2013 (7) TMI 96 - AT - Service Tax

Tribunal Classifies Appellant's Services as 'Supply of Tangible Goods'

The Tribunal classified the services provided by the appellant as 'supply of tangible goods for use' services under the service tax law, rejecting the ... Supply of Tangible goods for use - Services u/s Section 65(105)(zzzzj) - stay – the appellant provided the rigs for drilling operations/ drilling wells in the offshore waters – did not discharge any service tax liability on the services rendered - appellant contended that the activity undertaken is not 'supply of tangible goods' but comes under the category of drilling of oil wells – Held that:- Prima facie after going through the agreement, it was held that the service undertaken by the appellant falls under the category of 'supply of tangible goods for use'- the agreement is for charter hiring of drilling units - the compensation is fixed on per day basis - thus even when no drilling takes place, the service provider is compensated – thus the transaction involved is one of service as it was decided in Indian National Ship owners Association Vs. UOI (2009 (3) TMI 29 - BOMBAY HIGH COURT). Validity of show cause notice – The notice was served within a period of one year – thus the show-cause notice is within time and the allegation of time bar is not sustainable. Appellant directed to submit 50% of the amount - stay granted partly. Issues involved:1. Classification of services provided by the appellant under service tax law.2. Time bar aspect in issuing the show-cause notice.3. Interpretation of contractual terms between the appellant and ONGC.Issue 1: Classification of services provided by the appellant under service tax lawThe appellant provided rigs on charter hire basis for drilling operations to ONGC and its subsidiary. The department classified the services under 'Supply of Tangible goods for use Services' taxable under Section 65(105)(zzzzj) of the Finance Act, 1994. The appellant argued that the services fell under mining services under Section 65(105)(zzzy) and were not taxable due to the activities being conducted outside India. The Revenue contended that the services were hiring of vessels for ONGC, falling under 'supply of tangible goods for use' service. The Tribunal noted the agreement's compensation structure and previous court judgments, concluding that the services provided by the appellant were indeed under the category of 'supply of tangible goods for use' services.Issue 2: Time bar aspect in issuing the show-cause noticeThe appellant claimed that the show-cause notice was time-barred as the department was aware of their activities before issuing the notice. The Revenue argued that the notice was within the time limit as it was issued within one year of the date the department was informed about the activities. The Tribunal held that the date of knowledge was relevant in computing the time limit, finding the notice timely and dismissing the appellant's contention of time bar.Issue 3: Interpretation of contractual terms between the appellant and ONGCThe contractual terms between the appellant and ONGC involved charter hiring of drilling units with compensation fixed on a per-day basis, even when no drilling occurred. The Tribunal analyzed the agreement and previous court decisions, determining that the compensation structure indicated the services provided by the appellant were indeed under the category of 'supply of tangible goods for use' services.In conclusion, the Tribunal directed the appellant to make a pre-deposit of Rs.5.00 crores within eight weeks, with the balance amount of dues adjudged against the appellant to be waived upon compliance. The recovery of the balance amount was stayed during the pendency of the appeal.