2020 (7) TMI 352 - AAR - GST

Classification of supply - composite supply or not - supply of mud engineering services along with supply of imported mud chemicals and additives provided on consumption basis by the Applicant under the Contract - classified under Entry 9986 (ii) - Service of exploration, mining or drilling of petroleum crude or natural gas or both? - eligibility for concessional GST rate of 5% against an Essentiality Certificate ( EC ) under Notification No. 50/2017-Customs dated 30 June 2017. HELD THAT - The applicant is obligated to provide complete Mud Engineering and Drilling Waste Management Services. For provision of such services, it is essential to have all technical support (equipment/tools), technical personnel and required chemicals/additives. These components are clearly incidental and ancillary to main supply i.e. providing of mud engineering and drilling waste management Services for 3(three) HTHP Wells in KG Basin. If any one or more of these components is removed, the very nature of main supply i.e. provision of mud engineering and drilling waste management services would be affected. It also defeats the very purpose of the Contract and in such a scenario; there appears no service to be provided by the Applicant. Thus, the scope of the work to be provided by the Applicant under the Contract is a combination of supply of service and supply of goods which are naturally bundled in the ordinary course of business - wherein the principal supply is supply of service (mud engineering or drilling waste management services) and supply of goods viz. mud chemicals and mud additives which form incidental or ancillary supply to the principal supply. t is observed that for Mud Engineering and Drilling Waste Management Services , the scope of work was detailed under Section-II of the Contract. The said scope of work consists of deployment of personnel (mud coordinator, Mud Engineer etc,)- Ref Clauses 11.1 to 11.3 Technical support (clause-17), Laboratory Equipment (clause-15), Logistics (clause-16). It is observed that though the contract is for Mud engineering and Drilling waste management services , the scope of work or the consideration for such services is not based on quantum or volume of the service. The scope of work under the contract encompasses the events viz. supply of technical personnel, technical equipment (on rental basis) and supply of additives/chemicals/consumables. Consideration receivable by the applicant is with reference to provision of such each event (reference to Section-HI of the Contract). Thus, all these components are not supplied or provided as a package at a single price. The supply of imported mud-chemicals and mud additives provided on consumption basis shall be classifiable as supply of goods under respective EISNs of goods as specified under CGST Act, 2017. Similarly, it is found that the other events supply of goods (on rental basis) and supply of services (supply of technical personnel) shall be accordingly classifiable independently under respective HSNs of Services/Goods as the case may be. Thus, the supply of mud engineering services along with supply of imported mud chemicals and additives provided on consumption basis by the Applicant under the Contract do not qualify as composite supply - question related to classification not applicable - The benefits under referred Customs Notification is available to supply of such goods at the time of their importation subject to fulfilment of description, tariff item, lists and conditions specified therein and subject to the satisfaction of the Proper Officer.

Summary

Issues Involved:
1. Whether the supply of mud engineering services along with supply of imported mud chemicals and additives provided on a consumption basis qualifies as a composite supply.
2. If the answer to the first issue is yes, whether the supplies made under the contract merit classification under Entry 9986(ii) - Service of exploration, mining, or drilling of petroleum crude or natural gas or both, and are subject to GST at the rate of 12%/18%.
3. If the answer to the first issue is no, whether the supply of mud chemicals and additives on a consumption basis at OIL India's location in India qualifies for a concessional GST rate of 5% against an Essentiality Certificate under Notification No. 50/2017-Customs dated 30 June 2017.

Issue-wise Detailed Analysis:

Issue 1: Composite Supply Qualification
The applicant, Halliburton Offshore Services Inc., sought a ruling on whether their contract for providing mud engineering services along with the supply of imported mud chemicals and additives qualifies as a composite supply under Section 2(30) of the CGST Act, 2017. The term "composite supply" is defined as a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

The authority examined the contract between the applicant and OIL India Limited, which included the provision of mud engineering services, supply of mud chemicals, and additives. The contract's scope indicated that these supplies are essential for performing the services but can be procured independently. The authority concluded that the supplies of mud chemicals and additives are not necessarily provided in conjunction with the services, as they can be delivered, replaced, and demobilized independently. Therefore, the supply of mud engineering services along with the supply of imported mud chemicals and additives does not qualify as a composite supply.

Issue 2: Classification Under Entry 9986(ii)
Since the answer to the first issue was no, the necessity of classifying the supplies under Entry 9986(ii) does not arise. The authority stated that the supplies should be classified independently under their respective HSNs of services/goods, and the applicable GST rates should be levied accordingly.

Issue 3: Concessional GST Rate of 5%
The applicant also sought a ruling on whether the supply of mud chemicals and additives on a consumption basis at OIL India's location qualifies for a concessional GST rate of 5% against an Essentiality Certificate under Notification No. 50/2017-Customs. The authority referred to its earlier finding that the supply of mud chemicals and additives should be classified as the supply of goods. Therefore, the benefits under the referred Customs Notification are available to the supply of such goods at the time of their importation, subject to the fulfillment of the description, tariff item, lists, and conditions specified therein and to the satisfaction of the Proper Officer.

Ruling:
1. The supply of mud engineering services along with the supply of imported mud chemicals and additives provided on a consumption basis by the applicant does not qualify as a composite supply.
2. Since the answer to the first question is no, the classification under Entry 9986(ii) does not apply.
3. The supply of mud chemicals and additives on a consumption basis qualifies for a concessional GST rate of 5% against an Essentiality Certificate under Notification No. 50/2017-Customs, subject to the fulfillment of specified conditions and the satisfaction of the Proper Officer.