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2022 (1) TMI 207 - AT - Service TaxConsideration for the services - Mining services - whether entitlement towards Cost Petroleum under the Production Sharing Contract can be treated as consideration for rendering mining services to the Government of India? - transaction on principal-to-principal basis - Production Sharing Contract - Joint Venture agreement - HELD THAT - This precise issue was examined at length by the Division Bench of the Tribunal in the decision rendered by the Tribunal on 06.10.2021, in the case of the appellant itself, in B.G. EXPLORATION PRODUCTION INDIA LTD. VERSUS COMMISSIONER OF CGST CEX., NAVI MUMBAI 2021 (10) TMI 306 - CESTAT MUMBAI . The Tribunal, after referring to the earlier decision of the Tribunal rendered on 11.06.2020 in the case of the appellant in BG EXPLORATION PRODUCTION INDIA LTD VERSUS COMMISSIONER OF SERVICE TAX (AUDIT-I) MUMBAI 2020 (10) TMI 579 - CESTAT MUMBAI , the decision of the Tribunal in MORMUGAO PORT TRUST VERSUS COMMISSIONER OF CUSTOMS, CENTRAL EXCISE SERVICE TAX, GOA- (VICE-VERSA) 2016 (11) TMI 520 - CESTAT MUMBAI and the decision of the Supreme Court in FAQIR CHAND GULATI VERSUS UPPAL AGENCIES PVT. LTD. 2008 (7) TMI 159 - SUPREME COURT and after noticing that an appeal had been filed by the Department in the Bombay High Court against the decision of the Tribunal rendered on 11.06.2020, observed that the Government of India with the appellant, RIL and ONGC had entered into a joint venture agreement, whereunder each co-venturer had its own set of obligations and the responsibility discharged by each of the co-venturers towards the venture was not by way of any service rendered to the joint venture, but in their own interest in furtherance of the common objective of the joint venture. Service tax liability, therefore, could not have been fastened upon the Appellant. From the provisions of the Production Sharing Contract it is clear that Cost Petroleum and Profit Petroleum cannot be said to be consideration flowing from the Government of India to the appellant and that the components of Cost Petroleum and Profit Petroleum are inherent and embedded part of the Production Sharing Contract. Consequently, such components cannot be treated as consideration for the services rendered by the appellant. A perusal of the Circular dated 12.02.2018 reveals that Contractors carry out the exploration and production of petroleum for themselves and not as a service to the Government of India and Cost Petroleum is not a consideration for service to Government of India and thus not taxable per se. It is, therefore, more than apparent that the aforesaid Circular only confirms the view taken by the Tribunal in the decision rendered on 06.10.2021 of appellant earlier case. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Whether entitlement towards "Cost Petroleum" under the "Production Sharing Contract" can be treated as "consideration" for rendering "mining services" to the Government of India. 2. Whether entitlement towards "Cost Petroleum" and "Profit Petroleum" under the "Production Sharing Contract" can be treated as the consideration for rendering "mining services" to the Government of India. Detailed Analysis: Issue 1: "Cost Petroleum" as Consideration for Mining Services The primary issue revolves around whether the entitlement to "Cost Petroleum" under the Production Sharing Contract (PSC) can be considered as "consideration" for providing "mining services" to the Government of India. The Commissioner confirmed the demand for service tax, interest, and penalty, asserting that the appellant provided mining services to the Government of India and recovered the cost of these services through "Cost Petroleum." Appellant's Arguments: - The appellant argued that the PSC represents a joint venture between the Government of India, ONGC, RIL, and the appellant, involving no rendition of service. - The contractors (appellant, RIL, ONGC) undertook to make available financial and technical resources for the proper discharge of obligations under the contract. - The activities within the joint venture framework cannot be considered as services liable to service tax. - "Cost Petroleum" and "Profit Petroleum" are inherent and embedded parts of the PSC and cannot be treated as consideration for services rendered. Department's Arguments: - The Department contended that the appellant provided "mining services" to the Government of India and recovered the cost through "Cost Petroleum." - The Joint Venture Committee is a body of companies, with the appellant providing "mining services" for consideration from the common pool of the Joint Venture, ultimately reimbursed by the Government of India. Tribunal's Findings: - The Tribunal referred to its earlier decisions, which concluded that the Government of India, with the appellant, RIL, and ONGC, entered into a joint venture where each co-venturer had its own obligations. The responsibilities discharged by each co-venturer were not services rendered to the joint venture but were in furtherance of the common objective. - The Tribunal emphasized that the PSC's terms clearly show that "Cost Petroleum" and "Profit Petroleum" are not consideration flowing from the Government of India to the appellant. - The Tribunal relied on the Circular dated 12.02.2018, which clarified that contractors carry out exploration and production of petroleum for themselves and not as a service to the Government of India. Hence, "Cost Petroleum" is not taxable per se. Issue 2: "Cost Petroleum" and "Profit Petroleum" as Consideration for Mining Services The second issue pertains to whether both "Cost Petroleum" and "Profit Petroleum" under the PSC can be treated as consideration for rendering mining services to the Government of India. The adjudicating order confirmed the demand for service tax, interest, and penalty. Appellant's Arguments: - The appellant reiterated that the PSC is a joint venture involving no rendition of service. - The appellant argued that "Cost Petroleum" and "Profit Petroleum" are inherent parts of the PSC and cannot be treated as consideration for services rendered. - The appellant cited previous Tribunal decisions and the Circular dated 12.02.2018 to support their position. Department's Arguments: - The Department maintained that the appellant provided mining services to the Government of India and recovered costs through "Cost Petroleum" and "Profit Petroleum." - The Department referenced the Circular dated 24.09.2014, which discusses the taxability of services provided by members of a joint venture. Tribunal's Findings: - The Tribunal found that the PSC's terms indicate that "Cost Petroleum" and "Profit Petroleum" are not consideration for services rendered by the appellant. - The Tribunal referred to its previous decisions and the Circular dated 12.02.2018, which clarified that "Cost Petroleum" is not taxable as it does not represent consideration for services to the Government of India. - The Tribunal concluded that the components of "Cost Petroleum" and "Profit Petroleum" are inherent parts of the PSC and cannot be treated as consideration for services rendered. Conclusion: The Tribunal set aside the impugned orders dated 31.12.2018 and 31.08.2020, concluding that "Cost Petroleum" and "Profit Petroleum" under the PSC cannot be treated as consideration for rendering mining services to the Government of India. The appeals were allowed, and the orders demanding service tax, interest, and penalties were annulled.
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