Statutory NPV Payments Not Consideration for ‘Declared Service’: CESTAT Quashes Rs. 7.64 Crore Service Tax Demand on CAMPA Deposits

The Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a service tax demand of Rs. 7.64 crore raised against Chhattisgarh State Power Transmission Company Ltd. (CSPTL), holding that compulsory payments made towards Net Present Value (NPV) charges to the Compensatory Afforestation Fund (CAMPA) cannot be treated as “consideration” for any taxable service. The Tribunal comprising Ajay Sharma (Judicial Member) and P.V. Subba Rao (Technical Member) held that the Ministry of Environment, Forest and Climate Change, while granting forest clearance, performs a sovereign regulatory function and does not render any “declared service” under Section 66E(e) of the Finance Act, 1994. The dispute arose after the Directorate General of Goods and Services Tax Intelligence (DGGI), Raipur Zonal Unit, alleged that the power transmission company had failed to discharge service tax under the Reverse Charge Mechanism (RCM) on mandatory NPV deposits made to CAMPA during the period from April 1, 2016 to June 30, 2017. The Department had proceeded on the theory that the Government, by allowing the use of protected forest land for non-forest purposes, was “agreeing to tolerate an act or a situation”, thereby rendering a taxable declared service under Section 66E(e). The Revenue considered the NPV payment as consideration flowing for such “tolerance.” Accordingly, a show cause notice had been issued seeking recovery of service tax amounting to ₹7,64,25,688 along with interest and penalties. The adjudicating authority subsequently confirmed the entire demand with an equivalent penalty under Section 78 and an additional penalty under Section 77 of the Finance Act, 1994. Before the Tribunal, CSPTL argued that NPV deposits are mandatory statutory payments imposed under the Forest (Conservation) Act, 1980 and the Compensatory Afforestation Fund Act, 2016. It submitted that such payments lacked the essential characteristics of consideration because they were not made under any consensual or commercial arrangement with the Government. Rather, they were legal obligations required as a pre-condition for obtaining environmental clearance. The Tribunal accepted this contention and emphasized that consideration in tax jurisprudence necessarily involves an element of quid pro quo arising from a bilateral arrangement. It observed that payments imposed by operation of law cannot be equated with negotiated commercial consideration. The Bench noted that NPV charges are deposited into CAMPA funds specifically for public purposes including afforestation, forest regeneration and wildlife protection. These funds are distributed with 90% allocated to States and 10% to the Centre for ecological conservation activities and are not retained for the Ministry's benefit. Consequently, the arrangement lacked any commercial or contractual attributes. The Tribunal further explained that for Section 66E(e) to apply, several essential elements must exist, including a consensual agreement, a voluntary undertaking to tolerate or refrain from an act, and identifiable consideration flowing between parties. According to the Bench, none of these ingredients existed in the present case. The Government was merely exercising statutory powers as a sovereign regulator and was not entering into any agreement to “tolerate” use of forest land. The Tribunal observed that the word “agreeing” appearing in Section 66E(e) cannot be ignored. It stated that “agreeing” necessarily implies consent and a bilateral understanding rather than a regulatory compulsion imposed under law. The Bench cautioned that extending the concept of “tolerance” to statutory regulatory functions would distort the legislative intent behind the provision. The Tribunal also relied upon CBEC Circular No. 89/7/2006-ST dated December 18, 2006, which clarifies that statutory fees collected by government authorities while discharging regulatory obligations do not constitute taxable services. The Bench noted that the issue had already been settled through earlier CESTAT decisions including Mahanadi Coalfields Ltd. and South Eastern Coalfields Ltd., where identical service tax demands on CAMPA-related NPV payments had been quashed. The Tribunal observed that Revenue had not shown that these decisions had been stayed or overturned by any superior court. The Tribunal ruled that the extended period under Section 73(1) had been wrongly invoked because the payments were statutory deposits fully disclosed in the books of accounts and there was no evidence of fraud, suppression or misstatement. Therefore, penalties imposed under Sections 77 and 78 also could not survive. The Tribunal set aside the entire demand along with interest and penalties, holding that mandatory NPV deposits under CAMPA are statutory levies and not consideration for any taxable service. Case Details Case Title: Chattisgarh State Power Transmission Company Ltd. Versus Commissioner of CGST & Service Tax, Excise & Customs, Indore Citation: JURISHOUR-1400-CES-2026(DEL) Case No.: Service Tax Appeal No. 54719 of 2023 Date: 25.05.2026 Counsel For Appellant: A K Batra, Chartered Accountant Counsel For Respondent: Shashank Yadav, Authorised Representative Click Here To Read Order Read More: ‘Too Premature for CBI Probe’: Kerala High Court Refuses CBI Probe into Bribery Allegations Against ED Officer

Statutory NPV Payments Not Consideration for ‘Declared Service’: CESTAT Quashes Rs. 7.64 Crore Service Tax Demand on CAMPA Deposits

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