Service Tax on 'TOLL' - Department restrained from Recovery by Delhi HC
CBEC had clarified in Circular No. 152/3 /2012-ST, dated: February 22, 2012:
1. Service tax is not leviable on toll paid by the users of roads, including those roads constructed by a Special Purpose Vehicle (SPV) created under an agreement between National Highway Authority of India (NHAI) or a State Authority and the concessionaire (Public Private Partnership Model, Build-Own/Operate-Transfer arrangement). ‘Tolls' is a matter enumerated (serial number 59) in List-II (State List), in the Seventh Schedule of the Constitution of India and the same is not covered by any of the taxable services at present. Tolls collected under the PPP model by the SPV are collection on own account and not on behalf of the person who has made the land available for construction of the road.
2. However, if the SPV engages an independent entity to collect toll from users on its behalf and a part of toll collection is retained by that independent entity as commission or is compensated in any other manner, service tax liability arises on such commission or charges, under the Business Auxiliary Service
3. An SPV formed as a result of agreement between NHAI or State Authority and the concessionaire under the BOT arrangement, cannot be considered as an agent of the NHAI. Renting, leasing or licensing of vacant land by the NHAI or State Authority to an SPV for construction of road and such construction do not attract service tax.
Levy of service tax on collection of toll demanded by the service tax department has been challenged in the Delhi High Court. The Petitioner also challenged the above mentioned Circular No. 152/3/2012-ST for justifying levy of service tax on toll despite admitting that the ‘Tolls' is a matter enumerated (serial number 59) in List-II (State List), in the Seventh Schedule of the Constitution of India.
The petitioner submitted that ‘Toll' is a matter enumerated at Sr. No.59 of list II (State List) and service tax cannot be imposed on ‘Toll'; that they are collecting ‘Toll' from the public/users of the roads under the agreement with National Highway Authority of India. Under the agreement, they cannot collect, levy or charge any amount other than the sum specified in the agreement.
The petitioner drew the attention of the Court to paragraph 2 of the circular dated 22nd February, 2012 wherein it is mentioned and accepted that ‘Toll' falls in the State List and the same is not covered by taxable services under the Finance Act. However, as per the circular, the respondents claim that the excess amount retained by the toll collector is commission and, therefore, service tax liability arises on the said amount. The contention of the petitioner is that toll is an indirect tax and has to be collected from the customer or consumer, in present case, the toll users. The amount collected retains its character as toll paid by the user. The profit earned, if any, cannot be treated as commission or compensation, but it is income earned after meeting expenses. The toll collector is not rendering service to oneself. There is no service element in the excess amount, which is retained. He further submits that profits may not accrue and in some cases there may be loss also.
The Court last week ordered ‘issue of notice returnable on 12th November, 2013'. The Court ordered that, "Assessment proceedings can continue but the respondents will separately quantify the amount which they claim is due and payable as service tax on toll charges which were retained by the petitioner after payment to the National Highway Authority of India. The said amount in terms of the assessment will not be collected by the respondents by taking coercive steps."