SC ruling on user development fee provides guidance for GST, tax on royalty

The SC had held that UDF collected by the DIAL is in the nature of statutory levy and the same would not be taken as consideration against any services

A recent judgement by the Supreme Court (SC) on the user development fee (UDF) collected by the Delhi International Airport Limited (DIAL) may have ramifications on the goods and services tax (GST) as well as the income tax on royalty etc.

Last week, the apex court had held that UDF collected by the DIAL is in the nature of statutory levy and the same would not be taken as consideration against any services.

As such, no service tax is payable on UDF, the court ruled.

In determining that the fee collected by the DIAL is in the nature of statutory levy, the court had laid down some principles.

Firstly, UDF is collected for the development of future establishment at the airport and no additional benefit is accrued to passengers, visitors, traders, and airlines upon levy of this fee. Thus, the UDF is in the form of 'tax or cess', collected for financing the cost of future projects and the same cannot be taken as consideration for services provided to the customer, visitors, passengers, vendors etc.

Secondly, the collection is not premised on the rendering of any service.

Thirdly, the amounts collected are deposited in an escrow account, not within the control of the assessee.

Fourthly, the utilisation of funds is monitored and regulated by law.

Though the ruling related to the pre-GST matter, experts said the principles laid down by the SC should be applied to the GST too.

"The impact of principles laid down in the judgment would need to be analysed under the GST legislation which specifically provides that statutory levies other than GST collected by the supplier would form part of the value of supply," said Saurabh Agarwal, tax partner at EY.

Besides, the principles may be used for determining whether the tax be paid on royalty etc, he said.

"These may be useful in determining whether the consideration in the form of fee, royalty, etc collected by the government from business entities would be in the nature of statutory levy or the same would be considered as consideration against any services," he said.