ST - appellant receiving services from Foreign Contractors for pre-construction activity at offshore locations including Continental Shelf of India & EEZ of India - not taxable to Service Tax under reverse charge mechanism: CESTAT
By TIOL News Service
MUMBAI, DEC 24, 2013 : THE appellants are engaged in exploration and production of mineral oil and natural gas. In connection with the said exploration and exploitation activities, the appellants receive various services like seismic survey, data acquisition and processing, well bore survey, core analysis, caring and tubing, mud logging, directional/horizontal drilling, mud engineering service, erection/installation service etc. provided by the Foreign Service Contractors at various offshore locations including Continental Shelf of India (C.S.) and Exclusive Economic Zone of India (EEZ).
The aforesaid services when provided/used/consumed in the off-shore locations beyond 12 nautical miles, i.e in the Continental Shelf and Exclusive Economic Zone of India were not taxable prior to 27/02/2010. Vide Notification No. 14/2010-STdtd.27/02/2010, the provisions of Chapter V of the Finance Act 1994 were extended to the whole of Continental Shelf and Exclusive Economic Zone of India for certain specific purposes. As per this notification, 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 thereof, is chargeable to service tax.
Simultaneously with the aforesaid Notification, in exercise of its powers conferred by Section 93 and 94, read with section 66A of the Finance Act, 1994, the Central Government made amendment in the Taxation of Services (Provided from Outside India and received in India) Rules, 2006 vide Notification no. 16/2010-ST dated 27.2.2010. By this amendment, definition of ‘India' in Rule2(e) of the said Rules was substituted.
Consequently, the appellant wrote to the Revenue that, services received in the continental shelf and exclusive economic zone of India are liable to service tax only if such services are provided to duly constructed installations, structures and vessels located therein and not otherwise.
Based on the above understanding, the appellant paid service tax under protest in respect of certain services and later claimed refund of the same which stands rejected by the Dy. Commissioner of Central Excise & Service Tax, LTU, Mumbai by various orders which have been upheld by the Commissioner (Appeals) by the impugned order dtd. 12.9.2012.
While rejecting the appeals, the Commissioner (Appeals) held -
+ By virtue of Notification 14/2010-ST dated 27.2.2010, all services provided in the CS and EEZ becomes taxable as long as they are related to any activity prospecting, extraction or production of mineral oil and natural gas hence the pre-construction services are liable to service tax on reverse charge mechanism.
+ Notification 16/2010-ST dated 27.2.2010 is to be construed in the light of the fact that it was issued only to bring about consequential change to the Taxation of Services (Provided from outside India and Received in India) Rules, 2006 pursuant to the extension of the provisions of the Finance Act to whole of the CS and EEZ vide Notification 14/2010-ST.
Against these orders the appellant is before the CESTAT.
The Bench noted that the refund claims pertain to the period post 27.02.2010 and after extracting the notifications 14/2010-ST & 16/2010-ST, both dated 27.02.2010 observed -
“11. We find that in the provisions of Notification 14/2010-ST, as reproduced above, the provisions of the Finance Act are extended in respect of the areas specified in column 2 to the Notification in the CS and EEZ for the purposes as mentioned in column 3 of the Notification. The provisions of the Notification were extended to whole of the CS and EEZ at serial No. 1 in respect of 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 thereof. At serial No. 2, the provisions of the Finance Act were extended to 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 in respect of 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. The amendment to the Taxation of Services (Provided from outside India and Received in India) Rules, 2006 by Notification 16/2010-ST dated 27.2.2010, clause (e) to Rule 2 of the Rules is substituted. The provisions of clause (e) is reproduced below:-
‘(e) “India” includes the installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof.”
The reading of the above amended Notification shows that ‘India' includes the installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction of production of mineral oil and natural gas meaning thereby that the provisions of Section 66A of the Finance Act read with the provisions of the Taxation of Services (Provided from outside India and Received in India) Rules, 2006 as amended, the service recipient is liable to pay service tax on reverse charge mechanism in respect of 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.
12. In the present case, the dispute is in respect of services for pre-construction activity and for construction activity and the appellant received taxable services from the foreign service provider.
13. In view of the above discussion, we find that as the appellant had not provided any service regarding which the appellant had paid service tax on reverse charge mechanism in respect of any service provided or to be provided by or to such installations, structures and vessels or for supply of any goods connected with such activity to installations, structures and vessels within the continental shelf and the exclusive economic zone of India….”
In fine, the orders of the lower authority were set aside and the appeals were allowed.
In passing : Will the term “all services pertaining to construction…” include “the preparatory stages of construction ”…? Perhaps, this is not the end of the story!
(See 2013-TIOL-1900-CESTAT-MUM)
