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TMI Blog2020 (11) TMI 437X X X X Extracts X X X X X X X X Extracts X X X X ..... se activities which are taken prior to construction of buildings or factory or other civil structures or laying of cables or pipelines or exploring of minerals and mining and are in the nature of preparatory work for making the location suitable for construction or exploration or mining. These facts were specifically stated by the appellant in reply to the show cause notice, but the Commissioner has not considered the submissions in the impugned order. The work required to be performed under the agreement was definitely not the work relating to preparation of site. The preparatory work was carried out by ONGC itself and the appellant carried out the activity on the prepared site. The activity undertaken by the appellant cannot, therefore, be classified under the category of site formation service. This issue can be examined from another aspect. Mining service was introduced w.e.f June 1, 2007 without any change in the site formation taxable service. Thus, when the intention of the legislature was to levy service tax on the activities in relation to mining under mining services only under section 65 (105)(zzzy) of the Finance Act w.e.f June 1, 2007, the said activity cannot be cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/invoices to its clients for drilling operations/services of oil/gas well. The sum total of this activity when seen in totality results in rendering of services i.e. drilling service performed at designated place meant for exploration of oil minerals . 4. The period mentioned in the show cause notice was from April 1, 2006 upto May 31, 2007 and it also proposed to invoke the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act. 5. The appellant filed a reply to the show cause notice and contested the demand both on merits as well as on limitation. However, the Commissioner by order dated October 13, 2009 confirmed the demand proposed in the show cause notice with interest and penalties. The relevant portion of the order passed by the Commissioner is reproduced below : I find that the Noticee is engaged in the business of providing Drilling Rig services to Oil Gas Industry and provides specialized and efficient drilling Rigs equipped with latest technology and equipment along with the highly qualified and experienced crew to its customers. Drilling Oil Gas wells in an efficient, fast and safe manner is the companies core c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i, learned Counsel appearing for the appellant made the following submissions: (i) The activities undertaken by the appellant do not fall under site formation service and, therefore, the demand is not sustainable. Site formation service covers those activities which are taken prior to the construction of building or factory or other civil structures or laying of cables or pipelines or exploring of minerals and mining, etc. and are in the nature of preparatory work for making the location suitable for construction, exploration or mining. In the instant case, the preparatory work was undertaken by the ONGC itself and the appellant carried out its activity on the already prepared site and hence, this activity cannot be classified under the category of site formation service; (ii) Creation of a new specific entry of mining services, under which the appellant duly discharged service tax w.e.f June 1, 2007 and accepted by the department, without any change in the earlier entry of site formation service shows that the activities of the appellant are classifiable under the new entry of mining services only. To support this contention, reliance has been placed upon the following decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rces or water bodies; 11. This site formation service is taxable under section 65 (105)(zzza) of the Finance Act, which is reproduced below: Section 65(105)(zzza) taxable service means any service provided or to be provided to any person, by any other person, in relation to site formation and clearance, excavation and earthmoving and demolition and such other similar activities. 12. Mining services became taxable under section 65 (105)(zzzy) of the Finance Act w.e.f June 1,2007 and this section is reproduced below: Section 65(105)(zzzy) taxable service means any service provided or to be provided to any person, by any other person in relation to mining of mineral, oil or gas. 13. To appreciate the nature of the service that was provided by the appellant, it will be appropriate to refer to the agreement entered between under the appellant (referred to as the Contractor in the agreement) and Oil and Natural Gas Corporation Limited (referred to as the Operator in the agreement) . The relevant portion of the agreement is reproduced below: WHEREAS, Operator desires to have drilling operations conducted in the western sector of India particularly in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of 6 core holes upto an average depth range of 1200 to 1500 mtrs., each with at least 1 core role to penetrate the technical basement and 2 test wells to a depth range of 1500 to 1700 mtrs. in the specified blocks. A perusal of the roles and responsibilities of Operator and Contractor also indicates that ONGC had to prepare the site and provide it to the appellant for the drilling activities. It is thereafter that the appellant provides rig drilling services for extraction of oil or gas, on an already prepared surface and the said drilling rig service has to be provided by specialized and efficient drilling rigs equipped with latest technology and equipment along with highly qualified and experienced crew. 17. The appellant, in reply to the show cause notice, stated that the activities carried out by the appellant would not fall under site formation service. The activities carried out in relation to exploration and mining of oil and gas from the stage of allotment of blocks to production of oil and gas from the blocks was highlighted in the reply to the show cause notice. The sequence of events in mining of oil and gas were also summarized in the following manner: 1. All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3;s responsibility is to immediately inform the operator or such encounter of Hydrocarbon. Contractor‟s responsibility is to drill hole as per the drilling plan and the operator decides whether to test the well with the same rig or different rig. The Scope of work for the contractor completes once the well is drilled to required depth as per drilling plan. Well is secured and the Rig is released for next location. 18. Thereafter, the relevant Clauses of the agreement were referred to in the reply and the scope of work was also described as below: 4.2.5 Thus, from the aforesaid scope of work to be undertaken under the agreement, it may be seen that QOGIL is engaged in carrying out drilling of wells/core holes and the same is an integral part of mining of oil and gas. Further, the site preparatory work for making the site conducive for carrying out the drilling activities is the sole responsibility of the operator i.e. the Customer. The site preparatory work would be undertaken by the operator is specifically demarcated in the agreement entered by QOGIL. Thus, activity carried on by QOGIL was only in or in relation to mining activity, where as all other pre and post dri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oring, overburden removal and other development and preparation services of mineral properties and sites, and other similar excavating and earthmoving services. Demolition of structures, buildings, streets or highways is also undertaken for a consideration as a preparatory activity for subsequent construction activity or for clearing the site for any other purpose. All such activities fall within the scope of this service. 6.3 However, site formation and clearance, excavation and earthmoving and demolition services when provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies are specifically excluded and not within the scope of this service. . 6.4 Notification 17/2005-S.T., dated 7-6-2005 exempts this service provided in the course of construction of roads, airports, railways, transport terminals, bridges, tunnels, dams, major and minor ports. 21. A plain reading of the definition of site formation service and the aforesaid Circular clearly shows that site formation service covers those activities which are taken prior to construction of buildings or factory or other c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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