2021 (11) TMI 427 - AT - Service Tax

Levy of service tax - tolerance of act of cancellation of coal blocks - operation of a statute or result of an agreement - case of the Revenue is that the appellant is tolerating the act of cancellation and has received this amount as consideration for such tolerance - HELD THAT - The appellant had no choice of tolerating cancellation or not. The appellant has not chosen to tolerate the cancellation. The cancellation was in pursuance of the order of the Supreme Court and not as a result of a contract to tolerate cancellation. There was no consideration for tolerating the cancellation, only a compensation provided for statutorily for the investment made in the mines by the appellant. Even in cases where any amount is received under a contract as a compensation or liquidated or unliquidated damages, it cannot be termed Consideration . This case is not even a case of payment under a contract. Both the cancellation of the allocation of the blocks and the receipt of compensation are by operation of law. They are like the receipt of a compensation when one s land is acquired by the Government in public interest or the payment to a Government employee of an amount equal to the salary for unused leave at the time of his/her retirement - 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. Time Limitation - HELD THAT - It is not found necessary to examine the question of limitation - all the penalties need to be set aside as well. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Service tax liability on compensation received for coal block cancellation under CMSPA.

Analysis:
1. Background: The appellant, a joint venture company, had coal blocks allocated by the Government in 2005, which were later cancelled by the Supreme Court. Compensation under CMSPA was received by the appellant from new allottees.

2. Service Tax Demand: The Directorate General alleged that the compensation received by the appellant for tolerating the cancellation falls under service tax liability as per Finance Act, 1994. A demand of ?2,78,32,500 was confirmed along with penalties and interest.

3. Appellant's Arguments: The appellant contended that the compensation was received as per legal provisions and not due to any agreement to tolerate the cancellation. They argued that the compensation was statutory and not a consideration for any service provided.

4. Legal Interpretation: The Tribunal analyzed the nature of compensation received and the concept of consideration under the Contract Act. It was established that the appellant did not have a choice in tolerating the cancellation, and the compensation was not a result of any agreement.

5. Judgment: The Tribunal ruled in favor of the appellant, stating that the compensation received was not a taxable service as it was a statutory provision to address the financial loss incurred due to the cancellation of coal blocks. Therefore, the service tax liability, penalties, and interest were set aside.

6. Conclusion: The impugned order demanding service tax on the compensation received by the appellant was overturned, emphasizing that the compensation was not a consideration for any service provided. The judgment provided relief to the appellant, setting aside all penalties and interest imposed.