Rajeev Kumar Agarwal, Advocate
MNH Shakti Limited Vs Commissioner, Central Goods And Service Tax & Central Excise, Rourkela (CESTAT Kolkata)
Today, the Hon’ble CESTAT, Kolkata Bench, vide its Order No. 75689/2021 dated 10.11.2021 has pronounced its judgement on a very important and vexed issue, in favour of the assessee, which will benefit many Corporates which have received similar demand notices for levy of Service Tax on the compensation amount received by them, consequent to cancellation of coal blocks by the Hon’ble Supreme Court in 2014, by invoking the provisions of Section 66E(e) of the Finance Act, 1994.
The Hon’ble Supreme Court vide Order dated 24.09.2014 cancelled about 218 coal blocks which were allocated by the Central Government between 1993 and 2010. Subsequent to cancelation of coal block by Supreme Court, the Coal Mines (Special Provision) Act, 2015 was enacted. In terms of Section 9 of the said Act, the compensation amount was paid to the prior allottees out of the proceeds received by the Government from the new allottees of such cancelled coal blocks.
The assessee, represented by us, was one of them. They were allotted 2 coal blocks by the Ministry of Coal in 2005. The assessee incurred huge expenditure for development of said coal block. Subsequent to the cancellation of the coal blocks and receipt of compensation, the assessee was saddled with Service Tax liability by invoking the provisions of Section 66E(e) on the compensation amount received treating the same towards “agreeing to tolerate an act”.
It was the contention of the Service Tax Department that by receiving the said compensation amount, the assessee has rendered “Declared Services” under Section 66E (e) brought into the statute books post Negative List Service Tax regime w.e.f. 1st July, 2012. The said provision in respect of Declared Services reads as “agreement to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act.”
The Hon’ble Tribunal while appreciating the submissions made by the assessee observed that the assessee, in the given facts of the case, 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” as contended by the department.
The above ruling is the first of its kind on the issue where demand of service tax was raised on the compensation amount received in pursuance to cancelation of coal blocks. This decision would have significant bearing in the present GST regime as well since identical provisions have been made in Schedule II, Serial No. 5(e) of the CGST Act, 2017. Copy of the decision is attached.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The appellant, 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 cancelled 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, 20151 and Coal Mines (Special Provisions) Rules, 2015 were enacted which provided for a 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.
2. The appellant received compensation under this Act from the new allottees through the Government. A SCN dated 18.10.2019 was issued by the DG, GSTI, Bhubaneswar alleging that the appellant “tolerated the act of cancellation of coal blocks” by the Ministry of Coal and received a compensation in lieu of the cancellation and that this activity of the appellant appears to be covered by the definition of service as per Section 65B (44) read with 65B (22) and section 66E (e) of the Finance Act, 1994 and hence is chargeable to service tax. Service tax was demanded in the SCN under the proviso to section 73(1) invoking extended period of limitation along with interest under section 75. Penalties were proposed to be imposed under sections 76, 77 and 78 of the Finance Act, 1994. After following the due process, the learned commissioner has issued the impugned order as follows:
“(i) I confirm the demand of Rs. 2,78,32,500/- (Rupees Two Crore Seventy Eight Lakh Thirty Two Thousand Five Hundred only) (Service Tax of Rs. 2,59,77,000/- Swachh Bharat Cess of R. 9,27,750/- & Krishi Kalyan Cess of Rs. 9,27,750/-) not paid under the proviso to Section 73(1) of the Finance Act, 1994 and Section 73(2) of the Finance Act, 2016 from the Noticee;
(ii) I order for recovery of interest at applicable rates on the Service Tax as confirmed at sub-para (i) above, under Section 75 of the Finance Act 1994 from the Noticee;
(iii) I impose penalty of Rs. 10,000/- (Rupees Ten Thousand only) upon the Noticee under Section 77(2) of the Finance Act 1994 for failure to self-assess their service tax liability properly and for failure to declare to correct liability in their statutory ST-3 return in contravention of Section 70 of the Finance Act, 1994 read with Rule 7 of Service Tax Rules, 1994;
(iv) I also impose penalty of Rs. 2,78,32,500/- (Rupees Two Crore Seventy Eight Lakh Thirty Two Thousand Five Hundred only), under Section 78(1) of the Finance Act, 1994 for wilful suppression of taxable value of services and wilful contravention of statutory provisions and rules made thereunder with the intent to evade payment of Service Tax, on the Noticee. Provided that where the service tax confirmed at sub-para (i) above and the interests payable thereon are paid within a period of 30 (thirty) days of the date of receipt of this order, the penalty payable shall be twenty five percent of the service tax demand confirmed at sub-para (i) above, provided also that the benefit of reduced penalty shall be available only if the amount of such reduced penalty is also paid within a period of 30 (thirty) days of the date of receipt of this order.
3. Aggrieved, the appellant filed this appeal. Learned counsel for the appellant submitted as follows:
a) The act of cancellation of the coal blocks and consequent receipt of compensation was as per the law pronounced by the Hon’ble Supreme Court and the subsequent CMSPA passed by the Parliament.
b) The appellant had no choice but to accept the cancellation of the allocation. It is not a case of choice made by the appellant in consideration of the compensation. Part of the losses incurred by the appellant due to cancellation of the allocation was covered by the compensation. Section 66E (e) intends to levy service tax in respect of three activities:
