No Service Tax on fees paid for grant of Airport Management to AAI

Taxable service is not mere granting of a franchise but is where the franchisor provides service to a franchisee. For the transaction to be taxable, it is necessary that the service should be provided by the AAI to the Petitioners. It is not pointed out by the Revenue as to how and in what form service is being provided by AAI to the Petitioners. The Annual Fees paid is not because of any service rendered by AAI to the Petitioner. AAI has entrusted the petitioners with some of its functions under Section 12 of the Airports Authority of India Act and no service is being rendered by the AAI to the petitioners in performance of those functions. Perusal of clauses of OMDA clearly shows that AAI does not render any service to the petitioners.

Clearly, as there is no representational right conferred by AAI on the petitioners, the OM DA cannot constitute a franchise in terms of Section 65(47) of the Finance Act. Further as no service is being provided by AAI to the petitioners, there cannot be said to be any taxable service in terms of section 65(105) (zze).

Full Extract of the Judgment for ready reference of our readers

1. These petitions inter-alia seek the relief of declaration that the provisions of Section 65(90a) and Section 65(105) (zzzz) of the said Finance Act, 1994 as amended by Finance Act, 2007 are ultra-vires Entry 18 Entry 45 and Entry 49 of List-II of Schedule VII of the Constitution of India and/or Entry 92-C read with Entry 97 of List-I of Schedule VII of the Constitution of India and/or Articles 14, 19(1)(g), 265 and 300A of the Constitution of India and/or Section 66 of the Finance Act, 1994;

2. Further a Writ of Prohibition is sought, prohibiting the Respondents or their servants, agents and subordinates from, directly or indirectly giving effect to the impugned provisions i.e. Section 65(90a) read with Section 65(105)(zzzz) of the Finance Act, 1994 as amended by Finance Act, 2007 and from charging and collecting Service Tax on the Annual Fee payable by the Petitioners (i.e. Delhi International Airport P. Ltd. {DIAL for short}, petitioner in W.P. (C) 251 6/2008 & Mumbai International Airport P. Ltd { MIAL for short}, petitioner in W.P. (C) 2707/2008) to the Respondent no.4 (Airports Authority of India {AAI for short});

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