2020 (11) TMI 437 - AT - Service Tax

Classification of services - site formation service or mining services - providing mobile drilling services to companies in the oil and gas industry - According to the Department, the appellant had rendered site formation service from April 1, 2006 upto May 31, 2007 - whether the appellant had rendered site formation service for the period April 1, 2006 to May 31, 2007, which is the period prior to June 1, 2007 when mining services became taxable? - Extended period of Limitation - HELD THAT - It is clear from the definition contained in section 65 (97)(a) of the Finance Act that site formation includes drilling, boring and core extraction services for construction, geophysical, geological or similar purposes. It will also be pertinent to refer to the Circular dated July 27, 2005 that was issued by the Government of India in connection with the issues pertaining to service tax in the budget 2005-06. A plain reading of the definition of site formation service and Circular dated July 27, 2005 clearly shows that site formation service covers those activities which are taken prior to construction of buildings or factory or other civil structures or laying of cables or pipelines or exploring of minerals and mining and are in the nature of preparatory work for making the location suitable for construction or exploration or mining. These facts were specifically stated by the appellant in reply to the show cause notice, but the Commissioner has not considered the submissions in the impugned order. The work required to be performed under the agreement was definitely not the work relating to preparation of site. The preparatory work was carried out by ONGC itself and the appellant carried out the activity on the prepared site. The activity undertaken by the appellant cannot, therefore, be classified under the category of site formation service. This issue can be examined from another aspect. Mining service was introduced w.e.f June 1, 2007 without any change in the site formation taxable service. Thus, when the intention of the legislature was to levy service tax on the activities in relation to mining under mining services only under section 65 (105)(zzzy) of the Finance Act w.e.f June 1, 2007, the said activity cannot be classified under any other category, including site formation service prior to June 1, 2007. Extended period of limitation - HELD THAT - When the appellant had not rendered any site formation service w.e.f April 1, 2006 to May 31, 2007, it would not be necessary to examine whether, in the facts and circumstances in the case, the extended period of limitation could have been invoked by the Commissioner. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of services provided by the appellant.
2. Applicability of site formation service for the period April 1, 2006 to May 31, 2007.
3. Invocation of the extended period of limitation.

Detailed Analysis:

1. Classification of Services Provided by the Appellant:
The appellant, engaged in providing mobile drilling services to oil and gas companies, registered under the category of "mining services" taxable from June 1, 2007. The Department contended that services rendered from April 1, 2006 to May 31, 2007 fell under "site formation and clearance, excavation and earthmoving and demolition service." The Commissioner confirmed this classification and imposed service tax, interest, and penalties.

2. Applicability of Site Formation Service:
The appellant argued that their activities did not fall under site formation service, which includes preparatory work for construction, exploration, or mining. The appellant's activities were performed on already prepared sites by ONGC, thus not classifiable under site formation service. The Tribunal noted that site formation service, as defined in section 65(97a) of the Finance Act, includes preparatory activities and does not cover the appellant's drilling operations. The Tribunal also referenced the agreement between the appellant and ONGC, which specified that ONGC was responsible for site preparation, while the appellant provided specialized drilling services. The Tribunal concluded that the appellant's activities were not site formation services but integral to mining services, which became taxable from June 1, 2007.

3. Invocation of the Extended Period of Limitation:
The appellant contested the invocation of the extended period of limitation, arguing no suppression of facts. Since the Tribunal found that the appellant did not render site formation services, it was unnecessary to examine the extended period of limitation's applicability.

Conclusion:
The Tribunal set aside the Commissioner's order, concluding that the appellant's activities were not classifiable under site formation service for the period April 1, 2006 to May 31, 2007. The appeal was allowed, and the demand, interest, and penalties imposed were annulled.