Private airport developers received significant relief from the Supreme Court on Friday. The court ruled that they are not obligated to pay service tax on the user development fee (UDF) imposed on passengers for the operation, maintenance, and development of Mumbai, Delhi, and Hyderabad international airports.
The court considered a 2006 tax circular that clarified the exemption of taxes, including sovereign or statutory dues, from the service tax levy. While the original authority had upheld the tax demands, along with penalties, imposed by the department on the development fee collected by the three airport operators, the customs, excise, and service tax appellate tribunal (CESTAT) had allowed appeals stating that the development fee was not subject to the service tax levy. The revenue department subsequently approached the Supreme Court, contending that UDF is a fee collected for expanding or enhancing various airport services, such as passenger lounges, amenities, and restrooms.
According to Advocate Kishore Kunal, this decision finally resolves a longstanding tax dispute. Although the decision pertains to the service tax period, it is expected to have an impact on the current collection of GST (Goods and Services Tax) on this fee as well.