Are Export Cargo Services Tax-Free? Supreme Court Says No, Service Tax Applies

The Supreme Court of India, on September 23, 2025, held that all services provided by the Airports Authority of India (AAI) at any airport are subject to service tax. Court clarified that the exclusion of "export cargo" from the definition of "cargo handling service" does not exempt AAI from its service tax liability.

A bench of Justices Pankaj Mithal and Prasanna B Varale dismissed an appeal filed by AAI, upholding the March 1, 2017, judgment of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT). The CESTAT order had confirmed AAI's service tax obligation under the "Airport Services" category, effective from September 10, 2004.

AAI, a government organization under the Ministry of Civil Aviation, had challenged the service tax demand, contending that the services on which tax was levied were related to the handling of export cargo, which it argued was specifically excluded under Section 65(23) of the Finance Act, 1994. The AAI counsel submitted that handling of export cargo is excluded from the “cargo handling service” and as such, is not covered under the taxable service as defined under Sub-section (105) of Section 65 of the Act.

The Supreme Court, however, rejected this argument. It clarified that Section 65 of the Act is not the charging provision but merely a definitional section. The bench noted, "The provision does not speak about charging of service tax upon cargo handling service".

Court pointed to Section 66 of the Act as the actual charging section, which levies service tax on "taxable services" as defined in Section 65(105). The bench stated that with time, "the services chargeable to service tax were increased, and a large number of other services were added to it".

Court highlighted that "taxable services" under Section 65(105) include those falling under sub-clause (zzm), which covers any service provided by the AAI in any airport or civil enclave. The bench emphasized, "The sub-clause (zzm) is wide enough to cover any kind of service provided to any person by the Airport Authorities in any airport or a civil enclave. Therefore, whatever services are provided by the Airports Authority in any airport falls under “taxable service” in view of sub-clause (zzm)."

Court concluded that a combined reading of the relevant provisions makes it clear that all services rendered by AAI at an airport are taxable and fall under the purview of Section 66 of the Act. "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 bench noted.

Court further observed that since sub-clause (zzm) was introduced from September 10, 2004, any services provided by AAI after that date, including those for export cargo, are taxable. The court also held that circulars relied upon by AAI cannot override the explicit provisions of the law.

The appellant-Airports Authority of India is engaged in managing various airports in India. It was registered with the Service Tax Department for payment of service tax. AAI in discharge of its duties, handles cargo on airports including export cargo which involves a number of activities like unloading, carting, X-ray, export packing, etc. These services are rendered from the time the cargo is accepted for shipment till it is placed on the aircraft.

Case Title: Airport Authority of India Vs Commissioner of Service Tax

Judgment Date: September 23, 2025

Bench: Justices Pankaj Mithal and Prasanna B Varale