Authority: High Court of Judicature at Madras

Order Date: 28-08-2026

Case Overview

  • Parties: Appellant – Karnataka Commercial and Industrial Corporation (P) Ltd (registered in Bangalore). Respondents – Airport Director, Airports Authority of India (AAI) Chennai Airport and N. Krishnamoorthy.
  • Nature of dispute: Whether the licence fee payable by the appellant for managing airport admission tickets at Chennai Airport is subject to Service Tax, and whether the bank guarantee of Rs 4,21,66,080/- should be released.
  • Background:
  • AAI issued a Notice Inviting Tenders; the appellant was awarded the licence on 21‑03‑2006 for a five‑year period (01‑02‑2006 to 31‑01‑2011).
  • The licence agreement required the licencee to pay all taxes, including Service Tax, on the licence fee.
  • CBEC Circular No.80/10/2004‑S.T. dated 17‑09‑2004 clarified that “Airport Service” does not include rental/lease fees, thereby exempting the licence fee from Service Tax until 01‑06‑2007.
  • AAI continued to raise debit notes for Service Tax; the appellant obtained an injunction on 19‑10‑2006 restraining AAI from collecting Service Tax.
  • The Delhi High Court (Division Bench) on 17‑07‑2012 upheld the exemption up to 01‑06‑2007 and ordered AAI to refund amounts retained.
  • The appellant invoked the arbitration clause; Arbitrator (respondent‑2) awarded on 20‑07‑2018:
  • Service Tax not payable by the appellant till 01‑06‑2007.
  • Withdrawal of all debit notes.
  • Release of the bank guarantee.
  • AAI filed O.P.No.73 of 2019 under Section 34 of the Arbitration and Conciliation Act, 1996; the single judge set aside the award on 17‑07‑2019, holding the arbitrator could not interpret Supreme Court precedent.
  • Contentions:
  • Appellant argued that the award only dealt with the pre‑2007 period and that the Delhi High Court decision and CBEC circular excluded Service Tax liability for the licence fee.
  • AAI contended that the Supreme Court decision in P.C. Paulose v. Commissioner of Central Excise & Customs makes the authorised licencee liable for Service Tax.
  • Both sides cited relevant judgments, including Mahesh Sunney Enterprises and Airport Retail Pvt. Ltd..

Final Outcome

  • The Court modified the single judge’s order, holding that the appellant is liable to pay Service Tax with effect from 01‑06‑2007, which the appellant had already paid without protest.
  • The Court affirmed the arbitrator’s directions to release the bank guarantee of Rs 4,21,66,080/- and to withdraw all debit notes relating to Service Tax for the period prior to 01‑06‑2007.
  • No order as to costs was made, and the connected CMP was closed.

Topics: Service Tax, Arbitration Award, Airport Licence