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TMI Blog2022 (2) TMI 1099X X X X Extracts X X X X X X X X Extracts X X X X ..... ration is built complete in all respect and ready to start exploration. But it does not include the services to be provided before creating the infrastructure/facility. Under the EPC contract the applicant has to undertake activities from Designing, Engineering, Procurement, construction of customised facility, commissioning of permanent facility, Test run and hand over of complete facility so designed, constructed, tested commissioned. Thus it cannot be treated as support services to oil gas extraction - Similarly other professional, technical business services are classified under heading 9983. The heading covers other Professional, Technical and business services relating to exploration, mining or drilling of Petroleum crude of natural gas or both. This heading covers pure services of other Professional, technical business related and not the services provided under a EPC contract which include Engineering, Procurement Construction. The applicant has to undertake the Designing, Engineering, Procurement, construction of customised facility, commissioning of permanent facility, Test run and hand over of complete facility so designed, constructed, tested commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the RGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act/ RGST Act would be mentioned as being under the GST Act . The issue raised by M/s L T Hydrocarbon Engineering Ltd. First Floor, D-236 237, SDC Monarch Building, Amrapali Marg, Vaishali Nagar, Jaipur-302021, Rajasthan - (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (a) given as under: - a. Classification of goods and /or services or both Further, the applicant being a registered person (GSTIN is 08AABCL5967DIZE as per the declaration given by him in Form ARA-01 ) the issue raised by the applicant is neither pending for proceedings nor proceedings were passed by any authority Based on the above observations, the applicant is admitted to pronounce advance ruling. A. Submission and interpretation of the applicant: 1.1 L T Hydrocarbon Engineering Ltd. ( the Applicant ) is a company registered Linder the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndling capacity to 1300 KBLPD at MPT based on the projected production scenarios expected increase in total liquid, the Applicant has entered into an Engineering, Procurement and Construction Contract ( EPC contract ) with Vedanta Limited in January, 2019 for construction of customized additional infrastructure facilities under Vedanta's Mangala upgradation Project Stage 2 - EPC - 2 or 'MUPS2-EPC2 Project at Mangala wells ( Subject services ). 1.6 The Mangala field has 18 well pads out of which 15 were under 'polymer flood' and 3 were under 'water flood'. The well pads are distributed in different clusters depending upon their physical location in the field and stage of development There are separate networks for evacuation of production fluid as well as for supply of injection water and power fluid. 1.7 The production fluid received from well pads are processed in three oil trains consisting of slug catchers, production heaters, production separators and settling tanks. The oil from the settling tanks is further sent to Dehydrators and export tanks (complying with the acceptable technical requirements]. 1.8 The Produced water separated from diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Out of 3 nos., Vedanta will supply 03 nos. However, installation, commission of these pumps including supply installation of all related piping, civil-structural, electrical, instrumentation etc are in the Applicant's scope. b. New Skimmed Oil Transfer Pumps: These will be supplied by Vedanta, however, installation, commissioning of these pumps including supply installation of all related piping, civil-structure, electrical instrumentation etc. are in Applicant's scope. Augmenting existing Injection Water System capacity 1.14 The customized Injection water (IW) system consists of IW tanks, booster pumps, heaters, filters, IW pumps Power fluid (PF) pumps. The overall injection water, requirement is -780 KBWTD Power Fluid requirement is -400 KBWPD. Thus, the combined requirement of IW PF is 1180 KBWPD. This increased IW PF requirement necessitates augmentation of existing Injection Water Power Fluid systems. 1.15 The Power Fluid stream is currently not filtered at MPT. Hence, new customized filter beds are envisaged for filtering the power fluid. The major facilities envisaged includes, new Injection Water Booster Pumps, water Heaters, water ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capacity in the plant needs to be augmented by installing new custom-made Instrument Air Package. The package is to consist of two new air compressors, two new air compressors liquid separators, two new air compressors after coolers, one new air dryer, one new air pre-filter and one new instrument Air receiver. 1.21 It is also envisaged that new IW PF filters, new ETP package, Tanks blanketing will also require nitrogen. Based on all new user requirements, apart from those listed above, the capacity of Nitrogen generation skid including its compressor, air dryer, etc. is to be finalized. Therefore, the scope of work for this system includes New customized instrument Air package, nitrogen generation package and new instrument air receiver. Augmentation of other facilities New Facility Features New Chemical injection skid at MPT Scope of work for this system includes: Augmentation of chemicals injection as per adequacy reports of FEED done by EC. The first fill of chemicals for equipment supplied by the Applicant is to be in Applicant's scope. This inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Extension/ modifications in electrical heat tracing of new piping. SCOPE Of WORK - EXECUTION UNPEB THE CONTRACT 1.22 The Applicant submits that its Scope of work under the MUPS2-EPC2 Project includes design detail engineering, including FEED verification post bid during detailed engineering, procurement supply, fabrication, manufacturing, assembly, inspection testing, packing loading, shipping, site establishment, delivery unloading at site, storage preservation, erection installation, facilities construction, insulation, painting, dismantling. Hook-ups complete with applicable tie-in with the existing proposed facilities, site acceptance testing (SAT), pre-commissioning commissioning, RFSU, performance guarantee test run (PGTR) as per Contract , training of Vedanta's commissioning operations personnel as per SOW, Project Management, Construction Management, Logistic Management, Site Management, Stakeholder Management, Regulatory Compliance, Site Restoration as applicable satisfactory handover to Vedanta of the facilities, all customized as per the contract and forming an internal part of MUPS2-EPC2 Project. 1.23 All the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xternal specialist services as required. (c) Providing and mobilizing all construction resources for execution of project. The construction team is primarily responsible for performing construction activities, review of all the construction/ fabrication drawings prior to start of site construction and updating same as per actual site conditions, etc. (d) Appraisal and taking cognizance of site-conditions, government rules regulations, bye-laws, applicable codes standards, requirements of authorities having jurisdiction over the work site(s), environmental pollution concerns including conditions/ stipulations laid downs by concerned authorities, etc as per Contract SOW (e) Obtaining all necessary approvals work permits from concerned authorities for performing the work like shifting/ relocation of existing facilities other utilities, etc. (f) Coordinating with vendors, suppliers, fabricators to perform all activities including expediting, inspection testing, transportation, loading/ unloading, storing, shifting liaison with the authorities, etc. (g) Identifying planning access to sites as may be required for construction of project faciliti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms, utilities and mandatory / commissioning spares, all customized as per the contract. Construction of customized facilities 1.30 The scope of work for construction includes the following: (a) Mobilization/ demobilization. Mobilizing all construction spreads equipment as required for construction, inspection testing proposed infrastructure. Appraisal taking cognizance of site conditions and Indian bye-laws and regulations. (b) Site Survey Preparation: Review verification of available site data geotechnical information relating to installation site, performing preconstruction surveys, delineating existing facilities suggesting re-routes, if required. (c) Arranging the materials at site: Coordinating with vendors to ensure timely delivery of materials at site and perform necessary inspection with regard to quality, quantity, damaged material, etc. (d) Construction of facilities : Construction of proposed facilities in the vicinity of existing operating pipelines, utilities as approved by Vedanta. Testing Pre-Commissioning 1.31 The Applicant has to ensure safe and acceptable testing and pre-commissioning of all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te under Heading 9954. However, vide Notification No. 20/2019 - Central Tax (Rate) dated 30.09.2019, Entry No. 24(ii) of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 ( Rate Notification ) has been amended to include within its ambit, support services to, inter alia, mining activities, and Entry No. 21 (ia) thereof has been newly inserted to cover within its ambit professional, technical and business services relating to petroleum operations, both taxable at 12% GST rate. Post the introduction of these more specific entries, the Applicant has decided to revaluate its current position, since the newly introduced entries seem to be more appropriate and accurate to cover the Subject services. (h) Upon analysis of the various Headings of Classification of services under the Rate Notification, the Applicant is of the considered view that the Subject services are appropriately classifiable under the Heading 9986 [Sr. No. 24(ii)] (viz.. Support services to exploration, mining or drilling of petroleum crude or natural gas or both ) or alternatively under the Heading 9983 [Sr. No. 21 (ia)] (viz.. Other professional, technical and business services relating to explorati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Advance Ruling. A SUPPLY OF SERVICES BY THE APPLICANT SHOULD BE CLASSIFIFD AS 'SUPPORT SERVICES TO EXPLORATION, MINING OR DRILLING OF PETROLEUM CRUDE OR NATURAL GAS OR BOTH UNDER Sr. No. 24(ii) OF HEADING 9986 OF THE RATE NOTIFICATION 1.41 Under the EPC contract, the Applicant is providing end-to-end customized services in relation to the upgradation of certain relevant facilities of the Mangala oil field which is operated by Vedanta for carrying out petroleum operations. In other words, the Applicant is continuously reviewing, monitoring, managing and controlling all aspects of the execution of the MUPS2-EPC2 Project on behalf of Vedanta. Since such services are in the nature of operational or administrative assistance provided by the Applicant to Vedanta, it aptly merits classification as 'support services to mining' as per Heading 9986 of the Rate Notification. 1.42 The Applicant submits that the Rate Notification prescribes the principles of classification which are to be adopted while interpreting the entries provided therein. Given that classification of services is based on the HSN system of classification of services, Rate Notifications under Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se separate agreements, all such operational, administrative, consulting and management services, related to the project are carried out by the Applicant. 1.46 The Applicant submits that as part of the contract, it is required to construct the following substantial facilities (details of which are exhaustively provided in Annexure I), all customized as per the contract, at the Mangala Oil field to enhance its overall liquid handling capacity:- (a) Augmentation of produced water treatment and injection water facility (b) Installation of new backwash system, LP Steam condensate system (c) Augmentation of Instrument Air Nitrogen capacity (d) Augmenting other aspects of liquid handling capacity (e) Installation of new chemical injection skid, flare system and drainage and potable water system (f) Modification of well pads 1.47 From the above, it is evident that the construction and installation of these customized facilities will help Vedanta in enhancing its overall liquid handling capacity and hence directly result in the increased production from its mining activities. It is also evident from the above that without upgrading its infrastructure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the sake of ready reference, the relevant extract of Heading 9986 [Sr. No. 24(ii)] is reproduced below. S.N. Heading Description of services Rate 24 Heading 9986 (Support services to agriculture, hunting, forestry, fishing, mining and utilities) (ii) Support services to exploration, mining or drilling of petroleum crude or natural gas or both. 12% 1.51 Further, the Scheme of Classification provides the following interpretation of the Heading 9986 relating to 'Support services to agriculture, hunting, forestry, fishing, mining and utilities. Sr.No. Chapter, Section Heading, or Group Service Code (Tariff) Service Description (1) (2) (3) (4) 454 Heading 9986 Support services to agriculture, hunting, forestry', fishing, mining and utilities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw Dictionary, Fourth Edition 'Furnishing funds or means for maintenance; to maintain; to provide for; to enable to continue; to carry on.' 'That which furnishes a livelihood; a source or means of living; subsistence, sustenance, or living' 'In a broad sense the term includes ah such means of living as would enable one to live in the degree of comfort suitable and becoming to his station of life' The Lexicon Law of British India - P. Ramanatha Aiyar 'Not only does the word 'support' includes bearing weight, it is also used by the student and understood in common phraseology as covering to keep from falling' and other kindered expressions.' 'support' generally means articles for ordinary sustenance as food etc., and doesn't includes medicines, unless the context shows such intention.' Merriam Websters Dictionary To assist, help; to provide a basis for the existence or subsistence of; to keep (something) going 1.56 A reading of above definitions reveals that the term 'support' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be provided inter alia in support to 'mining', it is pertinent to note that the term 'mining' has not been defined under the CGST Act and the Rate Notification. Hence, in order to the understand the scope and ambit of the said term, the following definitions of mining/mining operations/mines have been extracted for ease of reference: Source Meaning The Law Lexicon Dictionary, 3rd Edition Mining: the process or business of making or working of mines; the process of extracting from the Earth the rough ore, would seem to be the first step in the process; milling or reducing, the second step, to writ, the further separation of the materials found together, the one from ' other, and extracting from the mass the particular natural product desired. Mines and Minerals (Development and Regulation) Act, 1957 (d) 'mining operations' means any operations undertaken for the purpose of winning any mineral The Oilfields (Development and Regulation) Act, 1948 (b) 'mines' means any exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd gas facilities are fulfilled as per the prescribed schedules. 1.64 In light of the aforesaid scope of work and nature of services rendered by the Applicant in relation to the contract and the meaning of the terms 'support services , 'to and 'mining' as analysed above, it is evident that the Applicant has been outsourced the entire activity of administration and management of the upgradation project. The Applicant is required to ensure proper management of the project, along with the day-to-day administration and logistics, such as, procurement, performance, HSE, quality and schedule management, among others, on behalf of Vedanta. 1.65 Vedanta was required to conduct such activities on its own account as an operator under the Production sharing contract, however, it has outsourced the same to the Applicant. The Applicant supports Vedanta to efficiently complete the project so as to assist in increasing the mining activity and production of oil at the field. In view of this, it is submitted that the said activity carried out by the Applicant squarely falls within the ambit of support services. 1.66 Further, on a bare perusal of service description as provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... natory Notes are set out below for ready reference. Heading Explanatory Notes 998621 Support services to oil and gas extraction This service code includes derrick erection, repair and dismantling services; well casing, cementing, pumping, Pegging and abandoning of wells; test drilling and exploration services in connection with petroleum and gas extraction; specialized fire extinguishing services; operation of oi! or gas extraction unit on a fee or contract basis. This service code does not include geological, geophysical and related prospecting and consulting -Services, cf 998341 1.69 The aforesaid Explanatory Note provides an inclusive list of support services which are classifiable under the Heading 998621. The explicit list of activities includes:- a) derrick erection, repair and dismantling services/ b) well casing, cementing, pumping, plugging and abandoning of wells; c) fest drilling and exploration services in connection with petroleum and gas extraction: d) specialized fire extinguishing services: e) operation of oil or gas extraction unit on a fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Regional Director Employee's State Insurance Corporation Vs High Land Coffee Works of Pfx. Saldanha Sons (1991(7) TMI 367] had inter aha held that the word 'include' in the statutory definition is generally used to enlarge the meaning of the preceding words and it is by way of extension, and not with restriction. 1.74 Therefore, all such activities which are inextricably linked to mining operations ought to be covered within the scope of the Heading 9986. The mining and petroleum operations includes a range of inter-related and inter-dependent activities which are indelibly linked to each other and helps forming a coherent value chain. 1.75 The Applicant reiterates that under the EPC contract, it is providing support services for the upgradation of infrastructure and facilities at the Mangala Oil field which would directly result in increased liquid handling capability and hence increased oil production. Therefore, construction of such facilities forms an indispensable part of the support activities for mining and petroleum operations and the inclusive list provided in the Explanatory Note must be seen in that context. 1.76 In view of the & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, or Group Service Code (Tariff) Service Description (1) (2) (3) (4) 296 Heading 9983 Other professional, technical and business services 1.81 On a bare reading of the aforesaid heading and corresponding service description, it is seen that the said entry is broad in its entirety, as it includes business services. The term 'business' has been defined under Section 2(17) of the CGST Act, which is reproduced hereinbelow for ease of reference:- '(17) 'business' includes,- (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit. (b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a); (c) any activity or transaction in the nature of sub-clause (a). whether or not there is volume, frequency, continuity or regularity of such transaction; (d) supply or acquisition of goods including capital go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses another subject matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context. The term 'relating to' has been held to be equivalent to or synonymous with 'concerning with' and 'pertaining to'. Therefore, it is submitted that entry (ia) of Sr. No. 21 includes a broad range of services which pertain or concern with the activity of mining. 1.85 In the present case, the Applicant provides services by way of proper management of the project right from the detail design and planning of the project till its final test run, commission and hand over in fully functional form. It is also, inter alia, required to review, monitor, manage and control all aspects of the execution of the project along with the day-to-day administration and logistics, such as, procurement, performance, HSE, quality and schedule management, among others, on behalf of Vedanta. The said services are in relation to the mining activity of Vedanta, as stated above in detail. Hence, in the present case, it is submitted that the supply of services by the Applicant to Vedanta in relation to the mining act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both', and resultantly, attract GST @ 12%. The said Circular has not provided an exhaustive list of services which would merit qualification under Sr. No. 21(ia) of Rate Notification. It has merely clarified that certain technical and consulting services which are not specifically covered under the Heading 9986, would get covered within the Heading 9983. 1.89 Therefore, without prejudice to the submissions made above, it is submitted that the supply of services made by the Applicant to Vedanta, in relation to the mining, would merit classification under Heading 9983 and attract GST @ 12% in terms of Sr. No. 21 (ia) of Rate Notification. B. QUESTIONS ON WHICH THE ADVANCE RULING IS SOUGHT a Whether the services provided by the Applicant are classified under Sr. No. 24(H) of Heading 9986 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as 'Support services to exploration, mining or drilling of petroleum crude or natural gas or both' and attracts GST @ 12%. b Whether, the services provided by the Applicant are classified under 'Other profe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of analysis at higher level but as per detail provided the applicants seems to he associated with primary activity of mining of petroleum goods together with VEDANTA LTD. In this regard CBIC has clarified vide notification no. 114/33/2019 GST dated 1 1/10/2019 on scope of support services to exploration, mining, or drilling of petroleum crude or natural gas or both. The comments are forwarded for further action. E. FINDINGS, ANALYSIS CONCLUSION; 1. We have considered the submission in their application and also during personal hearing made by the applicant. We have also gone through the EPC documents submitted for awarding EPC contract to the applicant for construction of customised additional infrastructure facilities at Mangla upgradation project Stage-2-EPC-2 (MUPS-2-EPC-2) project at Mangla wells. The scope of work under the contract is that the applicant is required to undertake various activities comprising of design and detail engineering, Feed verification. Detail Engineering, Procurement supply, Fabrication, Manufacturing, Assembly, Inspection Testing, Packing loading, Shipping, Site establishment, Delivery and unloading at site, Storage an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operation oil or gas extraction unit on a fee or contract basis. This service code does not include geological, geophysical and related prospecting and consulting services . 5. From the explanatory note it reveals that Support Services shall include the services to be provided for exploration, once the infrastructure/facility for exploration is built complete in all respect and ready to start exploration. But it does not include the services to be provided before creating the infrastructure/facility. Under the EPC contract the applicant has to undertake activities from Designing, Engineering, Procurement, construction of customised facility, commissioning of permanent facility, Test run and hand over of complete facility so designed, constructed, tested commissioned. Thus it cannot be treated as support services to oil gas extraction. Similarly other professional, technical business services are classified under heading 9983. The heading covers other Professional, Technical and business services relating to exploration, mining or drilling of Petroleum crude of natural gas or both. This heading covers pure services of other Professional, technical business related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be shifted anywhere; it is essentially of the nature of immovable property. The project after completion at the time of transfer will be an immobile property. It is thus, we are of the considered view that the work specified in the EPC contract qualifies as work contract and will be taxed accordingly. 8. According to Section 8 of Central Goods and Services Tax Act, 2017, the tax liability on a composite or a mixed supply shall be determined in the following manner, namely: - (a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and (b) ............ 9. As per Section 2(30) composite supply is defined as:- composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply; 10. Further principal supply is defined under Section 2(90) as,- principal supply means the supply of goods or services which constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucture facilities all customised as per contract, it is a work contract'' of composite supply. The composite supply is a mixed of goods services and would be taxed accordingly under S. No. 3 Heading 9954 (ii) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 and GST @ 18 % (9% CGST and 9% SGST) is payable. Based on the above discussion finding we rule as under Ruling Question 1 Whether the Services provided by the applicant are classified under S. No. 24(ii) of Heading 9986 of the Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as 'Support Services to exploration, mining or drilling of petroleum crude or natural gas or both' and attract GST @ 12%. Answer - No. Question 2 Whether the Services provided by the applicant are classified under other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both' under S. No. 21 (ia) of Heading 9983 of the Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 (as amended) and attract GST @ 12%. Answer- No. Question 3 Further, if the subject services are not classifiable under th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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