Statutory compensation for coal block cancellation is not consideration for tolerating an act and falls outside service tax.

Compensation received on cancellation of a coal block allocation under the Coal Mines (Special Provisions) Act, 2015 was treated as statutory reimbursement, not consideration for a taxable declared service. Service tax on tolerating an act requires a choice to tolerate, actual tolerance, and consideration under an agreement, express or implied. Because the cancellation operated by law and the compensation was provided to cover investment in land and mine infrastructure, it could not be characterised as payment for tolerating cancellation. The receipt was therefore outside the scope of the declared service provision and was not liable to service tax.

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Issues: Whether compensation received for cancellation of coal block allocation under the Coal Mines (Special Provisions) Act, 2015 was liable to Service Tax as consideration for the declared service of tolerating an act under the Finance Act, 1994.

Analysis: The compensation was paid pursuant to the statutory scheme governing cancellation and reallocation of coal blocks, and not under any agreement by the prior allottee to tolerate cancellation. For the levy under the declared service category, there must be a choice to tolerate, actual tolerance, and a consideration for such tolerance under an agreement, express or implied. Here, the cancellation occurred by operation of law and in terms of the Supreme Court's cancellation order, while the compensation was statutorily provided to reimburse investment in land and mine infrastructure. Such statutory compensation cannot be equated with consideration for a taxable service. The receipt was therefore outside the scope of Section 66E(e) read with the definition of service.

Conclusion: The compensation was not exigible to Service Tax and the demand was unsustainable.

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