Clearance for Non-Forest use of Land and NPV Charges do not constitute 'Declared Service' u/s 66E(e) of Finance Act: CESTAT quashes Service Tax Demand [Read Order]

The Kolkata Bench of Customs, Excise And Service Tax Appellate Tribunal quashes the service tax demand order holding that clearance for non-forest use of land and Net Present Value ( NPV ) charges do not constitute 'declared service' under Section 66E(e) of Finance Act, 1994.

Central Coalfields Limited (CCL), the appellant engaged in coal mining, sought forest clearance to use forest land for non-forest purposes. The appellant paid net present value ( NPV ) charges to the CAMPA (Compensatory Afforestation Fund Management and Planning Authority) for environmental conservation as part of the clearance process.

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The Department of Central Excise and CGST issued a Show Cause Notice demanding a service tax of Rs. 1,36,13,506 (including cess) under the reverse charge mechanism for the NPV paid by the appellant.

On appeal by the appellant, the Commissioner (Appeals) confirmed the service tax demand order. The appellant challenged the demand order before the Kolkata Bench of CESTAT.

This case's main issue was whether the appellant's NPV payment to the CAMPA Fund constituted "service" and was subject to service tax under the Finance Act,1994.

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The appellant’s counsel submitted that the  NPV payment was mandated by law and not related to any service provided or to be provided. The counsel relied on a previous ruling in Mahanadi Coalfields Ltd. v. CGST & C.Ex., Rourkela, where a similar demand was rejected.

Further, they argued that the payment of NPV could not be considered "consideration" for a service but was required by law for environmental protection under the CAMPA Act and the Forest Conservation Act.

On the contrary, the revenue counsel supported the findings in the impugned order.

The two-member bench comprising R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member) observed that the NPV payment made by the appellant was a statutory obligation under Article 48 of the Constitution and a Supreme Court decision, not a service.

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From the impugned order, the Tribunal noted that the adjudicating authority had considered the payment of NPV as "consideration" for a Declared Service under Section 66E(e) of the Finance Act, 1944.

The tribunal explained that the section covers situations where a party agrees to tolerate an act or situation in exchange for payment. The Tribunal found this interpretation flawed, as NPV is a statutory environmental charge, not a payment for tolerating any act or situation.

Therefore, the tribunal set aside the service tax demand and ruled that the NPV payments made to the CAMPA Fund were not subject to service tax. The appellant’s appeal was allowed.

To Read the full text of the Order CLICK HERE

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