REPAIR TO OIL RIGS, Goods and Services Tax - GST

[SSOE SSOE]

Dear Sir/Madam

Is the oil drilling ships covered under Ships /Vessels under Gst law?

There by can we avail the benefit of 5% Gst rate on Maintenance Repair or Overhaul services to these Oil rigs and their parts and components thereof?

Ref: Notification No. 02/2021-Central Tax (Rate) dated 2nd June 2021.

Posts / Replies

[Shilpi Jain]

To me it seems like it can be covered since it is the vessels only which are used. Though suggested that a proper analysis of the technicalities involved is done before arriving at a conclusion.

[ABHISHEK TRIPATHI]

Either drilling ships are ships or other vessel, both ways you may get the benefit.

[Dinesh Tambde]

For this purpose there exist a specific entry at clause (ii) at Sr.24 of Notification 8/2017 – Integrated Tax (Rate) which says that, “Support services to exploration, mining or drilling of petroleum crude or natural gas or both” taxable at 12%. Further the Tax research Unit of Ministry of Finance, Department of Revenue has issued Circular No. 114/33/2019-GST (F.No. 354/136/2019-TRU) dated 11th October, 2019. In the said circular the scope of entry “services of exploration, mining or drilling of petroleum crude or natural gas or both” at Sr. No. 24 (ii) of heading 9986 in Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 has been clarified.

[Praveen Lakshmi]

In order to avail the benefit of the rate reduction notification, RIGS shall be classified as “Vessels” as the rate notification provided the benefit only for “Ships and other vessels and its related parts”. However, there is no definition being provided in the provisions of GST neither in Customs Act, therefore, the definition of Vessel shall be understood in a commercial sense or in a sense with which people are familiar.

Understanding the activities and operation of Vessel and Rig

The vessel is distinct and different from a drilling rig for the following reasons:

A vessel is self-propelled and has navigability whereas a rig normally does not have navigability nor self-propelled;

A vessel floats in the water always whereas rig floats only when it is being transported from one place to other;

A vessel can perform its functions of transportation and carriage only on water whereas a rig can perform its function i.e., drilling on open land as well as land below water;

A vessel essentially carries goods or passengers whereas a rig essentially drills;

A drilling rig is a drilling machine whereas a vessel is not.

Though the rigs have flight platform, they are not engaged in carriage of goods or passengers but are meant for drilling operations in connection with offshore oil exploration;

Even though there is no definition in the Customs Act for the Vessel, there is definition for “Foreign going vessel”, which states that apart from vessels which are engaged in carrying goods or passengers, vessels engaged in fishing or any other operations outside the territorial waters of India are included.

Even in several difference High Court and Supreme Court judgements, the definition of Vessel was arrived by relying upon various other Acts and Rules such as

Merchant Shipping Act, 1958;

McGraw Hill Dictionary of Scientific and Technical Terms (4th Edition);

Section 3(63) of the General Clauses Act, 1897;

International Load Line Certificate (1966) issued by `American Bureau of Shipping'

Insurance Policy for the oil rigs;

Code of conduct from International Maritime Organisation;

Other similar certificates;

Based on the above citied case laws and several other organisation codes, it was concluded that `Vessel' is not necessary that it should be fitted with mechanical means of propulsion but the word "vessel" is of a wide and it includes sailing vessel or other description of vessel used in navigation. Thus, from the above provisions it would be apparent that for purposes of the GST and Customs Act, the word `vessel' is of wide amplitude and `oil rigs' are `vessels.

Further, following case laws cited below has concluded that vessels do include RIGS

Jindal Drilling & Industries Ltd. & Anr. v. Union of India & Ors. 2008 (4) TMI 19 - SUPREME COURT;

Aban Loyd Chiles Offshore Ltd. & Anr. v. Union of India & Ors. - 2008 (4) TMI 19 - SUPREME COURT

Great Eastern Shipping Co. Ltd. & Anr. v. Union of India & Ors. 2008 (4) TMI 19 - SUPREME COURT,

Amership Management 1996 (1) TMI 135 - BOMBAY HIGH COURT;

Many other similar cases.

By relying upon above discussion, we are of view that the RIGs shall be considered as vessels and shall be eligible for availing such rate reduction benefit upon receipt of “Repair and Maintenance” services for RIG.

[KASTURI SETHI]

I am thankful to Praveen Lakshmi Ji for throwing light on the issue and enrichment of my knowledge. Your reply speaks volume of your hard work and vast knowledge.