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TMI Blog2021 (10) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... are identical - it was held in the case that It is found that it is parties to the production sharing contract who constitute a joint venture and that the Explanation below section 65B (44), intended to cover supply of services to a constituent of unincorporated associations or body of persons by the latter is not relevant to the present dispute. Further, the fulfilment of obligation to contribute to the capital of the joint venture is beyond the scope of taxation under Finance Act, 1994 as it does not amount to consideration. Under the Contract in question, the Central Government was to bring in its rights over the resources, while ONGC was to handle contracts and documentation, RIL was to manage financial and commercial requirements and the Appellant was vested with the responsibility of undertaking the technical operations. The man power deployed by the Appellant was in furtherance of its own interest as also that of the joint venture and not by way of any service to unincorporated joint venture. Also, the cost incurred by the Appellant for this purpose was its capital contribution to the joint venture and it cannot be said that consideration was received by the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the Department ORDER B.G. Exploration Production India Ltd. [the Appellant] (formerly known as Enron Oil and Gas India Ltd.) has filed this appeal to assail the order dated 31.08.2020 passed by the Commissioner of Central Tax and Central Excise, Navi Mumbai [the Commissioner], by which the demand of ₹ 53.26 crores has been confirmed but the demand of ₹ 5.43 crores, which was also included in another show cause notice dated 09.12.2015 issued to the Appellant, has been dropped. The Commissioner has also confirmed the demand of interest with penalties under sections 77 and 78 of the Finance Act 1994 [the Finance Act ]. 2. A show cause notice dated 16.04.2015 was issued to the Appellant for a period from October 2013 to June 2017 and it is the adjudication on this show cause notice that has led to the filing of this appeal. For the period from July 2012 to December 2014, proceedings had also been initiated against the Appellant on similar issues by a show cause notice dated 09.12.2015 and though the demand of ₹ 5.43 crores raised in the show cause notice was confirmed by an order dated 29.05.2017 passed by the Adjudicating Authority, but this or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Appellant namely, salaries of employees working for the joint venture. The issue involved in this appeal, therefore, is regarding the cost of the employees and labour provided by the Appellant. The show cause notice dated 16.04.2015 alleges that the entire cost recovered by the Appellant should be subjected to service tax recoverable from the Appellant with interest and penalty. 4. It is stated that as the Joint Venture Operations by the Holders in the Tipti Fields and Panna Mukta Fields [PMT-JV ] does not have the status of a separate legal entity and cannot hire employees in its name, the Appellant, in view of the responsibilities allocated under the Agreement, appointed and hired as many numbers of employees as were required for carrying out the Joint Operations. The said employees reported to the Managing Director of the Appellant, who in turn became accountable to the Operator Board comprising the Holders. The salary expenses in terms of Article 3.2(c) of the Agreement were borne by the Holders and the Appellant paid the salaries of the employees and other costs. 5. On payment of the employee costs by the Appellant, the same was accounted as 'salary cost' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Calcutta Club Limited [ 2019 (29) G.S.T.L. 545 (S.C.) ], the decisions of the Tribunal in Mormugoa Port Trust vs. Commissioner of Central Excise [2017 (48) STR 69 (Tri-Mum) ] and Badve Helmets Pvt. Ltd. vs. Commr. of C. Ex. Aurangabad [20158 (10) G.S.T.L. 435 (Tri.-Mumbai) ], and observed that all the three aforesaid criteria were satisfied. The Commissioner also observed it was a case of suppression of facts with intent to evade payment of service tax, as a result of which the proviso to section 73(1) of the Finance Act that extends the normal period of limitation was attracted. The Commissioner also noticed that there was a repetition/duplication of demand from October 2013 to December 2014 and accordingly, an amount of ₹ 5.43 crores that was proposed in the show cause notice dated 09.12.2015 on the same issue was reduced. The Commissioner also imposed penalty and interest. 8. Shri Jitendra Motwani learned Counsel appearing for the Appellant made the following submissions: (i) The issue involved in this appeal stands settled by the order dated 11.06.2020 passed by the Tribunal in the Appellant s own case on the show cause notice dated 09.12.2015 issued on the same i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013 to March 2016 was barred by limitation, as there was no suppression of facts with an intention to evade payment of tax. 9. Shri S.K. Mathur, learned Special Counsel for the Revenue, on the other hand, placed a copy of the Appeal filed before the Bombay High Court against the order dated 11.06.2020 of the Tribunal. Learned Counsel also made reference to some of the grounds urged in the said Appeal before the High Court, as part of his submissions, which are: (i) Supply of manpower by the Appellant to the joint venture, which is an unincorporated association of persons, for a consideration is a service on which service tax is leviable; (ii) By virtue of Explanation (3) to section 65B(44) of the Finance Act, the Appellant and the Holders are to be treated as distinct persons and that in lieu of manpower supply to the Holders, the Appellant charged salary expenses from the Joint Venture, which is nothing but a consideration received from the joint venture against service provided by the Appellant to the joint venture; and (iii) The Tribunal had in its earlier order dated 11.06.2020 placed reliance on the decision of the Tribunal in Cricket Club of India vs. Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receiving consideration within the meaning of section 67 of the Finance Act which would be leviable to service tax under manpower service . 14. To examine this issue, it would be necessary to examine the terms of the Contract. 15. In terms of article 297 of the Constitution of India, lands, minerals and other things of value underlying the ocean within the territorial waters, or the continental shelf, or the exclusive economic zone of India, vest in the Union and are to be held for the purposes of the Union. The Government of India took a policy decision to enter into public-private partnerships with private parties, with a view to optimise production of such natural resources. Accordingly, the Government of India issued a Notice Inviting Offers for joint ventures to develop medium sized oil fields in India. Pursuant to the said Notice Inviting Offers, the Government of India entered into contracts with private parties for production of petroleum and the costs and profits were shared between the Government and the private parties as per the formula prescribed and agreed in the Contracts. The purpose of the said Contracts was to obtain capital investment and technical expert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the project requirements through Cash Calls . In case the exploration is successful, the mineral is extracted. The said mineral is first used by the Holders to recover the expenses incurred and then the excess share is the profit, which is shared amongst the parties to the Contract i.e. the Government of India and the Holders in the prescribed proportion as per the investment multiple in the terms agreed in the Contract. 20. In the event the exploration is unsuccessful, the costs incurred would have to be borne by the Holders and would not in any manner be reimbursed by the Government. Further, the ability of the Government of India and the Holders to share surplus profits is dependent upon there being a distributable surplus after deduction of the costs incurred by the Holders. 21. The question as to whether the Appellant was rendering any services to the PMT-JV, of which it was a constituent member, has been dealt with earlier by Tribunal in the decision rendered on 11.06.2020 in the case of the Appellant. This order arose out of the show cause notice dated 09.12.2015 and the order impugned in this appeal arises out of the show cause notice dated 16.04.2015. The charges l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus espoused, and emphatically reiterated by the Tribunal in Mormugoa Port Trust as 16 the two had come together with the common objective of earning revenue by jointly rendering port services at Jetty Nos. 5A and 6A We are therefore of the view that the agreement between the Assessee and SWPL is joint-venture between the two, where the two co-venture are jointly controlling a common activity and sharing the revenue therefrom. 17. .whatever the partner does for the furtherance of the business of the partnership, he does so only for advancing his own interest as he has a stake in the success of the venture ..All the resources and contribution of a partner enter a common pool of resources required for running the joint enterprise and the such an enterprise is successful the partners become entitled to profits as a reward for the risks taken by them for investing their resources the venture.... found approval of the Hon ble Supreme Court with dismissal of appeal of Revenue. 15. It is incumbent upon participants in collaborative undertaking to contribute capital for attainment of the common purpose. It is the nature of the undertaking, in terms of permanence and of pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment and private enterprises are in a joint venture for the purpose of achieving a common objective and sharing the profits arising from such operations. Under the Contract in question, the Central Government was to bring in its rights over the resources, while ONGC was to handle contracts and documentation, RIL was to manage financial and commercial requirements and the Appellant was vested with the responsibility of undertaking the technical operations. The man power deployed by the Appellant was in furtherance of its own interest as also that of the joint venture and not by way of any service to unincorporated joint venture. Also, the cost incurred by the Appellant for this purpose was its capital contribution to the joint venture and it cannot be said that consideration was received by the Appellant for arranging man power. 23. It is natural that in such public private partnerships, the public enterprise generally brings in the resource over which it has exclusive rights, such as the waterfront or the right to exploit the minerals, while the private party brings in the required capital, either in monetary terms or in kind or by way of equity. The equity brought in by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the joint business activity. . 15. An analysis of this judgment shows that in order to constitute a joint venture, the arrangement amongst the parties should be a contractual one, the objective should be to undertake a common enterprise for profit. Joint control over strategic financial and operative decisions was held to be the key feature of a joint venture. The other obvious feature of a joint venture would be that the parties participate in such a venture not as independent contractors but as entrepreneurs desirous to earn profits, the extent whereof may be contingent upon the success of the venture, rather than any fixed fees or consideration for any specific services. 17 The question that arises for consideration is whether the activity undertaken by a co- venture (partner) for the furtherance of the joint venture (partnership) can be said to be a service rendered by such co-venturer (partner) to the Joint Venture (Partnership). In our view, the answer to this question has to be in the negative inasmuch as whatever the partner does for the furtherance of the business of the partnership, he does so only for advancing his own interest as he has a stake in the suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actee or principal-agent relationship between the co-venturer and the joint-venture, which is a pre-requisite for a service to be liable to tax under the Finance Act. 27. As is evident from the submissions made by the Department, the decision of the Tribunal rendered on 11.06.2020 in the Appellants case has been assailed on the grounds that: (a) The same had relied upon another decision of the Tribunal in the case of Cricket Club of India, which has since been affirmed by the Supreme Court in Calcutta Club. However, while doing so the Supreme Court has held that the principle of mutuality would not apply to a unincorporated club or association. The PMT-JV being an unincorporated association of persons, the principle of mutuality was inapplicable for services between the JV and the co-venturer; and (b) The same had relied upon the decision in the case of Mormugao Port Trust, which had been distinguished by the Tribunal in the case of Badve Helmets Pvt. Ltd. vs. CCE [ 2018 (10) GSTL 435 ]. 28. This contention of the Department is entirely misplaced inasmuch as the order dated 11.6.2020 of the Tribunal is not premised on the principle of mutuality. Further, the Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an activity that conforms to the relevant description in the charging section on the request, and for the benefit, of a recipient conforming to the relevant description in the charging section. Service, its taxability and the provision of the taxable service to a recipient, in that order, are necessary pre-requisites to ascertaining the quantum of consideration on which ad valorem tax will be levied. This fundamental will not after in the scheme of the negative list too; a service that is clearly identifiable has to be provided or agreed to be provided before it can be taxed. The factual matrix of the existence of a monetary flow combined with convergence of two entities for such flow cannot be moulded by tax authorities into a taxable event without identifying the specific activity that links the provider to the recipient. 30. The arrangement in question can also be viewed from another perspective i.e. the Appellant had entered into employment contracts on behalf of the unincorporated joint venture as the latter was incapable of entering into contracts in its own name. All activities of the unincorporated joint venture are conducted in the name of its constituent members. 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