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2012 (12) TMI 425 - AT - Service TaxClassification of taxable services u/s 65A - Supply of Tangible Goods service u/s Section 65(105)(zzzzj) versus Mining of Mineral, Oil or Gas service u/s Section 65(105)(zzzy) versus Survey and Exploration of Mineral, Oil and Gas service Rules of interpretation use of own equipment for providing services - drilling of wells for production/exploitation Hydrocarbons (developmental drilling) is put along with site formation and clearance and excavation and earth moving, which are not part of Survey and exploration of mineral service - contemporanea exposito and intention of the Government Extended period of limitation. Held that - There are five elements i.e. A source rock, Migration, Trap, Seal or cap rock and Reservoir which are required to be complied with to identify source of potential petroleum Hydrocarbon drill location. - In our opinion, this is what is covered by the definition of Survey and Exploration as far as oil/gas is concerned. - the wells drilled as per the GSPC s specification in the location identified after ensuring that the five elements of prospect are existing in the activity subsequent to survey and cannot be said to be a part of the service which is preliminary to mining or drilling activity. The fact that SOTG service was introduced in 2008 does not mean that the same service was not covered by any service earlier. - Decision in the case of Kopran Limited (2009 (4) TMI 121 - CESTAT, MUMBAI)followed. Regarding Extended period of limitation - held that - It is also settled law that if two views are possible and if an assessee entertains a belief that he is not liable to pay duty or tax, intention to evade duty, suppression/mis-declaration cannot be attributed and therefore, extended period of limitation for demanding duty/tax cannot be invoked. Therefore, even if our finding on classification aspect turns out to be incorrect, extended period of limitation could not have been invoked. It is settled law that object and content of the contracts cannot be determined and decided by looking at one paragraph or one clause but the whole contract has to be seen as a whole and considered. Regarding demand within normal period of limitation Whether service provided is covered by the definition of Mining of Oil or Gas Service - held that - , activities undertaken has direct nexus with Mining as the activity undertaken is drilling of wells for exploration of minerals. - The decision in the case of Indian National Shipowners Association (2010 (12) TMI 12 - SUPREME COURT OF INDIA) distinguished. Whether the service provided by M/s. Atwood can be classified as SOTG service with effect from 16.5.2008. held that - The main contention of SOTG i.e. allowing another person to use the rigs without giving legal right of possession are fulfilled in this case. Further, we also find that the clarification issued by the Ministry at the time of introduction of this service are also applicable to the facts of this case. Under these circumstances, we have to hold that after 16.5.2008, the service provided by M/s. Atwood has to be classified under SOTG services only. Penalty u/s 78 waiver of penalty u/s 80 assessee submitted that it was not interested in entering into litigation and believed in paying the taxes. - It was submitted that even though they believed that they had a case for non-payment of tax prior to 16.5.2008, to avoid litigation they had paid the entire amount of service tax due with interest held that - provisions of Section 80 are required to be invoked for waiving penalty imposed under Section 78 of the Finance Act, 1994 Once the penalty is waived under Section 78 of Finance Act, 1994, the question that will remain is penalty under Section 76 or 77. As regards penalty under Section 76, M/s. Atwood get protection from section 73 (3) of Finance Act, 1994 Demand confirmed for service tax with interest for the period 01.6.2007 onwards under Mining Service up to 16.5.2008 and thereafter, under SOTG service as applicable with interest.
Issues Involved:
1. Classification of services provided by M/s Atwood prior to 01.06.2007. 2. Classification of services provided by M/s Atwood from 01.06.2007 onwards. 3. Whether the services fall under 'Supply of Tangible Goods' (SOTG) from 16.05.2008. 4. Applicability of the extended period of limitation and penalties. Detailed Analysis: Issue 1: Classification of Services Prior to 01.06.2007 The Revenue contended that the services provided by M/s Atwood should be classified under 'Survey and Exploration of Mineral, Oil and Gas Service' for the period from November 2006 to May 2007. The definition of this service includes geological, geophysical, or other prospecting, surface or sub-surface surveying, or map-making services related to the location or exploration of deposits of mineral, oil, or gas. M/s Atwood argued that their activities did not involve geological or geophysical prospecting or surveying but were limited to drilling, testing, and completing exploratory wells as specified by GSPC. They contended that these activities did not fall under the 'Survey and Exploration of Mineral, Oil and Gas Service'. The Tribunal noted that the Ministry's letter dated 28.02.2007 clarified that activities such as site formation, clearance, excavation, earth moving, and drilling wells for production/exploitation of hydrocarbons were part of 'Mining of Mineral, Oil or Gas Service'. The Tribunal concluded that the drilling and testing activities performed by M/s Atwood could not be classified under 'Survey and Exploration of Mineral, Oil and Gas Service' as these activities were more aligned with mining services. Issue 2: Classification of Services from 01.06.2007 Onwards The Tribunal examined whether the services provided by M/s Atwood from 01.06.2007 onwards should be classified under 'Mining of Mineral, Oil or Gas Service'. According to the definition, any service provided in relation to mining of mineral, oil, or gas falls under this category. M/s Atwood argued that their services should be classified under 'Supply of Tangible Goods' (SOTG) as they provided drilling rigs and equipment without transferring possession or effective control. The Tribunal, however, noted that the drilling activities were directly related to mining operations and thus fell under 'Mining of Mineral, Oil or Gas Service'. The Tribunal further clarified that the introduction of SOTG service in 2008 did not imply that the same service was not taxable under another category earlier. The Tribunal affirmed that prior to 16.05.2008, the services provided by M/s Atwood were covered under 'Mining of Mineral, Oil or Gas Service'. Issue 3: Classification Under 'Supply of Tangible Goods' (SOTG) from 16.05.2008 M/s Atwood contended that their services should be classified under SOTG from 16.05.2008, as they provided equipment for use without transferring possession or effective control. The Tribunal agreed with this contention, noting that the equipment remained under M/s Atwood's control and was provided for a specified term rather than for drilling a predefined number of wells. The Tribunal concluded that from 16.05.2008 onwards, the services provided by M/s Atwood should be classified under SOTG. Issue 4: Applicability of Extended Period of Limitation and Penalties The Tribunal considered whether the extended period of limitation was applicable and whether penalties should be imposed on M/s Atwood. The Tribunal noted that M/s Atwood had cooperated with the department and had paid the service tax along with interest before the issuance of the show cause notice. The Tribunal found that the reasons for non-payment of service tax were technical/legal rather than wilful suppression with intent to evade tax. The Tribunal invoked the provisions of Section 80 of the Finance Act, 1994, to waive the penalties imposed under Sections 76, 77, and 78. The Tribunal also noted that the provisions of Section 73(3) of the Finance Act, 1994, were applicable, which provided protection from penalties if the service tax was paid before the issuance of the show cause notice. Conclusion: The Tribunal confirmed the demand for service tax with interest for the period from 01.06.2007 onwards under 'Mining of Mineral, Oil or Gas Service' up to 16.05.2008 and thereafter under SOTG service. Penalties imposed on M/s Atwood were set aside. The appeals filed by the department were rejected, and the cross-objections were disposed of.
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