2015 (4) TMI 1006 - HC - Service Tax

Scope of Continental Shelf and Exclusive Economic Zone of India for the purpose of service tax - Legislative intent - Interpretation of Notification No.1/2002-Service Tax dated 1.3.2002, as amended by Notification No.21/2009-ST dated 7.7.2009 and the Notification No.14/2010-ST dated 27.2.2010 - whether the Notification No. 14/2010-ST dated 27.2.2010 is clarificatory / declaratory in nature - whether during the aforesaid period, the appellant was also liable to pay the service tax on the services rendered by these vessels for the purpose of prospecting mineral oil and as such for the services consumed by continental shelf of India or exclusive economic zone of India. Held that - If the statute uses the words it is declared or it is clarified for removal of doubts , then it will be presumed that the amending law is declaratory or clarificatory. However, merely using the said words would not be sufficient to conclusively hold that the Act is declaratory. Even by use of such words, a statute may introduce new rules of law and that in such case, it would amount to substantial change in the law and will not be necessarily retrospective. It has been held that for determining the nature of the Act regard must be had to the substance rather than the form. It has been held that if a new Act is to explain an earlier Act, it would be without object unless construed retrospectively. It has been further held that an explanatory act is generally passed to supply an omission or to clear up doubts as to meaning of previous Act. However, in the absence of clear words indicating that the meaning of the Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous. 2002 Notification was issued under the provisions of the Maritime Zones Act on 1.3.2002 thereby extending provisions of Chapter V of Finance Act to the designated areas in the continental shelf and exclusive economic zone of India as declared by the Notification of the Government of India in the Ministry of External Affairs dated 18.7.1986 and 19.9.1996 with immediate effect. It would thus be seen that for the first time from 1.3.2002, the areas in respect of which the notifications were issued in 1986 and 1996 were brought under the purview of the service tax. However, the notification only extended the applicability of service tax to the areas which were covered under the said notifications of 1986 and 1996. Even after issuance of 2002 notification, the provisions of Chapter V of the said Act did not apply to the other areas in the continental shelf and exclusive economic zone of India which were not covered by the said notifications. Plain reading of the 2009 Notification would give a clear meaning and it cannot be said to be obscure. The words are clear and plain capable of giving only one meaning that the provisions of Chapter V of the Finance Act are extended to the installations, structures and vessels in the continental shelf and exclusive economic zone of India. We find that the words used in the said notification are not capable of giving two meanings. - the 2010 Notification cannot be said to be clarificatory in nature, but it brings about substantive change in law. Whereas the 2002 Notification as amended by 2009 Notification is applicable only to the services rendered to installations, structures and vessels, the 2010 Notification widens the tax scope and amongst various other services also brings into the service tax net the services rendered to or by the installations, structures and vessels. It can thus be seen that the present transaction, which is in the nature of providing services by the vessels of the appellant for the purpose of prospecting mineral oil and as such is a service consumed by the seabed of Continental Shelf of India would come in the tax net only after 2010 Notification came into effect. We are of the considered view that the said service cannot be said to be a service rendered to the installations, structures and vessels. Not only this, but the Respondent also in the order- in-original has noted that the appellant is discharging applicable service tax on the services received by installations, structures and vessels in the Continental Shelf and Exclusive Economic Zone of India but was not discharging the service tax on services consumed by the seabed of Continental Shelf of India. - Decided against the revenue.

Issues Involved:
1. Interpretation of Notification No. 14/2010-ST dated 27.2.2010.
2. Applicability of service tax provisions to services provided in the continental shelf and exclusive economic zone of India.
3. Classification of services under Notification No. 21/2009-ST dated 7.7.2009.
4. Retrospective application of the 2010 Notification.
5. Tax liability for services provided by vessels not entirely used in India.
6. Taxability of activities under contracts entered into prior to 7.7.2009.

Issue-wise Detailed Analysis:

1. Interpretation of Notification No. 14/2010-ST dated 27.2.2010:
The core issue was whether Notification No. 14/2010-ST dated 27.2.2010 was clarificatory/declaratory or introduced a substantive change in law. The court analyzed the legislative intent and the language of the notification. It concluded that the 2010 Notification brought about a substantive change by expanding the tax net to include services related to the construction of installations, structures, and vessels for the purpose of prospecting or extraction or production of mineral oil and natural gas. This was a significant departure from the previous notifications, which only covered services to installations, structures, and vessels.

2. Applicability of Service Tax Provisions to Services Provided in the Continental Shelf and Exclusive Economic Zone of India:
The court examined the extension of service tax provisions to the continental shelf and exclusive economic zone of India through various notifications. Initially, the 2002 Notification extended service tax provisions to designated areas as per the 1986 and 1996 notifications. The 2009 Notification further extended these provisions to installations, structures, and vessels in the entire continental shelf and exclusive economic zone. However, the 2010 Notification significantly widened the scope to include services for all activities related to the construction of installations, structures, and vessels for prospecting or extraction of mineral oil and natural gas.

3. Classification of Services Under Notification No. 21/2009-ST dated 7.7.2009:
The court found that the 2009 Notification covered services rendered to installations, structures, and vessels in the continental shelf and exclusive economic zone of India. The appellant's services, which involved providing offshore drilling rigs for mineral oil prospecting, did not fall under this notification as they were not services rendered to installations, structures, or vessels but were consumed by the seabed of the continental shelf.

4. Retrospective Application of the 2010 Notification:
The court held that the 2010 Notification could not be considered clarificatory or declaratory in nature. It brought about a substantive change in the law and, therefore, could not be applied retrospectively. The court emphasized that tax laws must be clear and unambiguous, and any change that introduces new tax liabilities must be applied prospectively unless explicitly stated otherwise.

5. Tax Liability for Services Provided by Vessels Not Entirely Used in India:
The court did not delve deeply into this issue, as it had already determined that the appellant's services were not taxable under the 2009 Notification. The focus remained on the interpretation and applicability of the notifications rather than the specific use of the vessels.

6. Taxability of Activities Under Contracts Entered Into Prior to 7.7.2009:
Given the court's conclusion that the appellant's services were not taxable under the 2009 Notification, it found it unnecessary to address the issue of taxability of activities under contracts entered into before 7.7.2009. The primary determination was that the services in question did not fall under the purview of the 2009 Notification, making the timing of the contracts irrelevant.

Conclusion:
The court allowed the appeal, holding that the transactions involved did not fall under the 2009 Notification and that the 2010 Notification brought about a substantive change in the law, which could not be applied retrospectively. As a result, the tax demand against the appellant was not justified.

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