Forest clearance for non-forest land use not a declared service under section 66E(e) Finance Act 1944

CESTAT New Delhi held that payment of net present value to the Compensatory Fund by appellant cannot be considered as consideration for a declared service under section 66E(e) of Finance Act, 1944. Following the Division Bench decision in Mahanadi Coalfields Limited case, the Tribunal ruled that clearance granted by Ministry of Environment, Forest and Climate Change for forest land usage for non-forest purposes does not constitute a declared service. The Principal Commissioner's order imposing service tax under reverse charge mechanism was set aside and appeal was allowed.

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Issues Involved:
- Whether the payment of net present value by the appellant in the Compensatory Fund would be a consideration against a declared service under section 66E (e) of Finance Act.

The appellant, a Public Sector Undertaking engaged in mining and selling coal, appealed against an order confirming the demand of service tax by treating the service provided as a declared service under section 66E (e) of the Finance Act, 1994. The show cause notice alleged that the appellant had to pay service tax under a reverse charge mechanism on the net present value under the Compensatory Afforestation Funds Act, 2016. The notice claimed that the government tolerated the diversion of forest land by the appellant for mining in exchange for compensatory levies paid to the Fund. The appellant denied the allegation, but the Principal Commissioner upheld the demand with penalty and interest.

The main issue was whether the payment of net present value to the Compensatory Fund constituted consideration against a declared service under section 66E (e) of the Finance Act. The Tribunal, relying on previous decisions, held that the payment made by the appellant was not a consideration for any service. It was noted that the government was duty-bound by law to collect charges for granting diversion of forest land for non-forest purposes like mining. The Tribunal emphasized that the appellant had no choice in making the payment and that the amount paid could not be considered as consideration for any service. The Tribunal also highlighted that the appellant had not suppressed any information from the department and had paid the NPV to the CAMPA Fund as required by law, thus penalty under Section 78 of the Finance Act was not imposable.

In light of the Tribunal's decision in a similar case, the order of the Principal Commissioner demanding service tax, interest, and penalty was set aside, and the appeal of the appellant was allowed.

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