Export Cargo Handling By Airports Authority Is Taxable — Exclusion From ‘Cargo Handling’ Definition Doesn't Affect Chargeability Under ‘Airport Services’: Supreme Court

In a decisive ruling that clarifies the scope of service tax under the Finance Act, 1994, the Supreme Court of India on 23rd September 2025 held that services rendered by the Airports Authority of India (AAI) in connection with export cargo handling are taxable, even though such services are excluded from the definition of "cargo handling service" under Section 65(23) of the Act. In Airports Authority of India vs. Commissioner of Service Tax, the Court ruled that the charging provisions under Section 66 read with Section 65(105)(zzm) override the definitional exclusions, observing that “the exclusion of export cargo handling from cargo handling services does not remove it from the net of taxable services under Section 65(105)(zzm).”

The ruling settles the question of whether export cargo services rendered by AAI fall outside the purview of taxable services, and affirms the wider legislative intent behind taxation of services provided at airports under the special category of “airport services.”

“Services Rendered By Airports Authority In Any Airport, Whether For Export Cargo Or Otherwise, Are Taxable Services”: Supreme Court Underscores Legislative Design of Section 65(105)(zzm)

The Court, comprising Justice Pankaj Mithal and Justice Prasanna B. Varale, dismissed AAI’s appeal against a 2017 CESTAT judgment, which had upheld a service tax demand on AAI for services rendered in handling export cargo at airports between October 2003 and March 2007. The services included unloading, carting, security scanning, and export-related packaging. While the services were initially taxed under the category “Storage and Warehousing” until 09.09.2004, they were thereafter reclassified as “Airport Services” under the newly introduced Section 65(105)(zzm).

AAI had argued that its services fell under “cargo handling service” as defined in Section 65(23), which specifically excludes handling of export cargo from the taxable net. However, the Supreme Court rejected this interpretation, holding that such exclusions from one definition cannot override the explicit charging provision for airport services.

“Section Defining Cargo Handling Cannot Override the Charging Mechanism of Section 66 Read With 65(105)(zzm)” – Court Clarifies Scope and Hierarchy of Provisions

The Court began by distinguishing between definitional and charging provisions. It clarified that Section 65(23) merely defines “cargo handling services” and does not create any tax liability. The key taxing provision, the Court said, is Section 66, which imposes service tax on “taxable services” as defined under various sub-clauses of Section 65(105), including clause (zzm).

The judgment states:
“Section 65 of the Act is not the charging section but a provision defining various terms in connection with the service tax... In other words, handling of export cargo stands excluded from the definition of cargo handling service. The aforesaid provision does not speak about charging of service tax upon cargo handling service.”

Referring to the text of Section 65(105)(zzm), which defines taxable service as “any service provided to any person, by Airports Authority or by any other person in any airport or a civil enclave”, the Court observed that this language is broad and inclusive:

“The aforesaid definition of the taxable service is very wide and takes into its fold any kind of service that may be provided to any person by the Airports Authority in any airport.”

On that basis, it concluded that the exclusion of export cargo from “cargo handling services” does not insulate such services from taxation under the broader head of “airport services.”

Circulars Cannot Override Law — Interpretation Must Flow From Statute, Not Executive Clarification

AAI also relied on departmental circulars which allegedly supported the view that export cargo handling was not taxable. However, the Court firmly rejected that approach, stating:

“The various circulars relied upon... are of no avail, as they are merely circulars and cannot override the express statutory provisions.”

The Court reiterated that legislative intent must be derived from the statute itself, not from executive interpretations, especially when the language of the law is clear.

The Broader Legal Impact — Reinforcing the Rule That Specific Tax Entries Will Govern Over Exclusions From General Definitions

One of the most significant aspects of this ruling is the Supreme Court's reassertion that when a specific taxable service is introduced by the legislature (in this case, ‘airport services’ under clause (zzm)), any general exclusion in another category (such as cargo handling) cannot nullify the chargeability of tax under the specific head. The Court emphasized:

“Taxable services are those services which are provided to any person by the Airports Authority in any airport or a civil enclave... Accordingly, all kinds of services rendered by the Airports Authority in any airport are taxable services and are chargeable to service tax under Section 66 of the Act.”

The Court also noted that clause (zzm) was introduced w.e.f. 10.09.2004, and that from that date onward, services of any nature rendered by AAI at an airport — even in relation to export cargo — fall under the tax net.

The Supreme Court has settled a long-standing controversy on the scope of service tax on export cargo handling by public airport operators. By reaffirming the primacy of charging provisions and interpreting clause (zzm) broadly, the Court has made it clear that “handling of export cargo by Airports Authority is not exempt merely because it is excluded from another definition”.

The decision provides crucial clarity not just for the Airports Authority, but also for any service provider operating in the regulated environment of airports. It affirms that tax liability must be determined by the charging entry under which a service actually falls, not by the presence of an exclusion in a different definitional provision.

The appeal was therefore dismissed, and the CESTAT’s finding that AAI was liable to pay service tax on these services under 'airport services' from 10.09.2004 was upheld.

Date of Decision: 23rd September 2025