TAXABILITY OF SURVEY AND EXPLORATION OF MINERAL SERVICES.

[Dr. Sanjiv Agarwal]

Service tax has been imposed on survey and exploration of mineral services rendered by any person by the Finance Act, 2004 with effect from 10th September, 2004. The gross amount charged to or gross consideration received from a customer in relation to survey and exploration of mineral services is chargeable to service tax, i.e. services provided by any person to a customer.

Meaning of Survey and Exploration of Mineral

Section 65(104a) defines ‘survey and exploration of mineral’ as under –

“survey and exploration of mineral” means geological, geophysical or other prospecting, surface or sub-surface surveying or map making service, in relation to location or exploration or deposits of mineral, oil or gas.

The survey or exploration of deposits should be done through any geological or geophysical or other prospecting method and may include surface or sub-surface surveying and/or map making service. The term mineral would also cover gases and oil. Service of surveying and exploration must relate to geology/geophysics and any aerial survey or exploration is not covered within the meaning of this definition. It covers surveying, mapping, prospecting and exploring for locating and exploiting minerals, oil and gases. While these terms have not been defined in the Act, their meaning in common parlance should be understood. Exploration means the action of traveling in or through an unfamiliar area in order to learn about it, a thorough analysis of a subject; survey means to look carefully and thoroughly at, investigate the opinions or experience by asking questions, examine and record the area and features so as to construct a map plan or description of a land or building etc; surface means an outside part or upper most layer of something, the top level of something; sub-surface means the stratum or strata below the earth’s surface; geology is the science which deals with the physical structure and substance of the earth, their history and the processes which act on them; geophysics deals with the physics of the earth.

According to the definition, survey and exploration of mineral means —

(a) prospecting, which may be,

(i) geological

(ii) geophysical

(iii) any other

(b) surveying (surface or sub-surface)

(c) map making (surface or sub-surface)

(d) service in relation to deposits —

(i) location, or

(ii) exploration

(e) deposits should be of any mineral, oil or gas

Taxable Service

Section 65(105)(zzv) defines taxable service as under —

“any service provided or to be provided to any person, by any person, in relation to survey and exploration of mineral”.

The service may be provided by any person (individual, firm, company or any other concern). It may not necessarily be a commercial concern. Thus, geologists will also be covered. Survey and exploration of services shall be taxable when provided by any person rendering such services to any person in relation to survey and exploration of mineral, oil or gas.

Taxable service should possess the following ingredients –

(a) service may be provided (or agreed to be provided) by any person.

(b) service should be provided to any person (w.e.f. 16-5-2008), for a consideration.

(c) service must relate to any survey or exploration.

(d) such survey/exploration should be of deposit of any mineral, oil or gas.

Replacement of ‘customer’ with ‘any person’

Finance Act, 2008 has substituted the words ‘any person’ for the word ‘customer’ w.e.f. 16.5.2008 as the service tax is levied on service and status of recipient of taxable services should not determine the tax treatment of a given service.

CBEC has clarified vide Circular No. 80 dated 17-9-2004 that the service tax would be leviable when the service of survey and exploration of minerals is provided by any person to a customer. The survey and exploration may result in locating ores, crude etc. Subsequent to survey and exploration, the mineral is extracted and transported for refining, processing and production. The service tax under this category would be limited to the services rendered in relation to survey and exploration only and not on the activity of actual extraction after the survey and exploration is complete. The transport, refining, processing or production of the extracted products would also be out of the ambit of service tax. Activities such as seismic survey, collection/processing/interpretation of data and drilling or testing in relation to survey and exploration would, however, fall within the ambit of taxable service

‘Survey and exploration of minerals’, which is a taxable service under sub-clause (zzv) of section 65(105) since 2004, covers specified services rendered in relation to location or exploration of deposits of mineral, oil or gas. The new taxable service of ‘survey and map-making’ classifiable under sub-clause (zzzc) of section 65(105) of the Finance Act, 1994, covers other such activities excluding “survey and exploration of minerals” classifiable under sub-clause (zzv) of section 65(105) since 2004. (Circular No. B1/6/2005-TRU dated 27.7.2005 refers) .

Finance Act, 2007 has introduced a new taxable service- ‘mining service’ under section 65(105)(zzzy). CBEC has clarified that while geological geophysical or other prospecting, surface or sub-surface surveying or map making services relating to location or exploration of deposits of minerals, oil or gas are leviable to service tax under ‘survey and exploration of mineral services’, the services relating to mining of mineral, oil and gases are comprehensively covered under the mining services. Thus, while exploration (pre-mining) related services are covered under survey and exploration of minerals services, actual mining and exploitation of mining is covered under mining services.

Value of Taxable Service

The cost of material or goods sold to service users will not form part of value of taxable service. The gross amount will also not include any fee or royalty or licence fee paid to government or any regulatory agency for obtaining permission to carry out any exploration/survey. The cost of jobs undertaken by other agencies shall form part of taxable value.

Person Liable

Any person providing services of survey and exploration of minerals shall be liable to pay service tax and shall be treated as an assessee for service tax purposes.

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