Custom, Excise & Service Tax Tribunal
M/S Shiv-Vani Oil & Gas Exploration ... vs Cst, New Delhi on 5 October, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. Principal Bench, New Delhi COURT NO. I DATE OF HEARING : 15/09/2016. DATE OF DECISION : 05/10/2016. Service Tax Appeal No. 258 of 2009 [Arising out of the Order-in-Original No. 85/VKG/2008 dated 31/12/2008 passed by The Commissioner of Service Tax, New Delhi.] M/s Shiv-Vani Oil & Gas Exploration Services Ltd. Appellant Versus CST, New Delhi Respondent
Appearance Shri B.L. Narsimhan, Advocate for the appellant.
S/Shri Govind Dixit and Sanjay Jain, Authorized Representative (DR) for the Respondent.
CORAM : Honble Shri Justice Dr. Satish Chandra, President Honble Shri B. Ravichandran, Member (Technical) Final Order No. 53949/2016 Dated : 05/10/2016 Per. B. Ravichandran :-
The appeal is against order dated 31/12/2008 of Commissioner of Service Tax, New Delhi. The appellants entered into two contracts with ONGC. In terms of these contracts, the appellants were to undertake shot hole drilling activity for ONGC. The appellants were registered with the Service Tax Department for payment of service tax under various categories of taxable services. An audit of the records of the appellant was conducted in October 2007 by the officers of Service Tax, Delhi. As a follow up, detailed enquiries were made regarding the liability of the appellant for service tax in respect of various activities undertaken by them. On completion of scrutiny, proceedings were initiated against the appellant by issue of show cause notice dated 30/5/2008. The show cause notice proposed demand of service tax of Rs. 43,82,72,086/-. The notice also proposed imposition of various penalties and collection of interest on service tax not paid. After due process, the Commissioner adjudicated the case, vide the impugned order he held that the appellants are liable to pay total service tax of Rs. 29,98,68,625/- he also imposed penalty of Rs. 27,47,65,531/- under Section 78 of Finance Act, 1994 and penalty on per day basis in terms of Section 76 of the Act and also Rs. 1,000/- as penalty under Section 77 of the Act.
2. In the present appeal out of three issues involved with reference to tax liability of the appellant connected to the activities of shot hole drilling, gas compression and work over operation and development well drilling, the appellants are contesting mainly their tax liability with reference to their activity of shot hole drilling undertaken for ONGC. The learned Counsel during the argument as well as their written submission mainly contested the service tax liability of the appellant on shot hole drilling on merit as well as on the question of time bar. The main points of the arguments are :-
(a) shot hole drilling activity is not taxable under survey and exploration service under Section 65 (105) (zzv) readwith Section 65 (104a) of the Finance Act, 1994. The taxable service means services provided or to be provided in relation to survey and exploration of minerals. Since the appellants are never engaged in survey and exploration of minerals they are not liable to any service tax. The attempt by the Department to bring in their activity as in relation to survey and exploration of minerals is neither legal nor factually correct. Various case laws have been relied on by the appellant in this regard.
(b) extended period of demand cannot be invoked in the present case. The appellants have recorded all the transactions in their statutory records and there can be no allegation of fraud or suppression on their part. The appellant has all along had a bonafide view regarding non-taxability of their activities. Since it is ONGC who are involved in survey and exploration of minerals the appellants are not in the said taxable activity. Hence, the extended period is not invokable in the present case and accordingly penalties levied were also liable to be set aside.
3. The learned AR for the Revenue reiterated the findings of the Original Authority. He submitted that the terms of the contracts entered into by the appellants with ONGC will categorically show that the shot hole drilling is a primary and essential activity of survey and exploration of minerals. The scope of the contract and various terms and conditions will categorically bring out that the activities carried out by the appellants are essentially in relation to survey and exploration of minerals. In fact, without shot hole drilling ONGC cannot undertake their survey and exploration of minerals. Regarding demand for extended period, the learned AR submitted that the appellants had similar contract with Oil India Limited (OIL) and also have been discharged tax on the activity. However, they have stopped later the payment of tax and in respect of present contracts also they have not discharged tax. In such circumstances, it is very clear that the appellants took deliberate action not to pay tax. They have not made any reference in this regard to the Department or to their main contractor to ascertain the tax liability before actually stopping payment in OIL contract.
4. We have heard both the sides. Though the proceedings were for tax liability on various activities during the submission before us, the appellant is only pressing for and contesting the tax liability on their activity of shot hole drilling under the category of survey and exploration of minerals. The statutory definition relevant to the present case is as below :-
Section 65 (104a) of the Act and Section 65 (105) (zzv) of the Act read as under :
Section 65 (104a) of the Act Survey and exploration of minerals 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.
Section 65 (105) (zzv) of the Act Taxable service means any service provided or to be provided to any person, by any person, in relation to survey and exploration of mineral.
The nature of work undertaken by the appellant as per their written submission is as below :-
1.2 Under the contracts, the Appellant was to undertake shot hole drilling activity for ONGC. Holes of not less than 7.5 cm in diameter and with depth varying from 15 to 50 meters, are termed as shot holes wherein shot is fired by ONGC after placing the explosives to the desired depth. As per the scope of work under the above said contract, the appellant has to provide clear shot holes of specified depth and quantities (with its personnel, instruments, equipments, all kinds of materials, stores and services) as per the programme supplied in advance by ONGC. As per the scope of work the Appellant had to drill shot holes of predetermined depth at specified regular intervals along the pre-surveyed lines for loading the explosives by ONGC for the purposes of the seismic surveys conducted by ONGC. The locations, at which the shot holes are required to be drilled, are marked on the ground by ONGC. The Appellant has to carry out the shot hole drilling exactly at the drilling points pre-determined and marked on the ground by the survey team of the Geophysical field party of ONGC. Further, it has been specifically stated in the contract that the drilling conditions in areas of work are likely to vary from place to place consisting of hard rocks, boulders and pebble formation and that the Appellant must ensure drilling of shot holes of the desired depths in such areas by putting its best efforts.
1.3 Under the second contract, the Appellant has to execute the work as per the programme intimated by ONGC through its geophysical party-chief. In the said contract, in Clause 4.2, it has been specifically stated that ONGC is conducting the seismic survey for hydrocarbon exploration and desires to get the seismic job services and shot hole drilling services as per the specification and scope of work provided therein. Before taking of the actual drilling of shot holes at the surveyed shot points along a particular profile, the Appellant has to clear jungle/undergrowth, etc. to make a passage of about 1.5 meters width and 2.5 meters height. The Appellant has to maintain liaison with the local people and agencies in the survey areas in order to ensure safe and uninterrupted seismic operations.
5. The contention of the appellant is that they are not in the business of survey and exploration of minerals. The Department is holding that the services as explained above rendered by the appellant is very much in relation to survey and exploration of minerals. We note that the appellants are emphasizing on the legal definition of scope of service in terms of Section 65 (104a) and argued that when the appellants are not engaged in such activity, the definition of taxable service in terms of Section 65 (105) (zzv) cannot expand the scope to bring in all types of activities even remotely connected only on the pretext that these are in in relation to survey and exploration of minerals. In other words, the appellants submitted that the term in relation to cannot be given a scope to indefinitely expand the main tax entry of survey and exploration of minerals. We find that the arguments of the appellant in this context is mis-placed. From the very nature of the work undertaken by them it is very clear that these activities are very much in relation to survey and exploration of minerals. It is also clear that any person providing service to any other person in relation to survey and exploration of minerals is liable to service tax. In other words, the taxable service does not restrict only to the list of activities under Section 65 (104a) but service provided in relation to such activities. It is nobody case that shot hole drilling service provided by the appellant has no relationship to the survey and exploration activity of ONGC. Admittedly such drilling is very much an integral part of such survey and exploration.
6. We have perused the impugned order carefully. The observation of the Original Authority is relevant in this regard. The same is reproduced as below :-
It is observed that the activity of shot hole drilling involves a composite process of clearances of nearby areas, undertaking the drilling work as specified by ONGC, tamping the same with requisite materials prior to shot, after loading of explosives and after the shot (emphasis provided). It is observed that the purpose of such drilling a hole is linked with technicalities involved and related to seismic survey for locating or exploration of minerals. In other words shot hole drilling is activity found to be essential for the purposes of locating suitable place of availability of minerals in the given area. This is also fortified by the fact that if the holes are not made as required by the clients the assessee would be liable for damages per hole which is skipped for shot hole for such lapses. Hence, the assessee is not required to merely drill a hole and forget it. After drilling of a hole they have to work in consonance with the clients even after drilling a hole. The combined activities of both the assessee and clients, therefore can be considered as an act of survey related to location or exploration of minerals. Undoubtedly, the entire activity, partly done by the assessee and remaining done by ONGC, is otherwise activity related to location or exploration of minerals. This fact is already admitted by the assessee in their written submissions, wherein they have opined that it is ONGC who are conducting survey operations. However, the activities conducted by the assessee even in isolation depict that are being carried out in the direction related to location or exploration of minerals. It is also matter of fact and evidence that shot hole drilling is an activity per se without which the activity of further surveying in relation to a location or exploration of minerals would not be possible. The further activity of using explosives for the said purpose would not be achievable without the drilling of specified and technically drilled holes. Thus, it is materially evident that such holes are basically meant for withstanding the shots and involve several processes for the entire activity of blasting shot to be made possible. Such entire process is undertaken by the assessee by drilling the shot holes, which are technically highly important, based on sound technology and expertise. Thus, in the entirety of the issue, it is also observed that the purposes conducted by the assessee and by their clients the processes are inter-linked, inter-depended and inter-related which are in relation to to the location or exploration of minerals. Hence, it is not the issue of mere drilling of a hole, rather involves several process for the said purpose and are not ordinary holes.
7. The dictionary meaning and case laws relied upon by the appellants have also been examined by the Original Authority and we find no reason to differ with the findings of the Original Authority. The appellants reliance on the decision of the Tribunal in Saipem (Portugal) Comercio Maritimo vs. CCE, ST & CUS., Visakhapatnam II reported in 2014 TIOL 1892 CESTAT BANG. is not relevant to the facts of the present case. The terms of agreement in the present case are much more elaborate and specific. The Tribunal held in terms of the agreement in that case that the appellant were not involved in exploring for oil or for prospecting for oil in terms of the agreement. The shot hole drilling activity undertaken in the present case is sought to be taxed as an activity in relation to survey and exploration of minerals. This ground of appeal is dismissed.
8. Regarding the demand for extended period, we find the reason given by the Original Authority is not legally sustainable. In fact he recorded that in terms of proviso to Section 73 of Finance Act, 1994, the intention to evade payment of duty is not required to invoke extended period or to impose penalty. We find that for invoking extended period as well as for imposing penalty under Section 78, the legal provisions are identical. The words used like fraud, collusion, willful mis-statement, suppression of fact or contravention of any provisions of Chapter V of Finance Act, 1994 or of the Rules made thereunder with intent to evade the payment of service tax, will show that the ingredient of malafide is a pre-requisite to invoke both the legal provisions (proviso to Section 73 and Section 78). The Original Authority recorded that it may be true that the assessee has not contravened any provisions with intend to evade payment of service tax, however, he proceeded to confirm the demand for extended period and to impose penalty of an equal amount under Section 78. We find that Honble Supreme Court in Cosmic Dye Chemical vs. CCE, Bombay reported in 1995 (75) E.L.T. 721 (S.C.) held as below:-
6. Now so far as fraud and collusion are concerned,? it is evident that the requisite intent, i.e., intent to evade duty is built into these very words. So far as mis-statement or suppression of facts are concerned, they are clearly qualified by the word wilful preceding the words mis-statement or suppression of facts which means with intent to evade duty. The next set of words contravention of any of the provisions of this Act or Rules are again qualified by the immediately following words with intent to evade payment of duty. It is, therefore, not correct to say that there can be a suppression or mis-statement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to Section 11A. Mis-statement or suppression of fact must be willful.
9. In view of the above, with the Original Authority himself recording that there may be no intent on the part of the appellant to evade payment of duty, we find that the justification for invoking extended period for demand as well as imposing penalty under Section 78 fails. Accordingly, the demand in this case is to be restricted to normal period and the penalty under Section 76 being in the nature of penalty on delayed payment will be sustainable.
10. In view of the above discussions and findings, the appeal filed by the appellant is partly allowed.
(Order pronounced in open court on 05/10/2016.) (Justice Dr. Satish Chandra) President (B. Ravichandran) Member (Technical) PK ??
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