Statutory CAMPA Deposits Not Consideration For Taxable Service Under Finance Act: CESTAT New Delhi

The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, on 25 May held that mandatory Net Present Value (NPV) deposits made into the Compensatory Afforestation Fund (CAMPA) for obtaining forest clearance cannot be treated as consideration for a taxable service under the Finance Act, 1994.

Judicial Member Ajay Sharma and Technical Member P.V. Subba Rao allowed the appeal filed by Chhattisgarh State Power Transmission Company Ltd. and set aside a service tax demand of Rs. 7.64 crore along with interest and penalties. The Bench observed:

“Where a payment is not a matter of choice or voluntary contract but is mandated by statute as a condition of law, independent of any consensual arrangement, it cannot constitute consideration in the legal sense.”

The dispute arose after the Department alleged that NPV charges deposited with CAMPA for diversion of forest land for transmission lines constituted consideration for a “declared service” under Section 66E(e) of the Finance Act, namely, “agreeing to the obligation to refrain from an act, or to tolerate an act or a situation.”

According to the Department, the Ministry of Environment, Forest and Climate Change effectively “tolerated” non-forest use of protected land in return for compensatory payments.

Rejecting the contention, the Tribunal held that CAMPA deposits were statutory payments mandated under the Forest (Conservation) Act, 1980 and the Compensatory Afforestation Fund Act, 2016, and therefore lacked the essential element of consideration required for levy of service tax. It further clarified that grant of forest clearance is a sovereign regulatory function, not a commercial or consensual arrangement between the State and the applicant.

It added that Section 66E(e) presupposes the existence of a consensual arrangement to tolerate an act or situation, which was absent in the present case. The Bench also emphasised that the relationship between the State and the applicant arose within a regulatory framework, not a bilateral service arrangement. It held:

“The relationship is between the State and a private party in the context of a regulatory regime, not a bilateral service arrangement.”

Relying on earlier decisions, including Mahanadi Coalfields Ltd. and South Eastern Coalfields Ltd., the Bench reiterated that forest clearance cannot be treated as a “declared service” and CAMPA deposits cannot be characterised as consideration for such service.

On limitation, the Tribunal held that invocation of the extended period under Section 73(1) was unsustainable, as the NPV deposits were statutory payments duly reflected in the appellant's books of account and there was no suppression or misstatement.

Accordingly, the CESTAT set aside the service tax demand, interest, and penalties in entirety.

For Appellant: Shri A.K. Batra, Chartered Accountant