2016 (10) TMI 878 - AT - Service Tax

Classification of shot hole drilling activity - taxable under survey and exploration service or not? - reliance placed on the decision of Saipem (Portugal) Comercio Maritimo vs. CCE, ST & CUS., Visakhapatnam II 2014 (10) TMI 94 - CESTAT BANGALORE - Held that - is not relevant to the facts of the present case. The terms of agreement in the present case are much more elaborate and specific. The Tribunal held in terms of the agreement in that case that the appellant were not involved in exploring for oil or for prospecting for oil in terms of the agreement. The shot hole drilling activity undertaken in the present case is sought to be taxed as an activity in relation to survey and exploration of minerals. This ground of appeal is dismissed. The combined activities of both the assessee and clients, can be considered as an act of survey related to location or exploration of minerals. Undoubtedly, the entire activity, partly done by the assessee and remaining done by ONGC, is otherwise activity related to location or exploration of minerals. This fact is already admitted by the assessee in their written submissions, wherein they have opined that it is ONGC who are conducting survey operations. However, the activities conducted by the assessee even in isolation depict that are being carried out in the direction related to location or exploration of minerals. It is also matter of fact and evidence that shot hole drilling is an activity per se without which the activity of further surveying in relation to a location or exploration of minerals would not be possible. The further activity of using explosives for the said purpose would not be achievable without the drilling of specified and technically drilled holes. Thus, it is materially evident that such holes are basically meant for withstanding the shots and involve several processes for the entire activity of blasting shot to be made possible. Such entire process is undertaken by the assessee by drilling the shot holes, which are technically highly important, based on sound technology and expertise. Thus, in the entirety of the issue, it is also observed that the purposes conducted by the assessee and by their clients the processes are inter-linked, inter-depended and inter-related which are in relation to the location or exploration of minerals. Hence, it is not the issue of mere drilling of a hole, rather involves several process for the said purpose and are not ordinary holes. Extended period of limitation - Held that - for invoking extended period as well as for imposing penalty under Section 78, the legal provisions are identical. The words used like fraud, collusion, willful mis-statement, suppression of fact or contravention of any provisions of Chapter V of Finance Act, 1994 or of the Rules made thereunder with intent to evade the payment of service tax, will show that the ingredient of malafide is a pre-requisite to invoke both the legal provisions (proviso to Section 73 and Section 78). The Original Authority recorded that it may be true that the assessee has not contravened any provisions with intend to evade payment of service tax, however, he proceeded to confirm the demand for extended period and to impose penalty of an equal amount under Section 78 - reliance placed on the decision of Cosmic Dye Chemical vs. CCE, Bombay 1994 (9) TMI 86 - SUPREME COURT OF INDIA where it was held that It is not correct to say that there can be a suppression or mis-statement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to Section 11A. Mis-statement or suppression of fact must be willful - there is no intent on the part of the appellant to evade payment of duty, we find that the justification for invoking extended period for demand as well as imposing penalty under Section 78 fails. Accordingly, the demand in this case is to be restricted to normal period and the penalty under Section 76 being in the nature of penalty on delayed payment will be sustainable. Appeal disposed off - decided partly in favor of appellant.

Issues Involved:
1. Tax liability of the appellant for shot hole drilling activity under "survey and exploration service".
2. Applicability of the extended period for demand of service tax.
3. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Tax Liability of the Appellant for Shot Hole Drilling Activity:
The appellants contested that their shot hole drilling activity is not taxable under "survey and exploration service" as defined under Section 65 (105) (zzv) read with Section 65 (104a) of the Finance Act, 1994. They argued that since they do not engage in survey and exploration of minerals, they should not be liable for service tax. The Department, however, held that shot hole drilling is integral to survey and exploration of minerals, as it is essential for ONGC's seismic surveys. The Tribunal agreed with the Department, stating that the appellant's activities are indeed in relation to survey and exploration of minerals, as they provide necessary services for ONGC's operations. The Tribunal emphasized that the term "in relation to" should not be narrowly interpreted and that the appellant's services are an integral part of the survey and exploration activities.

2. Applicability of the Extended Period for Demand of Service Tax:
The appellants argued against the invocation of the extended period for demand, stating that all transactions were recorded in statutory records and there was no fraud or suppression. The Department contended that the appellants deliberately stopped paying tax despite having similar contracts with Oil India Limited (OIL) and initially discharging tax. The Tribunal found that the Original Authority's justification for invoking the extended period was not legally sustainable. The Tribunal referred to the Supreme Court's decision in Cosmic Dye Chemical vs. CCE, Bombay, which clarified that intent to evade duty is necessary for invoking the extended period. Since the Original Authority admitted that there was no intent to evade payment, the Tribunal restricted the demand to the normal period.

3. Imposition of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994:
The Original Authority imposed penalties under Sections 76, 77, and 78. The Tribunal found that the penalty under Section 78 was not justified due to the lack of intent to evade payment. However, the penalty under Section 76, which pertains to delayed payment, was deemed sustainable. The penalty of ?1,000 under Section 77 was not specifically contested and thus was not addressed separately in the judgment.

Conclusion:
The Tribunal concluded that the appeal was partly allowed. The tax liability for the shot hole drilling activity was upheld under "survey and exploration service". However, the demand was restricted to the normal period, and the penalty under Section 78 was set aside. The penalty under Section 76 was sustained. The judgment was pronounced in open court on 05/10/2016.

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