Custom, Excise & Service Tax Tribunal
Reliance Industries Ltd vs Commissioner Of Service Tax, Ltu, ... on 14 November, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT No. I APPEAL Nos. ST/805 to 815/12-Mum (Arising out of Order-in-Appeal No. BR/11 to 21/LTU/Mum/2012 dated 12.9.2012 passed by Commissioner of Central Excise & Service Tax (Appeals), LTU, Mumbai) For approval and signature: Honble Mr. S.S. Kang, Vice President Honble Mr. P.K. Jain, Member (Technical) ======================================================
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?
====================================================== Reliance Industries Ltd. Appellant Vs. Commissioner of Service Tax, LTU, Mumbai Respondent Appearance: Shri V.K. Jain, Advocate, for appellant Shri K.M. Mondal, Consultant, for respondent CORAM: Honble Mr. S.S. Kang, Vice President Honble Mr. P.K. Jain, Member (Technical) Date of Hearing: 5.9.2013 Date of Decision: 14.11.2013 ORDER NO Per: S.S. Kang
Heard both sides. The appellant filed these appeals against the common impugned order passed by the Commissioner (Appeals).
2. The brief facts of the case are that The appellants are engaged in exploration and production of mineral oil and natural gas. In connection with the said exploration and exploitation activities, the appellants receive various services like seismic survey, data acquisition and processing, well bore survey, core analysis, caring and tubing, mud logging, directional/horizontal drilling, mud engineering service, erection/installation service etc. provided by the Foreign Service Contractors at various offshore locations including Continental Shelf of India (C.S.) and Exclusive Economic Zone of India (EEZ). The aforesaid services when provided/used/consumed in the off-shore locations beyond 12 nautical miles, i.e. in the Continental Shelf and Exclusive Economic Zone of India were not taxable prior to 27/02/2010. Vide Notification No. 14/2010-ST dtd. 27/02/2010, the provisions of Chapter V of the Finance Act, 1994 were extended to the whole of Continental Shelf and Exclusive Economic Zone of India for certain specific purposes. As per this notification, any service provided for all activities pertaining to construction of installations, structures and vessels for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof, is chargeable to service tax. Simultaneously with the aforesaid Notification, in exercise of its powers conferred by Sections 93 and 94, read with Section 66Aof the Finance Act, 1994, the Central Government made amendment in the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 (hereinafter referred to as IOS Rules) vide Notification No.16/2010-ST dated 27.2.2010. By this amendment, definition of India in Rule 2(e) of the said Rules was substituted. By virtue of the amended definition of India, the appellant wrote to the Revenue that, services received in the continental shelf and exclusive economic zone of India are liable to service tax only if such services are provided to duly constructed installations, structures and vessels located therein and not otherwise. Based on the above understanding, the appellant paid service tax under protest in respect of certain services and later claimed refund of the same which stands rejected by the Dy. Commissioner of Central Excise & Service Tax, LTU, Mumbai by various orders which have been upheld by the Commissioner (Appeals) by the impugned order dtd. 12.9.2012.
3. The contention of the appellants is that It was submitted that during the relevant period, the pre-construction and for construction services in respect of which refund has been claimed were provided and consumed in such areas of CS & EEZ to which the provisions of the Finance Act 1994 had either not been extended, or if extended, were exempted under the IOS Rules 2006. The Lower Authorities have failed to take note of the fact that till 01.07.2012, the Service Tax Legislation did not apply to the entire CS and EEZ of India, but to only some parts thereof and that it was only with effect from 01.07.2012 that the coverage became wide enough to cover the pre-construction and for construction services rendered anywhere in the CS and EEZ of India. It was submitted that the lower authorities have failed to appreciate that the amendments brought about with effect from 27.02.2010 (by issue of Notification No.14/2010-ST dated 27.02.2010 and Notification No.16/2010-ST dated 27.02.2010) had to be construed contextually in the light of the following legislative history concerning the territorial coverage of the Act.
i) With effect from 01.07.1994 (but till 01.03.2002), the provisions of Chapter V of the Finance Act, 1994 did not apply to any area in the CS and EEZ of India. During this period the provisions of the Act applied to the whole of India except the State of Jammu & Kashmir. In the absence of a statutory definition of India, the meaning of India in terms of Section 3(28) of the General Clauses Act was required to be applied which defined India as all territories for the time being comprised in the territory of India. The territory of India according to Article 1 of the Constitution of India is the sum total of the territories of the States; the union territories; and such other territories as may be acquired. Interpreting Article 1 of the Constitution of India, the Bombay High Court in the case of Commissioner of Customs Vs. Nobel Asset Co. reported in 2008 (230) ELT 22 has held that the CS and EEZ of India is not a part of the territory of India. The CBEC has also recognized this position and stated so in Circular No.36/4/2001-ST dated 08.10.2001 as extracted in Para 3(c) above
(ii) With effect from 01.03.2002, (but till 07.07.2009) the provisions of the Act, were extended beyond the territorial waters of India but only to the designated areas in the CS & EEZ of India. These designated areas to which the Act was extended were the platforms and structures specified in Notification No.S.O.429(E) dated 18.07.1986 and Notification No.S.O.643 (E) dated 19.9.1996 issued by the Ministry of External Affairs.
(iii) With effect from 07.07.2009 (but till 27.02.2010) the provisions of the Act, were extended further by issue of Notification No.21/2009 dated 07.07.2009 to installations, structures and vessels in the CS & EEZ of India.
(iv) With effect from 27.2.2010, (but till 01.07.2012), the Act was further extended by issue of Notification No. 14/2010-ST to the areas specified in column (2) to the table to the said Notification, albeit for the purpose specified in column (3) of the said table.
(v) With effect from 01.07.2012, the Service Tax legislation was further extended to the whole of CS & EEZ of India by inserting a statutory definition of India in Chapter V of the Finance Act, 1994. The said definition of India reads thus :
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;
4. Insofar as pre-construction services are concerned, the contention of the applicants is that if one compares the scope of Notification No.14/2010 with the definition of India in the Act as introduced with effect from 01.07.2012, it will become evident that during the relevant period i.e. from 01.03.2010 till 30.06.2012, the provisions of Act did not extend to the whole of CS & EEZ in all situations. The Act extended to the whole of the CS and EEZ only for the limited purpose specified in Column (3) of the Table to Notification No.14/2010 which states the specified purpose as activities pertaining to construction of installations, structures and vessels for the purpose of prospecting, extraction or production of mineral oil and natural gas and supply thereof. Thus, pre-construction services which cover activities not pertaining to construction of installations etc., such as survey and exploration, remained outside the scope of the Service Tax levy till 01.07.2012. The order of the Commissioner (Appeals) implies that all services relating to prospecting or extraction or production of mineral oil or natural gas are covered under Column (3) of the Notification. Since it is not in dispute that the pre-construction services received by the appellant in the CS and EEZ of India do not pertain to construction of installations, structures and vessels, the same were not taxable notwithstanding the fact that they were received for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof. In order to be taxable, such services ought to have cumulatively fulfilled the following two conditions:-
(a) They should have been for activities pertaining to construction of installations, structures and vessels; and
(b) Such construction activities should have been for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof.
The mere fulfillment of requirement (b) was not enough. Both the conditions were required to be fulfilled so as to render service taxable under Sr. No.1 of Notification No.14/2010. The interpretation adopted by the Commissioner (Appeals) has the effect of rendering redundant otiose the use of the words to all activities pertaining to construction of installations, structures and vessels which is legally impermissible.
5. Insofar as the for construction services are concerned, the contention of the appellants is that such services though taxable in terms of Sr. No.1 of Notification No.14/2010-ST dated 27.02.2010, remained exempt under the Reverse Charge Mechanism by virtue of the exemption granted under the IOS Rules, 2006. A comparison of the two Notifications issued on the same day i.e. Notification 14/2010-ST dated 27.2.2010 and Notification 16/2010-ST dated 27.2.2010, shows that for the purposes of the IOS Rules, 2006, the levy under the Reverse Charge was extended only to locations specified at Sr. No. (2) of the table to Notification No.14/2010-ST dated 27.2.2010 and not to the locations specified at Sr.No.1 thereof. By defining India in the IOS Rules, 2006 in such a manner, the Central Government has exempted from levy under the Reverse Charge Mechanism all for construction services. Thus, during the relevant period, the Reverse Charge levy under the IOS Rules, 2006 applied only to such services as were received and consumed in the territory of India, or on the duly constructed installations, structures and vessels located in the CS & EEZ of India.
6. The Revenue relied upon the findings of the lower authority. The contention is that by virtue of Notification 14/2010-ST dated 27.2.2010 all services provided in the CS and EEZ became taxable which relates to the activity of prospecting, extraction or production of mineral oil and natural gas. The appellant received taxable services in respect of these activities from the foreign service provider hence liable to pay service tax being recipient of the taxable service as per the provisions of Section 66A of the Finance Act.
7. We find that the present refund claim pertains to the period post 27.2.2010. During the period in question, the provisions of the Finance Act, 1994 were extended to the Continental Shelf and Exclusive Economic Zone of India (CS and EEZ) by Notification No.14/2010-ST dated 27.2.2010, which reads as under:-
Notification No: 14/2010-ST dated 27.2.2010 Extension of provisions of Chapter V of Finance Act, 1994 to Continental Shelf and Exclusive Economic Zone of India Notification No. 1/2002-ST 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 there of.
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. On the same day, vide Notification No. 16/2010-ST dated 27.2.2010, amended the provisions of the Taxation of Service (Provided from outside India and Received in India) Rules, 2006. The relevant Notification is reproduced below:-
Notification: 16/2010-ST dated 27.2.2010 Taxation of Service (Provided from outside India and Received in India) Rules, 2006 First amendment of 2010 In exercise of the powers conferred by sections 93 and 94, read with section 66A of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the Taxation of Services (Provided from outside India and Received in India) Rules, 2006, namely :-
1. (1) These rules may be called the Taxation of Services (Provided from outside India and Received in India) Amendment Rules, 2010.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. In the Taxation of Services (Provided from outside India and Received in India) Rules, 2006, (A) in rule 2, for clause (e), the following clause shall be substituted, namely:-
(e) India includes the installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof (B) in rule 3,-
(i) in clause (i), for the words, brackets and letter sub-clauses (d), the words, brackets and letters sub-clauses (d), (m) shall be substituted;
(ii) in clause (ii), the brackets and letters (m), (s), (t), (u) shall be omitted.
8. The reading of Notification 14/2010-ST extended the provisions of the Finance Act to the whole of CS and EEZ 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. Serial No.2 of the Notification extends the provisions of 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. Vide the other Notification 16/2010-ST which was issued on the same day i.e. 27.2.2010, the definition of India under the Taxation of Services (Provided from outside India and Received in India) Rules, 2006 was amended to provide that India includes the installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof.
9. Notification No.16/2010-ST dated 27.2.2010 is issued under Sections 93 and 94 of the Finance Act read with Section 66A of the Finance Act. We find that the provisions of Section 93 of the Finance Act empowers the Central Government to issue exemption notifications. The contention of the appellants is that in view of the restricted meaning of India as provided under Notification No.16/2010-ST, the activities other than by or to the installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India are not liable to service tax on reverse charge mechanism. As such only such activities which are consumed at the constructed installations, structures or vessels located in continental shelf of India and the exclusive economic zone of India were taxable under the reverse charge mechanism.
10. We find that in the impugned order, the Commissioner (Appeals) rejected the contentions of the appellants on the ground that by virtue of Notification 14/2010-ST dated 27.2.2010, all services provided in the CS and EEZ becomes taxable as long as they are related to any activity prospecting, extraction or production of mineral oil and natural gas hence the pre-construction services are liable to service tax on reverse charge mechanism. The Commissioner (Appeals) further held that in respect of construction service, Notification 16/2010-ST dated 27.2.2010 is to be construed in the light of the fact that it was issued only to bring about consequential change to the Taxation of Services (Provided from outside India and Received in India) Rules, 2006 pursuant to the extension of the provisions of the Finance Act to whole of the CS and EEZ vide Notification 14/2010-ST.
11. We find that in the provisions of Notification 14/2010-ST, as reproduced above, the provisions of the Finance Act are extended in respect of the areas specified in column 2 to the Notification in the CS and EEZ for the purposes as mentioned in column 3 of the Notification. The provisions of the Notification were extended to whole of the CS and EEZ at serial No.1 in respect of any service provided for all activities pertaining to construction of installations, structures and vessels for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof. At serial No.2, the provisions of the Finance Act were extended to the installations, structures and vessels within the continental shelf and the exclusive economic zone of India, constructed for the purposes of prospecting or extraction or production of mineral oil and natural gas in respect of any service provided or to be provided by or to such installations, structures and vessels and for supply of any goods connected with the said activity. The amendment to the Taxation of Services (Provided from outside India and Received in India) Rules, 2006 by Notification 16/2010-ST dated 27.2.2010, clause (e) to Rule 2 of the Rules is substituted. The provisions of clause (e) is reproduced below:-
(e) India includes the installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction of production of mineral oil and natural gas and supply thereof. The reading of the above amended Notification shows that India includes the installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction of production of mineral oil and natural gas meaning thereby that the provisions of Section 66A of the Finance Act read with the provisions of the Taxation of Services (Provided from outside India and Received in India) Rules, 2006 as amended, the service recipient is liable to pay service tax on reverse charge mechanism in respect of any service provided or to be provided by or to such installations, structures and vessels and for supply of any goods connected with the said activity.
12. In the present case, the dispute is in respect of services for pre-construction activity and for construction activity and the appellant received taxable services from the foreign service provider.
13. In view of the above discussion, we find that as the appellant had not provided any service regarding which the appellant had paid service tax on reverse charge mechanism in respect of any service provided or to be provided by or to such installations, structures and vessels or for supply of any goods connected with such activity to installations, structures and vessels within the continental shelf and the exclusive economic zone of India. Therefore, the impugned order is set aside and the appeals are allowed.
(Pronounced in Court on 14.11.2013) (P.K. Jain) Member (Technical) (S.S. Kang) Vice President tvu 1 16