Area development charges allocated by Government to meet administrative expense is not consideration

Madhya Pradesh State Mining Pr. Commissioner (CESTAT Delhi)

CESTAT Delhi held that allocation of area development charges by the State Government to the appellant to meet up its administrative expenses without performance of any service in exchange of the amount cannot be treated as consideration towards a service.

Facts- The appellant was granted rights to mine sand, rock, phosphate, flag stone, and coal by the Madhya Pradesh State Government. In lieu of these rights, the appellant was required to pay royalty to the State Government. The mining operations were carried out by the appellant either directly or through contractors for disposal of sand. In some cases, the appellant also formed joint ventures with the contractors to jointly undertake the mining operations.

Pursuant to audit objections, a show cause notice was issued to the appellant proposing a demand of service tax of Rs. 22,84,16,550/- with interest and penalty for the period from April 2013 to March 2017. This demand was confirmed by the order that has been impugned in this appeal.

Conclusion- In South Eastern Coalfileds, the Tribunal held that liquidated damages recovered on account of breach or non-performance of contract are not consideration in view of any service but are in the nature of deterrent imposed so that such a breach or non-performance is not repeated.

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