2024 (9) TMI 774 - AT - Service Tax

NPV payments to forest compensation fund not taxable under service tax as government fulfills constitutional mandate

M/s. Central Coalfields Limited Versus Commissioner of C.G.S.T. and Central Excise, Ranchi

CESTAT Kolkata held that Net Present Value (NPV) payments made by appellant to Compensatory Afforestation Fund (CAMPA Fund) for forest land conversion are ... Taxability - Tolerating the act - Net Present Value (NPV) paid by the appellant in the Compensatory Afforestation Fund (CAMPA Fund) - Change for usage of the forest land falling under the said project for non-forest purposes - Declared Service under Section 66E(e) of the Finance Act, 1944 - time limitation - suppression of facts or not. Taxability - HELD THAT:- The appellant has made payments of NPV to the CAMPA Fund, as a result of the constitutional mandate enshrined in Article 48 of the Constitution of India. It is also observed that the charges are collected in pursuance of the decision of the Hon’ble Supreme Court. From the impugned order, it is observed that the adjudicating authority has considered the payment of NPV as a consideration for the 'Declared Service' as defined under Section 66E(e) of the Finance Act, 1944. The observation that the Government is ‘tolerating the act’ of the appellant against a ‘consideration’ is legally not sustainable inasmuch as one cannot envisage the situation as apprehended by the Department that by collecting NPV, the Government is tolerating the act of the appellant. The issue regarding taxability of the payment of NPV in the CAMPA Fund stands decided by this Tribunal in the case of M/S MAHANADI COALFIELDS LIMITED (ORIENT AREA) VERSUS COMMISSIONER OF CGST & CENTRAL EXCISE, ROURKELA. [2023 (7) TMI 1336 - CESTAT KOLKATA], wherein this Tribunal held that 'Equally unthinkable is to say that the Government employee has tolerated the non-sanction of leave during his service as per an agreement and in consideration, received the leave encashment at the time of retirement and to charge service tax on the amount received as leave encashment. These, cannot be called taxable services of tolerating a situation by any stretch of imagination. No service tax can be levied on the amounts received by the appellant as compensation.' Thus, the clearance granted by Ministry of Environment, Forest and Climate Change for usage of the forest land falling under the said project for non-forest purposes, cannot be considered as a 'Declared Service' as defined under Section 66E(e) of the Finance Act, 1944 and the charges of NPV paid by the appellant cannot be considered as a 'consideration' for the said service. Accordingly, the demand of service tax along with interest, in the impugned order is not sustainable. Time limitation - suppression of facts or not - HELD THAT:- It is also observed that the appellant has not suppressed any information from the Department. In fact, the entire payment of NPV into the CAMPA Fund is as per the law. Hence, extended period cannot be invoked to demand Service tax in this case - As there is no suppression of facts with intention to evade the tax has been established in this case, penalty under Section 78 of the Finance Act, 1994 is not imposable on the appellant. The impugned order is set aside - appeal allowed. Issues:1. Taxability of Service Tax on Net Present Value (NPV) paid by the appellant in the Compensatory Afforestation Fund (CAMPA Fund).2. Interpretation of 'Declared Service' under Section 66E(e) of the Finance Act, 1944.3. Applicability of penalty under Section 78 of the Finance Act, 1994.Analysis:Issue 1: Taxability of Service Tax on NPV:The case involved a dispute regarding the Service Tax payable on the NPV paid by the appellant in the CAMPA Fund for forest clearance. The Department issued a Show Cause Notice proposing a demand of Service Tax, which was confirmed in the Order-in-Original. The appellant challenged this order, arguing that the NPV paid was not related to any service provided or to be provided, making the demand unsustainable.Issue 2: Interpretation of 'Declared Service':The Tribunal analyzed the concept of 'Declared Service' under Section 66E(e) of the Finance Act, 1944, which includes agreeing to refrain from an act, tolerate an act or situation, or do an act. The Revenue contended that the clearance granted by the Ministry of Environment for non-forest use of land constituted a 'Declared Service,' and the NPV paid was consideration for tolerating the mining activity. However, the Tribunal held that the NPV payment was not a consideration for a service, as it was made by operation of law and not by choice. The Tribunal referred to previous judgments to support its decision.Issue 3: Penalty under Section 78 of the Finance Act, 1994:The Tribunal also addressed the imposition of penalty under Section 78 of the Finance Act, 1994. It noted that the appellant had not suppressed any information from the Department, and the NPV payment was in compliance with the law. Therefore, the Tribunal held that the extended period could not be invoked for demanding Service Tax, and no penalty was imposable on the appellant.In conclusion, the Tribunal set aside the impugned order and allowed the appeal filed by the appellant, holding that the demand of Service Tax on the NPV paid to the CAMPA Fund was not sustainable. The Tribunal emphasized that the NPV payment was not a consideration for a taxable service, as it was mandated by law to preserve ecological balance and was not a result of a contractual agreement for tolerating any act or situation.