Statutory forest diversion charges are not consideration for tolerating an act, so service tax and penalties fail.

Payments of net present value and compensatory afforestation charges made for diversion of forest land are statutory levies under the forest conservation regime and not consideration for a declared service of tolerating an act under the Finance Act, 1994. Because the charges arise by operation of law and not from any voluntary quid pro quo arrangement, the ingredients of service and declared service are absent, so service tax is not payable on that basis. As the levy itself is not sustainable, consequential interest and penalty also fail. In the absence of suppression of facts, the extended period is unavailable and penalty under section 78 cannot be imposed.

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Issues: (i) Whether payment of net present value and compensatory afforestation charges for diversion of forest land for mining constituted consideration for a declared service of tolerating an act under section 66E(e) read with section 65B of the Finance Act, 1994. (ii) Whether the demand of service tax, interest and penalty could be sustained, including invocation of the extended period.

Issue (i): Whether payment of net present value and compensatory afforestation charges for diversion of forest land for mining constituted consideration for a declared service of tolerating an act under section 66E(e) read with section 65B of the Finance Act, 1994.

Analysis: The charges were payable by operation of law for diversion of forest land under the forest conservation regime and not pursuant to any voluntary arrangement by which the Government agreed to tolerate an act or situation for a consideration. The payment was a statutory levy aimed at environmental protection and ecological regeneration, and not a quid pro quo for any service rendered by the Government to the appellant. The ingredients of a service, namely activity for another for consideration, and of declared service by agreeing to tolerate an act, were therefore absent.

Conclusion: The payment did not amount to consideration for a declared service and no service tax was payable on that count.

Issue (ii): Whether the demand of service tax, interest and penalty could be sustained, including invocation of the extended period.

Analysis: Since the levy itself was not maintainable, the consequential demand of interest and penalty could not survive. The payment had been made openly in accordance with law, with no suppression of facts established on the record. In the absence of suppression, the extended period was not available and penalty under section 78 could not be imposed.

Conclusion: The demand of service tax, interest and penalty was unsustainable and the extended period could not be invoked.

Final Conclusion: The appeal succeeded and the impugned order was set aside in full, leaving no service tax liability on the disputed statutory payments.

Ratio Decidendi: A statutory payment made by operation of law for environmental clearance and forest diversion cannot be treated as consideration for tolerating an act under the service tax law, and without suppression of facts the extended period and penalty cannot be invoked.

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