Whether collection of toll charges by assessee leviable to service tax under BAS?

PJ-Case law-2013/14-1593

Case:-M/s IDAA INFRASTRUCTURE PVT LTD Vs COMMISSIONER OF SERVICE TAX, MUMBAI-II

Citation:-2013-TIOL-599-CESTAT-MUM

Brief Facts:-M/s. IDAA Infrastructure Pvt. Ltd. were engaged by the National Highway Authority of India Ltd. (NHAI) for the extension and improvement of NH No. 8 between Bharuch and Surat from 198 Km to 263 Km on Build, Operate and Transfer (BOT) basis. For the activity undertaken by them, they were permitted to collect Toll charges and compensation of the cost incurred by them for the expansion and improvement of roads. The department was of the view that the activity undertaken by the appellant falls under the category of Business Auxiliary Service inasmuch as they were collecting Toll charges on behalf of NHAI and, therefore, they are liable to pay Service Tax on the on the Toll charges so collected. Accordingly, a showcause notice dated 23.1.2011 was issued for the period 2006-07 and 2010-11 demanding Service Tax of Rs.20,23,61,817/-. The case was adjudicated vide the impugned order and the Service Tax demand was confirmed along with interest thereon and an equivalent amount of penalty was imposed under Section 78 of the Finance Act, 1994 apart from the penalty of Rs.5000/- under Section 77 of the Act.

Appellant Contentions:-The appellant submitted that they were not collecting any Toll charges on behalf of M/s NHAI. The activity undertaken by them was widening and improvement of the road and they incurred cost for undertaking this activity and towards compensation for the cost incurred, they were permitted to collect Toll charges from the users of the highway. Thus, the Toll charges were the means of financing the widening and improvement of road. They have undertaken collection of Toll charges for themselves and not on behalf of NHAI. Therefore, the said activity cannot be classified as “Business Auxiliary Services”.

Appellant also submitted that vide the Circular No.152/3/2012-ST dated 22.2.2012, the CBE&C has examined the issue and clarified that where Special Purpose Vehicle is formed under BOT arrangement and they are allowed to collect Toll charges on their own account, the same activity is not subjected to Service Tax and, therefore Board's Circular also supports their claim.

Respondent Contentions:-Respondent reiterates the findings of the lower authority.

Reasoning of Judgement:-Circular No. 152/3/2012-ST dated 22.2.2012 reads as follows:-

“Subject: Toll in the nature of 'user charge' or 'access fee' paid by roadsusers - regarding.

A representation has been received by the Board, seeking clarification regardingleviability of service tax on toll fee (hereinafter referred as 'toll') paid by users, forusing the roads. The representation has been examined.

2. Service tax is not leviable on toll paid by the users of roads, including those roads constructed by a Special Purpose Vehicle (SPV) created under an agreement between National Highway Authority of India (NHAI) or a State Authority and the concessionaire (Public Private Partnership Model, Build-Own/Operate-Transfer arrangement). 'Tolls' is a matter enumerated (serial number 59) in List-II (State List), in the Seventh Schedule of the Constitution of India and the same is not covered by any of the taxable services at present. Tolls collected under the PPP model by the SPV is collection on own account and not on behalf of the person who has made the land available for construction of the road.

3. However, if the SPV engages an independent entity to collect toll from users on its behalf and a part of toll collection is retained by that independent entity as commission or is compensated in any other manner, service tax liability arises on such commission or charges, under the Business Auxiliary Service [section 65(105) (zzb) read with section 65(19) of the Finance Act, 1994].

4. Further, an SPV formed as a result of agreement between NHAI or State Authority and the concessionaire under the BOT arrangement, cannot be considered as an agent of the NHAI. Renting, leasing or licensing of vacant land by the NHAI or State Authority to an SPV for construction of road and such construction do not attract service tax.

5. This Circular may be communicated to the field formations and service tax assessees, through Public Notice/ Trade Notice.”

A reading of the above Circular makes it absolutely clear that an SPV formed as a result of agreement between NHAI or State Authority and the concessionaire under the BOT arrangement, the Concessionaire cannot be considered as an agent of the NHAI. Further, if Tolls are collected by the Concessionaire on their own account, then such collections is not covered under any taxable service. In view of the clarification given by the Board, Tribunal is of the prima facie view that the appellant has made out a strong case in their favour for grant of stay.

Decision:-Stay application allowed.

Comment:-The essence of this case is that a Special Purpose Vehicle formed due to agreement between NHAI and the Concessionaire under Build Operate Transfer model does not attracts service tax under BAS service on account of Board’s circular issued in this regard.

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PJ-Case law-2013/14-1593

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