CESTAT New Delhi: IRCTC’s Licensing Of Food Plazas Is A Business Arrangement, Not Renting Of Property—No Service Tax Payable
Pranav B Prem
The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the licensing of food plazas by the Indian Railway Catering & Tourism Corporation Ltd. (IRCTC) is not liable to service tax under the category of “renting of immovable property”. The bench comprising Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) observed that the agreements executed by IRCTC with licensees for the operation of food plazas were in the nature of business operation contracts, and not mere transfers of immovable property. It held that the essential character of the arrangement was the operation and management of catering outlets, and the use of space at railway stations was only incidental to the business objective.
Background
A show cause notice was issued to IRCTC for the period June 1, 2007 to March 31, 2012, alleging non-payment of service tax on consideration received from private contractors under “Renting of Immovable Property Service” as defined under Section 65(90a) read with Section 65(105)(zzzz) of the Finance Act, 1994. The Department contended that properties belonging to the Indian Railways had been handed over to IRCTC for further licensing to private entities for setting up food plazas and fast-food units. IRCTC collected license fees and user charges from such contractors, but did not discharge service tax liability on the same. The Adjudicating Authority confirmed the demand, holding that the income earned by IRCTC from such licensing amounted to rent for immovable property.
IRCTC’s Submissions
The assessee argued that the licensing agreements were not for renting space but for granting permission to operate and manage food plazas at designated railway stations. It was submitted that the license fees were linked to the sales turnover of the licensees, calculated as a percentage of revenue, rather than being a fixed amount. IRCTC emphasized that this revenue-sharing model showed that the agreements were business arrangements, not leases. It was further argued that the Finance Act did not intend to tax such collaborative business contracts as “renting” transactions, and that the primary object of the agreement was to ensure catering service operations for passengers, not to exploit immovable property.
Tribunal’s Findings
After perusing the agreements and related documents, the Tribunal found that the dominant intention behind the contract was not the letting out of property but the facilitation of catering and food services. “The terms of the agreement make it abundantly clear as to what is the true and actual purpose of the agreement and the relationship between the parties. The appellant was actually performing the activity of operation of catering and was not providing any service of renting of immovable property,” the bench observed.
The Tribunal emphasized that in the absence of a consideration representing rent, no service could be said to have been rendered under the taxable head of renting. It noted that merely because there existed a monetary arrangement between parties, it did not automatically mean that a taxable service had been provided. “Merely because the parties arrive at an understanding by way of an agreement to share the expenditure for availing certain facilities or for performing any activity does not amount to rendering services,” the order stated.
The CESTAT further held that the use of space was ancillary and incidental to the primary business activity of catering, and that the intention was not to lease property but to enable business operations on behalf of IRCTC. “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 reflects that the main intention of the parties was to rent out the property/land/building,” it added.
Holding that the transaction between IRCTC and the private contractors was a business licensing arrangement on a revenue-sharing basis, the Tribunal ruled that service tax demand was unsustainable both on merits and on limitation.Accordingly, the appeal filed by IRCTC was allowed, and the impugned order confirming the service tax demand was set aside.
Appearance
Counsel for Appellant/ Assessee: Shri Sanjeev Sachdeva, Shri Nikhil Kapoor, Ms. Anagha, and Shri S.C. Kamra, Advocate
Counsel for Respondent/ Department: Shri V.K. Jain
Cause Title: M/s. Indian Railway Catering & Tourism Corporation Ltd., v. Commissioner of Service Tax, Delhi-I
Case No: Service Tax Appeal No.52667 of 2015
Coram: Binu Tamta (Judicial Member), P.V. Subba Rao (Technical Member)
