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TMI Blog2016 (2) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... o the whole of the sea-bed and thus the services provided to the sea-bed are not taxable. Service tax is payable on the services namely “Commercial Training and Coaching service” and “Management Consultant Service”. Appropriate interest on demand confirmed in respect of these two services is payable. However no penalty is imposable - Decided partly in favor of assessee. - Appeal No. ST/89464/14 - A/85278/16/STB - Dated:- 11-1-2016 - MR. P.S. PRUTHI, MEMBER (TECHNICAL) AND MR. RAMESH NAIR, MEMBER (JUDICIAL) For the Petitioner : Shri Roopam Kapoor,Commissioner(A.R.) For the Respondent : Shri V.K. Jain, Advocate with Shri Vishal Agarwal, Advocate and Ms. Manya Bhardwaj, Advocate ORDER Per : P.S. Pruthi 1. The respondent, Reliance Industries Ltd (RIL in short), is engaged in exploration and extraction of oil and gas in the offshore Blocks allotted to them by the Government of India under Production Sharing Contracts(PSC). It uses services of different persons/companies for exploration and extraction activities. It is alleged that RIL has been receiving services from service providers who have a fixed establishment or have their permanent address or usua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * Integration of available reprocessed / interpreted data with the other geo-scientific information * Fresh acquisition and fresh processing and Interpretation of 2D seismic data in the areas of interest. * In parallel, acquisition, processing and interpretation of other geo-scientific data like gravity, magnetic, magneto-telluric, controlled source electromagnetic, etc., acquisition, processing and interpretation of geological data like multi-beam, seabed survey, measurement of heat flow in sub-surface, etc. * Integration of all available evidence from geological, geophysical, petro-physical studies to identify leads for drilling Stage 3 : Post-prospecting stage Once sites which merit attention are identified, further activities are carried out. Stage 3.1. Evaluation of lead upto prospect maturation: * Advanced geo-scientific studies like basin / structure modeling, petroleum system analysis; etc, are carried out to evaluate a lead. When a lead shows promise based on the aforesaid scientific analysis, it gets upgraded as a prospect and these analysis help in establishment (maturation) of a prospect. * Volumetric estimation Techno- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a bed or to other outer areas which are not part of India will not attract service tax. So, on such taxable services rendered by foreign service providers, they, as recipient of service, were not liable to pay Service Tax, prior to 27-02-2010. 5. In the SCN it is stated that different equipments and vessels along with the required manpower to operate the same are used for the exploration of oil gas by RIL, at the blocks allotted to them in the Territorial waters, CS and EEZ of India. The activities are generally carried out from a vessel or from structures or installations mounted / erected, the details of which have been explained by them in the statement of Shri RS Raghavan General Manager(Commercial Taxation) on 15-04-2011. The SCN alleges that the vessels, equipments, drilling pipes and related structures, leading to survey and exploration of oil gas, putting up of manifolds and umbilical to extract the oil gas form a structure or installation individually and severally on its own. The various services received for the erection of entire structure are the important part of the exploration activity carried, leading to It is further stated that in complete formation, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N INDIA UNDER SECTION 66 A OF THE FINANCE ACT Name of the Service Classification under clause 105 of Section of 65 of the Finance Act, 1994 Category under Taxation of Services (provided from outside India and received in India) Rules-2006 Value of Services received in INR Total amount of Service Tax payable Commercial Training Coaching Service Zzc 3(ii) 947,336 97,576 Consulting Engineering Service G 3(iii) 9,509,584 979,487 Erection, Commissioning Installation service Zzd 3(ii) 323,233,458 33,293,046 Management or Business Consultants Service R 3(iii) 19,764,254 2,035,718 Management, Maintenance Repair Service Zzg 3(ii) 39,120,054 4,029,366 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court decision in the case of Greatship India Ltd vs CST 2015 (39) STR 754 it was submitted that the law that a judgment is a binding precedent till it is not stayed or set aside by a higher forum is settled by the Apex Court in the case of Kamalakshi Finance Corporation Ltd. 1991 (55) ELT 43 (SC). 7.3. On the reference to the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 Rules by the AR, it was submitted that the jurisdiction of the Finance Act, 1994 could not have been extended by the Rules and, even the Review order as also the appeal filed by the Revenue did not contain any reference to the Rules 2006. 7.4. The Show Cause Notice admits in para 4.9 that there were no structures and installations in the CS EEZ where the services were consumed but that since there was no exclusion made therein in the Not 21/2009 dt 7.7.2009 in respect of the seabed and subsoil of the submarine areas in the CS and EEZ of India, said seabed should be regarded as part of India after 7.7.2009. Ld. advocate contended that the exploration services in dispute were provided to, as also consumed by, the seabed in the CS and EEZ and were not provided to or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STR 625. This is also the position accepted by the CBEC in the FAQ which in effect states that service provided from any State other than J K to J K is not leviable to tax. CBEC circular No.56/5/2003-ST dated 25.4.2003 clarifies that service tax is a destination based consumption tax and is not applicable on export of services. This clarification was issued consequent to withdrawal of exemption Notification No.6/99 dated 9.4.1999 by which exemption had been granted from the levy of service tax in respect of all services for which payment was received in convertible foreign exchange. 7.6. The services of survey and exploration have been consumed by the block (sea-bed) and each of the blocks being a separate venture, all members of the consortium for each particular block have agreed to maintain separate accounts qua each block. Since the services consumed by the block (sea-bed), are in relation to the exploration business carried out outside India, they do not fulfill the criteria for being taxed, applying the concept of destination based consumption tax. 7.7. The contention of the Ld. AR Commissioner that the Finance Act, 1994 did not provide for consumption as the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Supreme Court in the case of Ispat Industries Ltd. v. CCE reported in 2006 (202) ELT 561 (SC) is relied upon in support of this proposition. The judgment of the Apex Court in the case of Nautam Prakash DGSVC, Vadtal and Ors. V. K K Thakkar AIR 2006 SC 2075 is relied upon in support of the proposition that there was a presumption against extra territorial jurisdiction of any Indian statute. 7.9. The ground that the services delivered through a vessel were also liable to tax was beyond the scope of the allegations levelled in the notice. Secondly the term vessel used in Notification 21/2009-ST dated 7.7.2009 did not refer to a vessel which was traversing in the open seas; but referred to vessel which was akin to an installation or structure and which was to be stationed at a fixed location and intended to be stationed permanently (permanence is the test) in the CS EEZ. The Hon ble CESTAT in the respondents own case reported in 2014-TIOL-940-CESTAT (supra), in the context of the very same notification for the very same period, has taken this very view. 7.10. The expression installations or structures had been borrowed from Notification No.1/2002-ST dated 1.3.2002, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting or extraction or production of mineral oil or natural gas, is incorrect because Entry 1 of the table to Notification 14/2010-ST clearly shows that the scope of the Finance Act, 1994 was extended to the whole of CS EEZ of India as against only to installations, structures and vessels located in the CS and EEZ of India by Notification No. 21/2009. 7.13. Revenue s ground that the individual contracts were required to be examined to buttress the argument regarding services having been received in India, by applying the Rules 2006, is not taken in the Appeal. This is against settled law. Reliance is placed on the judgment in the case of CCE vs Oswal Vanaspati Allied Industries reported in 1989 (42) ELT 3 (T). 7.14. The submissions on particular contracts referred by Ld AR are: Revenue sought to tax the hiring of the said FPSO under the category of supply of tangible goods for use service (STGU). There should be supply of tangible goods including machines, equipment and appliances for use, without transferring the right of possession and effective control. The agreement entered into with Aker Contracting FPAS envisaged that the entire FPSO would be handed over to RIL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... problem would be simple inasmuch as the bill of lading will be purely between the shipper and the charterer. In cases of a `voyage charter or a `time charter one has to find out the actual terms of the charter to ascertain whether they operated as charter by demise or made the charterer only as an ;agent of the shipowner and if so to what extent so as to ascertain the extent of privity established between the shipper and the shipowner as stipulated in the bill of lading. 44. Charterparties by way of demise, says Halsbury, at para 403, are of two kinds : (1) charter without master or crew, or bareboat charter , where the hull is the subject matter of the charterparty, and (2) charter with master and crew, under which the ship passes to the charterer in a state fit for the purposes of mercantile adventure. In both cases the charterer becomes for the time being the owner of the ship; the master and crew are, or become to all intents and purposes, his employees, and through them the possession of the ship is in him. The owner, on the other hand, has divested himself of all control either over the ship or over the master and crew, his sole right being to receive the stipulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e holder. Where there is a bill of lading relating to the goods, the terms of the contract on which the goods are carried are prima facie to be ascertained form the bill of lading. However, if a shipper chose to receive a bill of lading in a certain form without protest he should ordinarily be bound by it. Thus, it cannot be said that the bill of lading is not conclusive evidence of its terms and the person executing it is not necessarily bound by all its stipulations, unless he repudiates them on the ground that, as he did not know, and could not reasonably be expected to know, of their existence, his assent to them is not to be inferred from his acceptance of the bill of lading without objection. Where there is a charterparty, the bill of lading is prima facie, as between the shipowner and an indorsee, the contract on which the goods are carried. This is so when the indorsee is ignorant of the terms of the charterparty, and may be so even if he knows of them. As between the shipowner and the charterer the bill of lading may in some cases have the effect of modifying the contract as contained in the charterparty, although, in general, the charterparty will prevail and the bill of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his contract, the said company was to undertake processing of the 3D Seismic data provided by the respondent at the companys UK office. The seismic data pertained to an area of the sea bed beyond 12 NM where no installation, structure or vessel existed and the processed data was consumed by the said location. Further, the service of processing of 3D seismic data of the said area of sea bed located beyond 12 NM, was performed totally outside India. Therefore, the said service does not attract the levy. 7.19 The ground in Revenues appeal that every activity of Survey Exploration leads to construction of installations/structures is both incorrect, baseless, and beyond the scope of allegations levelled in the notice. Nothing can illustrate this better than the fact that out of the 33 blocks which were licensed to the respondent and where Survey Exploration work was carried out, as many as 30 had to be surrendered as they were not found to be not viable. The Survey Exploration is conducted over huge and large swaths of the sea bed, in the CS and EEZ of India, of which only a miniscule percentage of area is found to be a viable prospect. As such, the underlying presumption in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the stay application had observed Parties are directed to complete the pleadings at the earliest. The matter will be heard on the SLP paper books . It was accordingly submitted that applying the ratio of the judgment of Honble High Court of Bombay in the case of Commissioner of Customs, C. Ex and Service Tax vs. Jolly Board Ltd. 2015(323)ELT 80 (Bom), as the appeal has been admitted by Hon ble Supreme Court, Honble Tribunal should not rely on the judgment of Greatship (India) and should deal with the issue on merits. (3) As the Commissioner has erred in holding that the Show Cause Notice sought to apply the provisions of Notification No. 14/2010 retrospectively, the case may be remanded to the adjudicating authority to decide the case afresh in light of the charges raised in the Show Cause Notice. (4) An artificial distinction was being sought to be created that Notification No. 21/2009 sought to tax services only provided to structures, installations and vessels in the EEZ and CS of India. For the purpose of provisions of Chapter V of Finance Act, 1994, the services provided by any person from or through or upon or to these vessels etal will be treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the consumer. (6) On the following Contracts the Ld AR submitted (i) Supply of Tangible Goods (STGU) service: Present notice primarily seeks to recover service tax on leasing of support vessels such as FPSO, platform supply vessels, equipment leased for operation and maintenance of offshore oil exploration activity. It is mentioned in the Bill of Entry for FPSO: NO FOREIGN EXCHANGE REMITTANCE IS MADE AGAINST THESE SUPPLIES . These facts negate M/s. RIL s claim of import of FPSO. RIL had an option to purchase the FPSO anytime during the term of contract but it had not been purchased till February, 2010. Ledger produced by RIL shows that lease rent was paid upto February, 2010. Thus, RIL is liable to pay service tax as a recipient of service in India; Case of United Shippers Ltd. v/s CCE, Thane - II [2015 (37) STR 1043 (Tri.-Mumbai) is not applicable as the issue there was whether the value of the transport charges for bringing the goods from high seas to the port would be liable to customs duties or service tax; there the issue of double taxation was a valid point. However, the instant case is different as it involves bringing of goods into India (importatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res and vessels in respect of their oil and exploration activities carried out in offshore fields. As per Section 65 (104a) of the Finance Act, 1994, survey and exploration of mineral means geological, geophysical or other prospecting, surface or sub-surface surveying or map making service, in relation to location or exploration of deposits of mineral, oil or gas. CBEC vide circular dated 17.09.2004 has given the following clarification- Survey and exploration of minerals: The service tax would be leviable when the service of survey and exploration of minerals is provided by any person to a customer. The survey and exploration may result in locating ores, crude etc. Subsequent to survey and exploration, the mineral is extracted and transported for refining, processing and production. The service tax under this category would be limited to the services rendered in relation to survey and exploration only and not on the activity of actual extraction after the survey and exploration is complete. The transport, refining, processing or production of the extracted products would also be out of the ambit of service tax. Activities such as seismic survey, collection/ processin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Commissioner in his order proceeded to hold that in terms of paras 9.5 and 9.6 of the show cause notice, DRI sought to give retrospective effect to the amendment made in Not 21/2009 vide NotificationNo.14/10 dated 24/2/2010 by which the provisions of the Finance Act were extended to the whole of the CS and EEZ for specified purposes. The Commissioner came to the conclusion that Notification 14/2010 could not be given retrospective effect. He relied on various decisions including CC Vs. Spice Telecom[2006(203) ELT 538] and Bombay Industries Pvt Ltd. Vs. UOI[1995(77) 32(SC)]. Therefore he dropped the entire demand of service tax except an amount of ₹ 33,94,064 being the admitted liability under the head management, maintenance or repair service. 9.2 The grounds of appeal formulated by the Committee of Chief Commissioners are: (a) The proposal in the show cause notice is not to give retrospective effect to Notification No. 14/2010. Show cause notice only proposes to give effect to Notification No. 1/2002 as amended by Notification No. 21/2009 whereby the provisions of Chapter V of the Finance Act were extended to the installations, structures and vessels in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a as declared by the Notifications of the Government of India in the Ministry of External Affairs Nos. S. O. 429 (E) dated the 18th July 1986 and S.O. 643 (E), dated the 19th September, 1996 with immediate effect. Position between 7/7/2009 to 26/2/2010 Notification No. 21/2009-ST dated 7/7/2009 amending the notification No. 1/2002-ST dated 1/3/2002. Extension of Provisions of Chapter V of the Finance Act, 1994 (32 of 1994) to designated areas in the continental shelf and exclusive economic zone of India [Notification No. 1/2002-S.T., amended] In exercise of the powers conferred by clause (a) of the sub-section (6) of section 6 and clause (a) of sub-section (7) of section 7 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (80 of 1976), the Central Government hereby makes the following amendments in the Government of India in the Ministry of Finance (Department of Revenue) Notification No. 1/2002-Service Tax, dated the 1st March, 2002, published in the Gazette of India Extraordinary, vide number G.S.R. 153(E), dated the 1st March 2002, namely :- In the said notification, for the portion beginning with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds connected with the said activity. It is clear that the authority to extend the scope of the Finance Act 1994 to the CZ and EEZ is derived from the powers exercisable under the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976. 10.2. We may first deal with the grounds for review proposed by Revenue. The review Order states that Not 21/2009 will apply to installations under construction because services rendered during the construction can be delivered only through a vessel. Under the Taxation of Services (Provided from Outside India and Received in India) Rules 2006, as they stood in the relevant period, India includes the installations, structures and vessels located in the Continental Shelf and Exclusive Economic Zone of India. This means that under the provisions of Section 66(A) read with the Rules 2006, the service recipient is liable to pay service tax on reverse charge basis only in respect of any service provided and which is consumed at such installations, structures and vessels. However in the present case, as seen from Table in para 6, a large section of the services are for pre-constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be incongrous to think of construction of vessels in the CS and EEZ for the obvious reason that vessels are not constructed in the ocean as such. Therefore the contention of Revenue that the Notification extends the ambit of taxable territory to vessels traversing across the seas in the CS and EEZ is fallacious. While opposing the view that the notification of 2009 does not apply to installations in the CS and the EEZ which are under construction, Revenues ground for review of the impugned Order states that any service rendered during the construction of an installation can be delivered only through a vessel. Revenue seems to imply that since the word vessel is used in the notification of 2009, and service provided by vessel is covered, therefore the service for construction of an installation is delivered through a vessel. We find this contention self-defeating. The construction of the notification is such that it aims to extend the taxable territory of India to installations, structures and vessels in the CS and EEZ. That is, the vessel itself becomes taxable territory. A vessel could even be traversing, during the oil exploration work beyond the 200 miles limit of the EE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is quite estranged from the way Revenue perceives it. A structure would mean a completed structure. Ld AR Commissioner referred to the Apex Court judgement in the case of Municipal Corporation vs IOCL AIR 1991 SC 686. We have gone through this judgement. It decides an issue relating to rateable value of land and buildings under the Bombay Municipal Corporation Act. The question which arose in that case was whether storage tanks built on land would get covered under the definitions of land and buildings and be exigible to property tax. The definition of land under Section 3(r) of the said Act includes things attached to the earth The definition of building under Section 3(s) includes structures. The Honble Court discussed that structure means something which is constructed in the way of being built up as is a building. Further that, the question what is a structure is a question of fact, the question what is a structure within the meaning of a particular statute or regulation is a mixed question of law and fact. The Hon ble Court came to decide that, as the value of land gets increased by virtue of the erection of tanks, they are structures within the definition of land and bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... helf, Exclusive Economic Zone and other Maritime Zones Act, 1976; (c) the seabed and the subsoil underlying the territorial waters; (d) the air space above its territory and territorial waters; and (e) the installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof; We may also refer to the para of the show cause notice which impinges on this issue, as reproduced below: 9.5 Notification No. 14/2010-Service Tax dated 27-02-2010 further reinforced the intention of the Government of India to levy service tax on the services received and utilized in the whole of continental shelf of India and Exclusive Economic Zone of India for all activities pertaining to construction of installations, structures and vessels for the purposes of prospecting or extraction or production of mineral oil and natural gas supply thereof. Therefore it cannot be said that service tax on the services used for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nored. In fact, it is for this reason that Rules 4, 5 and 6 of the Rules have been promulgated. The actual price paid for the goods can only be taken into consideration provided the sale is in the ordinary course of trade under fully competitive conditions and the other provisions of Rule 4 are satisfied. 26. In our opinion if there are two possible interpretations of a rule, one which subserves the object of a provision in the parent statute and the other which does not, we have to adopt the former, because adopting the latter will make the rule ultra vires the Act. 29.. Hence, if there is any conflict between the provisions of the Act and the provisions of the Rules, the former will prevail. However, every effort should be made to give an interpretation to the Rules to uphold its validity. 32. It may be mentioned that the Mimansa Rules of Interpretation were our traditional principles of interpretation laid down by Jaimini in the 5th Century B.C. whose Sutras were explained by Shabar, Kumarila Bhatta, Prabhakar, etc. .We can use any system of intepretation which helps us solve a difficulty. In certain situations Maxwells principles would be more appropriate, whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.02.2010 to the whole of the CS and EEZ of India for the purpose of taxing any service provided for activities pertaining to construction of installations, structures and vessels for the purpose of prospecting or extraction or production of mineral gas and natural oil and supply thereof. The contention is that the coverage of the Finance Act 1994 was for the first time extended to the whole of the CS and EEZ, which includes the subsoil and the seabed in the submarine areas, only with effect from 27.02.2010 vide Notification 14/2010ST. And since there were no installations or structures in the CS and EEZ of India for which services were provided and the services were consumed by the block (sea-bed), by no stretch of imagination the levy could have been extended to services provided to and consumed by the seabed in the CS and EEZ of India during the relevant period in terms of notification 21/2009 -ST dated 7.7. 2009. 11B. On the other hand, the Ld Commissioner AR refers to Section 66(A) (1) and argues that RIL entered into agreements with service providers from outside India whose place of business is other than India. The agreements show the service recipient in India with full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgement directly relatable to the facts of the present case is Cox and Kings India Ltd versus Commissioner of Service tax, New Delhi 2014 (35) STR 817 (TRI-Del). We refer to the relevant paragraphs (g) Board Circular 36/4/2001 dated 8-10-2001 also clarifies the issue that since (at present) levy of Service Tax Extends to the Whole of India except the State of Jammu and Kashmir; and India includes the territorial waters of India which extend up to 12 nautical miles from the Indian land mass; and provisions of the Act are not extended to designated areas in the CS and the EEZ of India, services provided beyond the territorial waters of India are not liable to service tax. (h) The above Board circular fell for consideration by this tribunal in Foster Wheeler Energy Ltd vs CCE C, Vadodara-11 2007 (7) STR 443(Tri-Ahmd). This Tribunal, referring to the above Board Circular ruled that services provided beyond the Indian territorial waters will not attract service tax. (i) Qua the text and context of provisions of the Act, it is clear that service tax is a destination based consumption levy. The taxable event, in all events, qua the provisions of the Act, in particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspects of this taxable service which are provided and consumed outside the Indian territory must be execised from the gross consideration received, even where is service is provided and consume partly within India and partly without. (m) On the aforesaid analysis we conclude that the consideration received for operating and arranging outbound tours, even if falling within the scope of the amended definition of tour operater ; (provided by the assessee and consumed by the tourist customers beyond Indian territory), is not liable to levy collection of service tax, under provisions of the act. We hold that provisions of the Act do not have an extraterritorial operation The above judgements elucidate the law that service tax is not a charge on business but on the consumer on the provision of a taxable service in the taxable territory. Service provided outside the taxable territory cannot be subject to levy of Service Tax. In the present case the notification applicable during the dispute period extends the taxable territory to the installations, structures and vessels in the CS and EEZ of India. It does not extend to the entire areas of the CS and the EEZ. It also clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry is the service that can be taxed. Only the installations and structures as notified under the Notification fall in the ambit of the definition of India which is the taxable territory. If the services are provided anywhere in the seabed of the CS and EEZ which is not a taxable territory, the same cannot be treated as a service provided in the taxable territory. The location of the recipient is important but at the same time what has to be considered, qua the statutory provisions of Section 64 and 66, before deciding the location of the recipient, is whether the service is provided in the taxable territory. The jurisdiction of the Finance Act cannot be decided by the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 Rules. The jurisdiction is laid in the Finance Act, 1994. The Rules will come into play only when the jurisdiction is there. A good analogy given by the ld advocate as a rebuttal to Ld ARs argument is that if the office of RIL is located in India and service contracts are executed with RIL in India for execution of services provided abroad, they cannot be taxed being the services provided outside the taxable territory of India. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l gas, including the services rendered to or by such installations, structures and vessels. 36. It is further to be noted that it is a settled principle of law that, it is presumed that each and every word used by the legislature is with some intention. It is equally settled that each and every word used by the legislature is to be required to be given meaning and not ignored. It is to be noted that in the 2010 notification no such words like it is clarified for removal of doubts or it is declared are used. However, even in the absence of such words, a statute could be construed to be declaratory or clarificatory, if upon interpretation of the same such a meaning could be derived. As such, we will have to gather the legislative intent from the words used in the statute. The 2010 Notification uses the words in supersession of the Government of India, in the Ministry of Finance (Department of Revenue) Notification No. 1/2002-S.T., dated 1-3-2002. It could thus be clear that the legislative intent is to supersede the 2002 Notification as amended in 2009 and substitute with 2010 Notification. The legislative intent could further be gathered from the following words : except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Continental Shelf of India would come in the tax net only after 2010 Notification came into effect. We are of the considered view that the said service cannot be said to be a service rendered to the installations, structures and vessels. Not only this, but the respondent also in the Order-in-Original has noted that the appellant is discharging applicable Service Tax on the services received by installations, structures and vessels in the Continental Shelf and Exclusive Economic Zone of India but was not discharging the Service Tax on services consumed by the seabed of Continental Shelf of India. The Hon ble High Court decided that the services provided to the sea-bed do not fall in the ambit of Not 21/2009. We have held in above paras that the services provided by the installations have to be viewed from the perspective of taxable territory and any service provided outside the taxable territory cannot be taxed. The Ld AR prayed that in view of the Mumbai High Court decision in the case of Commissioner vs Jolly Board 2015(323)ELT 80(Bom), reliance cannot be placed on the Greatship judgement which has been appealed before the Honble Supreme Court. If this argument were to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t LNG (supra) it was held that 32. The Supreme Court in British India Steam Navigation Co. Ltd. referred to a passage in Halsbury's Laws of England 4th edn. Vol. 43, para 401 to explain the distinction between Voyage charterparty and time charterparty . Suffice it to observe that Halsbury at para 403 notices that charterparty by way of demise are of two types; (i) charter without master or crew, where the hull is the subject matter of the charterparty and (ii) charter with master and crew, under which the ship passes to the charterer in a state fit for the purposes of mercantile adventure. In both cases, the charterer becomes, for the time being the owner of the ship; the master and crew are, or become to all intents and purposes, his employees, and through them the possession of the ship is in him. From this passage, it is evident that even if the manager, master and other personnel and crew of the tanker are employees of the owner, since under the agreement, the construction of the tanker is on the specifications of the assessee; the tanker is delivered to the assessee; remains in its possession during the tenure of the charter; personnel and crew are strictly governe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular, whether the transactions of FPSO involves transfer of right of possession and effective control is a matter to be decided on the basis of terms of contracts and other material facts. To decide whether in the present case there is transfer of effective control, we may look into its use and the contract under which the FPSO is given to the respondent. The Ld. A.R. enlightened us on the functions of an FPSO as an offshore production facility that houses both processing equipment and storage for produced hydro carbons. The basic design of most FPSOs encompasses a ship shaped vessel, with processing equipment aboard the vessel deck and hydro carbon storage below in the double hull. After processing, an FPSO stores oil or gas before offloading periodically to shuttle tankers or transmitting processed petroleum via pipe lines . The salient features of the contract are as below: 2.1The duration of the Contract shall be from the Effective Date and, Subject provisions of the Contract, terminated upon the expiry of the Charter Period. 2.2RIL shall decide in its absolute discretion whether the Initial Charter Period shall be 1825 days from the Date of First Production of Oil, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r possession and control of the ship, including the right to appoint the mate and crew; (b) bareboat charter cum-demise means a bareboat charter where the ownership of the ship is intended to be transferred after a specified period to the company to whom it has been chartered. Further an order has been issued on 08.03.2011 under section 197(1) of the Income Tax Act, 1961 which shows that under income tax provisions there is transfer of effective control and possession of the FPSO. The said order reads as : 1. Aker Contracting FP ASA[ACFP] (through its authorized representative; S R Batlibol Co) has filed an application (in form 13) alongwith a letter dated February 7, 2011 for extension of the withholding order under section 197(1) of the Income Tax Act, 1961 with respect of the payments to be received by ACFP from Reliance Industries Limited (RIL) pursuant to Contract between Reliance Industries Limited and Aker Contracting FP AS for Chartering of Floating, Production, Storage and Offloading Facility in connection with extraction and production of Oil and Gas (viz. contract No. OGF/3627982 dated May, 9 2007). The contract entered with RIL is for providing Floating, Prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the Bourbon Offshore Vessel, we find that the demand has also been raised in another show cause notice which has been adjudicated. Therefore there is no question of demanding duty again in the present proceedings. As regards the agreements for supply of winch, running tools, mud logging services and well bore survey service, we note that these services are for developing the installations and structures for oil exploration and production and not to the installations. We have already held that the scope of such services are outside the ambit of notification 21/2009 as they are not for providing service to existing installations, i.e. in taxable territory. The contract with Emas Offshore Pvt. Ltd. is for assignment of vessel Harrier to Reliance Exploration and Production for supporting the rig Blackford Dolphin for operation in offshore Oman. As the operation is in offshore Oman, a different country, the service cannot be said to have been provided in taxable territory to which the service tax law applies. Therefore no service tax is payable in this case. The contract with Farstad Shipping Pvt. Ltd. is for charter of PSV vessel MV Lady Grete. It is noticed from the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HP) package which shall be mobilized for rig Nepture Explorer and shall be replaced by Type I ROV (Hydra Magnum Plus-150HP) package along with MINIMUM ROV System DEEP DRILLER 1 Contract should provide; Type IV Spectrum or Equivalent -20HP) package which shall be mobilized for rig Deep Driller 1 As a minimum the ROV onboard the rig and the standy ROV at RIL Shore base shall be supported by two crews on a rotational basis with each crew consisting of the following Personnel. ACTINIA Type III ROV(Quantum 7 -75HP) package which shall be mobilized under this Contract on rig -Actinia after completion of work under ongoing contract. The argument of Ld. A.R. is that these ROVs are linked to the rigs and therefore the service is provided from the structures/installations. On the other hand, the Ld. Counsel insists that ROVs are floating vessels and department has not shown anywhere as to how they are attached to the rigs nor has any such averment been made in the show cause notice. We find the contention true that no such averment has been made in the show cause notice. Even otherwise as seen from the contract, the ROV is to be mobilized on, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Ltd. relates to 3D seismic data acquisition and on-board processing which is clearly a prospecting stage as per para 3 of the SCN. And this not a service done in the taxable territory. 12A(iii) Service tax has been demanded under Erection, commissioning or installation service as defined under Section 65(39a). The contracts with M/s. Aker Installation FP reveal the scope of work to include (i) installation of the complete facilities and the related engineering (ii) application of and completion of the works in accordance with appropriate detail installation engineering etc. As per the SCN the service is provided on block in the CS and EEZ. The services are related to construction of installations in the CS and cannot be said to have been provided to installations already existing in the CS and EEZ. And therefore the services are provided outside taxable territory. 12A(iv) The next service is managment, maintenance or repair service under Section 65(105) (zzg). As mentioned in para 4 above, RIL have already paid service tax of ₹ 33,94,064/-. 12(B)(i) The next service is Manpower recruitment or supply agency service under Section 65 (105) (k). Manpower is prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sake of repetition we may remind that the first condition of taxability is that it must be provided in taxable territory. The notification speaks of services to installations and structures already in existence and which alone form the taxable territory. Another contract is with Det Norske Veritas As. The scope of the work is as follows: Contractor shall review all design documents for adequacy, consistency and to ensure compliance with applicable project design bases, design codes and standards, and standard international norms and industry practices. Contractor shall conduct audit, review of documents monitor/inspect/surveillance/witness of activities, as required, during fabrication/manufacturing and installation of various components of projects as defined above with the overall objective of obtaining the specified medium level certification. Another contract is with Moduspec International (L) Limited. The scope of the work is as follows: Contract for inspection of drilling rigs (floater) and inspection of offshore supply vessels/anchor handling TOE vessels. Scope of work include analysis of equipment condition and standards of maintenance, in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on scientific or technical consultancy services falling under Section 65(105) Za read with Section 65(92) provided under the contracts with Eugro Geos Pte Ltd, Fusion Petroleum Technologies Inc and G. Shanmugam. We find that the contracts involve weather forecasting service for each block, geo pressure studies. As per SCN contract is to generate 3D geopressure cube and subsequently leading to prediction on identified prospects integrating previously drilled well data, existing PSDM /PSTM velocities from RIL's processing efforts and other geoscientific studies and risk quantification of drilling in toe thrust / gas chimney areas by Contractor, reservoir characterization studies based on sedimentary depositional system of well KG-D6-AR2ST by Dr. Ganpathy Shanmugam, Adjunct Professor, Dept of Geology, University of Texas, USA. Scope of work includes detailed core study and description of 54m of D6-AR2-ST core at Kakinada. All these activities appear to be related to actual exploratory work in the EEZ. It has not been shown by Revenue that the activities relate to services performed or provided in taxable territory. 12(B)(v) Service tax has been demanded under the tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(C)(ii) Another service is Management consultant service under Section 65(105)(r) read with Section 65 (65). We find the scope of the contract with Bechtel is to assist the company in firming up commercial terms and conditions of RFQ (request for quotation) packages. The scope includes responsibility for managing, co-ordinating, interfacing all areas of field development from design, engineering, procurement, testing to installation and pre-commissioning. Thus overall project management services are rendered. The contract with Shell Global Solutions refers to, inter alia, Health Audit that focused on HSE Management Systems. The other contracts relate to provision of legal advise in relation to oil and gas exploration. The services provided under the contracts relate to different areas of Management and are provided at Mumbai. They are squarely covered in the ambit of management consultant service and taxable. 13. We note that RIL had declared in the ST returns that the services are performed or received at locations to which the provisions of the Finance Act do not apply. Therefore penalties are not warranted in terms of Section 80, being an interpretational issue. 14. O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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