. That Licensee shall operate the subject facility by
F charging the rate from users, as may be approved
in advance by the Authority. Licensee shall exhibit
the said approved charges at a conspicuous pl
inside the licensed premises .

... ... ... ... ... ... ......... ... ...... ... ... ... ... ... ... ... ... ... ......
G ..,..
... ......... ...... ... ...... ... ... ... ... ... ... ... ... ... ............ •
5. It is evident from the aforesaid terms and conditions of
the agreement that the appellant was granted licence by AAI
H to collect the admission ticket charges so as to provide
P.C. PAULOSE, MIS. SPARKWAY ENTERPRISES v. 879
COMMNR. OF C.E.C. [DR. MUKUNDAKAM SHARMA, J.]

amenities and facilities to the passengers .and visitors at the A
-.>- Airport. Under the said agreement, the appellant was also
required to pay all rates, assessment, out goings and other
taxes as leviable on the Licensee as per law. It is also clear
therefrom that AAI has only provided bare space and all
_expenses for providing services to passengers I Visitors are to .· B
be borne by the appellant.

6. As per Clause 105 (zzm) of Section 65 of Finance Act,
_,/,_ 1994 'taxable service' means any service provided to any
person, by Airport Authority or any person authorized by it, in
an Airport or a Civil Enclave. As per Clause (3d) of Section 65
c
of the Finance Act, 1994 'Airport Authority' means AAI
constituted under Section 3 of the Airports Authority of India Act,
1994 and also includes any person having charge of
management of an airport or a civil enclave.
D
y 7. The Central Board of Excise and Customs by issuing a
circular No. 80/10/2004 ST dated 17.09.2004 stated by way
of clarification on the scope of service tax on airport services
by making it clea.r that services provided in an airport or civil
enclave to any person by AAI or by a person authorized by it E
or any other person having charge
I
of management of an Airport
are taxable under the afores~id category. On the satisfaction
that the appellant was required to pay service tax on airport
services rendered by it under the aforesaid provisions as
'authorized person'. of AAI at Karipur Airport, Calicut for the F
period from 10.09.2004 to 31.03.2005 a show cause notice
was issued to the appellant demanding service tax amounting
to Rs. 1,80,845/- and education cess amounting to Rs. 3,617/
-. There was also a proposal to demand interest under Section
75 of the Finance Act, 1994 on the above service tax and G
4f education cess as well as penalty under Section 76 of the
Finance Act, 1994. ·

8. On receipt of the aforesaid show cause notice, the
appellant submitted a reply before the original authority
contending inter alia that the Airport Authority only is H
880 SUPREME COURT REPORTS [2011] 1 S.C.R.

A responsible for the collection of service tax as the appellant was
not permitted to collect the service tax from the public. It was
also contended that the implementation of the service tax and
responsibility of the collection of service tax was that of AAI as
the principal service provider of the Airport and that the appellant
B was only authorized to collect the pre$cribed admission
charges and remit the fixed licence fees to AAI.

9. The adjudicating.authority considered the entire matter
and after careful consideration of the reply of the appellant and )>-
after giving a hearing to the appellant confirmed the demand ,
c of service tax of Rs. 1,64, 106/- and education cess of Rs.
3,282/- with interest under Section 75 of the Finance Act, 1994.
10. Being aggrieved by the said order, appellant filed an
appeal before the Commissioner of Central Excise & Customs
D (Appeals), Cochin. The Commissioner (Appeals), however,
dismissed the said appeal, aggrieved by which, the appellant
filed second aopeal before the Customs Excise & Service Tax
Appellate Tribunal [for short 'CESTAT'], South Zonal Bench,
Bangalore. The Tribunal, allowed the appeal filed by the
E appellant by holding that the appellant is only a collecting agent
and therefore the liability to pay the service tax rest on AAI which
is the actual service provider.

11. Being aggrieved by the said judgment and order
passed by CESTAT, the department filed Central Excise
F
Appeal No. 28/2008 before the Kerala High Court. By the
impugned judgment and order the High Court allowed the
appeal with a direction to the original authority to verify whether
AAI has paid service tax on the admission tickets during the
. relevant period and, if in case, AAI had paid the said service
G tax, the appellant would stand exonerated from the liability;
~
otherwise, service tax would be recovered from the appellant
as per the provisions of the Act. Being ·aggrieved by the
aforesaid impugned judgment and order of the High Court the
present appeal was filed by the appellant on which we heard
H the counsel appearing for the parties.
P.C. PAULOSE, MIS. SPARKWAY ENTERPRISES v. 881
COMMNR. OF C.E.C. [DR. MUKUNDAKAM SHARMA, J.]

12. We have already set out the issue which falls for our A
consideration in the present appeal. In our opinion as to whether
or not the appellant is a service provider and, therefore, liable
to pay the service tax rest on the interpretation of the
aforementioned circular and also the aforesaid provisions
which are already referred to hereinbefore. B

13. The licence agreement clearly stipulates that AAI is
entitled in law to grant licence at its Calicut Airport for the
purpose of airport admission so as to provide amenities and
.facilities to passengers and visitors at the Airport and that the C
licensee, i.e., appellant, has agreed under the licence
agreement to render such services to AAI on the terms and
conditions mentioned in the said licen.ce agreement. One of
such stipulations was that the licensee would pay all rates,
assessment, out goings and other taxes as leviable on the
licensee in laws. D

14. Another responsibility that vested on the licensee was
to maintain regular and proper account books along with other
supporting documents regarding sales effected by the licensee
in the said premises which could be inspected by AAI in such E
manner as may be prescribed. The licensee was also
responsible under the licence agreement to operate the subject
facility by charging the rate from users, as may be approved in
advance by AAI.

15. Albeit, it is true that the appellant deposits a licence F
fees of Rs. 2,66,797/- per month to AAI but it collects the
required fees from the users of the facility and provide all
facilities to such custorners. Section 65 Clause 105(zzm) of
Finance Act, 1994 defines 'taxable service' to mean any·
person, by airports authority or any person authorised by it, in G
, an airport or a civil enclave. It is thus crystal clear that the
appellant being a person authorized by AAI to provide service
in express terms and conditions, it becomes liable to pay such
tax as it was an authorized person to provide taxable servi~,..
and collect the admission ticket charges on a contract ba$i$;L .
882 SUPREME COURT REPORTS (2011] 1 S.C.R.

A 16. Under the terms and conditions set out hereinbefore
of the agreement the appellant is authorized to provide all the
services as mentioned therein and, therefore, as per the
statutory definition the appellant steps into the shoes of AAI for
the service provided on the basis of the authorization and
B becomes liable to pay such taxes in terms of the operation of
Section 65 Clause 105 (zzm) of the Finance Act, 1994.

17. Consequently, we find no merit in this appeal and the
same is dismissed without any order as to costs.

C B.B.B. Appeal dismissed.