GST on Forest Clearance Deposits: Odisha AAR Ruling
Mandatory forest clearance deposits paid to the government are taxable services subject to the Reverse Charge Mechanism.
- Ruling
- ORDER NO.03/ODISHA-AAR/2026-27, Dated: 11/06/2026
- Dated
- 11 Jun 2026
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Forest clearance deposits are considered payment for a service.
- These payments do not qualify for GST exemptions.
- The recipient must pay GST under the Reverse Charge Mechanism.
In short
The company asked if mandatory payments like Net Present Value (NPV) and compensatory afforestation charges made to the government for forest clearance are subject to Goods and Services Tax (GST).
What has changed
How it worked before
Businesses often viewed these mandatory government deposits as statutory levies or taxes rather than payments for a service, leading to uncertainty about whether GST applied.
What has changed
The Authority for Advance Ruling (AAR) decided that granting forest clearance is a service provided by the government. Because these payments are mandatory to receive that service, they are taxable. Businesses must now treat these payments as a supply of service and pay the GST themselves under the Reverse Charge Mechanism.
Who this affects
Infrastructure companies, mining firms, and power transmission businesses that pay mandatory charges to the government to obtain forest clearance.
An example
A mining company in Odisha pays a large sum to the CAMPA fund to clear a forest area for a new mine. Based on this ruling, the company should recognize this payment as a service received from the government. They must calculate and pay the applicable GST on this amount under the Reverse Charge Mechanism.
What you should do
If you are in a similar position, you should evaluate your forest clearance payments for GST liability. Remember that an Advance Ruling only binds the company that asked and its specific tax office; it is not a law that automatically applies to your business.
If you do nothing
If you ignore this ruling and fail to pay GST on these deposits, your local tax officer may issue a notice for unpaid tax, interest, and penalties. Assuming this ruling protects you when your specific tax officer disagrees can lead to costly legal disputes. Always consult with a tax professional to assess your specific situation.
The terms explained
- Reverse Charge Mechanism
- A system where the person receiving the service, rather than the person providing it, is responsible for paying the GST to the government.
- Consideration
- Any payment or value given in return for a service or goods received.
- Net Present Value (NPV)
- A mandatory fee paid by businesses to compensate for the loss of forest land and its environmental benefits.
The ruling in detail
Authority for Advance Ruling
M/s. TP Paradeep Transmission Limited
ORDER NO.03/ODISHA-AAR/2026-27, Dated: 11/06/2026 · Odisha
Questions before the authority
- Whether statutory deposits of Net Present Value (NPV), Compensatory Afforestation, Dwarf Plantation, Site Specific Wildlife Conservation plan, Plantation of Dwarf Species and various other charges as specified in detail at Table- 1 at para 21 of statement of facts with Compensatory Afforestation Fund Management and Planning Authority, Government of Odisha / Govt of India ("CAMPA Fund") for obtaining forest clearance certificate is a "consideration" against "supply of services" under section 7 of the CGST Act and corresponding OGST Act?
- Alternatively, If the answer to the question (A) is affirmative i.e NPV being of the nature of consideration against supply of service, then whether same is exempted, vide entries at Sl. Nos. 4 & 5 of Notification No.12/2017-CT (Rate) dated.28.06.2017?
- If the answer to the question (A) is affirmative and (B) is negative, whether such deposits will liable to Goods and Service Tax as forward charges or under reverse charge basis as provided in Section 9(4) CGST & corresponding OGST Act 2017 and rules made thereunder?
Facts
The applicant is engaged in the transmission of electricity and is in the process of establishing substations and transmission lines in Odisha. To proceed with this project, the applicant is required to obtain forest clearance from the Ministry of Environment, Forest & Climate Change. As a mandatory condition for this clearance, the applicant must deposit various charges, including Net Present Value (NPV) and compensatory afforestation costs, into the CAMPA Fund.
Ruling
| Question | What the authority ruled |
|---|---|
| Whether deposits are consideration for supply of services | Yes The deposits are a mandatory condition for obtaining forest clearance and constitute consideration under Sections 7 and 2(31) of the CGST/OGST Act. |
| Whether deposits are exempted under Notification No. 12/2017-CT (Rate) | Negative The services do not fall under the exemption for municipal or panchayat functions. |
| Whether liable to GST under forward or reverse charge | Reverse Charge Mechanism (RCM) Liable under Entry No. 5 of Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017. |
The authority ruled that the mandatory deposits made for obtaining forest clearance constitute a consideration for a supply of services by the Government. Consequently, these payments are not exempt from GST and are liable to tax under the Reverse Charge Mechanism (RCM). The applicant, as the recipient of the service, is responsible for discharging this tax liability.
Reasoning
The authority determined that the grant of forest clearance is not a passive sovereign act but a specific activity undertaken in favour of the applicant, falling within the definition of 'service' under Section 2(102) of the CGST Act. The payments are mandatory, creating a direct nexus between the payment and the grant of approval, thus qualifying as 'consideration' under Section 2(31). The authority rejected the claim for exemption under Notification No. 12/2017-CT (Rate), noting that the activity is a regulatory function rather than a municipal or panchayat function. Finally, it held that the transaction falls under the scope of Entry No. 5 of Notification No. 13/2017-CT (Rate), making the recipient liable to pay tax under the **Reverse Charge Mechanism**.
Provisions relied on
- Section 7 of the CGST Act, 2017
- Section 2(31) of the CGST Act, 2017
- Section 2(102) of the CGST Act, 2017
- Section 9(3) of the CGST Act, 2017
- Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017
- Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017
- Forest (Conservation) Act, 1980
- Compensatory Afforestation Fund Act, 2016
For the practitioner
This ruling confirms that mandatory statutory deposits for forest clearance are subject to GST under the **Reverse Charge Mechanism**. It settles the position that such payments are not merely compensatory but constitute consideration for a taxable supply of service by the Government. Practitioners should advise clients in infrastructure sectors to account for GST liability on all such mandatory regulatory payments.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/tp_paradeep.pdf
Legibility of the scan, as read: high.
Prepared 11-10-2026.
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