Whether Service Tax Payable By Parking Facility Operators In Malls- Supreme Court To Examine

The Supreme Court on Wednesday stayed a judgment of the CESTAT, which had confirmed levy of Service Tax under the head "service of management, maintenance or repair of immovable properties" on operation of parking facility provided by entities to Shopping Malls.

The appellant Metropolitan Event Management (earlier known as MGF Event Management) challenged the Tribunal's order primarily on the ground that while providing parking services to visitors is exempt, the Revenue is indirectly trying to tax an exempt service by bringing it under a head which is not applicable at all.

Mr. Zoheb Hossain and Mr. Ruchir Bhatia, Advocates appearing for the assessee, submitted that the Tribunal's order is incorrect since there is no service being rendered by the entities operating the parking facilities to the mall owners and neither is there any consideration received by them from the mall owners in lieu of any such services.

A bench comprising Justices AM Khanwilkar, BR Gavai and Krishna Murari,after hearing the submissions issued notice to the Revenue authorities and in the meanwhile directed stay of the impugned judgment of the Tribunal.

Factual background

The appellant is operating parking areas in five Malls by way of providing parking to the patrons/visitors of shopping malls and collecting parking fees for which they have appointed an outside third-party agency for managing the parking area who is collecting "Parking Fees" on behalf of the appellants and remitting the proceeds to the appellant.

The third-party agency raises the invoice for operating cost and its management fee and charges Service tax on these amounts and pays the remainder amount of gross collection on monthly basis after deducting its direct operating cost and management fee.  The appellants claimed that the income earned from parking fees belongs to appellants entirely and nothing is remitted to the mall owners from the collections made or otherwise. It is the claim of the appellant that it has no written contract with the Mall owners and is not paying any amount by way of rent or space allocation or by whatever name it may be called to the Mall owners for operating the parking area. The appellant asserted that the only interest of Mall owners is that there should be a hassle free parking and that the space available for parking should be utilized to the maximum possible extent.

An audit of the appellant was conducted by the service tax department and on the basis of the audit, the show cause notices were issued to it alleging that its activity amounted to ̳management, maintenance or repairs'which was leviable to service taxas per the provisions of Finance Act, 1994.

The CETSTAT, while upholding the service tax demand,said that it cannot accept the appellant's plea that huge parking space area wasgiven to the appellant without any agreement with respect to financial consideration or without an agreement with respect to contingent liabilities with respect to theft, injuries, fire or other liabilities.

The Tribunal held that the appellant's activity was in any case covered under the definition of ̳management, maintenance or repairs'. It further held that there was service tax liability even if the appellant was not paying any consideration to the mall owners.

"Even a service without any direct pecuniary benefit to the service recipient is also a service. Even if we take that the interest of the mall owners is that the appellant should provide a hassle free parking,it is a service to the mall owners by the appellant. Again, the plea of the appellant that no monetary consideration is being paid by the mall owners is without substance. The appellant has been allowed to use space and collected parking fee. This is a valid consideration in terms of the service tax provisions as it is not necessary that the consideration should always be directly in the form of money.If the consideration is in terms of some benefit to the service provider whichcan be measured or converted into money it will constitute a valid consideration", the Tribunal held, referring to Section 67 of the Finance Act.

"Thus, there is no doubt that the right to collect parking fees given by the mall owners is nothing but a consideration provided to the appellant by the mall owners and the measure of such consideration is the gross income generated through the parking fees", the Tribunal ruled.

In the statutory appeal filed in the Supreme Court under Section 35L of the Central Excise Act, 1944, the appellant contended that the appellant's activity was 'operation', which is quite distinct from 'management'.

It is also argued that the CETSTAT misconceived the nature of arrangement between the appellant and the mall owners.