By TIOL News Service

MUMBAI, JULY 29, 2015: THE appellants are registered under the category of Mining of Mineral Oil or Gas service on which they are discharging the service tax liability. During an investigation it was noticed that in order to provide the services under the category of mining of mineral oil or gas service, the appellants were engaging the services of foreign parties, not having permanent establishment in India, for hiring the drilling rigs and enlisted the same to ONGC by way of charter hire. On conclusion of the investigation, Revenue entertained a view that the appellant is liable to pay service tax under reverse charge mechanism as provided under Section 66A of the FA, 1994. Coming to such conclusion, a SCN dt. 23.9.2008 was issued demanding service tax liability for the payment made by the appellant during July 2007 to September 2007 to the foreign parties.

The adjudicating authority confirmed the tax demand of Rs.6.04 crores and imposed penalties under various sections and also interest.

The appellant is before the CESTAT and submits that the classification of the services as made by the adjudicating authority is under 'Supply of tangible goods for use'; that the said services were taxable only from 16.5.2008 and they have discharged tax from that date; that the entire issue is now settled by the judgment in the case of Indian National Shipowners' Association - 2009-TIOL-150-HC-MUM-ST as upheld by the Apex Court; that the appellant has already paid the entire amount of service tax liability as the service provided by the appellants were to ONGC and ONGC has paid the tax to them; that the dispute is only regarding payment of interest on the said amount of tax as also penalties imposed; that since service tax liability itself does not arise, the same is enough to set aside the interest and the penalties imposed; that appellants had discharged entire amount of the service tax liability except for an amount of Rs. 4.92 lakhs and which has also been deposited as per the stay order.

The AR submitted that the appellant is liable to discharge the service tax liability under the category of 'Mining of mineral oil or gas' service; that the appellant had collected the amount of service tax from the ONGC and did not deposit with the Government and this fact itself is enough for the Revenue to demand interest and penalty; that the case law cited is on different facts.

The Bench, at the outset, noted that the issue on merits as to the service tax liability during the period in question i.e. July 2007 to September 2007 is squarely covered in favour of the appellant by the case of Indian National Shipowners' Association.

After extracting paragraphs from the said decision, the Bench observed that the law is settled by the Bombay High Court and accordingly it is held that the service tax liability on the appellant for hiring of rigs to ONGC by making payment to foreign entities is effective from 16.5.2008 as Supply of tangible goods service.To that extent the CESTAT held in favour of the appellant but nonetheless since the entire ST liability has already been paid to the Government, the question of any recovery of amount does not arise.

On the question of Interest & Penalty, the Bench held -

"As we have already recorded hereinabove, the activities of the appellant in hiring the rigs from the foreign parties and enlisting the same to ONGC would not fall under the category of mining of mineral oil and gas service, it in itself enough to set aside the liability of interest and penalties imposed, in as much as that when there can be no service tax liability, the question of interest and penalty does not arise. We are of the view, that the interest confirmed and penalty imposed on the appellant are unwarranted and needs to be set aside and we do so."

The appeal was disposed of.

(See 2015-TIOL-1559-CESTAT-MUM )