2013 (11) TMI 1301 - AT - Service Tax

Valuation of service - Under-declaration or non-declaration of the gross value received - Service of survey and exploration of mineral - Section 65(104a) - Integrated services, of mapping of the scheduled areas - as the transaction with ONGC is concerned, the petitioner has remitted tax on 4% of the gross value received from ONGC, computing that percentage of the value received, as attributable to the taxable activity falling within the reach of provisions of the Act. The petitioner did so on the assumption that its data acquisition and part processing of such data, being activity carried out offshore and beyond the 12 nautical miles limit from the Indian landmass, is outside the purview of provisions of the Act. In so far as the transactions with RIL, the petitioner did not remit tax on any portion of the gross value received, from RIL. Held that - stay granted in part subject to deposit of Rs. 60 lakhs towards service tax liability on 4% of the gross value received by the petitioner in respect of services provided to RIL - Partial stay granted.

Issues Involved:
1. Liability to Service Tax on Offshore and Onshore Services.
2. Apportionment of Gross Value Received.
3. Invocation of Extended Period of Limitation.
4. Composite Agreements and Vivisection of Services.
5. Territorial Jurisdiction for Taxation.

Detailed Analysis:

1. Liability to Service Tax on Offshore and Onshore Services:
The core issue is whether the services provided by the petitioner, which include both offshore and onshore activities, fall within the taxable service category under Section 65(104a) of the Finance Act. The petitioner argued that the dominant activity of data acquisition using Q-Marine technology occurs offshore, beyond the purview of the Act. The adjudicating authority, however, concluded that since part of the service occurs within Indian territory, the entire service is taxable. The Tribunal noted that the adjudicating authority did not critically examine the contention regarding the offshore activities being beyond 12 nautical miles and thus outside the jurisdiction of the Act.

2. Apportionment of Gross Value Received:
The petitioner contended that the gross value received should be apportioned between offshore activities (beyond the Act's purview) and onshore activities (within India). Specifically, they argued that only 4% of the total transaction value pertains to onshore services and should be taxable. The adjudicating authority rejected this, stating that the services are integrated and cannot be vivisected. The Tribunal, however, found prima facie merit in the petitioner's argument for apportionment, referencing several Supreme Court judgments supporting the principle of vivisection for tax purposes.

3. Invocation of Extended Period of Limitation:
The petitioner argued against the invocation of the extended period of limitation, stating that all relevant information was provided to the Revenue by April 2006. The adjudicating authority invoked the extended period, citing wilful suppression of facts by the petitioner. The Tribunal did not delve deeply into this issue at the interlocutory stage but noted that it requires further scrutiny during the appeal hearing.

4. Composite Agreements and Vivisection of Services:
The adjudicating authority held that the agreements with ONGC and RIL are composite and integrated, involving both offshore and onshore activities, and thus the entire service is taxable. The Tribunal, however, referenced legal precedents allowing for the vivisection of composite agreements to identify and tax only the taxable component. The Tribunal found prima facie that the offshore activities could be excluded from the taxable services provided within the Indian territory.

5. Territorial Jurisdiction for Taxation:
The Tribunal considered whether services provided beyond the territorial waters of India (beyond 12 nautical miles) fall within the jurisdiction of the Act. The adjudicating authority did not conclusively address this issue, leading the Tribunal to assume, for the nonce, that services provided outside the Indian territory are not taxable. The Tribunal noted that this issue requires a detailed examination during the appeal hearing.

Conclusion:
The Tribunal granted a waiver of pre-deposit and stayed further proceedings for the realization of the adjudicated liability, on the condition that the petitioner remits Rs. 60 lakhs plus proportionate interest for the inland services provided to RIL. The Tribunal emphasized the need for further scrutiny and analysis of the issues during the appeal hearing, particularly the apportionment of the gross value received and the territorial jurisdiction for taxation.

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