2023 (4) TMI 921 - AT - Service Tax

Levy of Service Tax - Joint venture - expenditure incurred by the appellant in respect of its employees and assets which were deployed for undertaking joint operations at the blocks where it was acting as the Operator - consideration for rendering taxable services of supplying manpower and as also providing support services - period April 2014 to June 2017? - HELD THAT - The PSC is a classic example of a public private partnership where each of the co-venturers contributes to the success of the venture in their own way and work towards enhancing the benefits flowing therefrom. Under the PSC the Government of India brings on the table the block which could potentially hold crude and/or natural gas while the technical and financial contribution is made by the PI Holders. There is also a management committee which is constituted comprising of members from the Government of India as also the PI Holders which has to interalia approve the annual work programs as also the budgets for undertaking the same. Further the profits arising from the venture are to be shared between the Government and the PI Holder in accordance with the pre-defined percentage computed with reference to an investment-multiple on the cost incurred for undertaking the joint operation. This Tribunal has in the case of B.G. EXPLORATION PRODUCTION INDIA LTD. VERSUS COMMISSIONER OF CGST CEX. NAVI MUMBAI 2021 (10) TMI 306 - CESTAT MUMBAI has considered a similar arrangement under another PSC between the Government of India and B.G. Exploration and Production India Ltd. ONGC and the appellant and after taking note of the policy underlying the execution of the PSCs as also the terms and conditions of the same concluded that there was a joint venture between the GOI and the PI Holders. It is also agreed with the observations of the findings of this Tribunal in the other decision of BG EXPLORATION PRODUCTION INDIA LTD VERSUS COMMISSIONER OF SERVICE TAX (AUDIT-I) MUMBAI 2020 (10) TMI 579 - CESTAT MUMBAI wherein it has been held that the joint operations undertaken under the PSC does not result in rendition of any service as there is no beneficiary entity outside the PSC to which the joint operation are subordinated. It has been held that the cost incurred towards the employees which has been deployed towards the joint operation is a capital contribution to the venture and not a consideration to the rendition of any service. There is neither any service rendered by the Appellant nor is there any consideration involved in the appellant s deploying its man power and assets for furtherance of the operation of the joint venture - It is not as if the joint venture had specifically for a consideration engaged the appellant to provide manpower. Infact the appellant had as a co-venturer in furtherance of the venture as its capital contribution to the venture deployed manpower and assets for its own benefit and in the furtherance of the venture. This cannot by any stretch of imagination be regarded as a service being provided so as to attract levy of service tax. The demand raised in the impugned order cannot be sustained - Appeal allowed - decided in favour of appellant.

Summary

Issues Involved:
1. Whether any service has been rendered at all.
2. Whether the service rendered is taxable.
3. Whether the service was rendered by the appellant to the Unincorporated Joint Venture (UJV) or to itself.
4. The issue of limitation.

Summary:

Issue 1: Whether any service has been rendered at all:
The Tribunal examined whether the appellant, M/s. Reliance Industries Ltd., rendered any service by deploying its employees and assets for joint operations in petroleum blocks. The appellant argued that it acted for its own benefit and in furtherance of the joint venture, and thus no service was rendered to another party. The Tribunal found merit in this argument, noting that the Production Sharing Contracts (PSC) constituted a joint venture where each co-venturer contributed to the venture's success. The Tribunal referenced previous decisions, including BG Exploration and Production India Ltd., which held that contributions by co-venturers in a joint venture do not constitute services rendered to the joint venture.

Issue 2: Whether the service rendered is taxable:
The Tribunal considered whether the activities undertaken by the appellant were taxable services. It was argued that the costs incurred for employees and assets were capital contributions to the joint venture, not consideration for services rendered. The Tribunal agreed, citing the definition of 'service' under Section 65B (44) of the Finance Act, 1994, which requires an activity for a consideration provided by one person to another. The Tribunal concluded that no taxable service was rendered, as the appellant's actions were for the joint venture's benefit and not for an external entity.

Issue 3: Whether the service was rendered by the appellant to the UJV or to itself:
The Tribunal examined whether the appellant rendered services to the UJV or itself. The respondent's argument that the appellant's role was limited to conducting joint operations and could not perform them alone was rejected. The Tribunal found that the appellant, as a PI Holder, used its own expertise and resources for the joint venture's benefit. The Tribunal reiterated that there was no contractor-contractee or principal-agent relationship between the co-venturer and the joint venture, and thus no service was rendered to the UJV.

Issue 4: The issue of limitation:
The Tribunal noted that the issue of limitation was not explicitly articulated by the respondent but was addressed in the adjudicating authority's order. The appellant argued that the extended period of limitation was not justified as all relevant records had been submitted to the department during audits. The Tribunal did not examine the limitation aspect in detail, as it found that the demand on merits could not be sustained.

Conclusion:
The Tribunal concluded that no service was rendered by the appellant, no consideration was involved, and the demand raised in the impugned order could not be sustained. The appeal was allowed in favor of the appellant, and the impugned order was set aside.