Page 1

Non-Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.10785 OF 2014 @ SPECIAL LEAVE PETITION (CIVIL) NO.22941 OF 2014

DELHI INTERNATIONAL AIRPORT  PVT. LTD. …. Appellant

Versus

UOI AND OTHERS …. Respondents

O R D E R  

Uday U. Lalit, J.

1. Leave  granted.   This  appeal  seeks  to  challenge  the  order  dated  

30.07.2014 passed by the High Court of Delhi in Writ Petition No.4274 of  

2010 to the extent it  directed the appellant  to bear the cost  for  the bank  

guarantee furnished by the present Respondent No.5.

Page 2

2. The  appellant  and  the  Airport  Authority  of  India  entered  into  an  

Operation, Management and Development Agreement (“OMDA” for short)  

dated 04.04.2006 whereby the appellant, undertook inter alia, to perform the  

functions  of  the  operation,  management,  development  and  design,  

upgradation, modernization, finance and management of the Indira Gandhi  

International  Airport  at  Delhi  and  to  perform Aeronautical  Services  and  

Non-Aeronautical Services.  The appellant was given on lease the premises  

of the Airport for performing the obligations as mentioned in the OMDA.  In  

pursuance of its business and operation at the Airport, the appellant entered  

into an agreement dated 09.11.2006 whereby licensees named therein were  

granted a licence to set up and operate duty free shops within the airport  

premises.   Thereafter  Respondent  No.5  herein  was  incorporated  and  a  

settlement  agreement  dated  07.02.2008  was  signed  whereby  licence  

agreement dated 09.11.2006 was novated in favour of Respondent No.5.  In  

consideration of said licence, Respondent No.5 was required to pay to the  

appellant a fixed monthly licence fee and also a share of the gross revenue  

generated by various products categories which were to be sold at the duty  

free shops.

2

Page 3

3. The Finance Act, 2007 introduced the levy of service tax on services  

in  relation  to  renting  of  immovable  property  through the  introduction  of  

Section 65(90)(a).  The charge of service tax was accordingly introduced in  

Section 65(105)(zzzz).  Thereafter section 65 (105)(zzm) of the Finance Act,  

1994 was amended with effect from 01.07.2010 and section 65 (105) (zzzz)  

of the Finance Act, 1994 was also amended with retrospective effect from  

01.06.2007.  In view of the amended clause 65 (105) (zzzz), service tax was  

levied  retrospectively  from  01.06.2007  on  renting  of  the  immovable  

property.   In  view of  such  retrospective  amendment  the  appellant  called  

upon  Respondent  no.5  to  send  the  entire  amount  of  service  tax  w.e.f.  

01.06.2007, which led to the filing of W.P. No.4274 of 2010 by respondent  

no.5  in  the  High  Court  of  Delhi.   The  High  Court  by  its  order  dated  

23.06.2010 extended the interim order passed in similar matter in favour of  

respondent no.5 to the effect,  “In the meanwhile there shall be no recovery  

of  service  tax  from  the  petitioner  in  respect  of  renting  of  immovable  

property alone.”  During the pendency of said petition, the appellant again  

vide  its  letter  dated  28.06.2010  demanded  payment  of  service  tax  from  

respondent no.5.

3

Page 4

4. Thereafter the revenue issued a demand-cum-show cause notice dated  

22.10.2010 to the appellant demanding service tax for the period covering  

2006-2007 to 2009-2010.  While these demands were raised, the appellant  

asserted that the liability was that of respondent no.5.  Around this time the  

disputes between the appellant, respondent no.5 and the holding company of  

respondent  no.5  were  settled  and  an  arbitration  award  was  passed  with  

consent  on  30.03.2011  which  recorded  that  the  service  tax,  interest  and  

penalty, if any, on the transaction between the appellant and respondent no.5  

was  liable  to  be  paid  by  respondent  no.5  in  terms  of  said  award.   The  

relevant portion of the Consent Award was to the following effect:

“(iii) Respondent  shall  pay to  the Claimant,  the entire  actual amount towards – (a) Service Tax (b) Interest on  Service Tax, and (c) Penalty on Service Tax as may be  imposed by the Government  and /or relevant authority in  relation to the invoices raised by DIAL on Alpha Airport  Retail  Private  Limited  under  the  Agreement  within  7  days of such imposition.  As the actual amount towards  (a), (b) and (c) (together referred to as ‘Tax Liability’)  cannot be ascertained as of now, in view of the litigation  pending (i.e. under Civil Writ Petition No.4274 of 2010)  before the High Court  of  Delhi,  the amount calculated  towards the Tax Liability is the aggregate of :-

(a)  an amount of  INR 177,424,866 (Indian rupees one  Hundred and Seventy-Seven Million Four Hundred and  Twenty  Four  Thousand  Eight  Hundred  and  Sixty  Six  only) towards Service Tax chargeable and payable to the  Government  of  India,  which  may  be  increased  or  decreased as per the assessment or demand made by the  Service Tax Authorities.

4

Page 5

(b)  an amount payable  towards the interest  on Service  Tax, calculated in accordance with the applicable Service  Tax rules;

(c) an amount payable towards penalty, if any, imposed  on non-payment of Service Tax calculated in accordance  with the applicable Service Tax rules.  The Respondent  shall make payment of the amount due towards the Tax  Liability within 7 (seven) days of receipt of demand from  the Claimant in this regard.”

5. After the aforesaid interim order dated 23.06.2010 was confirmed till  

the disposal  of  the writ  petition,  the appellant  preferred  CM No.7343 of  

2012  for  modification  of  the  order  dated  23.06.2010  seeking  following  

reliefs:

“a.   Modify the interim order dated 23.06.2010 and pass  an order directing the Petitioner to deposit  the amount  payable towards Service Tax, interest and penalty before  this  Hon’ble  Court  or  to  furnish  a  bank  guarantee  in  favour of the Applicant, Delhi International Airport Ltd,  or the Union of India of an amount of Rs.42,36,52,066/-  comprising of Rs.17,74,24,866 as service tax payable and  Rs.6,88,02,334/ as interest till date and Rs.17,74,24,866  towards penalty and to continue to deposit  periodically  before  this  Hon’ble  Court  amounts  towards  interest  accruing on the that service tax, till the disposal of the  petition or periodically increase bank guarantee in favour  of the Applicant in respect of the said amounts;

b.    For  such  further  and  other  orders,  directions  and  reliefs as the nature and circumstances of the case may  require.”

5

Page 6

6. The aforesaid application was disposed of by the High Court directing  

Respondent  No.5  to  furnish  the  bank  guarantee  in  the  sum  of  

Rs.42,36,52,066/- in favour of the Registrar General of the High Court for  

securing the amount as none of the Directors of Respondent No.5 was within  

the jurisdiction of the High Court and as Respondent No.5 had no assets in  

this  country.   Respondent  No.5,  however,  filed  CM  No.2222  of  2013  

seeking modification of the aforesaid order dated 05.11.2012.  On the said  

application,  the  High  Court  was  pleased  to  direct  Respondent  No.5  to  

furnish a bank guarantee of Rs.25 crores in favour of the Registrar General  

of  the  High  Court  as  an  interim  measure  and  the  said  order  was  later  

confirmed on 10.04.2013.  It was the contention of Respondent No.5 that the  

insistence on the part of the appellant that Respondent No.5 must deposit the  

tax or furnish the bank guarantee was contrary to the terms of the Arbitration  

Award and thus the costs in respect of such bank guarantee which were to  

the tune of Rs.1.06 crores were liable to be paid by the appellant.  The High  

Court left this question to be decided along with the main writ petition.

7. The aforesaid writ petition No.4274 of 2010 preferred by Respondent  

No.5 was finally heard by the High Court which held that the transaction  

between  the  appellant  and  Respondent  No.5  regarding  letting  out  of  

6

Page 7

immovable property would not  fall  within the taxable  service of  “airport  

services” under clause (zzz) of Section 65(105) prior to 01.07.2010.   As  

regards  the  liability  to  pay  the  costs  for  obtaining  the  bank  guarantee  

furnished by Respondent No.5 it observed that the appellant was fully aware  

and  had  consented  to  the  arrangements  as  recorded  in  the  award  dated  

30.03.2011  and  as  such  it  was  not  open  for  the  appellant  to  seek  that  

Respondent No.5 deposit the entire amount of service tax as the same was  

contrary to the consent award dated 30.03.2011.  It was further observed that  

despite having such Consent Award in its favour, the appellant insisted on  

Respondent  No.5  securing  it  by  a  bank  guarantee  and  as  such  it  is  the  

appellant  who  must  bear  the  cost  for  the  bank  guarantee  furnished  by  

Respondent  No.5.   The High Court  thus directed the appellant  to pay to  

Respondent No.5 a sum of Rs.1.06 crores, being the cost of bank guarantee.  

8. It is this direction that the appellant must pay to Respondent No.5 the  

cost of bank guarantee, which is under challenge in the present appeal   We  

have heard Shri S.K. Bagaria, learned Senior Advocate for the appellant and  

Mr. S. Ganesh, learned Senior Advocate for Respondent No.5.  Having gone  

through the matter and considered the rival submissions we affirm the view  

taken by the High Court.  The interest of the appellant was well secured by  

7

Page 8

the Award dated 30.03.2011 which was a Consent Award.  Respondent No.5  

had an interim order in its favour passed by the High Court and it was only  

because  of  the insistence  on part  of  appellant  that  Respondent  No.5 was  

directed  to  furnish  the  bank  guarantee.   It  is,  therefore,  but  logical  and  

consequential that the appellant must bear the costs for securing such bank  

guarantee.  Confirming the view taken by the High Court we dismiss the  

present appeal.  However, there will be no order as to costs.

………………………..J. (Anil R. Dave)

………………………..J. (Uday Umesh Lalit)

New Delhi, December 04, 2014

8