Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise & ... vs M/S. Reliance Industries Ltd on 10 November, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. II APPEAL NO. ST/89464/14 [Arising out of Order-in- Original No. 05-08/COMMR(WLH)/LTU-M/ST/2014 dated 17/6/2014 passed by the Commissioner of Central Excise & Service Tax(LTU), Mumbai] For approval and signature: Honble Mr. P.S. Pruthi, Member(Technical) Honble Mr Ramesh Nair, Member(Judicial) =======================================================
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : seen
of the Order?
4. Whether Order is to be circulated to the Departmental: Yes
authorities?
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Commissioner of Central Excise & Service Tax (LTU) Mumbai
:
Appellants
VS
M/s. Reliance Industries Ltd.
:
Respondent
Appearance
Shri Roopam Kapoor,Commissioner(A.R.) for the Appellant
Shri V.K. Jain, Advocate with
Shri Vishal Agarwal, Advocate and
Ms. Manya Bhardwaj, Advocate for the Respondent
CORAM:
Honble Mr. P.S. Pruthi, Member (Technical)
Honble Mr. Ramesh Nair, Member (Judicial)
Date of hearing : 10/11/2015
Date of pronouncement: 11/01/2016
ORDER NO.
Per : P.S. Pruthi
1. The respondent, Reliance Industries Ltd (RIL in short), is engaged in exploration and extraction of oil and gas in the offshore Blocks allotted to them by the Government of India under Production Sharing Contracts(PSC). It uses services of different persons/companies for exploration and extraction activities. It is alleged that RIL has been receiving services from service providers who have a fixed establishment or have their permanent address or usual place of residence from where service is provided, in a country other than India. As per provisions of Section 66A of the Finance Act, 1994 read with Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 [hereinafter referred as Rules 2006] and Rule 2(1(d)(iv) of the Service Tax Rules, 1994, for the services received from the service provider who have provided services from outside India, the service receiver in India shall pay service tax on such services as if the recipient had himself provided the service in India. Therefore Revenue is of the view that RIL as a service receiver has to discharge service tax liability. RIL was not paying service tax on the belief that the imported services are used outside the territorial waters of India viz., beyond 12 nautical miles (NM) to which provisions of the Finance Act, 1994 are not extended. Revenue viewed that provisions of Chapter V of the Finance Act, 1994 are extended to installations, structures and vessels in the continental shelf of India (CS) and the exclusive economic zone of India(EEZ) vide Notification No. 1/2002-Service Tax dated 01-03-2002, as amended by Notification No. 21/2009-Service Tax dated 07-07-2009, and hence service tax is payable.
2. During investigations by DRI, RIL informed the activities undertaken by them as under
STAGE 1 : Prior to bidding for oil & gas blocks * Purchase of data packages / information dockets from DGH (Director General, Hydrocarbons)containing geophysical / geological data available with DGH.
* Analysis of the above information / data alongwith the regional understanding of the respective sedimentary basin.
* Work out prognosticated hydrocarbon resources i.e. estimate volumes of hydrocarbons.
* Carry out an economic analysis based on the prognosticated volumes.
* Estimate the activities to be carried out at the prospecting stage and post-prospecting stage in order to firm up the Minimum Work programme.
Stage 2 : Prospecting Stage It is up to a stage when probable sites for drilling are earmarked :
* Reprocessing of the existing 2D / 3D seismic data, if any, obtained in the data packages obtained from DGH.
* In case any wells have been drilled earlier on the site by any other agency prior to award of ;the blocks, reprocessing / Interpretation of well data in the block.
* Integration of available reprocessed / interpreted data with the other geo-scientific information * Fresh acquisition and fresh processing and Interpretation of 2D seismic data in the areas of interest.
* In parallel, acquisition, processing and interpretation of other geo-scientific data like gravity, magnetic, magneto-telluric, controlled source electromagnetic, etc., acquisition, processing and interpretation of geological data like multi-beam, seabed survey, measurement of heat flow in sub-surface, etc. * Integration of all available evidence from geological, geophysical, petro-physical studies to identify leads for drilling Stage 3 : Post-prospecting stage Once sites which merit attention are identified, further activities are carried out.
Stage 3.1. : Evaluation of lead upto prospect maturation:
* Advanced geo-scientific studies like basin / structure modeling, petroleum system analysis; etc, are carried out to evaluate a lead. When a lead shows promise based on the aforesaid scientific analysis, it gets upgraded as a prospect and these analysis help in establishment (maturation) of a prospect.
* Volumetric estimation & Techno-economic analysis of the ranked prospects * Ranking of the prospects based on the geological chance factor envisaged and the economics.
* Peer review and validation of the ranked prospects by internationally reputed geoscientists.
The end result of this stage is a prospect which is handed over to the exploration team.
Stage 3.2 Exploration Drilling of recommended prospect & Notify the discovery to Govt. of India, if any, hydrocarbon is encountered during drilling Stage 3.3. Appraisal * Submission of appraisal plan to ascertain the potential commercial interest of the discovery for development * Carry out Appraisal activities which include, inter-alia, acquisition, processing and interpretation of additional 2 D, 3 D surveys in focused areas, drilling of wells (s), carry out other geological and geophysical studies, etc. Stage 3.4 : Development * Submit a development plan for the development & exploitation of the hydrocarbons from the demarcated development area * Drill and complete additional development wells * Establish the production facilities like pipeline, platform, manifolds, umbilicals, etc. (sub-surface, sub-sea and on land) to facilitate the hydrocarbon extraction.
Stage 3.5 : Extraction / production.
* Operate & maintain the production facilities like pipeline, platform, manifolds, umbilical, etc. (Sub-surface, sub-sea and on land) for hydrocarbon extraction
3. RIL provided details of payments made in foreign currency, vendor-wise upto 2009-2010 for services received by them as service recipient from different foreign service providers in connection with exploration and production of oil and gas; however, they had not paid the Service Tax in some cases, citing the reason that the services received have been consumed at locations i.e. blocks/wells which are beyond the 12 NM of the Territorial waters of India, in the CS and EEZ. Soft copies of Agreements/Contracts entered into by them with 63 Service providers were also submitted.
4. Vide their letter dtd. 06-10-2009, addressed to the Commissioner of Central Excise LTU Mumbai, RIL informed that where installations or structures are under construction, services rendered towards their construction will not attract any service tax. Further, in case of vessels, the services provided from the vessel to the sea bed or to other outer areas which are not part of India will not attract service tax. So, on such taxable services rendered by foreign service providers, they, as recipient of service, were not liable to pay Service Tax, prior to 27-02-2010.
5. In the SCN it is stated that different equipments and vessels along with the required manpower to operate the same are used for the exploration of oil & gas by RIL, at the blocks allotted to them in the Territorial waters, CS and EEZ of India. The activities are generally carried out from a vessel or from structures or installations mounted / erected, the details of which have been explained by them in the statement of Shri RS Raghavan General Manager(Commercial Taxation) on 15-04-2011. The SCN alleges that the vessels, equipments, drilling pipes and related structures, leading to survey and exploration of oil & gas, putting up of manifolds and umbilical to extract the oil & gas form a structure or installation individually and severally on its own. The various services received for the erection of entire structure are the important part of the exploration activity carried, leading to It is further stated that in complete formation, which will lead to extraction of oil. Only after completion of the entire formation is the extraction activity of the oil & gas carried out, which may require trouble free and unhindered maintenance of the operation of the formation. So, the services received during the entire activity, have been consumed/utilized or provided to structures or installations or vessels, and are liable to service tax. Regarding the information given along with ST-3 returns, it is stated in the SCN that in .In the fixed establishment of the recipient, RIL have given the names of the Blocks where the services have been received by them and in the Place of performance, they have shown the remarks as On block or Abroad or India but consumed at locations to which provision of Finance Act, 1994 are not extended ... It is further stated in the SCN that .. Moreover, RIL claim of their fixed establishment at blocks allotted to them is contrary to their own claim that there is no structure or installation in the CS and EEZ of India. The SCN goes on to state .. As clarified by CBEC vide circular dated 27-07-2005, a fixed establishment should have both the technical and human resources necessary for providing or receiving services permanently present. In the instant case, as contended by RIL, in absence of any structure or installations in the continental shelf and exclusive economic zone of India, their business establishment at Mumbai or other onshore facilities may be considered as fixed establishment. Accordingly, service tax is payable under the provisions of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006..
6. On the basis of documents submitted by RIL, DRI categorized the services provided under different classifications and vide SCN dated 21.04.2011 demanded service tax under various categories of services provided to installations, structures and vessels by the service providers who are not having fixed establishment in India, under the reverse charge mechanism prescribed in Section 66(A) of Finance Act, as shown in the table below. Penalties were also sought to be imposed under Sections 76,76 and 78 of the Finance Act.
TABLE DETAILS OF SERVICE TAX TO BE RECOVERED FROM M/S RELIANCE INDUSTRIES LTD., MUMBAI ON THE SERVICES PROVIDED TO INSTALLATIONS, STRUCTURES AND VESSELS BY THE SERVICE PROVIDER WHO ARE NOT HAVING FIXED ESTABLISHMENT IN INDIA UNDER SECTION 66 A OF THE FINANCE ACT Name of the Service Classification under clause 105 of Section of 65 of the Finance Act, 1994 Category under Taxation of Services (provided from outside India and received in India) Rules-2006 Value of Services received in INR Total amount of Service Tax payable Commercial Training & Coaching Service Zzc 3(ii) 947,336 97,576 Consulting Engineering Service G 3(iii) 9,509,584 979,487 Erection, Commissioning & Installation service Zzd 3(ii) 323,233,458 33,293,046 Management or Business Consultants Service R 3(iii) 19,764,254 2,035,718 Management, Maintenance & Repair Service Zzg 3(ii) 39,120,054 4,029,366 Manpower Recruitment & Supply Agency Service K 3(iii) 162,414,863 16,728,731 Scientific & Technical Consultancy Service Za 3(iii) 21,352,855 2,199,344 Supply of Tangible Goods Service zzzzj 3(iii) 5,825,913,853 600,069,127 Survey & Exploration of Minerals, oil & Gas service Zzv 3(ii) 563,340,708 58,024,093 Technical Inspection and Certification Service Zzi 3(ii) 337,408,552 34,753,081 Technical Testing and Analysis Service Zzh 3(iii) 54,154,248 5,577,888 Grand Total 7,357,159,765 757,787,456 The adjudicating authority set aside the demand of Rs.75,43,93,392/- but confirmed the service tax amount of Rs.33,94,064/- already paid by the respondent towards Management maintenance or repair service. The proceedings initiated under Show cause notices V.ADJ(SCN)15-32/LTU-M/2011-12 dated 8.03.2012 ; V.ADJ(SCN) 15A-11/LTU-M/2011-12 dated 08-06-2012 & F.No. LTU/MUM/GLT-3A/RIL/SCN-DGCEI-Ahmd/05/2011-12 dated 27.05.2013 were also dropped.
7. The Ld Advocate Shri V K Jain appearing on behalf of RIL made the following submissions.
7.1. RIL, either individually or along with other members of the consortium such as Niko Resources, Hardy Exploration and Production Inc., etc. were granted 33 blocks, each of which has a specified area earmarked and is a separate independent business establishment in respect of which a separate production sharing contract is entered into with the Government of India whereby the consortium members for each block have to select an operator, who enters into contracts with various third parties/vendors for fulfilling the designated task as operator in terms of the Production Sharing Contract (PSC) with the Government.
7.2. Referring to the Honble Bombay High Court decision in the case of Greatship India Ltd vs CST 2015 (39) STR 754 it was submitted that the law that a judgment is a binding precedent till it is not stayed or set aside by a higher forum is settled by the Apex Court in the case of Kamalakshi Finance Corporation Ltd. 1991 (55) ELT 43 (SC).
7.3. On the reference to the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 Rules by the AR, it was submitted that the jurisdiction of the Finance Act, 1994 could not have been extended by the Rules and, even the Review order as also the appeal filed by the Revenue did not contain any reference to the Rules 2006.
7.4. The Show Cause Notice admits in para 4.9 that there were no structures and installations in the CS & EEZ where the services were consumed but that since there was no exclusion made therein in the Not 21/2009 dt 7.7.2009 in respect of the seabed and subsoil of the submarine areas in the CS and EEZ of India, said seabed should be regarded as part of India after 7.7.2009. Ld. advocate contended that the exploration services in dispute were provided to, as also consumed by, the seabed in the CS and EEZ and were not provided to or consumed by installations, structures and vessels in the CS and EEZ of India. In respect of all services provided to and consumed by installations, structures and vessels in the CS and EEZ, applicable service tax had been discharged (Rs.5.27 crores) and further liability of service tax to the tune of Rs.33,94,064/-, in respect of repair and maintenance services provided to the completed installations in the CS and EEZ of India was also discharged. It was contended that the coverage of the Finance Act, 1994 was for the first time extended to the whole of the CS and EEZ, which includes the subsoil and the seabed in the submarine areas, only with effect from 27.2.2010 vide Notification No.14/2010. It is recorded in Row-9 of Form ST-7 that the services received by RIL were for survey and exploration of mineral oil and natural gas at offshore locations in the CS and EEZ of India. It was submitted that survey and exploration is a pre-construction activity, these services were consumed in the block (sea-bed) in the CS and EEZ where there were no installations, structures and vessels.
7.5. With effect from 1.7.2012 India has been defined in Section 65(B)(xxvii) of the Finance Act to mean India means
(a) the territory of the Union as referred to in clauses (2) and (3) of article 1 of the Constitution;
(b) its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976);
(c) the seabed and the subsoil underlying the territorial waters;
(d) the air space above its territory and territorial waters; and
(e) 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;
Legislature has treated the CS and EEZ of India as distinct from the installations, structures and vessels in the CS and EEZ of India for the purpose of prospecting or extraction or production of mineral oil and natural gas and supply thereof. Undisputedly service tax is a destination based consumption tax, as held by the Honble Supreme Court in the case of All India Federation of Tax Practitioners vs UOI reported in 2007 (7) STR 625. This is also the position accepted by the CBEC in the FAQ which in effect states that service provided from any State other than J&K to J&K is not leviable to tax. CBEC circular No.56/5/2003-ST dated 25.4.2003 clarifies that service tax is a destination based consumption tax and is not applicable on export of services. This clarification was issued consequent to withdrawal of exemption Notification No.6/99 dated 9.4.1999 by which exemption had been granted from the levy of service tax in respect of all services for which payment was received in convertible foreign exchange.
7.6. The services of survey and exploration have been consumed by the block (sea-bed) and each of the blocks being a separate venture, all members of the consortium for each particular block have agreed to maintain separate accounts qua each block. Since the services consumed by the block (sea-bed), are in relation to the exploration business carried out outside India, they do not fulfill the criteria for being taxed, applying the concept of destination based consumption tax.
7.7. The contention of the Ld. AR Commissioner that the Finance Act, 1994 did not provide for consumption as the relevant criteria is clearly contrary to the judgment of the Apex Court in the case of All India Federation of Tax Practitioners vs Union of India 2007 (7) STR 625. It is not open to Ld. AR Commissioner to contend that only provision of service was the criteria and not consumption thereof.
If the argument being advanced by the Ld. AR Commissioner was taken to its logical conclusion it would imply that a company which is incorporated in India and has global operations would be liable to tax even in respect of services which are consumed for business operations being undertaken overseas. For example, if TCS undertakes rendition of software services from USA, UK and for doing so, it consumes services there in USA and UK, then going by what has been contended by the Ld. AR Commissioner, since TCS is a company registered in India, the services consumed by business operations overseas would also be reckoned as having been consumed in India, which is clearly fallacious. If the said interpretation is taken to its logical conclusion, then, instead of the respondent being the operator, if M/s Hardy Exploration and Production, or Niko Resources, which are companies operating outside India, were to be operators then going by the arguments advanced by the Ld. AR Commissioner, the two being overseas entities, the services in question would have been consumed outside India and would not have attracted liability to service tax. What is to be seen is whether the business for which the services are consumed is carried on in India or otherwise.
7.8. In the appeal filed by Revenue the ground of liability to tax under the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 has not been urged. Moreover if the provisions of the Act itself did not apply, the levy could not be extended by interpreting the Rules in a manner which will be inconsistent with the Act. It is settled law that the jurisdiction of an Act cannot be enlarged by the Rules. In the case in hand, since services have not been consumed in India but have been consumed on the blocks/sea bed in the offshore location in the CS & EEZ, where there was no installation, structure or vessel, of India, the levy to service tax itself is not attracted and consequently the question of resorting to the Rules for determining whether such services were received in India does not arise. The judgment of the Supreme Court in the case of Ispat Industries Ltd. v. CCE reported in 2006 (202) ELT 561 (SC) is relied upon in support of this proposition. The judgment of the Apex Court in the case of Nautam Prakash DGSVC, Vadtal and Ors. V. K K Thakkar AIR 2006 SC 2075 is relied upon in support of the proposition that there was a presumption against extra territorial jurisdiction of any Indian statute.
7.9. The ground that the services delivered through a vessel were also liable to tax was beyond the scope of the allegations levelled in the notice. Secondly the term vessel used in Notification 21/2009-ST dated 7.7.2009 did not refer to a vessel which was traversing in the open seas; but referred to vessel which was akin to an installation or structure and which was to be stationed at a fixed location and intended to be stationed permanently (permanence is the test) in the CS & EEZ. The Honble CESTAT in the respondents own case reported in 2014-TIOL-940-CESTAT (supra), in the context of the very same notification for the very same period, has taken this very view.
7.10. The expression installations or structures had been borrowed from Notification No.1/2002-ST dated 1.3.2002, by which provisions of the Finance Act, 1994 were extended to the designated areas in the CS & EEZ as declared by Notification of the Government of India, Ministry of External Affairs S.O.429 (E) dated 18.7.1986 and S.O. 643 (E) dated 19.9.1996. The said Notifications have been issued in exercise of powers conferred under the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976. In terms of the said S.O. the Central Government has declared areas in the CS & EEZ where installations, structures, platforms were existing, co-ordinates of which were specified therein as the designated areas. A perusal of the said schedule to the said Notification would show that the installations, structures and platforms being referred to therein were permanent structures established for the purpose of production of mineral oil and natural gas with specific co-ordinates and do not cover a vessel rendering services while traversing across the CS & the EEZ. Since the expression installations or structures has been borrowed from the Notification issued under the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, it would have the same meaning in the other Notifications issued under the same Act amending the earlier Notification. The installations, structures etc., referred to in the Notification 1/2002-ST dated 1.3.2002, being permanent in nature, and having fixed co-ordinates, the expression vessel referred to therein would also cover a vessel which is permanently stationed like a FPSO/platform having fixed co-ordinates and not a vessel traversing across the CS and EEZ while rendering the services.
7.11. The review ground that soon after the construction activity starts, a structure comes into existence is also beyond the scope of the allegations leveled in the notice. The admitted position in the notice is that there were no installations or structures. Shri Raghavan in his statement specifically stated that only after a well which is drilled is covered with casing, the gap is cemented, manifolds and umbilicals are attached to the sub-surface and sub-seas surface level that a structure comes into existence.
7.12. The ground that Notification No.14/2010-ST was issued only to limit the applicability of Chapter V of the Finance Act, 1994; to services provided in relation to prospecting or extraction or production of mineral oil or natural gas, is incorrect because Entry 1 of the table to Notification 14/2010-ST clearly shows that the scope of the Finance Act, 1994 was extended to the whole of CS & EEZ of India as against only to installations, structures and vessels located in the CS and EEZ of India by Notification No. 21/2009.
7.13. Revenues ground that the individual contracts were required to be examined to buttress the argument regarding services having been received in India, by applying the Rules 2006, is not taken in the Appeal. This is against settled law. Reliance is placed on the judgment in the case of CCE vs Oswal Vanaspati & Allied Industries reported in 1989 (42) ELT 3 (T).
7.14. The submissions on particular contracts referred by Ld AR are:
Revenue sought to tax the hiring of the said FPSO under the category of supply of tangible goods for use service (STGU). There should be supply of tangible goods including machines, equipment and appliances for use, without transferring the right of possession and effective control. The agreement entered into with Aker Contracting FPAS envisaged that the entire FPSO would be handed over to RIL who were free to appoint its own master and crew. Such a bare boat charter could not be taxed under the head of STGU as the effective control had been passed on to RIL. Reliance is placed on Section 115V(a) of the Income Tax Act, which defines the term bare boat charter and on the order dated 10.12.2008 passed by Additional Director of Income Tax (International Taxation) wherein the income tax authorities had, after taking cognizance of the fact that the contract with Aker Contracting FPAS was a bare boat charter, directed the Respondent to deduct TDS @ 4.223%. Reliance is also placed on the judgement of the Apex Court in the case of British India Steam Navigation Company Ltd vs Shanmugha Vilas Cashew Industries 1990 (48) ELT 481 (SC) wherein the Apex Court has dealt with the distinction between a time charter, voyage charter and a bare boat charter by demise. The relevant finding of the Apex Court are as below.
42.?In Halsburys Laws of England 4th edn. Vol. 43, para 401, it is said :
A contract for the carriage of goods in a ship is called in law a contract of affreightment. In practice these contracts are usually written and most frequently are expressed in one or other of two types of document called respectively a charterparty and a bill of lading. In para 402 we read that a contract by charterparty is a contract by which an entire ship or some principal part of her is let to a merchant, called `the charterer, for the conveyance of goods on a determined voyage to one or more places, or until the expiration of a specified period. In the first case it is called a voyage charterparty, and in the second a time charterparty. Such a contract may operate as a demise of the ship herself, to which the services of the master and the crew may or may not be added, or it may confer on the charterer nothing more than the right to have his goods conveyed by a particular ship, and, as subsidiary to it, to have the use of the ship and the services of the master and crew.
43.?Thus for the purposes of ascertaining the responsibility of a charterer in respect of the cargo shipped and landed, it would be necessary to know not only the stipulations between the shipper i.e. the owner of the cargo and the charterer, evidenced by the bill of lading and also those between the charterer and the owner of the ship. If the charter is by way of demise the problem would be simple inasmuch as the bill of lading will be purely between the shipper and the charterer. In cases of a `voyage charter or a `time charter one has to find out the actual terms of the charter to ascertain whether they operated as charter by demise or made the charterer only as an ;agent of the shipowner and if so to what extent so as to ascertain the extent of privity established between the shipper and the shipowner as stipulated in the bill of lading.
44.?Charterparties by way of demise, says Halsbury, at para 403, are of two kinds : (1) charter without master or crew, or bareboat charter", where the hull is the subject matter of the charterparty, and (2) charter with master and crew, under which the ship passes to the charterer in a state fit for the purposes of mercantile adventure. In both cases the charterer becomes for the time being the owner of the ship; the master and crew are, or become to all intents and purposes, his employees, and through them the possession of the ship is in him. The owner, on the other hand, has divested himself of all control either over the ship or over the master and crew, his sole right being to receive the stipulated hire and to take back the ship when the charterparty comes to an end. During the currency of the charterparty, therefore, the owner is under no liability to third persons whose goods may have been conveyed upon the demised ship or who may have done work or supplied stores for her, and those persons must look only to the charterer who has taken his place."
45.?In para 404 Halsbury said Although a charterparty which does not operate as a demise confers on the charterer the temporary right to have his goods loaded and conveyed in the ship, the ownership remains in the original owner, and through the master and crew, who continue to be his employees, the possession of the ship also remains in him. Therefore, the existence of the charterparty does not necessarily divest the owner of liability to third persons whose goods may have been conveyed on the ship, nor does it deprive him of his rights as owners. Whether a charterparty operates as a demise or not depends on the stipulations of the charterparty. The principal test is whether the master is the employee of the owner or of the charterer. In other words where the master becomes the employee of the charterer or continues to be the owners employee. Where the charterparty is by way of demise, the charterer may employ the ship in carrying either;his own goods or those of others. Where the charterparty does not operate as a demise, the charterers right vis-a-vis the owner depends upon the terms of the contract. The contract of carriage is personal to the charterer, and he cannot call upon the shipowner to undertake liabilities to third persons or transfer to third persons his own liabilities to the shipowner unless the contract so provides. A charterparty has to be construed so as to give effect, as far as possible, to the intention of the parties as expressed in the written contract. The stipulations of charterparty may be incorporated in a bill of lading so that they are thereby binding on the parties. It is an accepted principle that when stipulations of the charterparty are expressly incorporated, they become terms of the contract contained in the bill of lading, and they can be enforced by or against the shipper, consignee or endorsee. The effect of a bill of lading depends upon the circumstances of the particular case, of which the most important is the position of the shipper and of the holder. Where there is a bill of lading relating to the goods, the terms of the contract on which the goods are carried are prima facie to be ascertained form the bill of lading. However, if a shipper chose to receive a bill of lading in a certain form without protest he should ordinarily be bound by it. Thus, it cannot be said that the bill of lading is not conclusive evidence of its terms and the person executing it is not necessarily bound by all its stipulations, unless he repudiates them on the ground that, as he did not know, and could not reasonably be expected to know, of their existence, his assent to them is not to be inferred from his acceptance of the bill of lading without objection. Where there is a charterparty, the bill of lading is prima facie, as between the shipowner and an indorsee, the contract on which the goods are carried. This is so when the indorsee is ignorant of the terms of the charterparty, and may be so even if he knows of them. As between the shipowner and the charterer the bill of lading may in some cases have the effect of modifying the contract as contained in the charterparty, although, in general, the charterparty will prevail and the bill of lading will operate solely as an acknowledgement of receipt. There being no dispute in the present case that the master and crew was to be appointed by the Respondent, the hire of the FPSO was a bare boat Charter where the effective control vested with Respondent and consequently no service tax was leviable on the said hire, the same being a transaction of deemed sale. This is also borne by the B/E. The endorsement on it that the transaction involved no foreign exchange remittance was scored out by the Assistant Commissioner.
7.15. Insofar as the second contract for hiring of platform supply vessel Bourbon Hamelin is concerned, demand of Rs 7,41,18,197/- had been confirmed for hire of all similar offshore supply vessels including Bourbon Hamelin vide show cause notice no. V. Adj.15/03-LTU/M/2010-11 dated 21.05.2010 and the Honble Tribunal 2014-TIOL-940-CESTAT held that the demand was unsustainable.
7.16. In respect of hiring of remote operated vehicles (ROV) with M/s Oceaneering International AG, the service tax authorities had assessed and appropriated service tax under the head of mining services, when being rendered within 12 nautical miles of the territory of India. It was only in respect of services rendered beyond 12 nautical miles, that tax was being demanded under the head of STGU. There being no installation, structures, vessels in existence in the CS & EEZ where the ROV is operating, no service tax could be demanded since the levy had not been extended to the entire CS and EEZ. The ROVs were always placed on board vessels which kept traversing through the CS and EEZ, and therefore could not be regarded as being located in India since the term vessel in Notification No. 21/2009 referred to a fixed vessel and not a moving vessel ( Tribunals order in RIL v. CST) (supra).
7.17. The fourth contract that has been referred to by Ld AR was with M/s Aker Kvaerner Subsea Ltd. The said contract was for technical direction and onsite supervision during installation & pre commissioning of subsea facilities / equipment. Since the said service was consumed by the Respondents business located in an offshore location i.e. the sea bed beyond 12 NM where no installation, structure or vessel existed, the said service does not attract the levy.
7.18. The fifth contract that had been referred to was with GX Technologies EMEA Ltd. In terms of this contract, the said company was to undertake processing of the 3D Seismic data provided by the respondent at the companys UK office. The seismic data pertained to an area of the sea bed beyond 12 NM where no installation, structure or vessel existed and the processed data was consumed by the said location. Further, the service of processing of 3D seismic data of the said area of sea bed located beyond 12 NM, was performed totally outside India. Therefore, the said service does not attract the levy.
7.19 The ground in Revenues appeal that every activity of Survey & Exploration leads to construction of installations/structures is both incorrect, baseless, and beyond the scope of allegations levelled in the notice. Nothing can illustrate this better than the fact that out of the 33 blocks which were licensed to the respondent and where Survey & Exploration work was carried out, as many as 30 had to be surrendered as they were not found to be not viable. The Survey & Exploration is conducted over huge and large swaths of the sea bed, in the CS and EEZ of India, of which only a miniscule percentage of area is found to be a viable prospect. As such, the underlying presumption in the Notice that every activity of Survey & Exploration ultimately leads to construction of installations, structure or vessel, is totally erroneous.
8. The Ld Commissioner AR made the following submissions:
(1) Show Cause Notice does not seek to apply Notification No. 14/2010 dated 27.02.2010 retrospectively. Paragraph numbers 9.2 & 9.3 of SCN elaborate the applicability of Notification No. 21/2009, and also bring out the fact that the facilities for production, including the pipeline, platform, umbilicals etc., are called structures. Further Notification No. 21/2009 is much wider in scope than the Notification No. 14/2010. The SCN only says that Not 14/2010 reinforces the intention of the Government to levy tax in the whole of the CS and EEZ. The dictionary meaning of reinforce is to provide more support. A harmonious reading of the complete SCN needs to be done.
(2) The Order of Greatship India (supra) is not applicable
(i) as no demand of service tax is made from RIL relating to hiring of rigs for drilling purposes which is the case in Greatship ; major part of demand is on leasing of FPSO which were providing services to structures or platform supply vessels which were providing services to rigs.
(ii) Another major element of demand relates to hiring of equipment which was to be placed on rigs or used on the vessels and was thus covered within the scope of Notification No. 21/2009;
(iii) A major contract was for hiring of Remote Operated Vehicle Packages(ROV) operated by a crew out of a cabin placed on the rig. They are linked to the rig by either a neutrally buoyant tether or, often, when working in rough conditions or in deeper water, a load-carrying umbilical cable is used along with a tether management system (TMS) and this service is outside the scope of Greatship judgment;
(iv) Support vessels ferry goods and personnel from onshore to offshore & vice versa for oil exploration activities at installations, structures and vessels located in the CS and EEZ and thus covered in the scope of Notification 21/2009 and outside the scope of the judgment of Greatship India;
(v) Similarly, other contracts for various other services were also outside the scope of the judgment of Honble High Court;
(vi) Appeal against Greatship (India) judgment is admitted by Honble Supreme Court which while admitting the appeal and the stay application had observed Parties are directed to complete the pleadings at the earliest. The matter will be heard on the SLP paper books.
It was accordingly submitted that applying the ratio of the judgment of Honble High Court of Bombay in the case of Commissioner of Customs, C. Ex and Service Tax vs. Jolly Board Ltd. 2015(323)ELT 80 (Bom), as the appeal has been admitted by Honble Supreme Court, Honble Tribunal should not rely on the judgment of Greatship (India) and should deal with the issue on merits.
(3) As the Commissioner has erred in holding that the Show Cause Notice sought to apply the provisions of Notification No. 14/2010 retrospectively, the case may be remanded to the adjudicating authority to decide the case afresh in light of the charges raised in the Show Cause Notice.
(4) An artificial distinction was being sought to be created that Notification No. 21/2009 sought to tax services only provided to structures, installations and vessels in the EEZ and CS of India. For the purpose of provisions of Chapter V of Finance Act, 1994, the services provided by any person from or through or upon or to these vessels etal will be treated as services provided in India. Services are received by a person, and not by an inanimate object, and in these cases the person is providing service to RIL. Reliance is placed on the case of Reliance Industries Ltd. v/s CST, LTU, Mumbai 2013-TIOL-1900-CESTAT-MUM (Ref para 11 of the Order) and TRU letter D.O.F.No.334/13/2009-TRU dated 06.07.2009 Para 7.
(5) What decides whether the service is provided in India are the provisions of Taxation of Services(Provided from outside India and received in India) Rules, 2006.
(ii) The submission by RIL that the services have been provided to the seabed or the sub-sea of the continental shelf of India or the EEZ is based on an incorrect reading of the case of Indian National Ship Owners Associations and All India Federation of Tax Practitioners. RIL had sought to highlight that service tax is a destination based consumption tax. The Honble Supreme Court while dealing with the said issue had specifically used the word consumption with respect to the consumer and had observed that the tax so liable is to be paid by the consumer. The terms destination was used with reference to the place where such service was provided. So far as the principle of determination of destination is concerned, it is well established that the same needs to be determined in terms of the laws framed under the provisions of Chapter V of Finance Act, 1994. The same needs to be accordingly determined in terms of Taxation of Services (Provided from outside India and Received in India) Rules, 2006. The specific headings under which each of the services are taxable under the above said Rules and the category have been specified in the SCN and are thus liable for tax as they have been provided in India.
(iii) Under the existing laws there are three words which are used in the service tax statute viz., service provided, service received and services performed. The destination of the services can only be determined by (i) location of the service provider (ii) location of the recipient (consumer) of the services and (iii) place whether the service has been performed. It cannot be said that the service has been consumed by an innate object. Just like the service of construction cannot be consumed by a building but the builder is a consumer similarly, the service of mining cannot be consumed by the land but it would be miner who would be the consumer.
(6) On the following Contracts the Ld AR submitted
(i) Supply of Tangible Goods (STGU) service:
Present notice primarily seeks to recover service tax on leasing of support vessels such as FPSO, platform supply vessels, equipment leased for operation and maintenance of offshore oil exploration activity. It is mentioned in the Bill of Entry for FPSO: NO FOREIGN EXCHANGE REMITTANCE IS MADE AGAINST THESE SUPPLIES. These facts negate M/s. RILs claim of import of FPSO. RIL had an option to purchase the FPSO anytime during the term of contract but it had not been purchased till February, 2010. Ledger produced by RIL shows that lease rent was paid upto February, 2010. Thus, RIL is liable to pay service tax as a recipient of service in India; Case of United Shippers Ltd. v/s CCE, Thane II [2015 (37) STR 1043 (Tri.-Mumbai) is not applicable as the issue there was whether the value of the transport charges for bringing the goods from high seas to the port would be liable to customs duties or service tax; there the issue of double taxation was a valid point. However, the instant case is different as it involves bringing of goods into India (importation) for the purpose of providing services. In such a case there are two transactions. One for importation, and second for renting, each of which is a distinct transaction. It was highlighted that Bill of Entry is a statutory document for bringing of any goods into India and the taxability under the service tax is to be examined and levied in terms of a contract.
On the point raised by RIL that the transaction was not covered under service tax as it was bareback charter with actual transfer of possession and control , it was argued that this is an absolutely new issue which was not raised either at the time of investigation nor before the Adjudicating Authority and thus cannot be brought at the stage of Appeal before the Tribunal.
(ii) Commercial training or Coaching Service On examination of contracts entered by RIL with M/s. Donald R. Lowe and M/s. Stephan Alan Graham it is seen that training programme was conducted at RIL premises at Mumbai. Therefore RIL is liable for payment of service tax on the value of service charges to these trainers under the category of Commercial Training or Coaching which falls under Rule 3 (ii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006
(iii) Management Consultant service is covered under Rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. RIL, being a service receiver having fixed establishment in India, is liable to pay service tax.
(iv) Manpower Recruitment or Supply Agency Service On examination of contracts entered by RIL with M/s. AGR Peak Consultancy Services Ltd., M/s. Richard Brent Kopulos, M/s. Stephan Lembart, etc. at para 8.9 of the SCN it is seen that this service is covered under Rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. RIL, being a service receiver having fixed establishment in India, is liable to pay service tax.
(v) Few other contracts such as those with Enventure Global Technology, International Logging SA and Vetco Gray Pte Ltd.
show that the service is covered under Rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. RIL, being a service receiver having fixed establishment in India, is liable to pay service tax on the services provided to installations, structures and vessels in respect of their oil and exploration activities carried out in offshore fields.
As per Section 65 (104a) of the Finance Act, 1994, survey and exploration of mineral means geological, geophysical or other prospecting, surface or sub-surface surveying or map making service, in relation to location or exploration of deposits of mineral, oil or gas. CBEC vide circular dated 17.09.2004 has given the following clarification-
Survey and exploration of minerals: The service tax would be leviable when the service of survey and exploration of minerals is provided by any person to a customer. The survey and exploration may result in locating ores, crude etc. Subsequent to survey and exploration, the mineral is extracted and transported for refining, processing and production. The service tax under this category would be limited to the services rendered in relation to survey and exploration only and not on the activity of actual extraction after the survey and exploration is complete. The transport, refining, processing or production of the extracted products would also be out of the ambit of service tax. Activities such as seismic survey, collection/ processing/interpretation of data and drilling or testing in relation to survey and exploration would, however, fall within the ambit of taxable service. (7) Show Cause Notice was issued to RIL for recovery of service tax under supply of tangible goods service, manpower recruitment or supply agency service, technical inspection and certification service, etc. These services are used for transport of goods and personnel from onshore to offshore, extraction of mineral, processing of mineral, and storage of minerals. Therefore, it is incorrect to state that all the services received from outside India by RIL were used for survey and exploration. As per the above said CBEC circular dated 17.09.2004, these activities are not covered under survey and exploration.
(8) RIL has co-ordinated all their offshore activities from their onshore bases located at Kakinada, Paradip, Visakhapatnam and Pipavav. The agreements which RIL entered into with service providers from outside India who are not having a fixed establishment in India reveal that contractors (i.e., service providers from outside India) place of business with full style, address and telex / telefax number etc. is shown as in a country other than India and the RILs (service recipient in India) place of business with full style, address and telex / telefax number etc. is shown as M/s. Reliance Industries Limited, 3rd Floor, Maker Chambers IV, 222, Nariman Point, Mumbai 400 021 or M/s. Reliance Industries Limited, Building No. 8/A, Ground Floor, Reliance Corporate Park, Ghansolin, Thane-Belapur Road, Navi Mumbai 400 701, India. Thus (i) M/s RIL is incorporated in India; (ii) Their fixed establishment is in India and all the correspondence has been made from these addresses; and (iii) An address cannot exist at an undefined place without any fixed building etc. Accordingly, the above referred terms of agreements / contracts satisfy the provisions of sub-sections (1) (a) and 1(b) of the Section 66A of the Finance Act, 1994, thereby rendering such services, as discussed supra, chargeable to service tax as services received from outside India and to treat the said services as if the recipient in this case, RIL, had themselves provided the service in India, thereby attracting the provisions of Section 66A of the Finance Act, 1994.
9. We have considered the submissions made by both sides.
9.1 We find that the Commissioner in his order proceeded to hold that in terms of paras 9.5 and 9.6 of the show cause notice, DRI sought to give retrospective effect to the amendment made in Not 21/2009 vide NotificationNo.14/10 dated 24/2/2010 by which the provisions of the Finance Act were extended to the whole of the CS and EEZ for specified purposes. The Commissioner came to the conclusion that Notification 14/2010 could not be given retrospective effect. He relied on various decisions including CC Vs. Spice Telecom[2006(203) ELT 538] and Bombay Industries Pvt Ltd. Vs. UOI[1995(77) 32(SC)]. Therefore he dropped the entire demand of service tax except an amount of Rs 33,94,064 being the admitted liability under the head management, maintenance or repair service.
9.2 The grounds of appeal formulated by the Committee of Chief Commissioners are:
(a) The proposal in the show cause notice is not to give retrospective effect to Notification No. 14/2010. Show cause notice only proposes to give effect to Notification No. 1/2002 as amended by Notification No. 21/2009 whereby the provisions of Chapter V of the Finance Act were extended to the installations, structures and vessels in the Continental Shelf of (CS) and Exclusive Economic Zone (EEZ) of India.
(b) Commissioner held that Notification No. 1/2002 as amended does not apply to installations that are under construction. Whereas any service rendered during the construction and installation can be delivered only through a vessel. Further soon after construction activity starts, a structure comes into existence which is further built into an installation. Therefore all services related to oil exploration or prospecting or to construction of installations in the CS and EEZ are services delivered to structures or vessel and the provisions of Notification No. 1/2002 as amended by Not 21/2009 would apply.
(c) Categorization under Notification 14/2010 into two categories-- (i) up to stage of construction and (ii) for constructed installations-- does not imply that the services in the CS and EEZ received prior to issue of Notification 14/2010 were exempted. The intention of the notification was to limit the applicability of the provisions of Chapter V of the Finance Act only to services provided in relation to prospecting or extraction or production of oil or natural gas.
10. The issue in the present case requires an answer to the following question:-
Whether the services received by RIL and listed in the Table in para 6 above are taxable services provided in the taxable territory under the provisions of Notification No. 21/2009 dated 7/7/2009.
10.1. We find that the proceedings center around various notifications declaring certain areas in the Territorial waters, CS and EEZ to which the provisions of Finance Act 1994 are extended. It would be useful to reproduce these notifications:
Position between 1/3/2002 to 6/7/2009 Notification No. 1/2002-ST dated 1/3/2002 Service Tax Extension of provisions of Chapter V of the Finance Act (32 of 1994) to the designated areas in the continental shelf and exclusive economic zone of India In exercise of 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 (80 of 1976), the Central Government hereby extends 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.
Position between 7/7/2009 to 26/2/2010 Notification No. 21/2009-ST dated 7/7/2009 amending the notification No. 1/2002-ST dated 1/3/2002.
Extension of Provisions of Chapter V of the Finance Act, 1994 (32 of 1994) to designated areas in the continental shelf and exclusive economic zone of India [Notification No. 1/2002-S.T., amended] In exercise of the powers conferred by clause (a) of the 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 (80 of 1976), the Central Government hereby makes the following amendments in the Government of India in the Ministry of Finance (Department of Revenue) Notification No. 1/2002-Service Tax, dated the 1st March, 2002, published in the Gazette of India Extraordinary, vide number G.S.R. 153(E), dated the 1st March 2002, namely :-
In the said notification, 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.
Position between 27/2/2010 to 1/7/2012 Notification No. 14/2010ST dated 27/2/2010 superseding notification 1/2002-ST.
Extension of provisions of Chapter V of Finance Act, 1994 to Continental Shelf and Exclusive Economic Zone of India Notification No. 1/2002-S.T., superseded.
In exercise of the powers conferred by clause (a) of the 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 (80 of 1976), and in supersession of the Government of India in the Ministry of Finance (Department of Revenue) notification No. 1/2002-Service Tax, dated the 1st March, 2002, published in the Gazette of India, Extraordinary, vide number G.S.R. 153(E), dated the 1st March, 2002, except as respects things done or omitted to be done before such supersession, the Central Government hereby extends 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 Sl. No. The areas in the Continental Shelf and the Exclusive Economic Zone of India Purpose (1) (2) (3)
1.
Whole of continental shelf and exclusive economic zone of India 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.
2. 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 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.
It is clear that the authority to extend the scope of the Finance Act 1994 to the CZ and EEZ is derived from the powers exercisable under the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976. 10.2. We may first deal with the grounds for review proposed by Revenue.
The review Order states that Not 21/2009 will apply to installations under construction because services rendered during the construction can be delivered only through a vessel.
Under the Taxation of Services (Provided from Outside India and Received in India) Rules 2006, as they stood in the relevant period, India includes the installations, structures and vessels located in the Continental Shelf and Exclusive Economic Zone of India. This means that under the provisions of Section 66(A) read with the Rules 2006, the service recipient is liable to pay service tax on reverse charge basis only in respect of any service provided and which is consumed at such installations, structures and vessels. However in the present case, as seen from Table in para 6, a large section of the services are for pre-construction activity which is not included in the scope of definition above. Reliance is placed on Tribunals decision in the case of Reliance Industries vs Commr. of Service Tax. 2013-TIOL-1900-CESTAT-MU which held that pre-construction activity and during-construction activity is not included in the scope of the notification. We find that it was only on supersession of Notification1/2002ST by Not 14/2010 that the concept of service tax on services for pre-construction activity was introduced. In the Not 14/2010, the scope of service tax was bifurcated into two parts: services for pre-construction and during-construction activities and services for existing installations, structures and vessels. The period of dispute is prior to issue of this notification. Revenues contention that the Not 21/2009 covered under-construction installations as well because services can be delivered through a vessel, has to rejected as this was never a ground in the SCN. Even otherwise this contention is flawed because the three words i.e. installations, structures and vessels have to be understood in an adjunct manner following the Noscuntur a Socii Rule of Construction. That is, where the associated words are susceptible of an analogous meaning, they are to be read in a cognate sense. It was held by the Tribunal in the case of Reliance Industries vs Commissioner of Central Excise & Service Tax LTU 2014-TIOL-940-CESTAT-MUM, that the word vessel in the phrase installations, structures and vessels must be taken to mean a stationary vessel when read with the words installations and structures. The Tribunal held that the vessels covered therein would be such vessels which are akin to installation and structures and which are to be stationed at a fixed location in the Continental Shelf and Exclusive Economic Zone of India while rendering services. In our opinion such vessels may be of the type such as floating or submersible drilling of production platforms, generally designed for the discovery or the exploitation of offshore deposits of oil and natural gas. The vessels in question are offshore supply vessels which are different from function in a fixed or stationary position.
We may see the issue from another perspective too. We find that even in Not 14/2010, the phrase used is activities pertaining to construction of installations, structures and vesselsin the CS and EEZ. It would be incongrous to think of construction of vessels in the CS and EEZ for the obvious reason that vessels are not constructed in the ocean as such. Therefore the contention of Revenue that the Notification extends the ambit of taxable territory to vessels traversing across the seas in the CS and EEZ is fallacious.
While opposing the view that the notification of 2009 does not apply to installations in the CS and the EEZ which are under construction, Revenues ground for review of the impugned Order states that any service rendered during the construction of an installation can be delivered only through a vessel. Revenue seems to imply that since the word vessel is used in the notification of 2009, and service provided by vessel is covered, therefore the service for construction of an installation is delivered through a vessel. We find this contention self-defeating. The construction of the notification is such that it aims to extend the taxable territory of India to installations, structures and vessels in the CS and EEZ. That is, the vessel itself becomes taxable territory. A vessel could even be traversing, during the oil exploration work beyond the 200 miles limit of the EEZ (taxable territory) and within this territory, back and forth. Would the same vessel become taxable territory at one moment and non-taxable territory in another moment? Therefore it would be absurd to say that the taxable territory keeps shifting when a vessel is rendering service to the installations.
We are further strengthened in our view by the wording used in SO 643 (E) issued under the Maritime Zones Act from which the Notification under the Finance Act 1994 1/2002 derives its authority. The SO extends the validity of enactment i.e. the Finance Act to the CS and EEZ only in respect of installations, structures and platforms. The validity was not extended to vessels. Therefore the meaning of the word vessels used in the Not 21/2009 does not appear to be intended to include vessels traversing across the CS and EEZ. Even in Not 14/2010 the taxable territory stands extended to 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. The key words are constructed for the purpose. These words imply that only vessels specially constructed for this purpose would be covered and not any supply vessels which are merely used to transport men and material from onshore to offshore locations.
In view of our discussion above we do not agree with the ground of review. To support such an interpretation as done by Revenue, would be incorrect.
10.3. The next ground of review states that as soon as construction starts, a structure comes into being which becomes an installation. The SCN alleges (para 4.8) that These vessels, the equipments, the drilling pipes and related structures, leading to survey and exploration of oil & gas, putting up of manifolds and umbilical to extract the oil & gas form a structure or installation individually and severally on its own. The various services received for the erection of entire structure are the important part of the exploration activity carried, leading to complete formation, which will lead to extraction of oil... We are not able to appreciate this view. The Chambers 21st Century Dictionary defines structure as 1. the way in which the parts of a thing are arranged or organized. 2. a thing built or constructed from many smaller parts. 3. A building.. The connotation of this word is quite estranged from the way Revenue perceives it. A structure would mean a completed structure. Ld AR Commissioner referred to the Apex Court judgement in the case of Municipal Corporation vs IOCL AIR 1991 SC 686. We have gone through this judgement. It decides an issue relating to rateable value of land and buildings under the Bombay Municipal Corporation Act. The question which arose in that case was whether storage tanks built on land would get covered under the definitions of land and buildings and be exigible to property tax. The definition of land under Section 3(r) of the said Act includes things attached to the earth The definition of building under Section 3(s) includes structures. The Honble Court discussed that structure means something which is constructed in the way of being built up as is a building. Further that, the question what is a structure is a question of fact, the question what is a structure within the meaning of a particular statute or regulation is a mixed question of law and fact. The Honble Court came to decide that, as the value of land gets increased by virtue of the erection of tanks, they are structures within the definition of land and building and thereby exigible to property tax. When we compare the facts of that case with the facts in the present case, we find them incomparable. In the said case the finding was based on statutory definitions of building and land in the said Act which were interpreted by the Honble Court. In the present case no such statutory definition guides us as to what is a structure. Therefore, as enunciated by the Honble Court, in the present case we have to view the matter in the context of law and facts. That is, we have to see the usage of the word structure in the context of the notification in consideration. And from the context it is clear that incomplete structures cannot fall within the meaning of the word structure as used in the notification in the context of its association with the word installation. Otherwise there would have been no need to introduce two distinctly separate categories of pertaining to construction of and gonstructed in the Not 14/2010.
10.4. One of the grounds for review, which was argued vehemently by both sides, is the relevance of Not 14/2010 in the present dispute. The Commissioner held in his order that Revenue sought to give retrospective effect to the Notification 14/2010. The Ld. A.R. strongly contested this. He argued that the words Any service provided for all activities pertaining to construction of installations, structures and vessels for the. in notification 14/2010 dated 27.02.2010 are not sought to be applied retrospectively.
We find that on 27/2/2010, notification 16/2010 was issued which defined India in the Taxation of Services (Provided from outside India and Received in India) Rules, 2006 as below:- 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.
We may refer to the statutory provisions. An exhaustive definition of India was inserted in Section 65B of the Finance Act 1994 with effect from 1.07.2012 as under:
(27) "India" means,--
(a) the territory of the Union as referred to in clauses (2) and (3) of article 1 of the Constitution;
(b) its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976;
(c) the seabed and the subsoil underlying the territorial waters;
(d) the air space above its territory and territorial waters; and
(e) 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;
We may also refer to the para of the show cause notice which impinges on this issue, as reproduced below:
9.5 Notification No. 14/2010-Service Tax dated 27-02-2010 further reinforced the intention of the Government of India to levy service tax on the services received and utilized in the whole of continental shelf of India and Exclusive Economic Zone of India 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 supply thereof. Therefore it cannot be said that service tax on the services used for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof are leviable to service tax only from 27-02-2010 in as much as there was no such exclusion provided in Notification No. 21/2009-Service Tax dated 07-07-2009.
We find that the above lines seem to translate the clear intention of notification 14/2010 into presumed intention in notification 21/2009. If Revenues view as brought out in the ground of review were so transparently clear, there would have been no need to introduce a specific category of services for construction activities in the Not 14/2010. And in any case if the argument of Revenue is that the Not is not intended to be applied retrospectively, then its contention fails all the more. This is because then, the Not 21/2009 should be applied in the strictest manner and not in a manner to give it an intended meaning.
Revenues contention that Not 14/2010 was referred to in the SCN only to emphasize that the extent of taxability was limited merely for the oil exploration activities is quite evidently not borne from a simple reading of the notification, and therefore needs no elucidation from us. The intention to include all activities including those for construction under scope of service tax actually got fructified only in 2012 in the statutory definition of India in Section 65B, which includes well defined territories in
(i) clause (b) as Territorial waters, CS and EEZ (which would cover all activities) and
(ii) in clause (e) as installations in the CS and EEZ.
These two categories of taxable territory are distinct. The statute included the activities pertaining to contruction only from 2012. It is established law that the primacy of the statute cannot be bypassed by reading some intention in a notification. Reliance is placed on the Apex Court decision in the case of Ispat Industries ltd. Vs. Commissioner [2006(202) ELT 561(SC)].
?24. If we read Rule 9(2) of the Rules independently without considering it along with Section 14 of the Act, then of course the submission of the learned counsel for the Revenue could be sustained. However, in our opinion, Rule 9(2) has to be read along with Section 14 and it cannot be read independently. As already stated above, Section 14 creates a legal fiction and we have to see the ordinary value of the imported goods in the course of international trade at the place and time of import. This means that specific cases of import should be ignored. In fact, it is for this reason that Rules 4, 5 and 6 of the Rules have been promulgated. The actual price paid for the goods can only be taken into consideration provided the sale is in the ordinary course of trade under fully competitive conditions and the other provisions of Rule 4 are satisfied.
??26. In our opinion if there are two possible interpretations of a rule, one which subserves the object of a provision in the parent statute and the other which does not, we have to adopt the former, because adopting the latter will make the rule ultra vires the Act.
29.. Hence, if there is any conflict between the provisions of the Act and the provisions of the Rules, the former will prevail. However, every effort should be made to give an interpretation to the Rules to uphold its validity.
??32. It may be mentioned that the Mimansa Rules of Interpretation were our traditional principles of interpretation laid down by Jaimini in the 5th Century B.C. whose Sutras were explained by Shabar, Kumarila Bhatta, Prabhakar, etc. .We can use any system of intepretation which helps us solve a difficulty. In certain situations Maxwells principles would be more appropriate, while in other situations the Mimansa principles may be more suitable. One of the Mimansa principles is the Gunapradhan Axiom, and since we are utilizing it in this judgment we may describe it in some detail. Guna means subordinate or accessory, while Pradhan means principal. The Gunapradhan Axiom states :
If a word or sentence purporting to express a subordinate idea clashes with the principal idea, the former must be adjusted to the latter or must be disregarded altogether.
??36. In our opinion, the Gunapradhan principle is fully applicable to the interpretation of Rule 9(2). Rule 9(2) is subservient to Section 14. We must, therefore, interpret it in such a way as to make it in accordance with the main object that is contained in Section 14 of the Customs Act. It may be that in isolation Rule 9(2) conveys some other meaning, but when it is read along with Section 14 of the Act, it must be given a meaning which is in accordance with the object of Section 14. The object of Section 14 is primary whereas the conditions in Rule 9(2) are the accessories. The accessory must, therefore, serve the primary.
From the above it is clear that the definition of India in notification 21/2009-ST cannot be given a presumed meaning and therefore the services provided for pre-construction and during-construction activities will not fall within the ambit of the notification. What is introduced in the Not 14/2010 and in the Statute in 2012 cannot be given retrospective effect.
11. So far we have given our analysis on the Appeal grounds of Revenue which are based on the Review Order of the Committee of Chief Commissioners. Accordingly we have given our findings on the interpretation of the Notification 21/2009 as to what constitutes taxable territory on the aspect of vessel, and under-construction structures. We note that the aspect of application of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 has been stated at length in the SCN and also discussed by the Ld AR. Therefore we proceed to the larger issue of territorial jurisdiction i.e. from the perspective of territorial jurisdiction of the Finance Act 1994.
11A. Both sides have argued vehemently in this regard. The ld. advocate submits that the provisions of chapter V of the Finance Act, 1994 were, for the first time, extended only with effect from 27.02.2010 to the whole of the CS and EEZ of India for the purpose of taxing any service provided for activities pertaining to construction of installations, structures and vessels for the purpose of prospecting or extraction or production of mineral gas and natural oil and supply thereof. The contention is that the coverage of the Finance Act 1994 was for the first time extended to the whole of the CS and EEZ, which includes the subsoil and the seabed in the submarine areas, only with effect from 27.02.2010 vide Notification 14/2010ST. And since there were no installations or structures in the CS and EEZ of India for which services were provided and the services were consumed by the block (sea-bed), by no stretch of imagination the levy could have been extended to services provided to and consumed by the seabed in the CS and EEZ of India during the relevant period in terms of notification 21/2009 ST dated 7.7. 2009.
11B. On the other hand, the Ld Commissioner AR refers to Section 66(A) (1) and argues that RIL entered into agreements with service providers from outside India whose place of business is other than India. The agreements show the service recipient in India with full style, address and telex number etc of RIL in India. The fixed establishment of RIL is in India and an address cannot exist at an undefined place without any fixed building etc. Therefore the agreements/contracts satisfied the provisions of subsection (1) (a) and 1 (b) of section 66A of the Finance Act 1994 thereby rendering such services chargeable to service tax as services received from outside India and treating the recipient, that is RIL, as provider of the service. He further argues that the Service tax statute considers (1) service provided, (2) service received and (3) services performed as the critical elements to determine whether service is provided in India. The destination of the services can only be determined by (i) location of the service provider (ii) location of the recipient (consumer) of the service and (iii) place where the service has been performed. According to him it cannot be said that the service has been consumed by an innate object such as the seabed. Once it is established that the services have been provided to RIL and they have been received (in contradistinction to the term consumed) in terms of Taxation of Services (provided from outside India and received in India ) Rules 2006, they would be liable to tax under section 66A.
11C. We note that the territorial jurisdiction of service tax law is laid down in Section 64 which states that chapter V of the Finance Act 1994 extends to the whole of India except the State of Jammu and Kashmir. By virtue of notification 21/2009, the provisions of chapter V were extended to the installations, structures and vessels in the CS and EEZ of India. It is in the background of this statutory matrix that we have to address the issue. We refer to some judicial pronouncements on territorial jurisdiction. The Supreme Court in the case of All India Federation of Tax Practitioners vs Union of India 2007 (7) STR 625 (SC) held that 7. In the light of what is stated above, it is clear that Service Tax is a VAT which in turn is a destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. Service tax is a value-added tax. From this pronouncement we may gather that the tax is leviable on services provided within the country.
A judgement directly relatable to the facts of the present case is Cox and Kings India Ltd versus Commissioner of Service tax, New Delhi 2014 (35) STR 817 (TRI-Del). We refer to the relevant paragraphs (g) Board Circular 36/4/2001 dated 8-10-2001 also clarifies the issue that since (at present) levy of Service Tax Extends to the Whole of India except the State of Jammu and Kashmir; and India includes the territorial waters of India which extend up to 12 nautical miles from the Indian land mass; and provisions of the Act are not extended to designated areas in the CS and the EEZ of India, services provided beyond the territorial waters of India are not liable to service tax.
(h) The above Board circular fell for consideration by this tribunal in Foster Wheeler Energy Ltd vs CCE&C, Vadodara-11 2007 (7) STR 443(Tri-Ahmd). This Tribunal, referring to the above Board Circular ruled that services provided beyond the Indian territorial waters will not attract service tax.
(i) Qua the text and context of provisions of the Act, it is clear that service tax is a destination based consumption levy. The taxable event, in all events, qua the provisions of the Act, in particular provisions of section 65, is on provisions of a taxable service. Thus, where a service is provided and consumed outside the territorial locus of the Act, the consideration received thereof would not be subject to levy of service tax, under the substantive and processual provisions of the Act .
(j).. It is only respect of services provided for outbound tours; at foreign locations and on the consideration received therefor, that the appellant proceedings relate to. On the authority of the precedents i.e. Ahmedbbhai Umarbhai & Co and Ishikawajma-Harima Heavy Industries Ltd., it is clear that even composite transactions involving raft of apparently taxable services are susceptible, and ought to be, vivisected, to ascertain which of the services or components thereof fall within the ambit of the Act and the services that fall outside such ambit. As services provided for outbound tours are provided and consumed outside the Indian territory; are beyond the province and purview of the provisions of the Act, the consideration received which corresponds and is relatable to services provided outside the Indian territory required to be excised by applying the doctrine of apportionment. On such vivisection, the consideration attributable to the services provided outside the Indian territory must be excluded, as this is not subject to levy and collection of Service Tax, under provisions of the Act. This conclusion is also the logical corollary of the non-derogable premise that Service Tax is not a tax on the pursuit of the profession of providing a taxable service but is a tax on the provision of a taxable service, a destination based consumption tax.
(k) The fundamental fallacy in the substantive demise of the adjudicating authority, in our considered view, is applying the provisions of the act (which authorizes the levy and collection of service tax as a destination and consumption based tax and in respect of a service defined and enumerated in the Act to be a taxable service), to a service provided and consumed beyond Indian territory, within which alone the legislation operates and authorises the levy and collection of tax. As pointed out in Ahmedbhai Umarbhai &Co, the very territorial limits to the operational efficacy of the Act, sanctions and obligates apportionment of the consideration received on tour operator service; and consideration attributable to aspects of this taxable service which are provided and consumed outside the Indian territory must be execised from the gross consideration received, even where is service is provided and consume partly within India and partly without.
(m) On the aforesaid analysis we conclude that the consideration received for operating and arranging outbound tours, even if falling within the scope of the amended definition of tour operater; (provided by the assessee and consumed by the tourist customers beyond Indian territory), is not liable to levy collection of service tax, under provisions of the act. We hold that provisions of the Act do not have an extraterritorial operation. The above judgements elucidate the law that service tax is not a charge on business but on the consumer on the provision of a taxable service in the taxable territory. Service provided outside the taxable territory cannot be subject to levy of Service Tax. In the present case the notification applicable during the dispute period extends the taxable territory to the installations, structures and vessels in the CS and EEZ of India. It does not extend to the entire areas of the CS and the EEZ. It also clearly does not extend to exploration activities pertaining to the construction of installations, structures and vessels for the purpose of extraction of oil. Had this been the intention or the definite implication, there would have been no need to introduce this phraseology specifically in the notification 14/2010 dated 27.02.2010. The list of activities enumerated in the table in Para 6 above have to be seen in relation to the various contracts entered into by RIL with the service providers. The details of the contracts clearly show that many of the activities related to the construction of installations or mere exploration. The fact that ultimately only 30 out of 33 Blocks showed positive results culminating in production itself indicates that the activities do not relate to services provided by/to the installations. There is no basis whatsoever for such presumption. Some of the services are discussed by us in following paras as being services that are received in the installations under construction in the CS and EEZ; the question of taxing such services does not arise being outside the scope of the notification which defines only existing installations as falling in the territory of India. The review directions/grounds of appeal further confuse the issue. On the one hand, the services provided to/ by installations structures etc are sought to be taxed. On the other hand, the services enumerated in the table in para 6 pertain to activities in respect of installations which are not installed as yet. For example the supply of FPSO under the STGU service which constitutes the major chunk of the demand, is sought to be taxed for providing service to installations, structures and vessels in the CS and EZ. It is simply beyond our comprehension as to how the supply of FPSO can be considered as a service to the installation (taxable territory) in the CS when the FPSO itself is the so called installation which is to be installed in the CS and EEZ. The learned AR submits that the service is provided to the service recipient, that is RIL, who are in India, and not the seabed which is an animate object. We do appreciate that service has to be provided to a service receiver who is a person. But first the jurisdiction of Service Tax law has to be seen. Essentially, the jurisdiction of service tax law under Section 64 is such that only service provided in the taxable territory is the service that can be taxed. Only the installations and structures as notified under the Notification fall in the ambit of the definition of India which is the taxable territory. If the services are provided anywhere in the seabed of the CS and EEZ which is not a taxable territory, the same cannot be treated as a service provided in the taxable territory. The location of the recipient is important but at the same time what has to be considered, qua the statutory provisions of Section 64 and 66, before deciding the location of the recipient, is whether the service is provided in the taxable territory. The jurisdiction of the Finance Act cannot be decided by the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 Rules. The jurisdiction is laid in the Finance Act, 1994. The Rules will come into play only when the jurisdiction is there.
A good analogy given by the ld advocate as a rebuttal to Ld ARs argument is that if the office of RIL is located in India and service contracts are executed with RIL in India for execution of services provided abroad, they cannot be taxed being the services provided outside the taxable territory of India. This example shows that if the reasoning of the ld AR were to be accepted, then even the service provided by the installations outside the limits of EEZ would have to be taxed only because the installations are located in the EEZ which is deemed to be in Indian territory and because RIL office is located in India. Such a proposition will, therefore, lead to contradictory conclusions.
It was held by the Honble Apex Court in the case of Kiran Singh and Ors vs Chaman Paswan and Ors [1955] 1 SCR 117 that a statutory authority cannot act beyond the four corners of the statute. Therefore, in the present case, the confirmation of demand beyond taxable territory is clearly ultra-vires.
11D. Apart from merits in favour of the respondent, we also find that the issue in the present case stands decided by the High Court of Mumbai in case of Greatship India Ltd. vs. Commissioner of Service tax [2015(39) STR 754(Bom)]. The relevant paras of the judgment are reproduced below:
35.?In the present case, we find that the plain reading of the 2009 Notification would give a clear meaning and it cannot be said to be obscure. The words are clear and plain capable of giving only one meaning that the provisions of Chapter V of the Finance Act are extended to the installations, structures and vessels in the Continental Shelf and Exclusive Economic Zone of India. We find that the words used in the said notification are not capable of giving two meanings. As already discussed hereinabove, prior to 2002, the areas in the Continental Shelf and Exclusive Economic Zone of India were not brought under the purview of Service Tax net. Only by the Notification of 2002, the said provisions were made applicable to the areas in the Continental Shelf and Exclusive Economic Zone of India, only insofar as the areas which were covered under the 1986 and 1996 notifications. By amendment to 2002 Notification by the 2009 Notification, the services rendered to installations, structures and vessels were brought in the Service Tax net irrespective of the fact that as to whether the said installations, structures and vessels were situated in the areas covered under the 1986 and 1996 notifications or beyond such areas. However, 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.
36.?It is further to be noted that 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. As such, we will have to gather the legislative intent from the words used in the statute. 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-S.T., 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 supersession. 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.
37.?It is sought to be contended on behalf of the Revenue that in 2002 Notification, as amended in 2009, this Court should construe that the legislature not only intended to make the provisions applicable to the installations, structures and vessels in the Continental Shelf and Exclusive Economic Zone of India but also by the installations, structures and vessels. We find that if the contention as raised by the Revenue is to be accepted, then between the word to and the installations, structures and vessels in the Continental Shelf and Exclusive Economic Zone of India, the words and by will have to be read into. In our considered view, that would amount to supplying casus omissus.
38 to 41. ..........................?
42.?In view of settled legal position, we find that 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. Not only this, but the respondent also in the Order-in-Original has noted that the appellant is discharging applicable Service Tax on the services received by installations, structures and vessels in the Continental Shelf and Exclusive Economic Zone of India but was not discharging the Service Tax on services consumed by the seabed of Continental Shelf of India.
The Honble High Court decided that the services provided to the sea-bed do not fall in the ambit of Not 21/2009. We have held in above paras that the services provided by the installations have to be viewed from the perspective of taxable territory and any service provided outside the taxable territory cannot be taxed. The Ld AR prayed that in view of the Mumbai High Court decision in the case of Commissioner vs Jolly Board 2015(323)ELT 80(Bom), reliance cannot be placed on the Greatship judgement which has been appealed before the Honble Supreme Court. If this argument were to be accepted many appeals would not get decided only because similar cases are pending before higher forums. Further as may be discerned from our discussion in preceding paras, there are some facts in the present case which are somewhat different from the facts in Greatship case. In the case of Kamalakshi Finance Corporation Ltd. 1991 (55) ELT 43 (SC) the Honble Apex Court held that utmost regard should be paid to the requirements of judicial discipline and the need for giving effect to the Orders of the higher appellate authorities. In the present case we respectfully follow the Orders of the Honble High Court in Greatship India.
12. We have have come to a conclusion that service tax is not payable in the present case as the services provided in the CS and EEZ are services provided outside the taxable territory. We could have well concluded our findings on this basis alone because, as rightly pointed by the Ld Counsel, all the grounds of appeal filed by the Revenue have been considered by us in preceding paras and nothing remains to discuss if we go by the grounds.
However the Ld AR makes a fervent prayer to look into the individual services sought to be taxed on the basis of contracts, as enumerated in the Table in para 6 above. Considering the case holistically we proceed to discuss these. It is seen that, on the basis of available records, most of the services provided are for the exploration activities, not services to existing installations etc. 12A. We find from the table that the main service considered is Supply of Tangible Goods for Use (STGU) service of which the most important in terms of quantum of duty is the supply of FPSO. The respondent have relied on the principal bench decision in the case Petronet LNG Ltd Vs. Commissioner of service tax [2013 TIOL-1700 CESTAT-Del] to say that in the present case there is transfer of effective control of the FPSO which involves deemed sale and therefore no service is rendered. We may extract the relevant legal provisions as below.
Section 65(105): 'taxable service' means any service provided or to be provided:
(zzzzj) "to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances".
In the case of Petronet LNG (supra) it was held that 32. The Supreme Court in British India Steam Navigation Co. Ltd. referred to a passage in Halsbury's Laws of England 4th edn. Vol. 43, para 401 to explain the distinction between "Voyage charterparty" and "time charterparty". Suffice it to observe that Halsbury at para 403 notices that charterparty by way of demise are of two types; (i) charter without master or crew, where the hull is the subject matter of the charterparty and (ii) charter with master and crew, under which the ship passes to the charterer in a state fit for the purposes of mercantile adventure. In both cases, the charterer becomes, for the time being the owner of the ship; the master and crew are, or become to all intents and purposes, his employees, and through them the possession of the ship is in him. From this passage, it is evident that even if the manager, master and other personnel and crew of the tanker are employees of the owner, since under the agreement, the construction of the tanker is on the specifications of the assessee; the tanker is delivered to the assessee; remains in its possession during the tenure of the charter; personnel and crew are strictly governed and bound by directions and instructions issued by the assessee covering every relevant aspect of their functional responsibilities; and their services are terminable, by the owner on directions of the assessee in case of misconduct, there is, on a holistic consideration of the terms of the agreement, a demise of the tanker in favour of the assessee. There is therefore a transfer of the right to use with possession and effective control, falling within the exclusionary clause of Section 65 (105)(zzzzj), of the Act. It should further be noticed that this contention of the Revenue in the written submission is not a ground on which adjudication order rests its conclusion, that the transaction does not constitute transfer of the right to use with possession and effective control of the tankers... We also find that Board Circular F. No. 334/1/2008-TRU dated 29/2/2008, while explaining the introduction of STGU service stated that:
4.4 Supply of tangible goods for use:
4.4.1. Transfer of the right to use any goods is leviable to sales tax/VAT as deemed sale of goods[Article 366(19A)(d) of the Constitution of India]. Transfer of right to use involves transfer of both possession and control of the goods to the use of the goods.
4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers, compaction equipment, cranes etc. offshore construction vessels & barges, geo-technical vessels, tug and barge floatillas, rigs and high value machineries supplied for use, with no legal right of possession and effective control. Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service.
4.4.3 Proposal is to levy service tax on such services provided in relation to supply of tangible goods, including machinery, equipment and appliances, for use, with no legal right of possession or effective control. Supply of tangible goods for use and leviable to VAT/Sales tax as deemed sale of goods, is not covered under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid.
In view of the cited judgment and Board Circular, whether the transactions of FPSO involves transfer of right of possession and effective control is a matter to be decided on the basis of terms of contracts and other material facts. To decide whether in the present case there is transfer of effective control, we may look into its use and the contract under which the FPSO is given to the respondent. The Ld. A.R. enlightened us on the functions of an FPSO as an offshore production facility that houses both processing equipment and storage for produced hydro carbons. The basic design of most FPSOs encompasses a ship shaped vessel, with processing equipment aboard the vessel deck and hydro carbon storage below in the double hull. After processing, an FPSO stores oil or gas before offloading periodically to shuttle tankers or transmitting processed petroleum via pipe lines. The salient features of the contract are as below:
2.1 The duration of the Contract shall be from the Effective Date and, Subject provisions of the Contract, terminated upon the expiry of the Charter Period.
2.2 RIL shall decide in its absolute discretion whether the Initial Charter Period shall be 1825 days from the Date of First Production of Oil, 2555 days from the Date 2.3 During the Charter Period, RIL shall have the full and exclusive use of the FPSO COMPENSATION 3.1 For the performance of the Work in accordance with this Contract, RIL shall pay the Contractor at the rates specified in Exhibit C and the Contractors entitlement to be paid such rates shall be as specified in Exhibit C. All payments shall be made in United States dollars(USD) only and further Contractor shall not be eligible for any compensation for any exchange rate fluctuation for whatsoever reason.
3.4 The compensation payable to Contractor pursuant to Exhibit C covers and includes all the costs and expenses incurred by Contractor to provide or perform all of its obligations under the Contract (including, without limitation, the work and all procurement, design, modifying, refurbishing, repairing and FPSO Commissioning of the FPSO, transporting and mobilizing the FPSO to the Designated Location, mooring the FPSO to the mooring system and hooking it up to the Fluid Transfer Lines and Riser Facilities and performing all tests necessary to accomplish the FPSO Commissioning and achieve the Date of First Production of Oil and demobilizing the FPSO following the termination of the contract).
4. INVOICING AND PAYMENT 4.2 Contractor shall raise separate invoices for the following items:
(a) Lease Rental;
(b) Insurance premiums in respect of which the Contractor is entitle to be reimbursed by RIL pursuant to Clause 6.1;
(c) mobilization fee
(d) demobilization fee; and
(e) other activities and transactions for which invoices may be raised pursuant to the contract.
5. INSURANCE
6. Contractor shall procure and maintain in full force and effect with respect to and for the duration of the Contract, the insurance policies described below. RIL shall have the right to reasonably disapprove of the insurance companies concerned and policy limits shall not be less than those indicated hereunder.
We find the phrases such as absolute discretion and full and exclusive use point towards effective control of the vessel with RIL. Further the FPSO was given on a bare boat charter which is defined under Chapter XIIG Section 115(v)(a) of the Income tax Act to mean (a) bareboat charter means hiring of a ship for a stipulated period on terms which give the charterer possession and control of the ship, including the right to appoint the mate and crew; (b) bareboat charter cum-demise means a bareboat charter where the ownership of the ship is intended to be transferred after a specified period to the company to whom it has been chartered. Further an order has been issued on 08.03.2011 under section 197(1) of the Income Tax Act, 1961 which shows that under income tax provisions there is transfer of effective control and possession of the FPSO. The said order reads as :
1. Aker Contracting FP ASA[ACFP] (through its authorized representative; S R Batlibol & Co) has filed an application (in form 13) alongwith a letter dated February 7, 2011 for extension of the withholding order under section 197(1) of the Income Tax Act, 1961 with respect of the payments to be received by ACFP from Reliance Industries Limited (RIL) pursuant to Contract between Reliance Industries Limited and Aker Contracting FP AS for Chartering of Floating, Production, Storage and Offloading Facility in connection with extraction and production of Oil and Gas(viz. contract No. OGF/3627982 dated May, 9 2007). The contract entered with RIL is for providing Floating, Production, Storage and Offloading (FPSO) facility, along with STP buoy and mooring, meeting the FPSO classification and including all equipment, material, spare parts and supplies to be supplied on such FPSO in relation to development and operation of the oil and gas field, named as MA field, in the Krishna Godavari Basin, Bay of Bengal off the east coast of India, located near Kakinada, Andra Pradesh.
2. The authorized representative had submitted that the bare boat charter of FPSO by ACFP pursuant to the contract with the RIL falls within the ambit of Section 44BB of the Act and hence, taxable at an effective tax rate of 4.223 percent due to the following reason;
As per the contract with RIL, ACFP is required to charter FPSO facility (on bare boat basis) along with STP buoy and mooring which meets the FPSO classification and including all equipment, materials, spare parts and supplies to be supplied on such FPSO to RIL for use in relation to extraction and production of oil and gas at the assigned field.
From the above we come to a conclusion that service is not rendered in the supply of FPSO because it is being considered as an asset. But the Ld AR protested that the evidences narrated above were never taken up before the lower authorities and therefore cannot be considered by the Tribunal. Therefore we are not inclined to rest our findings on this basis.
However we have already observed in preceding paras that the supply of FPSO for use in the EEZ can hardly be considered as a service to an existing installation because the FPSO itself is an installation. Therefore no service is provided in taxable territory. And tax has already been paid by RIL on services received in the FPSO.
12(A)(i) The demand under STGU service includes various other contracts under which services are provided by various suppliers. These contracts are for vessel for offshore exploration, supply of winch, subletting of vessel for supporting a Rig operation, contract for running tools for expandable tubulars, chartering of PSV (Platform Support Vessel), contract for mud logging services, contract for wellbore services, hiring of Remote Operated Vehicles(ROVs), contract for chartering AHTS vessel Pacific Silver, contract for H2S equipment rental services, contract for Deepwater Drilling Rig.
We have gone through the scope of the above contracts. As regards the Bourbon Offshore Vessel, we find that the demand has also been raised in another show cause notice which has been adjudicated. Therefore there is no question of demanding duty again in the present proceedings.
As regards the agreements for supply of winch, running tools, mud logging services and well bore survey service, we note that these services are for developing the installations and structures for oil exploration and production and not to the installations. We have already held that the scope of such services are outside the ambit of notification 21/2009 as they are not for providing service to existing installations, i.e. in taxable territory.
The contract with Emas Offshore Pvt. Ltd. is for assignment of vessel Harrier to Reliance Exploration and Production for supporting the rig Blackford Dolphin for operation in offshore Oman. As the operation is in offshore Oman, a different country, the service cannot be said to have been provided in taxable territory to which the service tax law applies. Therefore no service tax is payable in this case.
The contract with Farstad Shipping Pvt. Ltd. is for charter of PSV vessel MV Lady Grete. It is noticed from the contract that the vessel will undertake voyages between ports and offshore installations. We have given unambiguous findings in para 10.2 above that the vessel in notification 21/2009 has to be akin to a structure such as an installation and does not refer to vessels freely traversing in the waters. We have also held that service in the CS and EEZ generally is service provided outside taxable territory.
The contract with International Tubulars concerns mobilization of equipment at RILs Kakinada shore base to execute KG-D6-B2 lower completion job in Blocks under exploration. This contract is for providing service for exploration activity and it has nowhere been established that the service is for existing installations etc. The contract itself is not available and therefore a definite conclusion cannot be reached. In any case the SCN itself says that the work was executed from 07.02.2119 to 18.02.2009 and payment received. We find this period is not covered in the SCN. Therefore tax is not payable.
The contract with Rutledge R & P Pvt. Ltd. is for equipment rental services required for exploratory/appraiser /developmental wells. It is apparent that this service relates to development of wells and not to existing installations, structures etc. and therefore service is not provided in taxable territory.
The contract with Vetco Gray Pvt. Ltd. relates to, interalia, supervision of installation of well heads systems at offshore and includes pre-installation testing. It is evident that the contract refers to a pre-installation activity and is therefore not covered under the scope of notification 21/2009.
The contract with Deepwater Pacific (1) Inc states that prior to commencing the operations the contractor shall ensure location co-ordinates with rig positioning services. The contract with Frank International Middle East is for casing and tubing running services, tubulars and X-overs rental, centralizers, completion of sub-assembly makeup, running and testing services. Both these contracts appear to relate to installation activities and therefore not coverable under the scope of notification ibid and no service is provided in taxable territory.
There are contracts of remote operated vehicles (ROVs). In the scope of work for various ROVs the following is mentioned NEPTUNE EXPLORER Contract should provide;
Type II ROV(Hydra Magnum-100 HP) package which shall be mobilized for rig Nepture Explorerand shall be replaced by Type I ROV (Hydra Magnum Plus-150HP) package along with MINIMUM ROV System DEEP DRILLER 1 Contract should provide;
Type IV Spectrum or Equivalent -20HP) package which shall be mobilized for rig Deep Driller 1 As a minimum the ROV onboard the rig and the standy ROV at RIL Shore base shall be supported by two crews on a rotational basis with each crew consisting of the following Personnel.
ACTINIA Type III ROV(Quantum 7 -75HP) package which shall be mobilized under this Contract on rig Actinia after completion of work under ongoing contract.
The argument of Ld. A.R. is that these ROVs are linked to the rigs and therefore the service is provided from the structures/installations. On the other hand, the Ld. Counsel insists that ROVs are floating vessels and department has not shown anywhere as to how they are attached to the rigs nor has any such averment been made in the show cause notice. We find the contention true that no such averment has been made in the show cause notice. Even otherwise as seen from the contract, the ROV is to be mobilized on, in the case of say rig Actinia, after completion of work under ongoing contract. The ongoing contract relates to installations and stuctures which are yet to be set up. Therefore it cannot be said that service has been provided to or from existing installation/structures when the ROV is to attached to Rigs which are not shown to be already existing. The statement of Shri Raghavan merely indicates that the ROVs carry out survey of the sea-bed and the service tax has been paid under protest after 27.02.2010 when Not 14/2010 came into existence. It is nowhere admitted that the service is provided from the installations. It is stated that service tax authorities had assessed and appropriated service tax under the head of mining services, when being rendered within 12 nautical miles of the territory of India. It is only in respect of services rendered beyond 12 nautical miles, that tax is being demanded under the head of STGU. Revenue cannot take a contrary stand now. For all the above reasons we are of the view that the question of providing service to installations does not arise.
We conclude that above services are provided in location outside taxable territory and hence not taxable.
12(A)(ii) Among the large number of contracts concerning various services, Ld AR took pains to take us through some of the major ones above which contribute to almost 90 per cent of the total demand. However in all fairness, the other services on which service tax is demanded also need to be considered.
A major service provided relates to Survey and Exploration of Mineral Services under Section 65(105) (zzy) read with Section 65(104A). We were shown the contract with GX Technology EAME Limited for 3D Seismic Data special processing KGD4. The contract provides that input data will be transported to the contractors processing center in London. The Seismic Processing will be conducted at the contractors processing facility with equipment and personnel for the project as provided. The contract also provides that RIL will obtain necessary government clearance for sending data outside India. Revenue has not been able to show that the processing of data is done in India. Therefore we agree with the respondents contention that the service is totally performed outside India and therefore not received in India. Hence the same is not taxable. The contract with Veritas Geophysical Pvt. Ltd. relates to 3D seismic data acquisition and on-board processing which is clearly a prospecting stage as per para 3 of the SCN. And this not a service done in the taxable territory.
12A(iii) Service tax has been demanded under Erection, commissioning or installation service as defined under Section 65(39a). The contracts with M/s. Aker Installation FP reveal the scope of work to include (i) installation of the complete facilities and the related engineering (ii) application of and completion of the works in accordance with appropriate detail installation engineering etc. As per the SCN the service is provided on block in the CS and EEZ. The services are related to construction of installations in the CS and cannot be said to have been provided to installations already existing in the CS and EEZ. And therefore the services are provided outside taxable territory.
12A(iv) The next service is managment, maintenance or repair service under Section 65(105) (zzg). As mentioned in para 4 above, RIL have already paid service tax of Rs.33,94,064/-.
12(B)(i) The next service is Manpower recruitment or supply agency service under Section 65 (105) (k). Manpower is provided by Advanced Well Technologies, Agr Peak Consultancy services Ltd, Allomax Associates Ltd, Richard Brent Kopulos and others. From the contracts shown in the SCN, we find that these services relate to provision of manpower to monitor rig site operations such as drilling personnel, subsea engineers, completion engineer, well completion supervisor etc. These activities relate to development stage (Stage shown at 3.4 in para 2 of our Order as extracted from the SCN) for development and exploitation and when production facilities are being established. It has not been established by Revenue that these services are provided to existing installations. As the activity relates to services performed for exploration or for erecting installations, such services are not in the scope of Not 21/2009 as they are performed outside taxable territory.
12(B)(ii) Tax has been demanded on Technical, Inspection and Certification Services under Section 65(105) (zzi) read with Section 65(108) provided by three companies of which one company is Aker Kvaerner Subsea Ltd. Under this contract, we find the scope of work as follows:
(a) Provide installation guidelines; review and approve installation procedures of any installation contractor appointed by Company;
(b) Carrying out SATs as required herein;
(c) Supervision during installation, pre-commissioning and Commissioning goods;
(d) Supervision of installation, hook up and testing of Goods which are free issued to agents, contractors and sub-contractors(of any tier) of Company at the direction of Company;
(e) Providing post-commissioning operational assistance through to the completion date of the Contract
(f) Training of Companys personnel in operations and maintenance.
(g) Provision of Rental Tools
(h) Three visits by service engineers during the duration of the contract
(i) Provision of a Service base within company On-shore Site.
The scope is supervision of the installation, pre-commissioning and commissioning of the goods and also requires use of certain tools on a rental basis. These activities relate to pre-construction and during-construction activity to be performed at the time of erection of structures and installations in the ocean. Here again, we do not appreciate how the service tax becomes payable when the service is not provided in the taxable territory. Even for sake of repetition we may remind that the first condition of taxability is that it must be provided in taxable territory. The notification speaks of services to installations and structures already in existence and which alone form the taxable territory.
Another contract is with Det Norske Veritas As. The scope of the work is as follows:
Contractor shall review all design documents for adequacy, consistency and to ensure compliance with applicable project design bases, design codes and standards, and standard international norms and industry practices. Contractor shall conduct audit, review of documents monitor/inspect/surveillance/witness of activities, as required, during fabrication/manufacturing and installation of various components of projects as defined above with the overall objective of obtaining the specified medium level certification. Another contract is with Moduspec International (L) Limited. The scope of the work is as follows:
Contract for inspection of drilling rigs (floater) and inspection of offshore supply vessels/anchor handling TOE vessels. Scope of work include analysis of equipment condition and standards of maintenance, in accordance with API standards; the equipment manufacturers specifications and recommendations. Audit of all major equipments, as per RIL specifications, breakdown for which rig will become non operational. Opening of all major items of equipment for internal inspection as requested, for the purpose of a detailed examination of gear teeth, bearings, chains and ancillary parts for excessive war, damage, cracks and other defects and for the measurement of clearances. Function testing, pressure testing, load testing and insulation resistance checks for all critical equipment on board the drilling unit, as applicable, will be conducted. A check that the proper safety devices are installed and are working correctly to prevent accidents and equipment failures. During inspection of the rig, the assistance of the crew shall be provided to open and prepare equipment for inspection, run the equipment for testing and to assist with pressure and load testing for various items.
Our observations in the case of contract with Aver Kvaerner would apply to these two contracts also.
12(B)(iii) Service tax is demanded under the Consulting engineer service. Show cause notice relies on Board Circular No. F.No. B 43/5/97-TRU dt. 2.7.1997 clarifying that the services of a consultant may include Feasibility study, Pre-design services/project, Basic design engineering, Detailed design engineering, Procurement, Construction supervision & project management, Supervision of commissioning and initial operation, Manpower planning and training, Post-operation and management, Trouble shooting and technical services, including establishing systems and procedures for an existing plant. The SCN states that it appears M/s. Stephan Alam Graham (Copies of pages relating to scope of work not furnished), M/s. ECL Pty. Ltd (copy of agreement not produced), and Professor Octavian Catuneanu (copy of agreement not produced), have provided service to RIL for social consultancy project KG-D6. Classification of service has been determined under consulting engineer service based on the description of Consultancy Charges , Mumbai. In the absence of the contracts it is difficult to hold that the service was not provided in relation to the exploration activities. The KG-D6 is a Block where the exploration is done. Therefore the service is provided outside the taxable territory.
12(B)(iv) Service tax is demanded on scientific or technical consultancy services falling under Section 65(105) Za read with Section 65(92) provided under the contracts with Eugro Geos Pte Ltd, Fusion Petroleum Technologies Inc and G. Shanmugam. We find that the contracts involve weather forecasting service for each block, geo pressure studies. As per SCN contract is to generate 3D geopressure cube and subsequently leading to prediction on identified prospects integrating previously drilled well data, existing PSDM /PSTM velocities from RIL's processing efforts and other geoscientific studies and risk quantification of drilling in toe thrust / gas chimney areas by Contractor, reservoir characterization studies based on sedimentary depositional system of well KG-D6-AR2ST by Dr. Ganpathy Shanmugam, Adjunct Professor, Dept of Geology, University of Texas, USA. Scope of work includes detailed core study and description of 54m of D6-AR2-ST core at Kakinada.
All these activities appear to be related to actual exploratory work in the EEZ. It has not been shown by Revenue that the activities relate to services performed or provided in taxable territory.
12(B)(v) Service tax has been demanded under the technical testing and analysis service defined under Section 65(106) (zzh) of the Finance Act. As per SCN contracts have been executed with Caleb Brett Usa Inc-
Contract for PVT analysis and well fluid sampling and analysis for exploration wells to be drilled to establish hydrocarbon reserves in the wells.The contractor shall establish parameters and properties of produced formation fluid, PVT samples shall be collected using MDT/RCI, and DST samples, surface samples would be collected from the separator or data header of the test choke manifold. Contractor shall undertake well sire analysis for the collected samples after receiving instruction from RIL well site petroleum engineer. Details PVT analysis, if required, will be undertaken in contractor's offsite laboratory located outside India. Core Laboratories International Bv-
Contract for core analysis and formation damage studies. (A) Cores are required for determining reservoir parameters, petrophysical parameters and geological descriptions. The results will help in field development planning, reserve estimation and reservoir simulation. In phase I, Core preparation and fresh state parameter measurements are done. In phase II, conventional core analysis is performed to gather the basic reservoir rock parameters. The tests should start within a week of arrival of core samples in contractors laboratory. Sherry Laboratories-
Contract for toxicity test of drilling mud from various exploration blocks/exploratory wells. Contractor shall perform the testing for assessment of toxicity on drilling mud samples provided by RIL. RIL to deliver mud samples at contractor's address at RIL's cost. Contractor shall perform LC50 test of mud sample and shall submit final test report to RIL's address in India. The above contracts show that the samples are drawn from the exploration wells. And the testing is done in the contractors off site laboratory located outside India. The service being performed outside India, the question of levy of service tax does not arise.
12(C)(i) One of the services is the Commercial Training and Coaching Service provided by Donald R Lowe and Alan Graham on Deepwater Systems. We find the training was conducted by these persons at RIL premises at Mumbai which activity is taxable under Section 65(105)(zzc) read with Section 65(27).
12(C)(ii) Another service is Management consultant service under Section 65(105)(r) read with Section 65 (65). We find the scope of the contract with Bechtel is to assist the company in firming up commercial terms and conditions of RFQ (request for quotation) packages. The scope includes responsibility for managing, co-ordinating, interfacing all areas of field development from design, engineering, procurement, testing to installation and pre-commissioning. Thus overall project management services are rendered. The contract with Shell Global Solutions refers to, inter alia, Health Audit that focused on HSE Management Systems. The other contracts relate to provision of legal advise in relation to oil and gas exploration. The services provided under the contracts relate to different areas of Management and are provided at Mumbai. They are squarely covered in the ambit of management consultant service and taxable.
13. We note that RIL had declared in the ST returns that the services are performed or received at locations to which the provisions of the Finance Act do not apply. Therefore penalties are not warranted in terms of Section 80, being an interpretational issue.
14. Our conclusions are as follows
(a) Not 21/2009 extends the taxable territory only to constructed installations and structures and not to under-construction installations. Therefore services provided to latter are not taxable.
(b) The structures referred to in Not 21/2009 are complete structures.
(c) Services provided by vessels traversing to and fro from shore to off shore and in the EEZ are not taxable under the provisions of Not 21/2009.
(d) Not 21/2009 extends taxable territory to installations etc in the CS and EEZ in contradistinction to Not 14/2010 which also extends the taxable territory to the whole of the sea-bed and thus the services provided to the sea-bed are not taxable as held by the Honble High Court of Bombay in Greatship India Ltd (supra).
(e) Services provided in taxable territory alone are taxable as laid down in the judgements in the case of All India Federation of Tax Practitioners vs Union of India (supra) and Cox and Kings India Ltd (supra). Resort to Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 is not warranted in the circumstances except in case of services in para (f) below.
(f) Service tax is payable on the services namely Commercial Training and Coaching service and Management Consultant Service. Appropriate interest on demand confirmed in respect of these two services is payable. However no penalty is imposable as discussed in para 13 above.
15. Appeal is disposed in the above terms.
(Pronounced in court on 11/01/2016)
(Ramesh Nair)
Member (Judicial)
SM.
(P.S.Pruthi)
Member (Technical)
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