2024 (1) TMI 5 - AT - Service Tax

Levy of service tax - reverse charge mechanism - payment of net present value by the appellant in the Compensatory Fund would be a consideration against a declared service under section 66E (e) of Finance Act or not - HELD THAT - This precise issue arose for consideration before a Division Bench of Kolkata Bench of the Tribunal in M/S MAHANADI COALFIELDS LIMITED (ORIENT AREA) VERSUS COMMISSIONER OF CGST CENTRAL EXCISE, ROURKELA. 2023 (7) TMI 1336 - CESTAT KOLKATA and after placing the reliance upon the earlier decision of the Tribunal in MNH Shakti Ltd. 2021 (11) TMI 427 - CESTAT KOLKATA , the Tribunal held that 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 Consideration for the said service. In view of the aforesaid decision of the Tribunal in Mahanadi Coalfields Ltd., the order passed by the Principal Commissioner cannot be sustained and is set aside - appeal allowed.

Summary

Issues Involved:
- Whether the payment of net present value by the appellant in the Compensatory Fund would be a consideration against a declared service under section 66E (e) of Finance Act.

The appellant, a Public Sector Undertaking engaged in mining and selling coal, appealed against an order confirming the demand of service tax by treating the service provided as a declared service under section 66E (e) of the Finance Act, 1994. The show cause notice alleged that the appellant had to pay service tax under a reverse charge mechanism on the net present value under the Compensatory Afforestation Funds Act, 2016. The notice claimed that the government tolerated the diversion of forest land by the appellant for mining in exchange for compensatory levies paid to the Fund. The appellant denied the allegation, but the Principal Commissioner upheld the demand with penalty and interest.

The main issue was whether the payment of net present value to the Compensatory Fund constituted consideration against a declared service under section 66E (e) of the Finance Act. The Tribunal, relying on previous decisions, held that the payment made by the appellant was not a consideration for any service. It was noted that the government was duty-bound by law to collect charges for granting diversion of forest land for non-forest purposes like mining. The Tribunal emphasized that the appellant had no choice in making the payment and that the amount paid could not be considered as consideration for any service. The Tribunal also highlighted that the appellant had not suppressed any information from the department and had paid the NPV to the CAMPA Fund as required by law, thus penalty under Section 78 of the Finance Act was not imposable.

In light of the Tribunal's decision in a similar case, the order of the Principal Commissioner demanding service tax, interest, and penalty was set aside, and the appeal of the appellant was allowed.