ST - Supply of drilling rig - Notfn 14/ 2010 cannot be said to be clarificatory - transaction is in nature of providing services by vessels for prospecting mineral oil & as such is service consumed by seabed in Continental Shelf & would come in tax net only after Notification came into effect: HC
By TIOL News Service
MUMBAI, APR 30, 2015: THE appellant had entered into two contracts with M/s. Oil and Natural Gas Corporation Ltd. (ONGC) for supply of Cantilever type jack-up rigs named Greatdrill Chetna and Greatdrill Chitra. These were required to provide offshore drilling services to ONGC in terms of the contracts dated 27/02/2009 and 08/05/2009. These drilling rigs were hired by the appellant from M/s. Greatship Global Energy Services Pte. Ltd ., Singapore, on bareboat charter basis.
The adjudicating authority classified the services rendered by the appellant under ‘Supply of Tangible Goods for Use service' (SOTG) and confirmed a service tax demand of Rs.27,24,52,804/- for the period 07/07/2009 to 31/03/2010.
The CESTAT had, inter alia , held thus -
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ST - Service provided by the appellant is essentially supply of drilling rig along with its personnel to operate the same on charter hire basis and the payment for the services rendered is made on per-day basis - activity comes within the scope of ‘Supply of Tangible goods for use' - demand of Service Tax of Rs.27.24crores and interest upheld but penalty set aside as issue involves interpretation: CESTAT
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We reported this order as 2014-TIOL-2122-CESTAT-MUM.
Incidentally, before the CESTAT the appellant had also made an alternative plea that since the service provided by the appellant are not in relation to any installation, structure or vessel located in the Continental Shelf/Exclusive Economic Zone, no service tax is payable for the period 07/07/2009 [21/2009-ST refers] to 27/02/2010. Inasmuch as the service provided by the vessel becomes taxable w.e.f. 27/02/2010 vide Notification 14/2010 dated 27/02/2010 and the said Notification is only prospective and, therefore, prior to 27/02/2010, the services undertaken by the appellant are not leviable to service tax. But it was without prejudice to the above that the challenge was made as regards coverage under the SOTG service per se and the Bench had given its findings thereon.
For quick reference, the content of the notifications in question are extracted as under -
Vide notification 1/2002-ST, dated 01.03.2002,by exercising the powers conferred by clause (a) of sub-section (6) of Section 6 and clause (a) of sub-section (7) of section 7 of the Territorial waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976-
++ the Central Government extended the provisions Chapter V of the Finance Act (32 of 1994) to the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the Notifications of the Government of India in the Ministry of External Affairs Nos. S. O. 429 (E) dated the 18th July 1986 and S.O. 643 (E), dated the 19th September, 1996 with immediate effect.
Vide amending notification 21/2009-ST dated 07.07.2009 -
++ for the portion beginning with the words "designated areas in the Continental Shelf" and ending with the words "with immediate effect", the words "installations, structures and vessels in the continental shelf of India and the exclusive economic zone of India" shall be substituted.
Notification 1/2002-ST as amended was superseded by notification 14/2010-ST dated 27.02.2010 so as to -
++ extend the provisions of Chapter V of the Finance Act, 1994 (32 of 1994), to the areas specified in column (2) of the Table below, in the continental shelf and exclusive economic zone of India for the purposes as mentioned in column (3) of the said Table:-
TABLE
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Sl. No.
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The areas in the Continental Shelf and the Exclusive Economic Zone of India
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Purpose
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(1)
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(2)
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(3)
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1.
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Whole of continental shelf and exclusive economic zone of India
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Any service provided for all activities pertaining to construction of installations, structures and vessels for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply there of.
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2.
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The installations, structures and vessels within the continental shelf and the exclusive economic zone of India, constructed for the purposes of prospecting or extraction or production of mineral oil and natural gas
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Any service provided or to be provided by or to such installations, structures and vessels and for supply of any goods connected with the said activity.
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Be that as it may, against the CESTAT order the appellant filed an appeal before the Bombay High Court.
The appellant referred to the aforesaid notifications and inter alia submitted that a plain reading of the Notification dated 27.2.2010 would clearly show that, for the first time, the provisions of Service Tax were extended to the areas specified in column 3 of the Table of the said Notification in the Continental Shelf and Exclusive Economic Zone of India for the purposes mentioned in the column of the said Table, namely, prospecting mineral oil in the Continental Shelf and Exclusive Economic Zone of India;that the service tax liability accrued to the appellant only from 27.2.2010 and from that date, the appellant has discharged the liability towards the Service Tax.
The Counsel for the Revenue submitted that the Notification as amended on 27.7.2009 itself is clear; that the said Notification squarely covers installations, structures and vessels; that since what has been done by the appellant is providing services of rigs which would be squarely covered by the term 'vessel' and as such, the appellant would clearly come in the tax net on 7.7.2009. Furthermore, the Notification dated 27.2.2010 is, at the most, declaratory and explanatory so as to clear the doubts which were there in the Notification of 2002 which was amended on 7.7.2009. Inasmuch as if the notification is considered clarificatory or explanatory in nature, the same will have to be given retrospective effect and, therefore, the appeal is without merit and deserves to be dismissed.
The High Court, at the outset, observed -
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"An interesting question as to whether the Notification No. 14/2010-ST dated 27.2.2010 is clarificatory / declaratory in nature or as to whether it brings about substantive change in law arises for consideration in the present Appeal. The question to be decided in the present Appeal revolves around the interpretation of Notification No.1/2002-Service Tax dated 1.3.2002, as amended by Notification No.21/2009-ST dated 7.7.2009 and the Notification No.14/2010-ST dated 27.2.2010."
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To consider the question as to whether the 2010 Notification could be said to be declaratory, clarificatory or explanatory in nature and as such can be made applicable retrospectively or as to whether it brings the substantive change in law and cannot be made retrospectively applicable, the High Court reproduced the notifications 1/2002-ST, 21/2009-ST & 14/2010-ST and after referring to a multitude of decisions of the apex Court and after extracting paragraphs therefrom inter alia observed -
++ For the first time in 2010, the tax net has been widened so as to include almost all the services related to prospecting or extraction or production of mineral oil and natural gas, including the services rendered to or by such installations, structures and vessels.
++ It is a settled principle of law that, it is presumed that each and every word used by the legislature is with some intention. It is equally settled that each and every word used by the legislature is to be required to be given meaning and not ignored.
++ It is to be noted that in the 2010 notification no such words like "it is clarified for removal of doubts" or "it is declared" are used. However, even in the absence of such words, a statute could be construed to be declaratory or clarificatory, if upon interpretation of the same such a meaning could be derived.
++ The 2010 Notification uses the words "in supersession of the Government of India, in the Ministry of Finance (Department of Revenue) Notification No.1/2002 service tax dated 1.3.2002". It could thus be clear that the legislative intent is to supersede the 2002 Notification as amended in 2009 and substitute with 2010 notification.
++ The legislative intent could further be gathered from the following words: "except as things done or omitted to be done before such super session." It would thus be seen that what has been saved by the notification upon supersession is only in respect of things done or omitted to be done before supersession i.e before 27.2.2010. The words used are "Central Government hereby extends".
++ It is thus clear upon plain reading of 2010 notification, that the legislative intent of 2010 notification is -
(i) that it supersedes the 2002 notification, it consequently also supersedes 2009 amendment which was brought in 2009 to the 2002 Notification,
(ii) it only saves the things done or omitted to be done before such supersession and
(iii) from the date of issuance it extends the provisions of Chapter V of the Finance Act, 1994 to the areas specified in column 2 of Table in the continental shelf and exclusive economic zone of India for the purpose as mentioned in column 3 of the said Table.
++ The 2010 Notification cannot be said to be clarificatory in nature, but it brings about substantive change in law. Whereas the 2002 Notification as amended by 2009 Notification is applicable only to the services rendered to installations, structures and vessels, the 2010 Notification widens the tax scope and amongst various other services also brings into the service tax net the services rendered to or by the installations, structures and vessels.
++ It can thus be seen that the present transaction, which is in the nature of providing services by the vessels of the appellant for the purpose of prospecting mineral oil and as such is a service consumed by the seabed of Continental Shelf of India would come in the tax net only after 2010 Notification came into effect. We are of the considered view that the said service cannot be said to be a service rendered to the installations, structures and vessels.
Holding that the CESTAT had erred in upholding the tax demand of Rs.27.24 Crores against the Appellant, the appeal was allowed.
(See 2015-TIOL-1100-HC-MUM-ST)
