No Service Tax can be levied on amounts received as Compensation in pursuance to Cancelation of Coal Blocks: CESTAT [Read Order]

The Kolkata Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that no service tax can be levied on amounts received as compensation in pursuance of the cancelation of coal blocks.

The appellant, MNH Shakti Limited, a joint venture company of Mahanadi Coal Fields Ltd, Neyeveli Lignite Corporation, and Hindalco Industries Ltd., mines and sells coal. Coal Blocks allocated to the appellant for the purpose by the Government of India in 2005 were canceled by the Hon’ble Supreme Court vide its order dated 24th September 2014 along with similar allocations to other mining companies. The blocks were thereafter allocated to other companies. Since the appellants and other companies which are similarly placed had already invested in these mines, the Coal Mines (Special Provisions) Act, 2015 and Coal Mines (Special Provisions) Rules, 2015 were enacted which provided for compensation to be paid by the new allottees to the old ones (such as the appellant) in lieu of the financial loss incurred. Section 9 of CMSPA provides that a part of the proceeds, collected from the new allottees was to be paid to the old allottees as compensation.

The assessee contended that it has received the compensation in terms of the statute enacted pursuance to the Supreme Court Order and the assessee cannot be said to have tolerated any act inasmuch as the assessee do not have any option or choice whether to tolerate or not and the receipt of compensation is by operation of law. Hence, the assessee cannot be said to have rendered the “Declared Services”.

The coram of  Judicial Member, P.K. Choudhary Member, and Technical Member P.V. Subba Rao held that both the cancellation of the allocation of the blocks and the receipt of compensation is by operation of law. They are like the receipt of compensation when one’s land is acquired by the Government in the 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 charged service tax on the compensation. Equally unthinkable is to say that 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 the imagination. No service tax can be levied on the amounts received by the appellant as compensation.

“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 compensation provided statutorily for the investment made in the mines by the appellant,” the court said.

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