UDF collected by airport operation, maintenance and development entities is not leviable to service tax

Central GST Delhi – III Vs  Delhi International Airport Ltd (Supreme Court of India)

Supreme Court held that User Development Fee (UDF) is in the form of ‘tax or cess’ collected for financing the cost of future projects and is not a consideration for services provided by the assessee to the customer, visitors, passengers, vendors etc.

Facts- In all these appeals, orders of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) are impugned by the service tax authorities (the revenue), who argue that user development fee levied and collected by the airport operation, maintenance and development entities (i.e., the Mumbai International Airport Pvt. Ltd., the Delhi International Airport Pvt. Ltd., and the Hyderabad International Airport Pvt. Ltd., (the assessees) is subjected to service tax levy, under the provisions of the Finance Act, 1994 (the Act).

Conclusion- The User Development Fee (UDF) is in the form of ‘tax or cess’ collected for financing the cost of future projects and is not a consideration for services provided by the assessee to the customer, visitors, passengers, vendors etc.

In the present case, neither there is any compulsion to levy development fee nor is the collection conditional upon its deposit in the government treasury. However, the absence of these features does not render UDF any less a statutory levy. The collection is not premised on rendering of any service. The amounts collected are deposited in an escrow account, not within the control of the assesses and the utilization of funds, is monitored and regulated by law.

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