2022 (5) TMI 254 - AT - Service Tax

Levy of service tax - Consideration for tolerating the act of cancellation of the coal blocks by the Ministry of Commerce, Government of India - HELD THAT - The question of tolerating something and receiving a compensation for such tolerance pre-supposes that a) the person had a choice to tolerate or not; b) the person chose to tolerate; c) such tolerance was for a consideration as per an agreement (written or otherwise) to tolerate; d) the tolerance was a taxable service. None of the above elements are present in the case under consideration. 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 Hon ble 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. It is unthinkable to say that the land-owner has tolerated the acquisition of his land as per an agreement and charge Service Tax on the compensation - No Service Tax can be levied on the amounts received by the Appellant as compensation. Since the matter is decided in favour of the Appellant on merits, it is not found necessary to examine the question of limitation. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
Service Tax liability on compensation received for tolerating cancellation of coal blocks.

Analysis:
1. The case involved the issue of whether the compensation received by the Appellant for tolerating the cancellation of coal blocks was subject to Service Tax liability. The Appellant, a prior allottee of a coal block, received compensation under the Coal Mines (Special Provisions) Act, 2015, after the allotment was cancelled by the Supreme Court.

2. The Revenue alleged that the compensation received constituted consideration for a declared service of tolerating the cancellation, making it liable for Service Tax. The Principal Commissioner confirmed the demand, stating that the compensation fell within the definition of 'service' under relevant sections of the Finance Act, 1994.

3. The Appellant contended that there was no service rendered to the Ministry of Commerce/Government of India and that the compensation was not leviable to Service Tax. The Appellant relied on a previous Tribunal decision in a similar case, where it was held that compensation for cancelled coal blocks was not consideration for tolerating the cancellation.

4. The Tribunal analyzed the elements required for a taxable service of tolerating a situation and concluded that the Appellant had no choice in tolerating the cancellation, as it was in compliance with the Supreme Court's order. The compensation received was deemed a statutory provision to recoup the investment made in the mines, not consideration for tolerating the cancellation.

5. The Tribunal further emphasized that the compensation received was not under a contract but by operation of law, akin to compensation for land acquisition or leave encashment for a government employee. It was clarified that such situations did not constitute taxable services of tolerating a situation, and therefore, no Service Tax could be levied on the compensation received by the Appellant.

6. As the Tribunal ruled in favor of the Appellant on the merits of the case, it set aside the impugned order, allowing the appeal and directing any consequential relief to the Appellant. The question of limitation and penalties were not examined due to the favorable decision for the Appellant.

7. Ultimately, the Tribunal held that the compensation received by the Appellant for tolerating the cancellation of coal blocks was not subject to Service Tax, and the impugned order was set aside accordingly, providing relief to the Appellant.