Royalty generally means a payment made for the use of property, especially a patent, copyrighted work, franchise, or natural resource. The amount is usually a percentage of revenues obtained through its use.
In a recent case, the tribunal at Bangalore's south zonal bench was concerned with the levy of service tax on royalty charges, licence fee and other charges collected by Cochin International Airport Ltd.
Cochin International Airport Ltd (CIAL) provides various categories of services to air passengers. It is registered with the central excise department and caters to storage and warehousing, cargo handling, tour operations and airport services respectively and pays service tax on it at appropriate rate and also files ST-3 returns for the respective periods in time.
Of the above four categories of services, airport services were brought into the service tax net with effect from September10, 2004 vide Finance (No.2) Act 2004. Under clause 105 (zzm) of the Finance Act 1994 as amended "taxable service," "Airport Services" has been defined as "any service provided to any persons by airport authority or any person authorised by it, in an airport or a civil enclave." Under Section 67 of the Finance Act 1994 as amended, the value of any taxable service shall be the gross amount charged by the service provider for such service rendered by him.
While deciding the issue of levy of service tax on the royalty, license and other charges ollected by CIAL, the tribunal held that :-
1. Royalty from Air India: Services provided to various airlines and other facilities at the airport which needs to be managed by the appellant has been contracted out to Air India and they have discharged the service tax liability on gross amount collected. This being the factual matrix, the demand of service tax on the royalty charges is collected by appellants from the company. Air India can be construed as an amount for lease or rental charges for functioning in the appellant's area. There is no service tax liability on amounts collected from Air India
2. Royalty charges collected from Thomas Cook, Atlas Jewellery and BPCL: The agreement clearly indicates that the amounts are paid by BPCL, Thomas Cook and Atlas Jewellery for the space allotted to them by Cochin International Air Port on lease for a specified term. This would indicate that the licensees i.e. Thomas Cook, Atlas Jewellery etc. have taken the area on lease and as per the CBEC Circular dated September 17, 2004, such charges would not be subject to service tax as the activity of letting out premises is not renting services. The entire tenor of the agreements entered by the appellant with other parties clearly speak of letting out/leasing out the space in the Cochin International Airport for a specified term, renewable or being leased out to any other bidder.
3. Licence fee: The fee charged by the appellant on advertising, cargo agency, car parking, space, shops, restaurant/snack bar, telephone operator, vending machines, catering services facilitation counter are also included in the same category. These charges cannot be considered as charges which have been collected by the appellant from other service providers for services rendered definitely as airport services. The entire tenor of the agreements entered by the appellant with the other parties clearly speak of letting out/leasing out the space in the Cochin International Airport for a specified term renewable or being leased out to any other bidder.
4. Garbage Disposal: Garbage disposal is collection of garbage like waste material, discarded items scrap from the Airport premises. Though there is no agreement provided for this, the explanation given by the appellant in the grounds of appeal indicates that these are nothing but sale of garbage from the Airport premises. This activity would not be liable to service tax.
5. Service Tax liability on the income from Guest Room charges: The guest room charges are realised from the passengers who are accommodated in guest rooms due to contingencies. This accommodation is provided only to the passengers who have been issued boarding passes and tickets and this facility is not open to others. The amount so collected would definitely fall within the purview of the services provided under the category of Airport services.
6. Service Tax liability on income Entry ticket charges and issue of commercial passes: These charges are charged by the appellant for restricting the entry to public in to the airport. The said income is not in respect of any services rendered by the appellant as an airport authority. This amount collected and shown as income cannot be construed as services rendered and liable to service tax.
7. Service Tax on Courtesy coach parking and surcharge on prepaid taxi: There is a clear finding of the lower authorities that the courtesy coach parking services are services extended to the courtesy coaches, which bring the passengers into the airport.
As regards income from surcharge on pre-paid taxi, this amount is collected by the appellant from the cooperative societies who operate the airport taxi services in addition to the charges which are charged by such taxi operators. No justifiable reason for non-inclusion of this amount for discharge of the service tax liability.
Regarding penalty, the matter was remanded back by the Cestat as it was observed that the service tax liability and the consequent interest liability and penalty charges needs to be requantified by the lower authorities. For the limited purpose of requantification of the service tax liability as per finding as recorded herein above, the matter is remanded to the lower authorities. Thus, it can be said as a relief to the asseessee, Tribunal kept certain issues out of service tax.