2024 (3) TMI 1262 - AAAR - GST

Maintainability of appeal - time limitation - whether the appeal has been filed within stipulated period (i.e. thirty days from the date on which the Ruling sought to be appealed against is communicated to the Appellant) prescribed under Section 100 (2) of CGST Act 2017 or not? - HELD THAT - As the Appellant the date of communication of the Order of AAR Rajasthan to the Appellant was 21.09.2021 and the appeal was filed on the portal on 19.10.2021 - the Appellant have filed the appeal within statutory period of 30 days of date of communication of the Order of the AAR. Classification of service - activity undertaken by the Appellant by way of supply survey designing installation and commissioning of project under EPC contract - whether the activities undertaken by them are were classifiable either under SAC Heading No. 9986 eligible for rate of tax prescribed vide entry serial number 24(ii) or alternatively under SAC Heading No. 9983 eligible for rate of tax prescribed vide entry serial number 21(ia) of Notification No. 11/2017-CT(R) dated 28.06.2017? or is classifiable under SAC Heading No. 9954? - HELD THAT - The service in question has to be in the nature of support to the main activity which is that of oil and gas extraction. There is no denying the fact that the activity of oil and gas extraction can be undertaken by using the infrastructure which is already in place. It therefore follows that there are three distinct successive stages in the entire gamut of oil and gas extraction which contribute to completion of the work of oil and gas extraction. For the services to be eligible to classification under the instant SAC Heading No. 998621 it is required that the service should support the main activity of oil and gas extraction by the infrastructure put in place for the purpose. From the detailed scope of work as mentioned in the EPC Contract brief extracts of which have been reproduced above we observe that M/s Vedanta Limited has planned to undertake major expansion in their production and processing capacity with consequent increase proposed in the sales and the instant EPC Contract has been awarded to the Appellant with mandate to establish the required infrastructure for the expansion proposed. Augmentation of Liquid handling capacity augmentation of produced water treatment facility augmenting existing injection water system facility are indicative of the fact that new facilities in addition to the existing facilities are being created by M/s Vedanta Limited for enhancement of oil and gas production and sales. The Appellant are Obliged by the contract for satisfactory handover of complete enhancing liquid handling capacity including Non Process Buildings including roads and drains within MPT Pipeline and approach roads to M/s Vedanta Limited. complete with applicable hook-up tie-in with the existing proposed facilities. This provision of the contract makes it amply clear that the Appellant have been assigned the work of establishment of new facilities for oil and natural gas extraction alongside the already existing facilities at the MPT. Coming to the proposed classification under Heading 998621 it is observed that the said heading covers support services to oil and gas extraction which is self explanatory in as much as the services proposed to be classified under this heading provide support to the main activity of oil and gas extraction and such activity of extraction eventually requires the infrastructure facilities established. These three parts of the entire gamut of oil and gas extraction are clearly distinguished from each other. Since the Appellant have been tasked with establishment of infrastructure facilities for oil and gas extraction the activities undertaken by the Appellant in pursuance of the EPC Contract cannot by any stretch of imagination be said to be support services to oil and gas extraction. The distinction between the activities undertaken by the Appellant in terms of the EPC contract and the activities included in the definition of SAC Heading No. 998621 is strikingly clear. Therefore the activities undertaken by the Appellant in pursuance of the EPC Contract cannot be classified under SAC Heading No. 998621 as these are not in the nature of support services to oil and gas extraction. SAC Heading No 9954 of the Scheme of Classification covers the overall construction services with SAC Heading No. 995425 the general construction services of mines and industrial plants. The explanatory notes clarify that the said service code includes construction services for mining and related facilities associated with mining operations. Since oil and gas exploration is also a form of mining; therefore the construction services proposed to be supplied by the Appellant for constructing facilities for handling the increased production capacity are appropriately classifiable under the SAC Heading No. 9954 - so far as classification of the supplies proposed to be undertaken by the Appellant are concerned the composite supply in the instant cases shall be treated as supply of service defined as works contract and the pronouncement of the AAR therefore needs no interference up to that extent. As already observed by us entry Sl. No. 3(ii) of Notification No. 11/2017-CT (R) dated 28.06.2017 was omitted with effect from 01.04.2019 and therefore the supplies proposed to be undertaken by the Appellant could not have been eligible for the rate prescribed therein. However it is observed that up to Notification No. 3/2019- CT (R) dated 29.03.2019 major changes have been made in the said entry under Sl. No. 3 of the basic Notification No. 11/2017-CT (R) dated 28.06.2017 to provide for different rates of tax for supplies under the categories of supply of construction services or supply of works contract services. As regards the classification of the impugned services it is held that the Impugned services of project management consultancy services provided the Appellant would merit classification under the SAC 998349 bearing description Other technical and scientific services nowhere else classified attracting GST at the rate of 18%.

Summary

Issues Involved:
1. Classification of Services under SAC Heading 998621.
2. Alternate Classification under SAC Heading 9983.
3. Classification under SAC Heading 9954.
4. Rate of Tax applicable to the services.

Summary:

Issue 1: Classification under SAC Heading 998621
The Appellant argued that their services should be classified under SAC Heading 998621 as "Support services to exploration, mining or drilling of petroleum crude or natural gas or both." The Appellate Authority examined the scope of work under the EPC contract, which involved activities such as augmentation of liquid handling capacity, produced water treatment facility, and construction of new facilities. The Authority concluded that these activities are related to the establishment of infrastructure for oil and gas extraction, not support services. Therefore, the classification under SAC Heading 998621 was rejected.

Issue 2: Alternate Classification under SAC Heading 9983
The Appellant alternatively sought classification under SAC Heading 9983 as "Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both." The Authority reviewed the explanatory notes and found that the Appellant's activities did not fit within the scope of geological and geophysical consulting services or mineral exploration and evaluation. The proposed services were related to the construction of infrastructure, not consulting or evaluation services. Hence, the alternate classification under SAC Heading 9983 was also rejected.

Issue 3: Classification under SAC Heading 9954
The AAR had classified the services under SAC Heading 9954 as "Construction services." The Appellant contested this, arguing that construction services provide a general description and should not apply. The Authority examined the EPC contract and found that the Appellant was responsible for constructing various facilities, including buildings, pipelines, and roads, integral to the oil and gas extraction infrastructure. The Authority confirmed that the services were appropriately classifiable under SAC Heading 9954.

Issue 4: Rate of Tax
The AAR had applied a rate of 18% GST under entry Sl. No. 3(ii) of Notification No. 11/2017-CT(R), which was omitted effective from 01.04.2019. The Authority noted that the correct rate of tax for the services under SAC Heading 9954 should be 9% CGST and 9% SGST, as per item (xii) of entry at Sl. No. 3 of the amended Notification No. 11/2017-CT(R).

Conclusion:
1. The services provided by the Appellant are classified under SAC Heading 9954 as "Construction services."
2. The proposed classification under SAC Heading 998621 and 9983 was rejected.
3. The applicable rate of tax is 9% CGST and 9% SGST.

Order:
The Ruling of the AAR dated 13.09.2021 is upheld with modifications regarding the rate of tax. The appeal is disposed of accordingly.