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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 ..... Provided from Outside India and Received in India) Rules, 2006 [hereinafter referred as Rules 2006] and Rule 2(1(d)(iv) of the Service Tax Rules, 1994, for the services received from the service provider who have provided services from outside India, the service receiver in India shall pay service tax on such services as if the recipient had himself provided the service in India. Therefore Revenue is of the view that RIL as a service receiver has to discharge service tax liability. RIL was not paying service tax on the belief that the imported services are used outside the territorial waters of India viz., beyond 12 nautical miles (NM) to which provisions of the Finance Act, 1994 are not extended. Revenue viewed that provisions of Chapter V of the Finance Act, 1994 are extended to installations, structures and vessels in the continental shelf of India (CS) and the exclusive economic zone of India(EEZ) vide Notification No. 1/2002-Service Tax dated 01-03-2002, as amended by Notification No. 21/2009-Service Tax dated 07-07-2009, and hence service tax is payable. 2. During investigations by DRI, RIL informed the activities undertaken by them as under STAGE 1 : Prior to bidding for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end result of this stage is a prospect which is handed over to the exploration team. Stage 3.2 Exploration Drilling of recommended prospect & Notify the discovery to Govt. of India, if any, hydrocarbon is encountered during drilling Stage 3.3. Appraisal * Submission of appraisal plan to ascertain the potential commercial interest of the discovery for development * Carry out Appraisal activities which include, inter-alia, acquisition, processing and interpretation of additional 2 D, 3 D surveys in focused areas, drilling of wells (s), carry out other geological and geophysical studies, etc. Stage 3.4 : Development * Submit a development plan for the development & exploitation of the hydrocarbons from the demarcated development area * Drill and complete additional development wells * Establish the production facilities like pipeline, platform, manifolds, umbilicals, etc. (sub-surface, sub-sea and on land) to facilitate the hydrocarbon extraction. Stage 3.5 : Extraction / production. * Operate & maintain the production facilities like pipeline, platform, manifolds, umbilical, etc. (Sub-surface, sub-sea and on land) for hydrocarbon extraction 3. RIL pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumed/utilized or provided to structures or installations or vessels, and are liable to service tax. Regarding the information given along with ST-3 returns, it is stated in the SCN that in .In the fixed establishment of the recipient, RIL have given the names of the Blocks where the services have been received by them and in the Place of performance, they have shown the remarks as On block or Abroad or India but consumed at locations to which provision of Finance Act, 1994 are not extended ... It is further stated in the SCN that .. Moreover, RIL claim of their fixed establishment at blocks allotted to them is contrary to their own claim that there is no structure or installation in the CS and EEZ of India. The SCN goes on to state .. As clarified by CBEC vide circular dated 27-07-2005, a fixed establishment should have both the technical and human resources necessary for providing or receiving services permanently present. In the instant case, as contended by RIL, in absence of any structure or installations in the continental shelf and exclusive economic zone of India, their business establishment at Mumbai or other onshore facilities may be considered as fixed establishment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces V.ADJ(SCN)15-32/LTU-M/2011-12 dated 8.03.2012 ; V.ADJ(SCN) 15A-11/LTU-M/2011-12 dated 08-06-2012 & F.No. LTU/MUM/GLT-3A/RIL/SCN-DGCEI-Ahmd/05/2011-12 dated 27.05.2013 were also dropped. 7. The Ld Advocate Shri V K Jain appearing on behalf of RIL made the following submissions. 7.1. RIL, either individually or along with other members of the consortium such as Niko Resources, Hardy Exploration and Production Inc., etc. were granted 33 blocks, each of which has a specified area earmarked and is a separate independent business establishment in respect of which a separate production sharing contract is entered into with the Government of India whereby the consortium members for each block have to select an operator, who enters into contracts with various third parties/vendors for fulfilling the designated task as operator in terms of the Production Sharing Contract (PSC) with the Government. 7.2. Referring to the Hon'ble Bombay 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 Kamalaksh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 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; Legislature has treated the CS and EEZ of India as distinct from the installations, structures and vessels in the CS and EEZ of India for the purpose of prospecting or extraction or production of mineral oil and natural gas and supply thereof. Undisputedly service tax is a destination based consumption tax, as held by the Honble Supreme Court in the case of All India Federation of Tax Practitioners vs UOI reported in 2007 (7) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices are consumed is carried on in India or otherwise. 7.8. In the appeal filed by Revenue the ground of liability to tax under the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 has not been urged. Moreover if the provisions of the Act itself did not apply, the levy could not be extended by interpreting the Rules in a manner which will be inconsistent with the Act. It is settled law that the jurisdiction of an Act cannot be enlarged by the Rules. In the case in hand, since services have not been consumed in India but have been consumed on the blocks/sea bed in the offshore location in the CS & EEZ, where there was no installation, structure or vessel, of India, the levy to service tax itself is not attracted and consequently the question of resorting to the Rules for determining whether such services were received in India does not arise. The judgment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to therein would also cover a vessel which is permanently stationed like a FPSO/platform having fixed co-ordinates and not a vessel traversing across the CS and EEZ while rendering the services. 7.11. The review ground that soon after the construction activity starts, a structure comes into existence is also beyond the scope of the allegations leveled in the notice. The admitted position in the notice is that there were no installations or structures. Shri Raghavan in his statement specifically stated that only after a well which is drilled is covered with casing, the gap is cemented, manifolds and umbilicals are attached to the sub-surface and sub-seas surface level that a structure comes into existence. 7.12. The ground that Notification No.14/2010-ST was issued only to limit the applicability of Chapter V of the Finance Act, 1994; to services provided in relation to prospecting 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or more places, or until the expiration of a specified period. In the first case it is called a voyage charterparty, and in the second a time charterparty. Such a contract may operate as a demise of the ship herself, to which the services of the master and the crew may or may not be added, or it may confer on the charterer nothing more than the right to have his goods conveyed by a particular ship, and, as subsidiary to it, to have the use of the ship and the services of the master and crew. 43. Thus for the purposes of ascertaining the responsibility of a charterer in respect of the cargo shipped and landed, it would be necessary to know not only the stipulations between the shipper i.e. the owner of the cargo and the charterer, evidenced by the bill of lading and also those between the charterer and the owner of the ship. If the charter is by way of demise the 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 ship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonal to the charterer, and he cannot call upon the shipowner to undertake liabilities to third persons or transfer to third persons his own liabilities to the shipowner unless the contract so provides. A charterparty has to be construed so as to give effect, as far as possible, to the intention of the parties as expressed in the written contract. The stipulations of charterparty may be incorporated in a bill of lading so that they are thereby binding on the parties. It is an accepted principle that when stipulations of the charterparty are expressly incorporated, they become terms of the contract contained in the bill of lading, and they can be enforced by or against the shipper, consignee or endorsee. The effect of a bill of lading depends upon the circumstances of the particular case, of which the most important is the position of the shipper and of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... always placed on board vessels which kept traversing through the CS and EEZ, and therefore could not be regarded as being located in India since the term vessel in Notification No. 21/2009 referred to a fixed vessel and not a moving vessel ( Tribunals order in RIL v. CST) (supra). 7.17. The fourth contract that has been referred to by Ld AR was with M/s Aker Kvaerner Subsea Ltd. The said contract was for technical direction and onsite supervision during installation & pre commissioning of subsea facilities / equipment. Since the said service was consumed by the Respondents business located in an offshore location i.e. the sea bed beyond 12 NM where no installation, structure or vessel existed, the said service does not attract the levy. 7.18. The fifth contract that had been referred to was with GX Technologies EMEA Ltd. In terms of this 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rig. They are linked to the rig by either a neutrally buoyant tether or, often, when working in rough conditions or in deeper water, a load-carrying umbilical cable is used along with a tether management system (TMS) and this service is outside the scope of Greatship judgment; (iv) Support vessels ferry goods and personnel from onshore to offshore & vice versa for oil exploration activities at installations, structures and vessels located in the CS and EEZ and thus covered in the scope of Notification 21/2009 and outside the scope of the judgment of Greatship India; (v) Similarly, other contracts for various other services were also outside the scope of the judgment of Hon'ble High Court; (vi) Appeal against Greatship (India) judgment is admitted by Honble Supreme Court which while admitting the appeal 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which each of the services are taxable under the above said Rules and the category have been specified in the SCN and are thus liable for tax as they have been provided in India. (iii) Under the existing laws there are three words which are used in the service tax statute viz., service provided, service received and services performed. The destination of the services can only be determined by (i) location of the service provider (ii) location of the recipient (consumer) of the services and (iii) place whether the service has been performed. It cannot be said that the service has been consumed by an innate object. Just like the service of construction cannot be consumed by a building but the builder is a consumer similarly, the service of mining cannot be consumed by the land but it would be miner who would 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s entered by RIL with M/s. AGR Peak Consultancy Services Ltd., M/s. Richard Brent Kopulos, M/s. Stephan Lembart, etc. at para 8.9 of the SCN it is seen that this service is covered under Rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. RIL, being a service receiver having fixed establishment in India, is liable to pay service tax. (v) Few other contracts such as those with Enventure Global Technology, International Logging SA and Vetco Gray Pte Ltd. show that the service is covered under Rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. RIL, being a service receiver having fixed establishment in India, is liable to pay service tax on the services provided to installations, structures 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p;400 701, India. Thus (i) M/s RIL is incorporated in India; (ii) Their fixed establishment is in India and all the correspondence has been made from these addresses; and (iii) An address cannot exist at an undefined place without any fixed building etc. Accordingly, the above referred terms of agreements / contracts satisfy the provisions of sub-sections (1) (a) and 1(b) of the Section 66A of the Finance Act, 1994, thereby rendering such services, as discussed supra, chargeable to service tax as services received from outside India and to treat the said services as if the recipient in this case, RIL, had themselves provided the service in India, thereby attracting the provisions of Section 66A of the Finance Act, 1994. 9. We have considered the submissions made by both sides. 9.1 We find 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 Notifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of Finance Act 1994 are extended. It would be useful to reproduce these notifications: Position between 1/3/2002 to 6/7/2009 Notification No. 1/2002-ST dated 1/3/2002 Service Tax- Extension of provisions of Chapter V of the Finance Act (32 of 1994) to the designated areas in the continental shelf and exclusive economic zone of India In exercise of the powers conferred by clause (a) of 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 extends the provisions Chapter V of the Finance Act (32 of 1994) to the designated areas in the Continental Shelf and Exclusive Economic Zone of India 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 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties pertaining to construction of installations, structures and vessels for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof. 2. The installations, structures and vessels within the continental shelf and the exclusive economic zone of India, constructed for the purposes of prospecting or extraction or production of mineral oil and natural gas Any service provided or to be provided by or to such installations, structures and vessels and for supply of any goods 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, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such as floating or submersible drilling of production platforms, generally designed for the discovery or the exploitation of offshore deposits of oil and natural gas. The vessels in question are offshore supply vessels which are different from function in a fixed or stationary position". We may see the issue from another perspective too. We find that even in Not 14/2010, the phrase used is activities pertaining to construction of installations, structures and vesselsin the CS and EEZ. It would 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. The various services received for the erection of entire structure are the important part of the exploration activity carried, leading to complete formation, which will lead to extraction of oil.. We are not able to appreciate this view. The Chamber's 21st Century Dictionary defines structure as "1. the way in which the parts of a thing are arranged or organized. 2. a thing built or constructed from many smaller parts. 3. A building." The connotation of this word 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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply thereof. We may refer to the statutory provisions. An exhaustive definition of India was inserted in Section 65B of the Finance Act 1994 with effect from 1.07.2012 as under: (27) "India" means,-- (a) the territory of the Union as referred to in clauses (2) and (3) of article 1 of the Constitution; (b) its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course the submission of the learned counsel for the Revenue could be sustained. However, in our opinion, Rule 9(2) has to be read along with Section 14 and it cannot be read independently. As already stated above, Section 14 creates a legal fiction and we have to see the ordinary value of the imported goods in the course of international trade at the place and time of import. This means that specific cases of import should be ignored. 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 interpretati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een stated at length in the SCN and also discussed by the Ld AR. Therefore we proceed to the larger issue of territorial jurisdiction i.e. from the perspective of territorial jurisdiction of the Finance Act 1994. 11A. Both sides have argued vehemently in this regard. The ld. advocate submits that the provisions of chapter V of the Finance Act, 1994 were, for the first time, extended only with effect from 27.02.2010 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 provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Tax is a VAT which in turn is a destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. Service tax is a value-added tax. From this pronouncement we may gather that the tax is leviable on services provided within the country. A 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, Vad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a service provided and consumed beyond Indian territory, within which alone the legislation operates and authorises the levy and collection of tax. As pointed out in Ahmedbhai Umarbhai &Co, the very territorial limits to the operational efficacy of the Act, sanctions and obligates apportionment of the consideration received on tour operator service; and consideration attributable to 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is provided to the service recipient, that is RIL, who are in India, and not the seabed which is an animate object. We do appreciate that service has to be provided to a service receiver who is a person. But first the jurisdiction of Service Tax law has to be seen. Essentially, the jurisdiction of service tax law under Section 64 is such that only service provided in the taxable territory 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 Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice Tax net irrespective of the fact that as to whether the said installations, structures and vessels were situated in the areas covered under the 1986 and 1996 notifications or beyond such areas. However, for the first time in 2010, the tax net has been widened so as to include almost all the services related to prospecting or extraction or production of mineral oil and natural 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st various other services also brings into the Service Tax net the services rendered to or by the installations, structures and vessels. It can thus be seen that the present transaction, which is in the nature of providing services by the vessels of the appellant for the purpose of prospecting mineral oil and as such is a service consumed by the seabed 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 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axable service' means any service provided or to be provided: (zzzzj) "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 and appliances". In the case of Petronet 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 ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In view of the cited judgment and Board Circular, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point towards effective control of the vessel with RIL. Further the FPSO was given on a bare boat charter which is defined under Chapter XII-G Section 115(v)(a) of the Income tax Act to mean (a) bareboat charter means hiring of a ship for a stipulated period on terms which give the charterer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract for wellbore services, hiring of Remote Operated Vehicles(ROVs), contract for chartering AHTS vessel "Pacific Silver", contract for H2S equipment rental services, contract for Deepwater Drilling Rig. We have gone through the scope of the above contracts. As regards 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 serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and no service is provided in taxable territory. There are contracts of remote operated vehicles (ROVs). In the scope of work for various ROVs the following is mentioned NEPTUNE EXPLORER Contract should provide; Type II ROV(Hydra Magnum-100 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. Therefore we agree with the respondents contention that the service is totally performed outside India and therefore not received in India. Hence the same is not taxable. The contract with Veritas Geophysical Pvt. 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). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctures and installations in the ocean. Here again, we do not appreciate how the service tax becomes payable when the service is not provided in the taxable territory. Even for 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 ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivities. The KG-D6 is a Block where the exploration is done. Therefore the service is provided outside the taxable territory. 12(B)(iv) Service tax is demanded 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by these persons at RIL premises at Mumbai which activity is taxable under Section 65(105)(zzc) read with Section 65(27). 12(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 Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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