Collection of Toll on Highway

PJ/Case Laws/2011-12/1466

Collection of Toll on Highway - Taxability of

Case: SWARNA TOLLWAY (PVT.) LTD. v/s COMMISSIONER OF CUS. & C. EX., GUNTUR

Citation: 2011 (24) S.T.R. 738 (Tri.-Bang.)

Issue:- Toll collected by assessee from users of certain sections of certain Highways under a ‘Concession Agreement’ during period of dispute - Whether assessee liable to pay service tax under ‘Business Auxiliary Service’?

Brief Facts:- The Central Government (Ministry of Road Transport and Highways) had authorized the National Highways Authority of India (NHAI) to improve and upgrade a section (52.8 KM to 163.6 KM) of National Highway No. 5 (NH-5) and a section (217 KM to 252 KM) of National Highway No. 9 (NH-9) in Andhra Pradesh, the former referred to as "Tada-Nellore Section of NH-5" and the latter referred to as "Nandigama-Ibrahimpatnam Section of NH-9". The work included construction, strengthening and widening of the two-lane Highways into four-lane Highways and the operation and maintenance and toll collection of the above sections through a 'Concession' on "Build, Operate and Transfer" (BOT) basis.

Accordingly, NHAI entered into Agreement dated 19-12-2000 with a Malaysian company viz. CIDBI Inventures SDN BHD ("CIDBI"). This agreement was concluded after NHAI invited proposal from CIDBI for design, engineering, financing, procurement and construction, completion, operation, maintenance and toll collection of the aforesaid highways on BOT basis and after the detailed project proposal submitted by CIDBI was accepted by NHAI. The agreement also disclosed the intention of NHAI to enter into an agreement with CIDBI for the purpose of implementing the project and grant of concession in relation to the aforesaid Highways by way of a 'Concession Agreement'. NHAI accordingly agreed to grant to CIDBI and CIDBI agreed to accept the exclusive right, licence and authority to implement the project in accordance with the above proposal. The Agreement stated that the proposed 'Concession Agreement' would be for a period of 30 years including the construction period. It further stated that this period of 30 years would commence from the date to be specified in the 'Concession Agreement'. The above agreement dated 19-12-2000 further laid down that CIDBI shall (a) design, engineer, finance, procure and construct all the works included in the scope of the Project in accordance with the Concession Agreement; (b) upon completion of the strengthening and widening to four-lane Highways, manage, operate and maintain the Highways and regulate the use thereof in accordance with the terms of the Concession Agreement; (c) upon completion and opening of the Highways to traffic, levy, demand, collect and appropriate the fees from users of the Highways and regulate traffic on the Highways. The Agreement also entitled CIDBI to grant of project subsidy of Rs. 167.5 crores to be disbursed fully during the construction period. It also prescribed that the project costs to be reflected in the Concession Agreement should be Rs. 759.87 crores. The Agreement was to continue to be in force till execution of the Concession Agreement. Clause 5 of the Agreement dated 19-12-2000, which is relevant to the present case, authorized CIDBI to transfer all rights, benefits, interests, duties and obligations under the Agreement to a "Special Purpose Vehicle" (SPV) to be constituted by CIDBI either solely or jointly with other parties for the purpose of implementing the project and the concession.

On 27-3-2001, the Concession Agreement was executed between NHAI and CIDBI, whereunder NHAI granted to CIDBI (Concessionaire) the concession for a period of 30 years, including the exclusive right, licence and authority to implement the project and the concession in respect of the Project Highways. The Concession Agreement obligated CIDBI as Concessionaire (a) to develop, design, engineer, finance, procure, construct, operate and maintain the Project Highways during the concession period; (b) upon completion of the Project Highways, to manage, operate and maintain the Project Highways and regulate use thereof by the parties; (c) to levy, demand, collect and appropriate fees from users (vehicles and persons) of the Project Highways and to refuse entries of any vehicle to Project Highways in the event of non-payment of fee; and (d) to bear and pay all expenses, costs and charges incurred in the fulfilment of the Concessionaire's obligations under this Agreement. Under the Concession Agreement, CIDBI could not assign or create any lien or encumbrance on the Concession granted or on the whole or any part of the Project Highways, nor transfer lease or part possession therewith save and except as expressly permitted by this Agreement or the Substitution Agreement.

On 29-6-2001, an Assignment Agreement was entered into between NHAI, CIDBI and the assessee (STPL) pursuant to Clause 5 of the Memorandum of Agreement dated 19-12-2000 ibid. In this agreement, STPL was referred to as "Special Purpose Vehicle" or "SPV". This agreement stated that CIDBI jointly with other parties promoted and incorporated the Special Purpose Vehicle to design, engineer, finance, procure, construct and operate and maintain the Project on BOT basis in accordance with the provisions of the Concession Agreement and that NHAI accepted the SPV in the place of CIDBI in relation to the Concession Agreement.

The Central Government (Ministry of Road Transport and High ways) issued Notification dated 28.04.2001 prescribing the rates at which fees should be levied and collected from vehicles for the use of the project highways and also authorized CIDBI to collect and retain such fees from the date of commercial operation till the date of termination of the Concession Agreement. Assessee collected such fees from the users of the project Highways during the disputed period on behalf of CIDBI.

Department issued show cause notice to the appellant demanding service tax on the toll charges collected by them from Toll plazas situated on NH-5 from 21.05.2004 to 31.12.2006. Another show cause notice also demanded service tax for the period from 01.01.2007 to 31.12.2007. It was alleged that the services provided by the assessee fell under BAS. SCN were also issued for period 01.01.2008 to 30.11.2008.

SCN was also issued to STPL for recovery of service tax on toll charges collected at Nandigama-Ibrahimpatnam Section of NH-9 during the period from 11.09.2004 to 31.03.2009.

The Adjudicating Authority confirmed the demand with interest and imposed penalties.

Appellant’s Contention:- Appellant contended that they were an agent acting on behalf of M/s. CIDBI while collecting toll charges and they were collecting the toll charges and retained them being the Concessionaire. Consequently, they were not liable to pay service tax as they were not an agent and their toll collection did not amount to rendering Business Auxiliary Services."

Appellant referred to Concessional Agreement and Assignment Agreement and submitted that appellant was functioning as Concessionaire and not as an agent of CIDBI. Reliance was placed on other documents also.

Respondent’s Contention:- Revenue argued that appellant is acting as an agent for M/s. CIDBI by collecting toll on the road users on behalf of CIDBI and that consequently, their role of toll collection as an agent squarely falls under the category of Business Auxiliary services.

Reasoning of Judgment:- The Tribunal perused the order passed by the Commissioner (Appeal) wherein it was observed that CIDBI alone was the concessionaire and not appellant but appellant was only acting as an agent of CIDBI in collecting toll on their behalf. The toll collected by appellant amounted to providing BAS on which service tax was payable. It was also noted that appellant had made payments to CIDBI towards consultancy fee and pre-incorporation charges respectively.

The Tribunal perused the Notification No. [S.O. 1212 (E)] dated 13.05.2009 issued by Central Government under Section 8A of the national Highways Act, 1956 and Letter dated 19.05.2008 of NHAI addressed to the Commissioner of central Excise & Service tax, Guntur.

It was noted that Notification dated 13.05.2009 had substituted the part of preamble of Notification dated 28.04.2004 to the effect that appellant was substituted for CIDBI as Concessionaire for the execution of the project. It was held that the said amendment which was made in the preamble of notification dated 28.04.2004 has retrospective effect.

The Tribunal perused the letter dated 19.05.2008 issued by NHAI to Commissioner of Service tax wherein it was clearly stipulated that by assignment agreement, the appellant had become the concessionaire and CIDBI had ceased to be one. It was noted that NHAI had accepted appellant as the concessionaire and declared so in the afore-mentioned letter. Thus, no BAS service was provided by appellant.

Impugned show cause notices, impugned orders set aside.

Decision:- Assessee’s appeal allowed. Revenue’s appeal dismissed.

Comments

PJ/Case Laws/2011-12/1466

Post a Comment

Query