2010 (2) TMI 543 - AT - Service Tax

Appellant entered into an offshore drilling rig contract for supply of jackup rig and certain equipments/tools - Service tax demand - on the ground that the service provided by them is covered under the category of mining services - service provided by them is required to be classified and the appellant is a Government undertaking we consider that the amount already deposited by the appellants is sufficient for the purpose of provisions of section 35F made applicable to find service tax matters by section 84 of Finance Act, 1994 and accordingly, waive the requirement of pre-deposit of the balance amount of service tax, interest thereon and penalties imposed on the appellants and also grant stay against recovery of the same during the pendency of appeal.

Summary

Issues:
1. Service tax demand on the appellants for services provided under offshore drilling rig contract.
2. Appellants' contention regarding the classification of service under the new category of supply of tangible goods.
3. Imposition of penalties under sections 76 and 77 of Finance Act, 1994.
4. Dispute over the correct category of service for levying tax and the invocation of the extended period for recovery.

Issue 1: Service Tax Demand
The appellant entered into an offshore drilling rig contract for supply of jackup rig and crew. The service tax demand of Rs. 19,86,31,386 was confirmed against the appellants, categorized under mining services and made liable to service tax from 1-6-2007. Penalties under sections 76 and 77 of Finance Act, 1994 were imposed, while penalty under section 78 was waived invoking section 80 of the Finance Act, 1994.

Issue 2: Classification of Service
The appellants claimed that the service provided for the supply of jackup rig should be classified under the new category of supply of tangible goods introduced in 2008. They registered for this service on 2-2-2009 and paid Rs. 10 crore as calculated liability from 16-5-2008 when the new service became taxable. Despite paying Rs. 17.14 crores to avoid litigation, a show-cause notice proposed levying service tax under the category of survey and exploration of mineral, oil, or gas services from 10-9-2004. The Commissioner confirmed the demand as mining services, leading to a dispute.

Issue 3: Penalties Imposition
The appellants argued that since they had paid the full service tax with interest and there was a dispute regarding the correct service category for tax, no penalty should be imposed. They also contended that the extended period should not have been invoked, seeking a stay against recovery of penalties and the balance service tax amount during the appeal.

Issue 4: Waiver of Pre-deposit and Stay
Considering the differing opinions on the service classification and the appellant being a Government undertaking, the Tribunal found the amount deposited by the appellants sufficient under section 35F and section 84 of the Finance Act, 1994. Therefore, the requirement of pre-deposit for the balance service tax, interest, and penalties was waived, and a stay against recovery was granted during the appeal process.