2015 (8) TMI 594 - AT - Service Tax

Demand of service tax - Mining and minerals services - Imposition of interest and penalty - Held that - hiring of rigs to ONGC by making payment to foreign entities is liable to be tax from 16.5.2008 From the records we find that the appellant has discharged entire service tax liability which was charged by them to ONGC. When the appellant has already paid the amount collected by them from ONGC to the Government, the question of any recovery of amount does not arise. Levy of penalty - activities of the appellant in hiring the rigs from the foreign parties and enlisting the same to ONGC would not fall under the category of mining of mineral oil and gas service, is in itself enough to set aside the liability of interest and penalties imposed, in as much as that when there can be no service tax liability, the question of interest and penalty does not arise - Decided in favour of assessee.

Summary

Issues Involved:
1. Liability of service tax under reverse charge mechanism.
2. Classification of services provided.
3. Applicability of the judgment in the case of Indian National Shipowners Association.
4. Payment of interest and imposition of penalties.

Issue-wise Detailed Analysis:

1. Liability of Service Tax under Reverse Charge Mechanism:
The appellant, registered under the category of Mining of Mineral Oil or Gas service, was found engaging services of foreign parties without a permanent establishment in India. The Revenue concluded that the appellant was liable to pay service tax under the reverse charge mechanism as per Section 66A of the Finance Act, 1994, for payments made to foreign parties from July 2007 to September 2007. A show cause notice was issued demanding service tax for this period. The adjudicating authority confirmed the demand and imposed penalties.

2. Classification of Services Provided:
The appellant argued that the services in question were classified under the supply of tangible goods for use, which became taxable only from 16.5.2008. They contended that the service tax liability under the reverse charge mechanism for these services also applied only from this date. The appellant referred to the judgment in the case of Indian National Shipowners Association Vs. Union of India, which supported their stance that the services were not taxable before 16.5.2008.

3. Applicability of the Judgment in the Case of Indian National Shipowners Association:
The Tribunal noted that the issue of service tax liability for the period in question (July 2007 to September 2007) was covered by the judgment in the Indian National Shipowners Association case. The High Court had clarified that services related to the supply of tangible goods, including offshore drilling rigs, were taxable only from 16.5.2008. The relevant paragraphs of the judgment (10, 11, 34, 37, 38, and 48) were cited to support this conclusion. The Tribunal held that the appellant's activities of hiring rigs from foreign parties and enlisting them to ONGC did not fall under the category of mining of mineral oil and gas service before 16.5.2008.

4. Payment of Interest and Imposition of Penalties:
The appellant had already paid the entire service tax liability collected from ONGC, except for approximately Rs. 4.92 lakhs, which was also paid during the hearing of the stay petition. The Tribunal observed that since the service tax liability itself did not arise for the period before 16.5.2008, the question of interest and penalties did not arise. The Tribunal set aside the interest and penalties imposed on the appellant, as there was no service tax liability for the period in question.

Conclusion:
The Tribunal concluded that the appellant was not liable to pay service tax for the period from July 2007 to September 2007 under the reverse charge mechanism for hiring rigs from foreign parties. The activities did not fall under the category of mining of mineral oil and gas service before 16.5.2008. Consequently, the interest and penalties imposed were unwarranted and were set aside. The appeal was disposed of in favor of the appellant.