Case Law Details
NHAI is only a statutory authority and not a constitutional authority. Therefore, the functions undertaken by such authority cannot be sovereign in nature. Sovereign functions are undertaken by the State and its organs and the powers that can be exercised by the State and its organs are defined in the Constitution. To equate the toll fee collected by the NHAI with the tolls collected by the Municipal Corporation of Delhi will be illogical for the reason that while the Municipal Corporation of Delhi is a democratically elected and constituted body under Article 243 Q of the Constitution and is empowered to collect tolls, entry fees etc. under Article 243 X of the Constitution of India, M/s NHAI is only a statutory body constituted under the NHAI Act, 1988 and has been assigned the functions of collection of tolls under section 16 of the said NHAI Act. Merely because the terminology used in both the cases is “toll” it does not mean that the functions are the same or the nature of the levy is same. While one is sanctioned by the Constitution duly authorised by law, the other is authorised by a statute not in the nature of a tax but in the nature of a fee for the services rendered. While the tax imposition is made for public purpose without reference to any service rendered by the State or any specific benefit conferred upon the tax payer, a fee is a payment levied by the State in respect of the services performed by it for the benefit of the individual. Money raised by a fee is set apart and appropriated specific for the purpose of the service for which it has been imposed and is not merged in the general revenues of the state. Further the NHAI Act itself provides under section 18 that the fee collected by the authority shall be credited to its own fund and can be utilised for meeting its expenses in the discharge of its functions on salary and allowances and other remunerations provided to its members, officers or other employees etc. In view, of the distinctive nature of the functions and the amounts collected, prima facie we are of the view that the functions performed by NHAI or its contractor cannot be considered as sovereign functions nor the fees collected acquires the nature of tax or duty so as to be outside the scope of service tax. As noted already, NHAI is supposed to work on business principles and therefore it cannot be stated that it does not perform business activities. Its business is development, maintenance and management of national highways. Any service rendered in relation thereto would appear to merit classification under ‘Business Auxiliary Services’. Prior to 10.09.2004, the said activity would prima facie be covered under clause 19(iv) of section 65 and after 10.09.2004 the said service would be covered under clause 19(vii) of section 65.
Honourable Apex court in the case of P.C. PAulose vs. Commissioner of Central Excise & Customs, reported in. In that case the appellant was collecting entry fee at the airport on behalf of Airport Authority of India in terms of a licence agreement entered into between the appellant and the Airport Authority of India Ltd. The issue before the court was whether this activity would amount to a taxable service and the apex court held that the activity would get covered under section 65 clause 105 (zzm) of the Finance Act, 1994. The provisions relating to constitution of Airport Authority of India and its collection of entry fees at the airport are more or less similar to the constitution of NHAI and its collection of toll charges. Therefore, if NHAI engages somebody else to collect toll charges on its behalf and pays them remuneration, the service so rendered would appear to merit classification under ‘Business Auxiliary Service’.
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH, MUMBAI
COURT NO. II
Application No.ST/Stay-324/2010
Appeal No. ST/85/2010
ORDER NO.S/383/11/CSTB/C-I
Arising out of Order-in-Original No. 46/BR-42/ST/Th-I/2009 Dated: 19.11.2009
Passed by the Commissioner of Central Excise, Thane-I
Date of Decision: 9.9.2011
IDEAL ROAD BUILDERS PVT LTD
Vs
COMMISSIONER OF SERVICE TAX, MUMBAI
JUDGMENT
Per: P R Chandrasekharan:
This appeal and stay application are filed against Order-in-Original no. 46/BR-42/ST/Th-I/2009 dated 19.11.2009 passed by the Commissioner of Central Excise, Thane-I Commissionerate.
2. The facts arising for consideration in this case are briefly as follows:
2.1 The appellant M/s Ideal Road Builders Pvt. Ltd. (‘IRBPL’ in short) was engaged in the business of toll collection on behalf of M/s National Highway Authority of India (NHAI). They entered into a contract with NHAI wherein they collected the toll for the specified national highway and remitted the same to M/s NHAI and in respect of the services rendered they received a fixed remuneration from M/s NHAI. This was for the period from 01.07.2003 to 31.07.2006. For the period from 01.01.2006 to 31.07.2007, they also entered into a toll rights contract under which they paid a fixed monthly sum to M/s NHAI on account of toll and collected the toll from the users of the roads and retained the entire amount with them. The department was of the view that the services rendered by M/s IRBPL to M/s NHAI would come under the category of ‘Business Auxiliary Services’ and they were liable to pay service tax under that category.
2.2 Accordingly, a show cause notice dated 10.04.2007 was issued proposing to classify the services rendered by them under the category of ‘Business Auxiliary Services’ and demanding service tax of Rs. 96,36,209/- for the period from 01.07.2003 to 31.01.2007 by invoking the extended period of limitation under the proviso to sub-section (1) of section 73 of the Finance Act, 1994. Interest at appropriate rates for delayed payment of service tax was also demanded under section 75 of the said Act and it was also proposed to impose penalties for various contraventions under sections 75, 76, 77 and 78 of the Finance Act, 1994.
2.3 The case was adjudicated by the impugned order wherein the adjudicating authority held that the appellant M/s IRBPL was liable to pay Rs. 96,36,209/- towards service tax for the period from 01.07.2003 to 31.07.2007 under the category of ‘Business Auxiliary Services’ under section 73 of the Finance Act, 1994. The learned Commissioner further held that the appellant was liable to pay interest on the delayed payment of service tax at the appropriate rate under section 75 of the Finance Act, 1994. The adjudicating authority further imposed a penalty on the appellant equal to the amount of service tax under section 78 of the Act and a further penalty @Rs.200/- per day from the due date of payment to the actual date of payment of service tax under section 76 and also a penalty of Rs.8000/- under section 77 for failure to file ST-3 returns for the period from July 2003 to March 2007. The appellant is before us against the impugned order.
3. The learned counsel for the appellant submits that NHAI undertakes the activity of development, maintenance and management of National Highways which is a statutory function and the said activity cannot be considered as a ‘business activity’. Since they have provided the services to NHAI not in relation to any business, their activity cannot be brought under the tax net under the category of ‘Business Auxiliary Services’. The learned counsel further contends that during the period 01.07.2003 to 09.09.2004, they are not liable to pay service tax under the category of ‘Business Auxiliary Services’ as defined under section 65(19)(iv) and they are not liable to pay service tax under section 65(19)(vi) or under section 65(19)(vii) of the Finance Act, 1994 for the period 10.09.2004 to 31.01.2007. He also relied on the judgment of this Tribunal in the case of Intertoll India Consultants (P) Ltd. vs. CCE, Noida wherein it was held that a sub-contractor collecting toll charges on Delhi-Noida toll-bridge is not liable to service tax either before or after 10.09.2004 and such services are liable to be taxed only from 16.06.2005 under the category of management, maintenance and repair of immovable property services. He also relied on the judgment of this Tribunal in the case of Banas Sands TTCP Ltd. Vs. Commissioner of Central Excise (Adj.), New Delhi 2011 (23)STR 151 wherein it was held that collection of toll taxes on behalf of Municipal Corporation of Delhi on the entry of commercial vehicles in the State of Delhi is a sovereign function and cannot be terms as ‘Business Auxiliary Services’. In the light of these submissions the learned counsel submits that they have a very strong case on merits and prays for stay of the impugned order and recovery of dues adjudged pending final hearing and decision on their appeal.
4. Learned Commissioner (AR) appearing on behalf of the Revenue on the other hand submits that NHAI is only a statutory organization and the functions of NHAI are not sovereign functions. Service Tax in this case has been demanded from the appellant M/s IRBPL for the services rendered by them to M/s NHAI in respect of collection of toll charges either on a fixed remuneration contract or on the basis of toll rights collection amount. The learned Commissioner (AR) also relies on the judgment of this Tribunal in the case of Security Guards Board vs. Commissioner of Central Excise, Thane-II vide order no. S/196/11/CSTB/C-I passed on 06.05.2011 – wherein it was held that the activities undertaken by the Security Guards Board which is constituted under the State law will be liable to service tax under the category of ‘Security Agency Services’ and such functions cannot be considered as sovereign functions exempted from service tax. The said order pertains to a stay application filed in the case wherein a pre-deposit of 50% of the tax demanded was ordered and, therefore, on the same analogy the learned Commissioner (AR) submits that the appellant should be put to terms.
5. We have carefully considered the submissions made by both the sides. The National Highway Authority of India Ltd. has been constituted under the National Highway Authority of India Act, 1988 for the development, maintenance and management of National Highways and for matters connection therewith or incidental thereto. Section 16 of the said Act defines the functions of the said authority as follows:-
“16. Functions of the Authority.
(1) Subject to the rules made by the Central Government in this behalf, it shall be the function of the Authority to develop, maintain and manage the national highways and any other highways vested in, or entrusted to, it by the Government.
(2) Without prejudice to the generality of the provisions contained in sub-section (1), the Authority may, for the discharge of its functions –
(a) Survey, develop, maintain and manage highways vested in, or entrusted to, it;
(b) Construct offices or workshops and establish and maintain hotels, motels, restaurants and rest-rooms at or near the highways vested in, or entrusted to, it;
(c) Construct residential buildings and townships for its employees;
(d) Regulate and control the plying of the vehicles on the highways vested in, or entrusted to it, for the proper management thereof;
(e) Develop and provide consultancy and construction services in India and abroad and carry on research activities in relation to the development, maintenance and management of highways or any facilities thereat;
(f) Provide such facilities and amenities for the users of the highways vested in, or entrusted to, it as are, in the opinion of the Authority, necessary for the smooth flow of traffic on such highways;
(g) Form one or more companies under the Companies Act, 1956 (1 of 1956) to further the efficient discharge of the functions imposed on it by this Act;
(h) Engage, or entrust any of its functions to, any person on such terms and conditions as may be prescribed.
(i) Advise the Central Government on matters relating to highways;
(j) Assist, on such terms and conditions as may be mutually agreed upon, any State Government in the formulation and implementation of schemes for highway development;
(k) Collect fees on behalf of the Central Government for services or benefits rendered under section 7 of the National Highways Act, 1956 (48 of 1956), as amended from time to time, and such other fees on behalf of the State Governments on such terms and conditions as may be specified by such State Governments; and
(l) Take all such steps as may be necessary or convenient for, or may be incidental to, the exercise of any power or the discharge of any function conferred or imposed on it by this Act.”
Thus the National Highway Authority is a statutory authority and collects fees on behalf of the Government of India for the services or benefits rendered at the rates specified by the Government.
5.1 Further, section 10 of the Act specify that:
“In the discharge of its functions under this Act, the Authority shall act, so far as may be, on business principles.”
5.2 Thus, it would appear that M/s NHAI is only a statutory authority and not a constitutional authority. Therefore, the functions undertaken by such authority cannot be sovereign in nature. Sovereign functions are undertaken by the State and its organs and the powers that can be exercised by the State and its organs are defined in the Constitution. To equate the toll fee collected by the NHAI with the tolls collected by the Municipal Corporation of Delhi will be illogical for the reason that while the Municipal Corporation of Delhi is a democratically elected and constituted body under Article 243Q of the Constitution and is empowered to collect tolls, entry fees etc. under Article 243X of the Constitution of India, M/s NHAI is only a statutory body constituted under the NHAI Act, 1988 and has been assigned the functions of collection of tolls under section 16 of the said NHAI Act. Merely because the terminology used in both the cases is “toll” it does not mean that the functions are the same or the nature of the levy is same. While one is sanctioned by the Constitution duly authorized by law, the other is authorized by a statute not in the nature of a tax but in the nature of a fee for the services rendered. While the tax imposition is made for public purpose without reference to any service rendered by the State or any specific benefit conferred upon the tax payer, a fee is a payment levied by the State in respect of the services performed by it for the benefit of the individual. Money raised by a fee is set apart and appropriated specific for the purpose of the service for which it has been imposed and is not merged in the general revenues of the state. Further the NHAI Act itself provides under section 18 that the fee collected by the authority shall be credited to its own fund and can be utilized for meeting its expenses in the discharge of its functions on salary and allowances and other remunerations provided to its members, officers or other employees etc. In view, of the distinctive nature of the functions and the amounts collected, prima facie we are of the view that the functions performed by NHAI or its contractor cannot be considered as sovereign functions nor the fees collected acquires the nature of tax or duty so as to be outside the scope of service tax. As noted already, NHAI is supposed to work on business principles and therefore it cannot be stated that it does not perform business activities. Its business is development, maintenance and management of national highways. Any service rendered in relation thereto would appear to merit classification under ‘Business Auxiliary Services’. Prior to 10.09.2004, the said activity would prima facie be covered under clause 19(iv) of section 65 and after 10.09.2004 the said service would be covered under clause 19(vii) of section 65.
6. A similar issue came before the Hon’ble Apex court in the case of P.C.PAulose vs. Commissioner of Central Excise & Customs, reported in. In that case the appellant was collecting entry fee at the airport on behalf of Airport Authority of India in terms of a licence agreement entered into between the appellant and the Airport Authority of India Ltd. The issue before the court was whether this activity would amount to a taxable service and the apex court held that the activity would get covered under section 65 clause 105 (zzm) of the Finance Act, 1994. The provisions relating to constitution of Airport Authority of India and its collection of entry fees at the airport are more or less similar to the constitution of NHAI and its collection of toll charges. Therefore, if NHAI engages somebody else to collect toll charges on its behalf and pays them remuneration, the service so rendered would appear to merit classification under ‘Business Auxiliary Service’.
7. Accordingly, we are prima facie of the view that the appellant has not made out a case for complete waiver of the dues adjudged in the impugned order. From the records it is seen that a pat of the demand confirmed by the adjudicating authority is within the normal period of time and the tax demanded for the normal period of time would be approximately Rs. 45 lakhs out of the total demand of Rs.96,36,209/-. Accordingly, we direct the appellant to make a pre-deposit of Rs. 45 lakhs under the provisions of section 83 of the Finance Act, 1994 read with section 35F of the Central Excise Act, 1944 within a period of 8 weeks from the date of receipt of this order and report compliance on or before 15.12.2011. On such compliance the balance amount of service tax, interest and penalties adjudged shall stand waived and recovery thereof stated during the pendency of this appeal.
(Pronounced in Court on 09.09.2011)
