Statutory forest clearance charges are not service tax consideration, and granting regulatory permission is not a declared service.

Mandatory Net Present Value charges paid into the Compensatory Afforestation Fund as a statutory condition for forest clearance were held not to constitute consideration for a taxable service because they arose by operation of law, involved no consensual or commercial quid pro quo, and were earmarked for ecological conservation. The grant of forest clearance was also held not to be a declared service, since a sovereign regulatory permission is not an agreement to tolerate an act or situation. On that basis, the service tax demand failed, and the associated interest, penalties, and extended limitation invocation could not survive absent suppression, misstatement, or fraud.

---

---

Issues: (i) Whether mandatory Net Present Value charges deposited into the Compensatory Afforestation Fund as a statutory precondition for forest clearance constitute consideration for a taxable service under Section 65B(44) of the Finance Act, 1994; (ii) Whether such statutory deposits and the grant of forest clearance amount to a declared service under Section 66E(e) of the Finance Act, 1994.

Issue (i): Whether mandatory Net Present Value charges deposited into the Compensatory Afforestation Fund as a statutory precondition for forest clearance constitute consideration for a taxable service under Section 65B(44) of the Finance Act, 1994.

Analysis: The deposits were made by operation of law as a condition for use of forest land and not pursuant to any consensual or commercial arrangement. The amount was earmarked for compensatory afforestation and ecological conservation, with no quid pro quo flowing to the depositor. A statutory levy collected in discharge of regulatory functions does not satisfy the foundational requirement of consideration for service tax.

Conclusion: The mandatory NPV charges are not consideration within the meaning of Section 65B(44) of the Finance Act, 1994 and cannot be taxed as a service.

Issue (ii): Whether such statutory deposits and the grant of forest clearance amount to a declared service under Section 66E(e) of the Finance Act, 1994.

Analysis: The expression "agreeing" in Section 66E(e) requires a consensual arrangement to refrain from an act, tolerate an act or situation, or do an act. Granting forest clearance is a sovereign regulatory function performed under statutory authority, not an agreement to tolerate. The payment is a mandatory public-law levy and not consideration for any declared service. The invocation of extended limitation and penalties also fails where no suppression, misstatement, or fraud is established.

Conclusion: The grant of forest clearance does not constitute a declared service under Section 66E(e) of the Finance Act, 1994, and the demand, interest, and penalties are unsustainable.

Final Conclusion: The appeal succeeds on merits and on limitation, the tax demand is set aside, and the ancillary levy of interest and penalties also cannot stand.

Ratio Decidendi: A mandatory statutory payment made as a condition for regulatory permission is not consideration for service tax, and a sovereign act of granting or withholding permission does not amount to an agreement to tolerate an act under Section 66E(e) of the Finance Act, 1994.

---