The Kolkata Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the compensation received under a statute for cancellation of coal blocks/mines vide an order of the Supreme Court, cannot be considered as a taxable service of tolerating a situation and is thus not exigible to Service Tax.
The Bench, consisting of members P.K. Choudhary (Judicial Member) and P.V. Subba Rao, (Technical Member), held that coal blocks allocated to the Appellant as well as to several others were cancelled as per the judgment of the Hon’ble Supreme Court. Thereafter, they were allotted to new companies. From the time they were allotted to the Appellant till their cancellation by the Hon’ble Supreme Court, the Appellant had invested in mining of these blocks.
“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 compensation provided for statutorily for the investment made in the mines by the Appellant,” the Tribunal said.
Observing that this not even a case of payment under a contract, the Tribunal observed that 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. 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 imagination. No Service Tax can be levied on the amounts received by the Appellant as compensation,” the Tribunal said.
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