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2024 (1) TMI 456 - AT - Service TaxValuation of services - Joint venture - inclusion of cost petroleum and profit petroleum as per the Production sharing contract - inclusion of cash calls in the assessable value or not - consideration for rendering survey and exploration service and mining services to government or not - Time limitation - suppression of facts or not - HELD THAT - The very same issue was considered by the Tribunal in the case of B.G. EXPLORATION PRODUCTION INDIA LTD. VERSUS COMMISSIONER OF CGST CEX., NAVI MUMBAI 2021 (10) TMI 306 - CESTAT MUMBAI . The Tribunal thoroughly examined the nature of the Product Sharing Contract and whether the distribution of profit, petroleum and cost petroleum, as well as cash calls are consideration for service provided by assesse to Government. The Tribunal held that the manner in which the contract provides for distribution of profit petroleum and cost petroleum is a business model for ensconcing within itself the alienation of risk by the Government of India, which necessarily mandates a working arrangement for the disaggregation of cost petroleum as compensation for the mutually exclusive risks undertaken by the contractor. The Tribunal held that there is no service provider and service recipient relationship in the joint venture and the amounts in the nature of profit petroleum/cost petroleum/ cash calls are not consideration for services. The issues that arise in the present case as to whether cost petroleum/profit petroleum are to be treated as consideration for rendering mining services by assesse to government was examined in the case of B.G. EXPLORATION PRODUCTION INDIA LTD. VERSUS COMMISSIONER OF CGST CX., NAVI MUMBAI 2022 (1) TMI 207 - CESTAT MUMBAI . Besides the earlier decisions, the Tribunal also referred to the Board Circular dt.12.02.2018 to hold that the demand of service tax is not sustainable. Thus, the issue on merits has to be answered in favour of assessee and against the department. The appellant succeeds on merits. Time Limitation - suppression of facts or not - HELD THAT - The assessee was under bonafide belief that being a joint venture in which even the government is a participant, there is no element of rendition of service or payment of consideration falling within the scope of Finance Act, 1994. Further, the department has not been able to establish any positive act of suppression of facts on the part of assessee with intent to evade payment of service tax. For these reasons, the assessee succeeds on the issue of limitation also. The impugned order is set aside - The assessee appeal is allowed.
Issues Involved:
1. Whether the entitlement of cost petroleum and profit petroleum as per the Production Sharing Contract (PSC) is a consideration for rendering 'survey and exploration service' and 'mining services' to the government. 2. Whether cash calls are to be included in the taxable value. 3. Whether the extended period of limitation is invokable. Issue-Wise Comprehensive Details: 1. Entitlement of Cost Petroleum and Profit Petroleum as Consideration: The Tribunal examined whether the entitlement of cost petroleum and profit petroleum under the Production Sharing Contract (PSC) constitutes consideration for rendering 'survey and exploration services' and 'mining services' to the government. The Tribunal referred to several precedents, including the cases of B.G. Exploration and Production India Ltd. and Reliance Industries Ltd., which held that the distribution of cost petroleum and profit petroleum is a business model for risk-sharing and not a consideration for services rendered. The Tribunal concluded that there is no service provider-service recipient relationship between the assessee and the government, and thus, the amounts in the nature of cost petroleum and profit petroleum are not consideration for services. 2. Inclusion of Cash Calls in Taxable Value: The Tribunal also considered whether cash calls are to be included in the taxable value. It was argued that cash calls are capital contributions made by the members of a joint venture (JV) and not consideration for services. The Tribunal referred to Circular No.179/5/2014-ST and Circular No.32/06/2018-GST, which clarified that cash calls are capital contributions and not taxable per se. The Tribunal held that cash calls are not consideration for services but are contributions to the capital requirements of the JV, and thus, they are not subject to service tax. 3. Extended Period of Limitation: The assessee argued that the issues are interpretational and that there was no suppression of facts with intent to evade payment of tax. The Tribunal agreed, stating that the assessee was under a bona fide belief that there was no element of service or consideration falling within the scope of the Finance Act, 1994. The Tribunal found no positive act of suppression by the assessee and ruled that the extended period of limitation cannot be invoked. Conclusion: The Tribunal set aside the impugned order, allowed the assessee's appeal on merits and limitation, and dismissed the department's appeal. The Tribunal held that the entitlement of cost petroleum and profit petroleum is not a consideration for services, cash calls are not taxable, and the extended period of limitation is not applicable.
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