No Service Tax Payable On Charges For Granting Diversion Of Forest Land For Non-Forest Purposes Like Mining: CESTAT

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that no service tax is payable on charges for granting diversion of forest land for non-forest purposes like mining.

The bench of Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) has observed that the clearance granted by the Ministry of Environment, Forest, and Climate Change for usage of the forest land falling under the project for non-forest purposes cannot be considered a declared Service’ as defined under Section 66E(e) of the Finance Act, 1944, and the charges of Net Present Value (NPV) paid by the appellant/assessee cannot be considered a consideration for the service.

The appellant/assessee, Mahanadi Coalfields Ltd., is engaged in the mining of Iron Ore and Manganese at Katamati Iron Ore and has been granted a lease of mines by the Govt. of Odisha. For the mining project, the Appellant sought forest clearance so that forest land falling under the said project could be utilised for non-forest purposes.

The clearance was granted by the Ministry of Environment, Forestry, and Climate Change on payment of charges, known as 'Net Present Value (NPV) in the Compensatory Afforestation Fund (CAMPA FUND).

The Investigating officers contended that payment of NPV to the government appeared to be in lieu of declared Service’ of toleration of the act of use of forest land for non-forest purposes rendered by the government and attracts service tax under the reverse charge mechanism. The appellant failed to discharge the burden of service tax.

The issue raised was whether the Appellant had rendered any Service as defined in clause 44 of Section 65B of the Finance Act, 1944.

As per clause 44 of Section 65B, service means any activity carried out by a person for another for consideration and includes a declared Service’. Clause 22 of Section 65B defines declared Service’ as an activity carried out by a person for another for consideration and specified in Section 66E of the Act.

The CESTAT noted that the payment of NPV to the CAMPA Fund has been made by operation of law, and the Appellant has no choice whatsoever. Thus, the amounts paid cannot be called ‘consideration’ by any stretch of the imagination for the alleged ‘service’. The Government is duty-bound by the Constitutional Mandate (Article 48 of the Constitution of India) and by the Parliament (The CAMPA Act, 2016, Forest Conservation Act 1980) to collect the charges for granting diversion of forest land for non-forest purposes like mining to preserve, conserve, and regenerate lost ecological balance.

The CESTAT quashed the demand for Service taxes.

Case Title: M/s Mahanadi Coalfields Limited (Orient Area) Versus Commissioner of CGST & Central Excise

Case No.: Service Tax Appeal No. 75432 of 2022

Date: 13.07.2023

Counsel For Appellant: Rajeev Agarwal

Counsel For Respondent: J. Chattopadhyay

Click Here To Read The Order