CESTAT New Delhi: IRCTC’s Licensing Of Food Plazas Not Taxable As Renting Of Immovable Property; Transaction Held Purely Business & Revenue-Sharing In Nature
Pranav B Prem
The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the Indian Railway Catering and Tourism Corporation Ltd. (IRCTC) is not liable to pay service tax on license fees received from contractors operating food plazas, kiosks, and stalls at railway stations under the head ‘Renting of Immovable Property’.
The Bench comprising Ms. Binu Tamta (Judicial Member) and Mr. P.V. Subba Rao (Technical Member) passed the order on 22 September 2025 while allowing the appeal filed by IRCTC against an order of the Commissioner, Service Tax Commissionerate, Delhi-I, which had confirmed a service tax demand of ₹2.83 crore, along with interest and penalties.
Background of the Case
The proceedings originated from an investigation into IRCTC’s operations, where the Department alleged that the corporation had leased out spaces such as food plazas and fast food units to private contractors but failed to pay service tax on the amounts received as license fees between June 2007 and March 2012. The Revenue contended that these activities constituted “renting of immovable property” as per Section 65(90a) read with Section 65(105)(zzzz) of the Finance Act, 1994.
The Adjudicating Authority concluded that IRCTC’s collection of license fees and user charges from food plaza operators was taxable under the “renting” category. Accordingly, it confirmed the tax demand and imposed penalties under Sections 76, 77, and 78 of the Finance Act. Aggrieved by this, IRCTC filed an appeal before the Tribunal, arguing that the agreements executed with private contractors were not for renting property but for licensing the operation and management of catering services under the Indian Railways Catering Policy, 2005, and subsequent Memorandum of Understanding (MOU) with the Ministry of Railways.
IRCTC’s Arguments
Counsel for IRCTC, Shri Sanjeev Sachdeva, argued that the corporation did not transfer any property or leasehold rights to contractors. Instead, it merely licensed them to operate food plazas to serve passengers—a public utility function forming part of the Indian Railways’ catering service framework. The ownership of the railway land and stations remained with the Indian Railways, and the space provided to licensees was ancillary to the business objective of providing catering amenities. He further pointed out that the license fee was a percentage of the sales turnover of the food plaza and not a fixed rent, reinforcing that the relationship between IRCTC and the licensees was on a principal-to-principal and revenue-sharing basis, not that of service provider and service recipient.
Relying on precedents such as Gujarat State Fertilizers & Chemicals Ltd. v. CCE (2016) and Grand Royale Enterprises Ltd. v. CST Chennai (2018), it was argued that a business collaboration based on revenue sharing cannot be treated as taxable “renting of immovable property.”
Findings of the Tribunal
The Tribunal undertook a comprehensive analysis of the Catering Policy, 2005, the MOU dated 17 January 2007 between IR and IRCTC, and various license agreements entered into by IRCTC with private contractors. The Bench observed that the primary intent of the MOU and subsequent agreements was to implement the Catering Policy and manage passenger amenities, not to lease or rent railway property. The Tribunal emphasized that the agreements clearly outlined operational and business obligations such as food quality, hygiene standards, pricing control, and management duties—indicating that the dominant purpose was business operation, not renting.
Quoting from the MOU, the Tribunal noted that the land and buildings were licensed to IRCTC for providing passenger amenities and essential services, with a revenue-sharing model between IR and IRCTC. No clause indicated a transfer of possessory or leasehold rights in land or property. The Tribunal further highlighted that the license fee structure, based on a variable percentage of the operator’s sales turnover, was inconsistent with the concept of rent. It held that: “The essential character of the agreement is operation and management of food plazas, and the space provided at railway stations was merely ancillary and incidental to the primary activity. The object is not to rent out any property but to enable a business operation beneficial to the public.”
On the Nature of Consideration and Taxability
The Bench reiterated that no service can be said to have been provided without consideration, and the revenue-sharing arrangement between IRCTC and its licensees did not establish a service provider-service recipient relationship. The arrangement was in the nature of joint business operation, not a taxable service under Section 65(90a) of the Finance Act. The Tribunal relied on Mormugao Port Trust v. CCE Goa and Grand Royale Enterprises Ltd. v. CST Chennai to reinforce that when the dominant intent is business operation and not renting, and the consideration is linked to turnover or performance, the transaction cannot be taxed as renting of immovable property.
Limitation and Penalty
Addressing the invocation of the extended limitation period, the Bench noted that similar show cause notices had previously been issued, and therefore, the department was fully aware of IRCTC’s activities. It observed that no suppression, fraud, or wilful misstatement had been established, and as a government undertaking, IRCTC could not be accused of evading tax. Accordingly, the extended period under the proviso to Section 73(1) was held to be inapplicable.
Concluding its order, the Tribunal held that: “The transaction is purely on business terms on a revenue-sharing basis. The demand of service tax is not sustainable either on merits or on the grounds of limitation.” Accordingly, the CESTAT set aside the impugned order, quashed the demand of service tax, interest, and penalties, and allowed IRCTC’s appeal in full.
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: Ms. Binu Tamta (Judicial Member), Mr. P.V. Subba Rao (Technical Member)
