CESTAT Delhi: IRCTC’s Food Plaza Agreements Are Revenue-Sharing Arrangements, Not Renting Of Immovable Property; ₹2.83 Crore Service Tax Demand Set Aside
Pranav B Prem
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that the arrangement between the Indian Railway Catering and Tourism Corporation Ltd. (IRCTC) and private vendors for the operation of Food Plazas at railway stations does not constitute “renting of immovable property” under the Finance Act, 1994. The Tribunal consequently quashed the service tax demand of ₹2.83 crore raised by the Department, holding that the arrangement was a business partnership based on revenue sharing, not a lease of property.
A two-member Bench comprising Binu Tamta (Judicial Member) and P. V. Subba Rao (Technical Member) allowed the appeal filed by IRCTC against the order of the Service Tax Commissionerate, Delhi-I, which had confirmed the demand of ₹2,83,44,301 for the period from June 1, 2007, to March 31, 2012, along with interest and penalties. The Department had alleged that IRCTC had leased out premises at railway stations to private contractors and failed to discharge service tax liability under the category of “renting of immovable property.”
The Department argued that the license fees collected by IRCTC from private entities for running Food Plazas, fast-food units, and kiosks were in the nature of rent and were thus taxable from June 1, 2007, when the category was introduced in the statute. It alleged that IRCTC was liable to pay service tax on the license fees received and had suppressed material facts to evade tax.
IRCTC, represented by counsel, contended that the Food Plaza licenses were not lease transactions but operational arrangements governed by a revenue-sharing model. It argued that the object of the license agreements was not to rent out railway property but to regulate catering operations and maintain quality standards under a franchise-like system. The payments made by the licensees were not fixed rentals but were calculated as a percentage of gross sales turnover, and therefore, the essential ingredient of a lease—fixed rent—was absent.
The Tribunal, after perusing the relevant agreements, found that the dominant intention of the parties was not to lease or rent property but to engage in a joint commercial venture for the operation and management of Food Plazas. It observed that the title and contents of the agreements did not reflect an intent to transfer possession or create tenancy rights in favour of the licensees. The space provided at railway premises was merely incidental and ancillary to the main object of operating and managing Food Plazas in accordance with IRCTC’s catering policy.
The Bench noted, “On an overall reading of the documents, the essential character of the agreement is discerned, which is operation and management of Food Plazas and the space provided at the railway stations was merely ancillary and incidental to the implementation of the primary activity. The object is not to give any free land to the licensee for selling the items like a normal restaurant as neither the title of the agreement nor its contents reflect that the main intention of the parties was to rent out the property.”
The Tribunal also observed that there was no concept of a fixed rent, which is a dominant factor in determining whether an activity amounts to renting of immovable property. Referring to Clause 14.5 of the Catering Policy, the Bench noted that IRCTC’s policy itself provided that no separate charges were payable towards rent of building or land by the licensee. The license fee payable to IRCTC was linked to the licensee’s turnover and represented a share of revenue rather than rent for the use of space.
Rejecting the Department’s contention that IRCTC was providing a taxable service to the licensees, the Bench held that the relationship between the parties was on a principal-to-principal basis. It observed, “We are of the opinion that there is no concept of service provider and service recipient. Neither the appellant is providing any service nor the third-party licensee is in receipt of any services. As per the agreement, it is evident that the relationship is on principal to principal basis.”
The Tribunal also found merit in IRCTC’s argument that the extended period of limitation invoked by the Department was not sustainable. It noted that two earlier show cause notices had been issued to IRCTC on identical facts and that the Department was fully aware of the nature of the transactions. Hence, there was no suppression of material facts warranting invocation of the extended limitation period.
On a comprehensive evaluation of the facts, the CESTAT concluded that the demand was unsustainable both on merits and on limitation. It set aside the order passed by the Service Tax Commissionerate and quashed the entire service tax demand of ₹2.83 crore, along with the associated interest and penalties. The ruling clarifies that the Food Plaza arrangements under IRCTC’s catering policy are revenue-sharing business models and cannot be classified as renting of immovable property for service tax purposes.
Appearance
For Appellant: Advocates Sanjeev Sachdeva,Nikhil Kapoor, Anagha and S C Kamra for the appellant.
Cause Title: M/s.Indian Railway Catering & Tourism Corporation Ltd v Commissioner of Service Tax, Delhi
Case No: Service Tax Appeal No.52667 of 2015
Coram: Binu Tamta (Judicial Member), P. V. Subba Rao (Technical Member)
