Statutory compensation for coal block cancellation was not taxable as consideration for tolerating an act or situation.

Statutory compensation received for cancellation of coal block allocations was held not to be consideration for tolerating an act or situation under the Finance Act, 1994. The cancellation occurred by operation of law, and the later compensation scheme was likewise statutory, so the essential elements of a taxable declared service were absent: no contractual choice to tolerate, no actual agreement to tolerate, and no consideration flowing for any service. Compensation for investment loss was treated as distinct from contractual consideration or damages, making the service tax demand, along with interest and penalties, unsustainable.

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Issues: Whether compensation received by the appellant for cancellation of coal block allocations was exigible to service tax as consideration for tolerating an act or situation under the Finance Act, 1994.

Analysis: The cancellation of coal block allocations occurred by operation of law pursuant to the Supreme Court's order, and the subsequent compensation scheme under the Coal Mines (Special Provisions) Act, 2015 was also statutory. For liability under the declared service of tolerating an act or situation, the arrangement must involve a choice to tolerate, an actual decision to tolerate, and a consideration flowing under an agreement for such tolerance. Those elements were absent. The compensation paid for investment loss could not be equated with consideration for any service, and statutory compensation is materially different from contractual consideration or damages.

Conclusion: The amount received was not taxable as consideration for a service of tolerating an act or situation, and the demand was unsustainable.

Final Conclusion: The adjudication confirming service tax, interest, and penalties could not stand, and the appellant succeeded on merits.

Ratio Decidendi: Statutory compensation paid by operation of law, without a contractual choice to tolerate an act or situation, does not constitute consideration for a taxable service.

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