Compensation received from Government is not ‘tolerating an act or situation’
In Jiirgen Mohr v. Finanzamt Bad Segeberg (2012) 36 STT 5 = 23 13 (ECJ), a farmer undertook to discontinue milk production under German Government policy to reduce milk production.Department demanded service tax as it was ‘tolerating an act or situation’. It was held that Government is acting in public interest. No service is acquired by Government for own use/consumption. There is no supply of service as no compensation is involved. The compensation is not a consideration for any service. Hence, the transaction is not liable to service tax – similar decision in Landboden-Agrardienste GmbH & Co. v. Finanzamt Calau (2012) 36 STT 11 = 23 15 (ECJ), where a farmer had got compensation to reduce potato production.