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TMI Blog2014 (11) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant to M/s. ONGC. The activity of supply with no legal right of possession and effective control is sought to be taxed under the entry (zzzzj). It is an accepted principle of interpretation that the contemporaneous construction placed by administrative or executive officers charged with executing a statute has to be given due diligence. In a case where the place of service recipient is not known or cannot be determined, then as per the said rule, the place of provision of service is that of the service provider. the service provider is situated in India and, therefore, the service has been provided in India and not elsewhere. Further, Rule 8 of the said Rules provides that, if any one of the service provider or receiver is located in the taxable territory, the place of provision of service will be the location of the service receiver. In the facts of the case before us, both the service provider as well as the service receiver are located in the taxable territory, namely, India. Therefore, the place of provision of service is India. Thus from whichever angle one looks at the issue, there cannot be any dispute on the fact that the service has been provided in India a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ONGC in the Continental Shelf and Exclusive Economic zone of India, well beyond the territorial waters of India. These drilling activities were undertaken in open locations and not in areas specified in the Notification issued under the Maritime Zones Act, 1976 and, therefore, there was no liability to pay service tax on such drilling operations undertaken by the appellant. The recipient of the service, M/s. ONGC, had also informed the appellant about the non-applicability of service tax on drilling work undertaken in open locations. However, for the period 01/04/2010 onwards, the appellant has been discharging service tax liability under a different service category. 3.2 For leviability of service tax under Section 65 (105) (zzzzj), there should be a supply of drilling rig by the appellant to M/s. ONGC. The drilling rigs in question are used by the appellant (not by ONGC) to provide drilling service. The contract between the appellant and ONGC is for provision of drilling service and, therefore, the same cannot be considered as supply of tangible goods for use (SOTG). In the present case, there is no transfer of possession of the drilling rig to ONGC and, therefore, provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continue to be his servants. 3.4 Reliance is also placed on the decision in Sea Land Securities Ltd. vs. William Dickinson and Co. Ltd. (1942) 72 Lloyd s Reported 159, wherein it was held that: The rights and obligations of the parties to a time charter would depend on its written terms. The modern form of time charter party, is in essence, one by which the ship owner agrees with the time charterer that during a certain named period, he will render services by his servants and crew to carry the goods which are put on board by the ship charterer. The ship at all times was in the possession of the ship owners and they simply undertook to do services with their crew in carrying the goods of the charterers. 3.5 Therefore, a time charter is for rendering of service by the ship owner to the charterer. In the present case, the contract being essentially in the nature of contract for provision of drilling service, the same cannot be levied to service tax under SOTG service. As per the provisions of the contract entered into with ONGC, it is clear that ONGC decided to have drilling operations conducted in the offshore waters of India as may designated by them. As per clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of right of possession must necessarily involve transfer of custody/possession without involving a transfer of right or possession. Since in the present case, at all time, custody/possession remained with the appellant and not with ONGC, the provisions of SOTG are not satisfied. 3.8 The contract entered into by the appellant with ONGC provides for payment of hire charges on a per day basis or pro-rata for part thereof. This is only a measure/manner of computation of consideration for the service provided by the appellant and it is irrelevant to decide the nature of service provided by the appellant. Reliance is also placed on the decision of apex Court in the case of Senairam Doongarmall vs. CIT 1961 42 ITR 392 (SC) in respect of this contention. The taxable event for the purpose of levy of service tax is the provision of service in India. 3.9 Since the service provided by the appellant are not in relation to any installation, structure or vessel located in the Continental Shelf/Exclusive Economic Zone, no service tax is payable for the period 07/07/2009 to 27/02/2010. Vide Notification 14/2010-ST dated 27-2-2010, service tax levy was extended to, - (1) the whole of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio was followed in the case of M/s. Reliance Industries Ltd. vs. Commissioner of Service Tax vide final order No. A/720-722/14/CSTB/C-I dated 13/05/2014 wherein also it was held that if the tangible goods are used at different points of time at different places and outside the designated place in India, liability under SOTG service would not arise. 3.11. It is also argued that the contracts were entered into with ONGC prior to 07/07/2009 and the payments for the same were made after 07/07/2009. Therefore, as held in the Petronet LNG decision cited supra, liability to service tax under SOTG service is not sustainable. The argument is that the taxable service is the supply of tangible goods for use and not the use of the tangible goods supplied. Therefore, even if it is held that the services is SOTG, since prior to 07/07/2009 the definition of India did not cover installations, structures and vessels in the Continental Shelf and Exclusive Economic Zones of India, the demand will not sustain. 3.12 It is also contended that the department has accepted the classification and payment of service tax under mining services and, therefore, the same cannot be classified under SOT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be covered by the newly introduced entry of supply of tangible goods for use . 4.2 Reliance is also placed on the stay order No. S/429/13/CSTB/C-I dated 25/03/2013 in the case of Gol Offshore Ltd, wherein also the question for consideration was charter hire of drilling rigs by ONGC in various designated and non-designated areas and classification thereof. In that case, a prima facie view was taken that charter hiring of vessels would merit classification under SOTG service and not under mining service . Accordingly, it is prayed that the impugned demands are sustainable in law. 5.We have carefully considered the submissions made by both the sides. Out findings and conclusions are discussed in detail in the ensuring paragraphs. 5.1.Section 65 (105) (zzzzj) defines supply of tangible goods for use service as follows:- (zzzzj) any service provided or to be provided to any person, by any other person, in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment or appliances. To fall within the definition of taxable service, two condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contractor; (vii) the contractor is also required to register themselves with the service tax department for payment of tax; (viii) if any loss or damage occurs to the drilling rig unit, regardless for the cause and reason for the said loss, it shall be the loss of the contractor, its underwriters or insurers and the contractor agrees to protect, defend, indemnify and help the operator (ONGC) against any claim, whatsoever, or responsibility for any damage or loss of the drilling unit or any other equipment or property of the contractor; (ix) even for the period when the drilling unit is not used, the payment has to be made to the contractor on per-day basis and even when the vessel is moved from one place to another, the contractor is entitled for the consideration agreed upon; (x) if the contractor undertakes any drilling, he is entitled to additional charges towards the drilling activity undertaken. Even training of the crew personality is responsibility of the contractor. 5.3. Thus, from the terms of the agreement entered into between the appellant and M/s. ONGC, it is clear that the service provided by the appellant is essentially supply of dri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided in relation to supply of tangible goods, including machinery, equipment and appliances, for use, with no legal right of possession or effective control. Supply of tangible goods for use and leviable to VAT / sales tax as deemed sale of goods, is not covered under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid. 5.6The activity of supply with no legal right of possession and effective control is sought to be taxed under the entry (zzzzj). It is an accepted principle of interpretation that the contemporaneous construction placed by administrative or executive officers charged with executing a statute has to be given due diligence as held by the hon ble apex Court in various decisions mentioned below: (i)In the case of K.P. Varghese vs. Income-tax Officer [1981] 131 ITR 597 (SC), the supreme Court, based on the earlier judgment in the case of Baleshwar Bagarti vs. Bhagirathi Dass [1908] ILR 35 Cal 701/703 expounded the principle of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-mentioned vessels on time charter basis to various oil and gas producers to carry out offshore exploration and production activities. For convenience services provided by the members of the 1st petitioner are hereinafter referred to collectively as Marine Logistic Services . Various members of the 1st petitioner have entered into such contracts with ONGC the 5th respondent herein. 5.8question before the hon ble High Court was whether the said activity would come under entry (zzzy) of Section 65(105) under the category of Mining Services or would it fall under entry (zzzzj) inserted under the said Section vide Finance Act, 2008 w.e.f. 16/05/2008 as Supply of Tangible Goods for Use Service . The conclusions reached by the hon ble High Court is given in para 37 of the said order which is reproduced verbatim below. 37. Entry (zzzzj) is entirely a new entry. Whereas entry (zzzy) covers services provided to any person in relation to mining of mineral, oil or gas, services covered by entry (zzzzj) can be identified by the presence of two characteristics namely (a) supply of tangible goods including machinery, equipment and appliances for use, (b) there is no transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been entered into after the SOTG service came into force. Thus the facts are completely different and distinguishable. It is a settled position in law as held by the hon ble apex Court in Al Noor Tobacco Products India Ltd. case [2004 (170) ELT 175 (SC)] that the ratio of a decision can be applied only if the facts are identical. A slight or a material change in the facts could lead to an entirely different conclusion. In the said case, the hon ble apex court noted as follows:- There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances made in the setting of the facts of a particular case. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper. The following words of Lord Denning in the matter of applying precedents have become locus classicus : Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice provider is also situated in India and, therefore, the service has been provided in India and not elsewhere. Further, Rule 8 of the said Rules provides that, if any one of the service provider or receiver is located in the taxable territory, the place of provision of service will be the location of the service receiver. In the facts of the case before us, both the service provider as well as the service receiver are located in the taxable territory, namely, India. Therefore, the place of provision of service is India. Thus from whichever angle one looks at the issue, there cannot be any dispute on the fact that the service has been provided in India and not anywhere else. 5.12 A more or less identical issue came up for consideration before this Tribunal in the case of Atwood Oceanics Pacific Ltd. vs. Commissioner of Service Tax, Ahmedabad 2013 (32) STR 756 wherein also the issue involved was supply of drilling rigs for exploration of oil wells for M/s. Gujarat State Petroleum Corporation Ltd. In that case also the contract provided for charging of a specific amount in respect of the equipment supplied, the amount was charged on per day basis and not based on usage. Separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or produced in the exclusive economic zone or continental shelf and is brought to the main land, it will not be treated as import and, therefore, no customs duty would be leviable. Likewise, goods supplied to a place in the exclusive economic zone or continental shelf will not be treated as export under the Customs Act and no export benefit can be availed on such supply. Any mineral oil produced in the exclusive economic zone or continental shelf will be chargeable to Central Excise Duty, as goods produced in India. .................... The same logic would apply in the case of services also. Applying the said ratio, it cannot be said that merely because the oil rigs are deployed outside the Indian territorial waters but within the exclusive economic zone of India, the services have been rendered outside India. 5.14 A similar issue arose for consideration in the case of The Shipping Corporation of India - 2013-TIOL-1652-CESTAT-MUM. In the said case, the appellant therein provided vessels to ONGC on charter hire basis for transportation of crude oil from Bombay High to the refinery onshore. This tribunal held that the service provided would merit classification under SOTG s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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