2026 (5) TMI 1517

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....An additional penalty of Rs.10,000/- was separately imposed u/s. 77 ibid. 2. The following issues arise for our consideration: (i) Whether the mandatory payments deposited by the appellant - a transmission line company into the Compensatory Afforestation Fund as a statutory condition for obtaining permission for the use of forest land for non-forest purposes can constitute 'consideration' for a taxable service within the meaning of Section 65B(44) of the Finance Act, 1994? (ii) Whether such mandatory and statutory payments deposited into the Compensatory Afforestation Fund established under the Compensatory Afforestation Fund Act, 2016 - an amount earmarked exclusively for afforestation, forest regeneration and wildlife protection, with 90% allocated to the States and 10% to the Central Government - constitute consideration for a 'declared service' within the meaning of Section 66E(e) of the Act, namely, the service of 'agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act', so as to attract liability to Service Tax under Reverse Charge Mechanism? 3. The Appellant is engaged in the co....

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....0.6.2017, demanding Service Tax of Rs.7,64,25,688/- under Section 73(1) of the Act, along with interest and penalties under various provisions thereof. The impugned Order confirmed this demand in its entirety. SUBMISSIONS:- 6. We have heard the learned Chartered Accountant for the Appellant as well as the learned Authorised Representative for Revenue. We have also carefully perused the case records, the synopsis and written submissions filed by both sides, and the case laws placed on record. 7. The Appellant's primary submission is that the NPV payments made to CAMPA are purely statutory obligations imposed by operation of law under the Forest (Conservation) Act, 1980 read with the Compensatory Afforestation Fund Act, 2016, and bear no character of 'consideration' for any service. It is contended that there is no consensual, bilateral, or commercial arrangement between the Appellant and the Government; that the Government does not render any service to the Appellant; and that the very notion of a sovereign regulatory act of granting or withholding environmental clearance being transmuted into a taxable 'service' under the Finance Act, 1994 is legally un....

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....de to CAMPA constitute 'consideration' for any service rendered by the Government? We hold, unequivocally, that they do not. The concept of 'consideration' in the law of contract, and as understood in tax jurisprudence, connotes something given in return for, and as the price of, a promise or an act. It is the quid pro quo that cements a bilateral arrangement. Where a payment is not a matter of choice or voluntary contract but is mandated by statute as a condition of law, independent of any consensual arrangement, it cannot constitute consideration in the legal sense. 13. In the present case, the NPV charges are not paid by the Appellant pursuant to any agreement with the Government. They are levied and collected by operation of the Forest (Conservation) Act, 1980 and the Compensatory Afforestation Fund Act, 2016. These are legal obligations. The Appellant has no choice in the matter as the deposit is a statutory precondition, not a negotiated price. The funds deposited are not retained by the Ministry or used for its own benefit; they are disbursed for the purposes of compensatory afforestation, forest regeneration, and wildlife protection - a public purpose ent....

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....eing' in Section 66E(e) is not superfluous, it denotes a consensual act, not a regulatory compulsion. Importing the concept of 'tolerance' into a purely statutory and regulatory context, where the Government is simply performing its sovereign and constitutional duty of regulating the use of natural resources, would be to stretch the provision beyond its reasonable intendment and to distort the plain meaning of the statute. We decline to adopt such an interpretation. CASE LAWS/PRECEDENTS:- 18. The issues raised herein are, in our view, no longer res integra and have already been answered by a series of decisions of coordinate Benches of this Tribunal. 19. In Mahanadi Coalfields Ltd. (Orient Area) v. Commissioner of CGST & Central Excise, Rourkela; 2023(7)TMI 1336-CESTAT Kolkata, a coordinate Bench of this Tribunal was confronted with a factually identical situation. The appellant therein had obtained forest clearance from the Ministry of Environment to use forest land for mining and had deposited NPV charges in CAMPA fund as mandated by law. Revenue demanded Service Tax of approximately Rs.3.37 crores, arguing that the Government was 'tolerating' the div....

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.... paid by the Appellant therein cannot be considered as 'Consideration' for the said service and hence the demand of service tax along with interest is not sustainable. 21. These decisions were followed by this Principal Bench of the Tribunal in South Eastern Coalfields Ltd. v. Principal Commissioner, CGST & Central Excise; 2024(1)TMI 5-CESTAT New Delhi, where, on an identical issue, the appeal was allowed in favour of the assessee, affirming the settled position of law. 22. It has not been pleaded or shown on behalf of Revenue that any of the aforesaid decisions have been stayed, reversed, or set aside by any higher judicial forum in any appeal preferred by the department. In the absence of any such intimation, these decisions constitute binding precedents of coordinate Benches which we respectfully follow, in consonance with the doctrine of judicial discipline and the principle of consistency. INVOCATION OF EXTENDED PERIOD AND PENALTY :- 23. The invocation of the extended period of limitation u/s. 73(1) ibid is also wholly unjustified. The NPV payments were made by the Appellant in full compliance with the legal mandate under the Forest (Conservation) Act, 1980....