Compensation received to the Original Allottee of Coal Block by the Subsequent Allottee for the expenses incurred is outside ambit of event “Tolerating an Act”, hence no Service Tax

[Rachit Agarwal]

CESTAT Kolkata in M/S. JINDAL STEEL & POWER LIMITED VERSUS PRINCIPAL COMMISSIONER OF CGST & CX, RANCHI COMMISSIONERATE [2022 (5) TMI 254 - CESTAT KOLKATA]

Petitioner Pleadings

Prior allottees were to be compensated for the transfer of the right, title and interest in the land and mine infrastructure to the successful bidder.

there was no rendition of service, compensation received by it was not consideration

prior allottee of a coal block, the allocation of which was cancelled by the Hon’ble Supreme Court vide order dated 24.09.2014.

coal blocks were cancelled in terms of the Hon’ble Supreme Court’s order and that to reimburse such prior allottees for their investment in land and mine infrastructure, the CMSPA provided for payment of compensation to the prior allottees by the new bidder

Respondents Pleadings

Appellant had tolerated the act of cancellation blocks by the Ministry of Commerce, Government of India of the coal mine and in lieu of which it received the amount of compensation in lieu thereof, which was covered by the definition of ‘service’ in Section 65B(44)

Observations and Final Order

Tolerating something and receiving a compensation for such tolerance pre-supposes that:

a) the person had a choice to tolerate or not;

b) the person chose to tolerate;

c) such tolerance was for a consideration as per an agreement (written or otherwise) to tolerate;

d) the tolerance was a taxable service.

None of the above elements are present in the case under consideration.

The Appellant had no choice of tolerating cancellation or not.

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 a compensation provided for statutorily for the investment made in the mines by the Appellant.

12. Even in cases where any amount is received under a contract as a compensation or liquidated or unliquidated damages, it cannot be termed ‘Consideration’.

Both the cancellation of the allocation of the blocks and the receipt of compensation are by operation of law.

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.