2023 (3) TMI 15 - AT - Service Tax

Levy of service tax - Export of services or not - consideration received for repair works done by the appellant on the rig / drill ship - case of appellant is that the services were rendered in a non-designated area and therefore they are not liable to service tax - applicability of N/N. 1/2002-ST dated 1.3.2002 - HELD THAT - The provisions of Chapter V of Finance Act, 1994 applies only to designated areas in the continental shelf and exclusive economic zone of India. It is clear from the SCN as well as the OIO that the repair works were performed in the non-designated area of continental shelfs and exclusive economic zone. The provisions of Chapter V of the Finance Act, 1994 can only apply to the areas to which the Act is specifically extended. Therefore when the drill ship is located in an area which is outside the territorial purview of the Finance Act, 1994, there is no question of payment of service tax in respect of the maintenance and repair works carried out by the appellant on rig/drill ship. Similar issue was discussed in the case of M/S. GREATSHIP (INDIA) LTD. VERSUS COMMISSIONER OF SERVICE TAX, OIL AND NATURAL GAS COMPANY LTD. 2015 (4) TMI 1006 - BOMBAY HIGH COURT , where it was held 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. The territorial application of the service tax and the commencement of its application from 01.07.1994 and the change brought forth in the application w.e.f. 07.07.2009 has been discussed in the case of Reliance Industries Vs Commissioner of Service Tax, LTU Mumbai 2014 (1) TMI 257 - CESTAT MUMBAI , where it was held that Appellant had not provided any service regarding which the appellant had paid service tax on reverse charge mechanism in respect of any service provided or to be provided by or to such installations, structures and vessels or for supply of any goods connected with such activity to installations, structures and vessels within the continental shelf and the exclusive economic zone of India. Undisputedly, the repair, and maintenance work has been carried out in the non-designated area. From the discussions made, the demand cannot sustain and requires to be set aside - appeal allowed.

Summary

Issues Involved:
1. Liability to pay service tax for services rendered in non-designated areas.
2. Applicability of the Finance Act, 1994 to non-designated areas.
3. Whether the activity amounts to 'export of services'.
4. Invocation of the extended period of limitation for issuing the show cause notice.

Issue-Wise Detailed Analysis:

1. Liability to Pay Service Tax for Services Rendered in Non-Designated Areas:
The appellant argued that they are not liable to pay service tax on the amounts received for repair works on rigs/drill ships as these services were performed in non-designated areas. The appellant cited Notification No. 1/2002-ST dated 01.03.2002, which extends the provisions of Chapter V of the Finance Act, 1994, only to designated areas in the continental shelf and exclusive economic zone of India. The appellant's services were rendered outside these designated areas, and thus, they contended that the provisions of Chapter V of the Finance Act, 1994, do not apply. The Tribunal agreed with this argument, noting that the repair works were indeed performed in non-designated areas, and therefore, the demand for service tax cannot be sustained.

2. Applicability of the Finance Act, 1994 to Non-Designated Areas:
The Tribunal examined Notification No. 1/2002-ST and concluded that the provisions of Chapter V of the Finance Act, 1994, apply only to designated areas in the continental shelf and exclusive economic zone of India. Since the repair works were performed in non-designated areas, the provisions of the Finance Act, 1994, do not apply to the appellant's services. The Tribunal cited the case of Greatship (India) Ltd. Vs CST Mumbai-I, which held that services rendered in non-designated areas prior to 07.07.2009 are not subject to service tax.

3. Whether the Activity Amounts to 'Export of Services':
The Department argued that the services provided by the appellant do not amount to 'export of services' as the work orders were received from Indian companies, and the consideration was received in Indian rupees. However, the Tribunal focused on the location where the services were rendered, rather than the nature of the transaction. Since the services were performed in non-designated areas, the Tribunal held that the appellant is not liable to pay service tax, irrespective of whether the activity amounts to 'export of services' or not.

4. Invocation of the Extended Period of Limitation:
The appellant argued that the show cause notice (SCN) issued on 07.04.2010 was time-barred as the Department had sought details of invoices and balance sheets on 19.09.2008, and all details were furnished promptly. The appellant contended that there was no suppression of facts with the intent to evade tax, and the issue was interpretational in nature. The Tribunal did not explicitly address the limitation argument in its final decision, as it had already concluded that the demand for service tax was unsustainable on substantive grounds.

Conclusion:
The Tribunal set aside the demand for service tax, interest, and penalties, holding that the repair and maintenance services were performed in non-designated areas and thus outside the territorial purview of the Finance Act, 1994. The appeal was allowed with consequential relief as per law.