9911796707
TMI Blog2024 (3) TMI 1262X X X X Extracts X X X X X X X X Extracts X X X X ..... GST Act') by the Appellant on the portal on 19.10.2021 against AAR, Rajasthan Ruling Order No. RAJ/AAR/2021-22/18 dated 13.09.2021. As per the Appellant, the Order of the AAR was communicated to them on 21.09.2021. BRIEF FACTS OF THE CASE I. M/s L&T Hydrocarbon Engineering Limited, Flat No. 236 and 237, SDC Monark Building, Amrapali Marg, Vaishali Nagar, Jaipur - 302021 (herein after referred as Appellant) is a company registered under the Indian Companies Act, 1956. It is a subsidiary of L&T Limited, an Indian technology, engineering, construction, manufacturing and financial services conglomerate. The Appellant are engaged in the business of engineering, procurement fabrication, construction and project management providing integrated solutions to the Hydrocarbon Industry. The Appellant carries out construction of refinery, petrochemical, chemical project, gas gathering stations, crude oil & gas terminals, etc. on turnkey basis. The Appellant are registered under the Rajasthan Goods and Service Tax Act, 2017 ('RGST Act') having registration number 08AABCL5967DIZE. 2. The Appellant have informed that Cairn (Vedanta's upstream Oil & Gas vertical) is the operator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsonnel, Project Management, Construction, Logistical, Site & Stakeholder Management, Regulatory Compliance, Site Restoration handover to Vedanta. 5.1 The Appellant are required to deploy resources (including manpower, tools & tackles, equipment, etc.) for execution of the scope of work. The Appellant are also responsible for arranging any external assistance/ support, if required, at its own cost & risk. 5.2 The Appellant's obligation is to cover at their expense the works mentioned in the above two Para. In addition to the supply of mandatory spare parts included in the contract, the Appellant would also supply spare parts required for the operation and maintenance of the facilities for the period specified as per specifications. 6. RESPONSIBILITIES OF APPELLANT UNDER THE SCOPE OF WORK 6.1 General Responsibilities Under the EPC contract, the Appellant have the following general responsibilities in relation to the design, construction and installation of customized infrastructure facilities: a) Providing & mobilizing all project management resources for performance of works. b) Providing and mobilizing all engineering & procurement resources for execution of project. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017 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 Appellant decided to re-evaluate their current position to cover the subject services. 8. The Appellant submitted that they are 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 SAC Heading 9983 [Sr. No. 21 (ia)] (viz., "Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both") and are liable to attract 12% GST under the CGST Act. By filing the application under Section 97(1) of the RGST Act) CGST Act before the AAR, Rajasthan, the Appellant had sought to confirm this classification. 9. The AAR, Rajasthan have answered the questions of the Appellant, vide the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a perusal of the aforesaid basis given by the Authority for Advance Ruling would reveal that the AAR, Rajasthan has made an incorrect presumption of the support services envisaged under SAC Heading No. 9986 in the following manner: (a) That support services do not include the services provided for creating the infrastructure/ facility for exploration; and (b) it includes services which are provided once the infrastructure/facility for exploration is built & complete in all respect and ready to start exploration. 11.3 That the Appellant submitted that the above presumptions by the AAR, Rajasthan are outrightly incorrect, bad in law and without any basis. The findings recorded by the AAR Rajasthan with respect to the classification of the subject services are wholly misconceived and shows lack of understanding of the activities required to be performed by the Appellant under the EPC Contract. It is a trite law that decisions based on presumption and surmises have no place In the eyes of law. In this regard, reliance has been placed upon by the appellant on the following decisions wherein it has been held that an order based on presumption, surmises and conjectures is liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis. This service code does not include geological, geophysical and related prospecting and consulting services, cf 998341" 11.8 As per the appellant, a reference to the aforesaid Explanatory Note would show that it provides certain support services which are classifiable under the SAC Heading No. 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) test 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 or contract basis 11.9 The Appellant submitted few of the services included in the aforesaid scope: (a) Derrick erection, repair and dismantling: A derrick is a lifting device composed at minimum of one guyed mast, as in a gin pole, which may be articulated over a load by adjusting its guys. A pictorial representation of derrick is set out below: Derricks are used for moving materials vertically and horizontally, comprised of a hoisting mechanism and pulleys or sheaves to create a mechanical advantage to lift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Apex Court held as follows: "The ordinary rule of construction is the provision of a statute must be construed in accordance with the language used therein unless there are compelling reasons, such as, where a literal construction would reduce the provision to absurdity or prevent manifest intention of the legislature from being carried out" 11.13 They submitted that this view was also supported by the Hon'ble in ITC Ltd. v. Commissioner of Central Excise, New Delhi, 2004 (171) E.L.T. 433 (S.C.). 11.14 The Appellant submitted that derrick erections help move heavy materials across the oil field, whereas well casing and cementing is done to ensure smooth surface around the well wall to ensure optimum extraction and transport of oil. These facilities are primarily implemented before initiating the mining operations at the oil field to prepare the well pads and related infrastructure for extraction. 11.15 The Appellant submitted that a mere reading of the title of SAC Heading No. 998621 in the scheme of classification, which states, "Support services to oil and gas extraction", would reveal that the scope of the SAC Heading No. 998621 is not limited to exploration, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re to manage the increased liquid handling capacity. 11.20 The Appellant submitted that since in terms of the phases of oil extraction, the exploration has already been completed and the well pads have now been built to extract and mine the oil and natural gas, it is clear that all the performance of its responsibilities by the Appellant under the contract would be having relation to the production and extraction of oil/natural gas and not exploration. 11.21 The Appellant submitted that even if AAR, Rajasthan's contention, that Heading 9986 covers only post exploration related activities on the field, is to be accepted, even on that count, the activities of the Appellant under the contract squarely falls within the purview of SAC Heading No. 9986. 11.22 The Appellant submitted that in view of the above, the impugned Ruling pronounced by the AAR, Rajasthan is liable to be set aside. Submission Il: The services rendered by the Appellant under the contract are inextricably linked to petroleum operations. 11.23 The Appellant submitted that the impugned Ruling has been pronounced without appreciating the facts of the case and the responsibilities of the Appellant under the EPC Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and over of complete facility so designed. They further stated that since these activities involved designing, engineering and construction, those are in the form related to the creation of infrastructure facility, and hence cannot be treated as support services to petroleum extraction. 11.30 The Appellant submitted that the services rendered by them are linked to, and in connection with, the petroleum operations. This fact has never been disputed by the AAR, Rajasthan. They added that the only contention raised by the AAR Rajasthan to deny the benefit of SAC Heading No. 9986 to the Appellant is that SAC Heading No. 9986 does not cover creation of infrastructure/ facility, which the Appellant vehemently opposed and found without any credible basis in the law. 11.31 The Appellant submitted that the facilities are being developed by them to support the petroleum operations carried out by Vedanta as the enhanced liquid handling capacity will enable Vedanta to manage and cater to the increased extraction and production of oil. The support services by the Appellant are necessary and aid in the extraction of petroleum operations and therefore should be classified under SAC Heading No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration 11.36 The Appellant submitted that in the light of the above, it can be seen that the subject services are customized in nature and considering the above, it is reiterated that the services supplied by them merit classification under SAC Heading 9986 which is a specific entry for services which support the petroleum operations. 11.37 The Appellant submitted that it is the cardinal rule to be applied for classification of any goods or services that in case of two competing headings, the heading which provides the most specific description shall be preferred to headings providing a more general description. 11.38 As per the Appellant, the AAR, Rajasthan proceeded to classify the subject services under the SAC Heading No. 9954 without considering their submissions. The Appellant submitted that SAC Heading No. 9954 is a general entry which is applicable for Works Contract Services. Even if it is to be assumed that the services supplied under the EPC contract is a composite supply in the nature of a works contract, the service will still merit classification under heading 9986 which is a specific entry for services that support the activity of mining of natural gas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant stated that the subject services should merit classification under Sr. No. 24 (ii) as support services to exploration, mining or drilling of petroleum crude or natural gas or both' 11.44 The Appellant submitted that in view of the above, the activities performed by the Appellant under the EPC Contract are more directly related to the petroleum operations carried out by Vedanta at the Rajasthan Block and therefore, in terms of the legal principles enunciated above, the impugned Ruling is liable to be rejected. Submission IV: The Impugned Ruling has been issued based upon a non- existent provision of the law 11.45 The Appellant submitted that the impugned Ruling pronounced by the AAR, Rajasthan is entirely based upon a provision which was not even in existence at the time when the transaction, in respect of which the Ruling has been sought, was undertaken. 11.46 The Appellant submitted that the impugned Ruling, at Para 13, states that, ".... services provided under the EPC contract awarded to the Appellant by M/s Vedanta for setting up of a project broadly ranging from designing, engineering, ...... pre-commissioning & commissioning training, etc. and satisfactor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity or a decision or Ruling has been pronounced, must be in force at the time of the applicable case. In this regard, reliance has been placed on the following judgments: (a) Carrier Point v. Commissioner of Central Excise, Jaipur, 2018 (10) G.S.T.L. 213 (Raj.) (b) Pillar Inductions (I) Ltd. v. Commissioner of Central Excise Chennai, 2004 (166) E.L.T 43 (Tri.-Chennai) (c) Commissioner of Customs, Chennai v. Madras Aluminium Co. Ltd., 2016 (339) E.L.T 295 (Tri.-Chennai) 11.53 As per the Appellant, the impugned Ruling is liable to be set aside as the AAR, Rajasthan vide the impugned Ruling have proceeded to classify goods under an entry which does not even exist. Submission V: The scope of the activities covered under Heading 9986 is inclusive in nature and not exhaustive 1 1.54 The Appellant submitted that the AAR, Rajasthan while pronouncing the impugned Ruling has completely disregarded the provisions of the law, and more specifically, failed to properly analyze the Scheme annexed to the Rate Notification. 11.55 The Appellant further submitted that the AAR, Rajasthan has erred in concluding that services supplied by the Appellant are not covered under the explanator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of Stove Kraft Pvt. Ltd. Vs State of Karnataka [2006(2) TMI 603] wherein on the aspect of classification of goods, Karnataka High Court, inter alia, held that the word 'includes' is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute. According to them, when it is so used, these words and phrases must be construed as comprehending not only such things as they signify according to their nature and import, but also things which the interpretation clause declares that they shall include. As per the Appellant, words used in an inclusive definition denote extension and cannot be treated as restricted in any sense. 11.61 The Appellant submitted that the Hon'ble Apex Court in the case of Bharat Coop. Bank (Mumbai) Ltd Vs Coop Bank Employees Union [2007(4) SCC 685] observed that the term 'includes' used in a legislature is enumerative but not exhaustive, to extend the scope so as to bring within it matters, which in its ordinary meaning may or may not comprise. Similarly, the Apex Court in the case of Regional Director Employees's State Insurance Corporation Vs High Land Coffee Work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 The Appellant also submitted that it is noteworthy that the explanatory notes referred by the AAR, Rajasthan are an inclusive definition and hence the scope is not exhaustive (but merely indicative) or limited to only the above specified services. An inclusive definition is expansive in nature and would cover all transactions possessing similar features. 11.69 The Appellant are of the view that the above submission finds support from the interpretative rules for the explanatory notes under the UNCPC which explains the non-exhaustive nature of the list of services mentioned therein. The relevant extract of interpretative rules under the UNCPC reads: "62. It should be noted that the explanatory notes are not intended to present an exhaustive list of all the products under each heading; they should be regarded only as lists of examples to illustrate the subclass content. 11.70 In light of the above, the Appellant submitted that the AAR, Rajasthan has ignored the interpretative rules mentioned in the UNCPC and arrived at erroneous conclusions based on its own assumptions and presumptions 11.71 The Appellant submitted that in view of the 'inclusive nature of the Explanatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building, construction, fabrication, completion, erection. installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of Such contract;" The Appellant submitted that a look at the aforesaid definition would reveal that works contract includes within its ambit, inter alia, services relating to construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property 11.77 The Appellant submitted that by concluding that the services performed by them are outside the purview of Heading 9986 merely because it is a 'works contract' service, the impugned Ruling seems to have misread the law and tried to read something which does not exist. It is an established principle of law that one cannot go beyond the words used in a statue. In this regard, the following cases may be noted: (a) Commercial Taxes Officer v. Bombay Machinery Store, 2020 (36) G.S T.L. 161 (S.C.) (b) Uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83 Therefore, according to the Appellant, on this ground alone, the impugned Ruling is liable to be set aside. Submission VII: Alternatively, the subject services should be classified as 'other professional, technical and business services under heading 9983 11.84 The Appellant submitted that the impugned Ruling, at Para 5 states that, " ... 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 the EPC contract which include engineering, procurement & construction. As discussed in Para 5 above, the Appellant have to undertake designing, engineering, procurement, construction of customized facility commissioning of permanent facility, test run & hand over of complete facility so designed, constructed, tested & commissioned, Thus, it cannot be classified as other professional, technical & business services relating to exploration, mining or drilling of petroleum crud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accepted by him in the course or furtherance of his trade, profession or vocation; (h) activities of a race club including by way of total is at or a license to book maker or activities or-a licensed book maker in such club; and (i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities; 11.89 The Appellant submitted that the aforesaid definition of 'business' is an inclusive definition. That it is a settled law that the term 'include' is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute. The said word is succeeded by the phrase any trade, commerce, manufacture, profession, ...... whether or not it is for a pecuniary benefit'. The definition of the word 'business' under the CGST Act makes it amply evident that it covers within its ambit, a wide range of activities. The Appellant add that the said definition would also include operational administrative, consulting and management services. 11.90 The Appellant further submitted that Entry at Sr. No. 21 (ia) was inser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they add that it has clarified that certain services such as technical and consulting services in relation to exploration would merit classification under Heading 9983 of the Rate Notification. The relevant extract of the Circular is reproduced herein below 2. The matter has been examined. Most of the activities associated with exploration, mining or drilling of petroleum crude or natural gas under heading 9986. A few services particularly technical and consulting services relating to exploration also fall under heading 9983. Therefore, following entry has been inserted under heading 9983 with effect from 1st October 2019 vide Notification No. Central Tax (Rate) dated 30.09.2019 '(ia) Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both ' 11.94 The Appellant submitted that the aforesaid Circular clearly states that technical and consulting services relating to exploration also fall under Heading 9983 and would also get classified under Sr. No. 21 (ia) of Rate Notification as other professional, technical and business services relating to inter alia mining. The Appellant find it perti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) against serial number 3, - a. item (ii) and the entries relating thereto in columns (3), (4) and (5) shall be omitted, 12.2 It is settled principle of law that the basis of a Ruling or a decision must be in accordance with the provisions of law as it stood at the relevant time. See Carrier Point v. CCE [2018(10) G.S.T.L. 213 (Raj.)], Pillar Inductions (I) Ltd. v. CCE [2004(166) E.L.T. 43 (Tri.-Chennai)], CC v. Madras Aluminium Co. Ltd. [2016(339) E. L. T. 295 (Tri-Chennai). Given that Entry (ii) under SAC Heading No. 9954 did not exist in statute book during the relevant period for which the Ruling is sought, the Ruling is bad in law and hence is liable to be set aside on this ground alone. 12.3 The Appellant submitted that the only contention raised in the impugned Order is that SAC Heading 9986 does not cover creation of infrastructure/facilities which are in nature of works contract. They added that the Appellant are providing services such as up-gradation of various liquid handling facilities at Mangala oil fields 12.4 The Appellant submitted that Order has glossed over the fact that such EPC services are ultimately used to increase/aid in the extraction and producti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and gas in the oil field had in fact started in the year 2010. Being one of the largest onshore oil discoveries in India, the information is readily available in the public domain. 12.8 The Appellant submitted that in terms of the Explanatory Notes, several support services including welt casing, test drilling and exploration services, cementing etc. which are undertaken before commencement of production, also fall under the scope of the Heading 998621. Therefore, the findings in the Order that SAC Heading No. 998621 would only cover services which are provided after creation of infrastructure and facility of exploration is without any basis in law and ought to be rejected outright. Thus, the Order which is based on presumption, surmises and conjectures is liable to be quashed, 12.9 The Appellant submitted that without prejudice to any of the other submissions that if at all the services performed by the Appellant appear to fall under SAC Heading No. 9954 as against Heading 9986, still, in terms of the cardinal rule of interpretation for purposes of classification of goods and services, the classification entry giving a more specific description to the activities performed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbai)]. 12.12 The Appellant submitted that by concluding that the services performed by the Appellant are outside the purview of Heading 9986 merely because it is a 'works contract' service, the impugned Order seems to have misread the law and fried to read something which does not exist. 12.13 The Appellant submitted that a plain reading of the Explanatory Notes to SAC Heading No. 998621 shows that it includes services such as well casing, cementing, pumping and abandoning of wells, derrick erection, etc. which requires labor services as well as supply of goods for providing the same. They added that these services involve civil work as well as supply of goods as part of performance of such activities and can very well take the shape of works contract. In view of the Appellant, to bring such works contract services out of the purview of Heading 9986 is clearly a result of misreading of the law and lack of understanding of the oil and gas industry. 12.14 The Appellant submitted that alternatively, the services supplied by them would also merit classification as "Other professional, technical and business services relating to exploration, mining or drilling of petroleum c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date on which the Ruling sought to be appealed against is communicated to the Appellant) prescribed under Section 100 (2) of CGST Act, 2017 or not. We find that as the Appellant, the date of communication of the Order of AAR, Rajasthan to the Appellant was 21.09.2021 and the appeal was filed on the portal on 19.10.2021. Thus, we find that the Appellant have filed the appeal within statutory period of 30 days of date of communication of the Order of the AAR. Therefore, we may proceed to decide the appeal. 18. We find that the Appellant have sought Advance Ruling in respect of the activities undertaken by them for M/s Vedanta Limited which as per their version involved provision of service including supply of material amounting to transfer of property in goods. The Appellant had sought Advance Ruling to clarify as to whether the activities undertaken by them are were classifiable either under SAC Heading No. 9986 eligible for rate of tax prescribed vide entry serial number 24(ii) or alternatively under SAC Heading No. 9983 eligible for rate of tax prescribed vide entry serial number 21(ia) of Notification No. 11/2017-CT(R), dated 28.06.2017, The AAR for Rajasthan has pronounced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Classification under Heading 9954 G.3. AAR's ruling- classification vis-a-vis rate of tax H. Examination of submissions and analysis of evidence H.1. Nature of activities as per EPC contract H.2. Ingredients of services classifiable under Heading 998621 H.3. Ingredients of services classifiable under Heading 9983 H.4. Construction services under Heading 9954 I. Some specific arguments J. Reliance on Ruling of Maharashtra, AAR Order No. MAH/AAAR/DS-RM/14/2022-23 dated 03.01.2023 K. Conclusion and findings A. Activity in brief as narrated by the Appellant: As can be seen from the submissions made by the Appellant in the appeal papers, the Appellant are stated to be engaged in providing services to M/s Vedanta Limited, which is stated to be a globally diversified natural resources company engaged in exploration and mining of various natural resources. As stated by the Appellant:- (i) Cairn, Vedanta's upstream Oil & Gas Division, is the operator of Onshore RJ- ON-90/1 block, on behalf of themselves and their joint partners, Cairn Energy Hydrocarbons Limited and oil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both under Heading 9983. C. Appellant's analysis of the activity for classification: The Appellant have analysed the activities proposed to be carried out by them in pursuance of the EPC Contract and found that based on the ingredients of the activities as discussed in detail in the contract, the same merit classification under SAC Heading No. 998621 or in the alternate under Heading 9983. C.1. Classification under support service of business- Heading 9986 The Appellant have submitted that under the terms of the EPC Contract, the scope of work assigned to the Appellant involves augmentation of various facilities and infrastructure at Mangala Processing terminal. Such scope includes augmentation of liquid handling capacity, produced water treatment facility, Injection Water System capacity, New LP Steam & condensate system and Instrument Air & Nitrogen Capacity along with piping, civil structure, electrical, instrumentation etc. It has further been submitted that the aforesaid activities are essentially part of the development of the MPT wherein the surfac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of supply, designing & engineering, installation, Commission of project under EPC contract by the Appellant shall attract GST @18% under S. No. 3 Heading 9954 (ii) of the Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017, E. Analysis or classification and rate of tax pronounced by AAR: We note that the Ruling as pronounced by the AAR classified the supplies involved in survey, designing, installation and commissioning of project under EPC contract by the Appellant under SAC Heading No. 9954 which relates to construction services. Second part of the Ruling concerns the rate of tax applicable on the said supplies by the Appellant and it has been ruled that the supplies, which are in the nature of works contract, will attract GST @ 18% in terms of Sl. No. 3 (ii) of Notification No. 11/2017-Central Tax (Rate), dated 28.06.2017. F. Appellant' arguments against Ruling of AAR: The Appellant have challenged the Ruling pronounced by AAR mainly on three counts, one of them being classification under a non-existing entry in the rate notification while the other grounds concern nature of activity undertaken by the Appellant not appreciated and also the rules of classificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SAC Heading No. 998621 which according to them includes services such as well casing, cementing, pumping and abandoning of wells, derrick erection etc, which require labor services as well as supply of goods for providing the same. It has been submitted by the Appellant, that these services, involve civil work as well as supply of goods as part of performance of such activities and can very well take the shape of works contract and bringing such works contract services out of the purview of Heading 9986 is clearly a result of misreading of the law and lack of understanding of the Oil and gas industry. Alternatively it has been suggested that the services supplied by the Appellant would also merit classification as "other professional. technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both" under Entry No. 21 (ia) of Heading 9983 of the Rate Notification. G. Questions for determination: In view of the submissions made by the Appellant in the appeal and the Rulings pronounced by the AAR, we observe that the issues for determination before us are as follows:- G.1. Classification under Heading 998621: Whether the supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided as Appendix-II. (ii) We further observe that at Appendix-Il of the appeal is a document titled Exhibit A- Contract No, 46000009410. The said document submitted by the Appellant are an integral part ranging from page 402 to 439. Thus, the Appellant have submitted only a part of the EPC Contract which describes in detail the scope of services proposed to be supplied by the Appellant to M/s Vedanta Limited. Since we have to decide the question of classification of the supplies proposed to be made by the Appellant in terms of the said EPC Contract, we are mainly concerned with the provisions of the EPC Contract governing the scope of work assigned to the Appellant. (iii) With a view to deciding the classification of supplies proposed to be made by the Appellant in the context of their claim of classification under Heading 998621 as 'support services to exploration, mining or drilling of petroleum crude or natural gas or both' or the alternate claim of classification under Heading 9983 as 'other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both', we deem it appropriate to examine th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Piping, civil & structural, electrical, Mechanical equipment, Instrumentation & controls, HSE, Operation & Control. (G) The contractor shall be responsible for performing engineering for procurement. (H) Contractor shall be responsible for performing construction & installation engineering including reports, operation and maintenance manual, waste management plan etc. Some of the other features of the scope of services as per the EPC Contracts which are relevant to the issues at hand may also need reproduction for ease of reference but the same shall be discussed later on at appropriate places where the claimed classifications are examined with reference to the nature of the activities. H.2 Ingredients of services classifiable under Heading 998621: (i) The Appellant have mainly contended that the supplies proposed to be made by them deserve classification under SAC Heading No. 998621 as support services to exploration, mining or drilling of petroleum crude or natural gas or both. It has been stated that the contention is based on the Rules of Interpretation falling under Chapter-III of the United Nations Central Product Classification (UNCPC) as the Explanatory Note 10 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm part of the support service, whether they seem to be, or not, strictly in the nature of such service, (iv) We further observe that as claimed by the Appellant, the CBIC has also issued a clarification on the scope of support services to exploration, mining or drilling of petroleum crude or natural gas or both through a Circular No. 114/33/2019-GST, dated 11.10.2019 with reference to the entry at Sl. No. 24(ii) of Heading 9986 in Notification No. 11/2017-CT(R) dated 28.06.2017. It has been specifically mentioned in the Circular that Explanatory Notes to the Scheme of Classification of Services adopted for the purposes of GST, which is based on the United Nations Central Product Classification describe succinctly the activities associated with exploration, mining or drilling of petroleum crude or natural gas under heading 9983 and 9986. Para-4 of the circular relevant to the instant issue reads as follows:- "4. It is hereby clarified that the scope of the entry at Sr. 24 (ii) under heading 9986 of Notification No. 11/2017- Central Tax (Rate) dated shall be governed by the explanatory notes to service codes 998621 and 998622 of the Scheme of Classification of Services. We, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mps & Power Fluid pumps. - The overall injection Water requirements is 780 KBWPD and Power Fluid requirement is -400 KBWPD. Thus the combined requirement of IW PFis-1180 KBWPD. - This increase in IW and PF requirement necessitates augmentation of existing injection water & power fluid system. The Power Fluid stream is currently not filtered at MPT. Hence, new filters beds are envisaged for filtering the Power fluid. (C) Page-410 4.4 New Back Wash system: - The existing system has been found ineffective in the plant. Hence heated fresh water will be now used for filter backwashing purpose 4.5 New LP steam and condensate system at MPT: - Condensate from the flash drum shall be pumped by new LP condensate pumps to the existing Air Coolers to cool it down to 90 deg C and subsequently routed to the BFW tanks. (D) Page-411 4.6 Utilities at MPT: - As per preliminary estimates, the new requirement of IA can be met by adding the equipment. This shall be verified and augmentations, if any, shall be incorporated by contractor. 4.7 New Chemical Injection skid at MP T. 4.8 Flare system. 4.9 Drain System. 4.10 Portable and treated water shall be extended from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contract for satisfactory handover of complete enhancing liquid handling capacity including Non Process Buildings, including roads and drains within MPT Pipeline and approach roads to M/s Vedanta Limited. complete with applicable hook-up & tie-in with the existing & proposed facilities. This provision of the contract makes it amply clear that the Appellant have been assigned the work of establishment of new facilities for oil and natural gas extraction alongside the already existing facilities at the MPT. (vi) Coming to the proposed classification under Heading 998621 we observe that the said heading covers 'support services to oil and gas extraction' which is self explanatory in as much as the services proposed to be classified under this heading provide support to the main activity of oil and gas extraction and such activity of extraction eventually requires the infrastructure facilities established. These three parts of the entire gamut of oil and gas extraction are clearly distinguished from each other. Support service has to be essentially distinct from the main activity of oil and gas extraction. And establishment of infrastructure facilities in the form of liqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phrase 'relating to' which signifies that any professional, technical and/or business services provided relating to milling, would merit classification under the said entry and the said entry includes a broad range of services which pertain to or concern With the activity of mining. To buttress their argument, the Appellant have further claimed that they provide services by way of proper management of the project right from the detailed design and planning of the project till its final test run, commission and hand over ill fully functional form and 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 M/s Vedanta. The Appellant have also referred to and relied upon the CBTC Circular to claim that the wordings used under the Heading 9983 of the Rate Notification is broad in nature, various services which are provided in relation to exploration, mining or drilling would fall within its ambit and attract GST @ 12%. (ii) On going through the explanatory notes, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the advice concerning location of gas fields. Further, the provision of advice with regard to exploration and development of oil and natural gas properties or feasibility studies is also not the activity that the Appellant are obliged to undertake in pursuance of the EPC Contract. Strictly speaking, as observed earlier, the scope of the current contract for the Appellant under MUPS2- EPC2 project comprises of facilities for augmentation of existing Liquid Handling capacity along with various infrastructure facility. These aspects of the contract of the Appellant cover such activities which do not answer the description of geological or geophysical consulting services or mineral exploration and evaluation services. This will be more clearly analyzed in the latter part of our analysis when the issue will be examined with reference to construction services. H.4: Construction Services under Heading 9954: (i) We observe that in response to the query by the Appellant as to what would be the correct classification of the supplies proposed to be undertaken by them in pursuance of the EPC Contract, the AAR has pronounced the Rulings dated 13 09.2021 declaring that the activities of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with effect from 01.04.2019. Admittedly, entry at Sl. No. 3(ii) did not exist in the rate notification when the application seeking Advance Ruling was filed or when the Ruling was pronounced. Hence, the rate as prescribed vide the said entry was not available to the Appellant at the relevant point of time. However, we observe that the omission of the given entry from the rate notification in question by itself does not make the instant supply eligible to lower rate of tax until other aspects of the Ruling concerning the description of the supply based on its nature and classification under the given heading are examined to determine the appropriate rate of tax. Hence, we observe that it is important to examine the other aspects of the Ruling with reference to the true nature of the supplies as given in the EPC Contract (iv) We observe that the AAR has pronounced classification of the supply under the SAC Heading No. 9954 relating to construction services with the observation that the supply being composite in nature and covered under the description of work contract as defined under clause (119) of Section 2 of the CGST Act, 2017. The Appellant have opposed the Ruling mainly on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... run for the complete system prior to handing over the plant to Vedanta. From perusal of the provisions of the EPC Contract which have been summarized above, we observe that the Appellant have been assigned the task of construction of various facilities which are integral to the proposed Oil and gas production capacity enhancement from the MPT, Buildings, shades, control rooms/ sub stations building etc., are some of such constructions which form part of the contract. The contract clearly provides that the Appellant are responsible far satisfactory hand over of complete system with Buildings, shades, control rooms/ sub stations building etc, The entire scope of activities to be carried out by the Appellant relates to construction of all the facilities which have been proposed to be created for enhancement of production and processing capacity at the MP T and the Appellant are required to hand over the facility complete in all respects after the design, construction, commissioning etc. are completed. (vi) In view of what has been observed by us in the preceding paragraphs, it is necessary to examine the issue with reference to the relevant explanatory notes of the scheme of class ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of' any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract;" (ix) We observe that the supplies involving both services and goods as proposed to be undertaken by the Appellant are, thus, covered by the definition of works contract which being composite supply, is treated as supply of services in terms. of the provisions of Para-6 of Schedule-Il of the CGST Act, 2017: which read as under:- "6. Composite supply The following composite supplies shall be treated us a supply of services, name:- (a) works contract as defined in clause (119) of Section 2: and" (x) Thus, we observe that so far as classification of the supplies proposed to be undertaken by the Appellant are concerned, the composite supply in the instant cases shall be treated as supply of service defined as works contract and the pronouncement of the AAR, therefore, needs no interference up to that extent. (xi) As already observed by us, entry Sl. No. 3(ii) of Notification No. 11/2017-CT (R), dated 28.06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e points which have specifically been raised by the Appellant. These points are discussed as follows:- (i) The Appellant have argued in their written submission dated 18.01.2022 that the instant EPC Contract was awarded in January, 2019 whereas the original production of oil and gas in the oil field had started in the year 2009 Thus, the Ruling by the AAR suffers from fallacy in as much as the same has rejected classification under the category 'support services to oil and gas extraction' on the ground that support services shall include services to be provided for exploration, once the infrastructure/ facility for exploration is built and complete in all respect and ready to start exploration. In this regard, we observe that according to the EPC Contract, the Appellant have been assigned the work of construction and installation of the entire facility and the proposed infrastructure being installed is aimed at capacity expansion as has been mentioned by the Appellant in the appeal that the with a view to further augment facilities and infrastructure for enhancing the liquid handling capacity from 800 KBLPD to 1300 KBLPD at MP T based on the projected production scenari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. In that view of the matter, whether it be derrick erection or repair and dismantling services, well casing, cementing pumping, plugging and abandoning of well, all these activities have to be understood in the nature of support services only and none of them relates to creation of infrastructure or facilities for oil and gas extraction by way of construction, erection and commissioning of the new facility. The Appellant have not been assigned activity of type mentioned in Heading 998621 rather the contract is for enhancement of new facility and infrastructure for extraction of oil and gas. Hence, we do not find force in the arguments advanced by the Appellant. The Appellants have also placed reliance upon various case laws pronounced by the Hon'ble Courts. We observed that each case has different facts. When Appellants' cases have already been discussed in detail as above, in our opinion, there is no need to discuss the eases relied upon by the Appellants separately. J. Ruling of the Maharashtra Appellate Authority for Advance Ruling Order No. MAH/AAAWDS-RM/14/2022-23 dated 03-01-2023 is squarely applicable in the instant matter: (i) The Maharashtra Appellate Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responsible for all the engineering, procurement and construction activities to deliver the completed Projects. In view of this the impugned services are not covered under S. No. 24(ii) of the Rate Notification * The Explanatory Notes to service code 998341 is restricted to geological and geophysical consulting services and the Notes to service code 998343 is restricted to mineral exploration and evaluation and the impugned services cannot be considered as being connected to either geological and geophysical consulting services or mineral exploration and evaluation services. In view of this the impugned services are not covered under Sl. No, 21 (ia) of the Rate Notification * The said professional, technical and business services supplied by the Appellant to Vedanta Limited are clearly covered under the residual entry No. 21 (ia) of the Rate Notification, attracting tax at the rate of 18% (iii) When Worley Services preferred an appeal against the above Order, the MAAAR upheld the MAAR Order No. GST-ARA-27/2020-21/B-38 dated 31.03.2022 wherein it was held that the services provided by Worley Services India Pvt Limited are neither covered under Sl. No. 24(ii) nor under SI. No. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
