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TMI Blog2020 (7) TMI 352X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of mud engineering and drilling waste management services would be affected. It also defeats the very purpose of the Contract and in such a scenario; there appears no service to be provided by the Applicant. Thus, the scope of the work to be provided by the Applicant under the Contract is a combination of supply of service and supply of goods which are naturally bundled in the ordinary course of business - wherein the principal supply is supply of service (mud engineering or drilling waste management services) and supply of goods viz. mud chemicals and mud additives which form incidental or ancillary supply to the principal supply. t is observed that for Mud Engineering and Drilling Waste Management Services , the scope of work was detailed under Section-II of the Contract. The said scope of work consists of deployment of personnel (mud coordinator, Mud Engineer etc,)- Ref: Clauses 11.1 to 11.3 Technical support (clause-17), Laboratory Equipment (clause-15), Logistics (clause-16). It is observed that though the contract is for Mud engineering and Drilling waste management services , the scope of work or the consideration for such services is not based on quantum or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r provision under the CGST or AP GST Act would be mentioned as being under the GST Act. 3. Brief Facts of the case: Halliburton Offshore Services Inc. is a global service provider, engaged in providing various oilfield services to Exploration and Production companies across the globe. Presently, the Applicant has contracted to provide Mud Engineering and Drilling Waste Management services for drilling three HPHT Exploratory Wells in KG Basin, Andhra Pradesh. The applicant had filed an application in form GST ARA-01, Dt:19.12.2019, by paying required amount of fee for seeking Advance Ruling on the following issues, as mentioned below. 4. Questions raised before the Authority: The applicant filed the present application seeking a ruling from this Authority on the following issues: a) Whether the supply of mud engineering services along with supply of imported mud chemicals and additives provided on consumption basis by the Applicant under the Contract qualify as composite supply. b) If answer to Para (a) is yes, then whether the supplies made under the Contract merits classification under Entry 9986 (ii) - Service of exploration, mining or drilling of petr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2 of Schedule II of the Contract provides as under: 16.2.2 The Contractor shall supply complete line of mud chemicals, barites additives conforming to relevant API/BIS specifications required for preparation and maintenance of mud and completion fluid. The Contractor shall maintain adequate stock of all chemicals including contingency back-up chemicals and ensure timely supply as per operational requirement of the well for uninterrupted operations. However the payment will be made on actual consumption basis duly certified by the Company Representative and OIL Chemist. 6.3 In view of the above-mentioned scope of work for supply mud chemicals and additives, it is submitted that such chemicals, additives and materials supplied under the Contract for supply of mud engineering services are essential to perform service under the Contract. In this connection, as per the definition of composite supply provided under Section 2(30) of the CGST Act, composite supply means a supply is comprising of two or more taxable supply of goods or services or both, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. 6.8 As discussed above, since supply of mud chemicals and additives are naturally bundled and supplied in conjunction with the supply of mud engineering services, such supply of chemicals and mud engineering services would qualify as composite supply as per Section 2(30) of the CGST Act. 7. In this regard, the second aspect which is raised before the authority is whether such mud engineering services are covered by Entry 9986 covering services of exploration or drilling inserted vide Notification no. 1/2018-Central Tax (Rate) dated 25.01.2018 amending the original notification no. 01/2017-Central Tax (Rate), dated 28.06.2017 and substituted Entry 24(ii) with the following entry: Sl.No. Chapter, Section or Heading Description of Service Rate (per cent.) Conditions (1) (2) (3) (4) (5) 24 Heading 9986 (ii) Service of exploration, mining or drilling of petroleum crude or natural gas or both. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen whether such supply of mud chemicals and additives on consumption basis at OIL India s location in India provided under the Contract qualify for concessional GST rate of 5% against an Essentiality Certificate ( EC ) under Notification No. 50/2017-Customs dated 30 June 2017. 8.1 If the supply of mud engineering services along with the supply of mud chemicals and additives provided under the Contract by the Applicant does not qualify as composite supply, then it becomes relevant to determine the classification of mud chemicals and additives supplied by the Applicant. 8.2 As mentioned above, the Applicant is undertaking supply of mud chemicals (such as drilling mud, completion fluids and well bore cleanup chemicals/additives or any other chemicals) in the course of supplying such mud engineering services, waste management, fluid management services and operation and maintenance of Mud Plant. 8.3 The relevant clauses relating to supply of material of the Contract have been provided under: 16.1.2 The Contractor will be required to maintain adequate stock of mud chemicals in a project warehouse. All imported or long lead time on critical chemicals shall be stocked in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumed. 8.5 In light of the above aspects, the Applicant desires to examine whether supply of goods namely chemicals and additives, etc. is eligible for concessional GST rate of 5% vide Serial No. 404 of Notification No. 50/2017-Customs dated 30 June 2017, provided for petroleum operations under taken under petroleum exploration licenses or mining leases, granted by the Government of India or any State Government to the Oil and Natural Gas Corporation or OIL India Limited on nomination basis, subject to production of EC by the supplier. 8.6 In view of above factual and legal analysis, the Applicant submits the following: a) Supply of mud chemicals and additives provided by the Applicant under the Contract does not qualify as composite supply. b) If supplies provided under the Contract by the Applicant qualify as composite supply then such supply of mud Engineering and drilling services along with supply of mud chemicals and additives would be subject to GST 12%/18%, as the case may be, as services of exploration, mining or drilling of petroleum crude or natural gas or both under Entry 9986(ii) of Notification no. 11/2017-CT (Rate) dated 28 June 2017. c) If sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osite supply and to which any other supply forming part of that composite supply is ancillary 2(b) To have a realistic understanding of the words naturally bundled and conjunction , the definitions and meanings as provided in the erstwhile laws (as far as naturally bundled is concerned) or in the dictionary (as far as the word conjunction is concerned) have given cognizance in arriving at the answer. Reference is also sought to the Education guide on Composite supply and Mixed supply provided by the Central Board of Indirect Taxes Customs in the website www.cbic.gov.in . Accordingly, the aspects are examined and the findings are as under: 9.4 M/s Halliburton Offshore Services (hereinafter referred to as the Applicant ) was awarded a Contract No 62054290 by M/s Oil India Limited (hereinafter referred to as M/s OIL ) vide letter under Ref No. OIL/KGB/CONT-6205290/637 dated 19.08.2014 (hereinafter referred to as the Contract ). As per said contract, the applicant should provide Mud Engineering and Drilling Waste Management services for drilling three (3) HPHT Exploratory Well in KG Basin. 9.5 Clause-to of Section-II of the Contract speaks about Scope of work i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r or not. The word conjunction has the following meanings as per the dictionary meanings (on line version) as stated hereunder: The action or an instance of two or more events or things occurring at the same point in time or space - Oxford English Dictionary (on Line version) Occurrence together in time or space - Marriam Webster Dictionary (on line version) the coinciding of two or more events - Chambers Dictionary (on line version) the situation in which events or conditions combine or happen together - Cambridge Dictionary (on line version) As per the above said definitions, the phrase in conjunction with would mean... the fact of two or more things occurring/happened together or simultaneously . Accordingly, in plain reading and understanding, the phrase or sentence viz. supplied in conjunction with each other used in the definition of Composite Supply under Section -2(30) of the CGST Act, 2017 would imply occurrence or happening of the two things or events namely supply of services and supply of goods together or simultaneously.. . Therefore, in the light of scope of work read with terms conditions as provided in the Contract (including rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concessional (nil) customs duty, issuance of Recommendatory Letter (RL) by OIL, obtaining of necessary EC from DGH by the Applicant etc. Under Clause 15.0 of the Contract, the Applicant may sub-contract the petty support services subject to Company s approval. It is also observed that consideration in the form of mobilization charges would be paid by the Company for each of the event (individually or separately) at the rates and schedule as specified in Section-III of the Contract. Same is the case with regard to demobilization of personnel, technical equipment and additives/chemicals/consumables etc. All these facts lead to a conclusion that all these elements, technical personnel/equipment and goods are separately available and can be procured independently. 9.10 In terms of Clause 11.4 of the Scope of the Work under Section-II of the Contract, the Applicant will remove and replace any personnel in the Contract if deemed not suitable or experienced enough to carry out the work in a reasonable time without effecting company s operation at their own expenses provided that OIL requests so in writing . Under this clause, it appears that a choice is available to the service rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rilling waste management services. It is also observed that there are similar conditions prevailed independently to Technical Personnel and technical equipment (including laboratory equipment) separately. Thus, it is clear and evident that the different components namely, technical personnel, technical equipment and additives/chemicals/consumables are separately available for procurement and supply by the applicant. It is therefore, understandable that supply of mud additives and chemicals cannot be said to be supplied in conjunction with supply of services (technical assistance by way of supply of technical personnel) and supply of other goods namely technical equipment. 9.13 As the essential second criteria of supplied in conjunction with had not been complied, the supply of mud engineering services along with supply of imported mud chemicals and additives provided on consumption basis by the Applicant under the contract do not qualify and classifiable as composite supply . 9.14 And therefore, the supply of imported mud-chemicals and mud additives provided on consumption basis shall be classifiable as supply of goods under respective EISNs of goods as specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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