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TMI Blog2024 (4) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... Agency service', 'Manpower Recruitment and Supply Agency service', etc., under Reverse Charge Mechanism. 2. The appellant entered into a service contract with Oil and Natural Gas Corporation Ltd (ONGC for short) vide contract dated 16.07.2007 for 'development of Manepalli Field of KG onshore'. The contract was initially entered by BG Shirke Construction Technology Pvt Ltd. Thereafter, under business transfer agreement with its fully subsidary company viz., the appellant for transfer of assets and liabilities with entire running business of oil and gas division, the said activity is being carried on by the appellant company under a separate Centralized Service Tax registration and GST registration dated 31.08.2016 and 01.07.2017 respectively. 3. The said contract dated 16.07.2007 inter alia provides : - 3.1. Commercial Production - means production of crude oil or condensate or natural gas or any combination of these from the contract area and delivery of the same at the relevant delivery point under a program of regular production and sale. 3.2. Condensate - means those on low vapour pressure hydrocarbons obtained from natural gas through condensation or extraction and refers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, paleontological, Palynological, topographical and Seismic surveys, analysis, studies and their interpretation, investigations relating to the subsurface geology including structural test drilling, stratigraphic test drilling. Drilling of exploration wells and appraisal wells and other related activities such as surveying, drill for preparation and all work necessarily connected therewith that is conducted in connection with petroleum exploration. 3.7. Petroleum Operations - means, as the context may require, exploration operations, development operations or production operations or any combination of two or more of such operations, including construction operation and maintenance of all necessary facilities, plugging an abandonment of wells, safety, environmental protection, transportation, storage, sale or disk desposition of petroleum to the delivery point, site restoration and any or all other incidental operations or activities as may be necessary. ARTICLE 5 WORK PROGRAM 3.8. The scope includes assessment, exploration and development, creation of facilities, production creation of and supply of oil and gas as well as exploration in the identified field area. 3.9. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, etc., necessary for operation of field. g) Acquisition and obtaining of all necessary consents, approvals, licenses, registrations, permissions, etc., from all concerned agencies and ONGC that will be necessary for completion of assessment and further development, production and operation of field covered under this contract. h) Payment of all necessary statutory payments including but not limited to all taxes, fees, duties as may be necessary and required as per the contract. To make payments/ compensation/ damages for any displacement, etc., during execution of the contract. i) Management, monitoring, maintenance of all data and records, documentations, reporting, reviewing, management and communication with concerned agencies, Asset Manager and contract co-ordinator of ONGC. j) Decommissioning, abandonment (if required) of all wells and facilities, removal, cleaning and restoration of site to its original condition after closure/termination of contract with the approval of ONGC. Take all measures for prevention of environmental damage (subsurface, land and air) and adopting all other suitable means to maintain industrial and social harmony. 3.11. There will be as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... later. The field was handed over to them on 19.09.2007, which is the 'effective date'. It was further submitted that on holistic reading of the contract it is evident that there were no milestones at all, either payment linked or operational and therefore, no stage-wise completion but they as a contractor were obligated to explore and ultimately supply oil/gas to ONGC, which is clearly mentioned in Article 5.7 of the contract. The Appellant also enclosed copies of works contracts/agreements in respect of services received from body corporate/non-body corporate for the period 01.07.2012 to 31.03.2015 along with copies of e-payment challans under partial/reverse charge mechanism. 5. Appellant also enclosed e-payment challans in respect of other services received like Rent-a-cab service, Manpower Supply service, Security service, GTA service, Business Support service and SOTG service, received under partial /reverse charge mechanism along with copies of ST3 returns for the relevant period. Appellant also included statement showing the details of expenditure incurred, month and year-wise, for the period from October 2011 to March 2015 (total expenditure incurred was Rs.181.46 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t towards the value of such taxable service, whichever is earlier, shall issue an invoice, a bill or as the case may be, a challan signed by such person or a person authorised by him in respect of such taxable service provided or agreed to be provided and such invoice, bill or as the case maybe, challan shall be serially numbered. 9. The appellant vide their letters dated 15.02.2017 and 06.03.2017 had apprised the position of non-issuance of invoice/bill to ONGC and non-receipt of any consideration and also denied the allegation of completion of provision of activities of exploration operation and development operations carried by them during the relevant period in relation to providing of Mining of Mineral, Oil or Gas service. However, Revenue, being of the belief that appellant is required to pay service tax on the basis of cost incurred for providing the service in respect of the alleged completion of service, calculated the service tax liability yearwise as follows : - Year Cost of Expenditure Notional Profit or Profit Margin @ 10% on Col.2 Taxable Value (Col.2+Col.3) Total ST @ 10.3% up to 31.03.2012 ^ @ 12.36% from 01.04.2012 onwards on Col.4 1 2 3 4 5 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of Value) Rules. Further, penalties are also proposed under section 77(1)(a), 77(2) and 78(1) of the Act. 11. Similar Show Cause Notice was also issued dated 16.04.2019 for the subsequent period 2015-16 up till June 2017, demanding service tax on similar basis Rs.8,67,39,750/- including cess with proposal to impose penalty under section 76, 77(2) and 78(1) of the Finance Act. 12. Both the Show Cause Notices were adjudicated on contest vide separate OIOs and the proposed demands were confirmed with equal penalty under section 78 of the Finance Act and a further penalty of Rs.10,000/- alleging improper filing of service tax returns under section 77(2) of the Act. Being aggrieved, the appellant has filed appeals against both the OIOs before this Tribunal. 13. Learned counsel for the appellant - Mr. Bharat Raichandani, inter-alia, urges that the impugned orders are cryptic and non-speaking and have been passed mechanically, without application of mind. 14. He further urges that the point of taxation is not triggered in the facts of the present case. The services are in the nature of continuous supply of service. The event specified in the contract to trigger the point of taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is such event/milestone as specified in the contract. Admittedly, during the period under dispute, the appellants have neither supplied any gas/oil to ONGC nor have raised any invoice nor have received any amount from ONGC in relation to the alleged services rendered by it. Admittedly, the point of taxation has not been triggered during the period under dispute and thus the appellant is not liable to pay any service tax towards the alleged output service. 19. The learned Commissioner in the impugned order, in spite of taking notice of the provisions of Point of Taxation Rules, has misconceived the Rules and the facts of the case and has held appellant liable to pay service tax. Learned Commissioner has misconceived Para 5.9 of the contract, which provides that there will be assessment period of 2 years from the effective date of the work done or progress made by the contractor. The said provision is evidently put in the contract that if a contractor fails to take effective measures in execution of the contract towards achievement of the stipulated goals, in that case the contractee/ONGC has option to terminate the contract. 20. Evidently the learned Commissioner have erroneousl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged that there is no basis in law or under the contract to artificially split the activities and seek to levy service tax on some activities on standalone basis. Further urges that admittedly under the period under dispute, appellant has not received any consideration from ONGC. Once this is the admitted position, there cannot be any demand of tax. Hence, the impugned orders are liable to be set aside. Also admittedly under the terms of the contract, appellant was not entitled to raise invoice on ONGC, in absence of reaching the stipulated milestone, being in a position to deliver oil/gas to ONGC duly produced from the earmarked area under the contract. It is further urged that the Service Tax (Determination of Value) Rules 2006 are not applicable in the facts of the present case. 26. Learned Counsel also submits that the Commissioner have erred in the impugned order by observing that the consideration in the facts of the present case for the period under dispute is not ascertainable. This is in contrast to the provisions of the contract, which specify the consideration for undertaking the activities i.e., fixed percentage of the price of the crude oil/gas as per clause 15.12 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incurred towards execution of above said Service Contract, service tax payments on the services received under partial reverse/reverse charge mechanism, enclosing necessary documents and 'effective date' of the contracts, have been furnished. d) Letter dt.06.03.2017 of M/s BG Shirke Construction Technology Pvt Ltd, wherein they have denied the allegation of the completion of provision of 'exploration operation' and 'development operations' in relation to the above said Service Contract. e) ST-3 returns filed by M/s BG Shirke Construction Technology Pvt Ltd, for the period from July 2012 to March 2015. 30. Accordingly, the learned Counsel prays for allowing the appeals with consequential benefits. 31. Learned AR for Revenue relies on the allegations made in the SCN and the findings recorded in the impugned orders. 32. Having considered the rival contentions and on perusal of records, we find that admittedly appellant have not reached the stipulated event where it can raise invoice pursuant to supply of crude oil/gas to ONGC, during both the periods under dispute. We find that the value of taxable turnover determined by the Commissioner in the impugned order is hit by pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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