In a setback for the Airports Authority of India (AAI), the Supreme Court on Tuesday upheld a service tax demand of ₹8.59 crore on fees collected by the airport regulator from airlines, cargo operators, and exporters between 2003 and 2007.
A two-judge bench, comprising Justices Pankaj Mithal and Prasanna B. Varale, dismissed AAI’s appeal, affirming a 2017 ruling by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Delhi that previously upheld the tax demand.
“We are of the opinion that the authorities below have not erred in taxing the services rendered by the appellant in relation to export cargo as taxable service… The appeal as such lacks merit and is accordingly dismissed,” the court said.
The detailed written judgment is yet to be released.
The dispute revolved around whether charges such as terminal handling, X-ray screening, packing, and loading for export cargo were exempt as export services or taxable under “airport services” and “storage and warehousing”.
The case stretches back nearly two decades, predating the introduction of the Goods and Services Tax (GST). AAI, a government-owned body under the Ministry of Civil Aviation, manages most of India’s airports and provides services including cargo handling, terminal facilities, and security checks. Between October 2003 and March 2007, it levied fees on exporters, airlines, and cargo operators for terminal handling, X-ray screening, packing, and loading.
At the time, services directly linked to exports were generally exempt from service tax. A 2002 clarification from the Central Board of Excise and Customs (CBEC) reinforced that export-related services should remain tax-free to support trade competitiveness.
Tax authorities argued that fees charged before September 2004 were taxable as “storage and warehousing services,” and after that date, they fell under the “airport services” category introduced by the Finance Act, 1994.
In 2010, the Service Tax Commissioner in Delhi confirmed the ₹8.59 crore demand and imposed penalties, alleging suppression of facts.
AAI challenged the order before CESTAT, arguing it had acted in good faith as a statutory public authority and that the fees were exempt as part of export cargo handling. AAI also contended the demand was legally flawed, based on allegations of malafide intent, which it denied.
CESTAT’s March 2017 ruling upheld most of the tax demand but removed penalties and narrowed the scope of liability. AAI then approached the Supreme Court, contesting the interpretation of export service exemptions, but the apex court rejected the appeal, confirming the ₹8.59 crore tax demand.
