The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Adda Fee collected by a Nagar Panchayat from bus operators for the use of public bus stands and related facilities cannot be subjected to service tax as “Business Support Service.” 

The bench of  S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) ruled that the facilities were created as part of the Panchayat’s statutory public functions and not to promote or support the commercial activities of bus operators. 

The dispute arose after the Service Tax Department alleged that the Nagar Panchayat was providing Business Support Services to bus operators by allowing them to use designated bus stoppages equipped with shelters, open spaces and toilet facilities for boarding and alighting passengers. According to the Department, the Adda Fee collected by the Panchayat constituted consideration for rendering taxable services, leading to the issuance of three show cause notices demanding service tax along with interest and penalties. These demands were confirmed by both the adjudicating authority and the Commissioner (Appeals), prompting the Panchayat to approach the CESTAT. 

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The appellant contended that it had established the bus stand facilities in discharge of its constitutional obligations under Article 243W read with Entry 17 of the Twelfth Schedule of the Constitution, which entrust local bodies with responsibilities relating to public amenities and infrastructure.

It further argued that the Adda Fee was not a commercial charge but a statutory fee fixed by the District Magistrate under Rule 200(3) of the Punjab Motor Vehicles Rules, 1989. The Panchayat relied upon CBEC Circular No. 96/7/2007-ST dated 23 August 2007, which clarified that activities performed by sovereign or public authorities in discharge of statutory functions are not liable to service tax. It also pointed out that, after the introduction of the negative list regime from 1 July 2012, services provided by local authorities were either exempt or, where taxable, the liability shifted to the recipient under the reverse charge mechanism. 

The Tribunal observed that the issue was no longer res integra and noted that the Revenue had failed to establish that the Nagar Panchayat had created any infrastructure specifically to facilitate or promote the business interests of bus operators.

The Bench found that the facilities provided—such as bus stopping spaces, shelters and toilets—were public amenities established in the larger public interest as part of the statutory responsibilities of a local authority. Merely because bus operators paid Adda Fees for the upkeep and maintenance of these facilities did not transform the activity into a taxable business support service. 

The Tribunal also relied upon its earlier decision in the case of Chandigarh Transport Corporation and held that no service tax was leviable prior to 1 July 2012 on such statutory functions performed by local authorities. 

For the period after 1 July 2012, when the negative list regime came into force, the Tribunal referred to Notification No. 30/2012-ST dated 20 June 2012 and held that even if the services were considered taxable, the liability to pay service tax rested on the recipient of the service under the reverse charge mechanism, and not on the Nagar Panchayat.

Consequently, the Tribunal concluded that the Panchayat could not be saddled with service tax liability for collecting Adda Fees towards maintenance of public facilities. 

Allowing all three appeals, the Chandigarh Bench of the CESTAT held that Nagar Panchayat is not liable to pay service tax on Adda Fees collected from bus operators for public bus stand facilities, as the activity constitutes the discharge of statutory public functions rather than the provision of Business Support Services. The Tribunal accordingly set aside the service tax demands, along with the consequential interest and penalties, and allowed the appeals. 

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