2013 (10) TMI 741 - AT - Service Tax

Court classifies 'Mining Services' pre-2008, sets aside penalties under Sec. 76 for appellant

The court classified the services as 'Mining Services' before 16/05/2008 due to the broader scope of responsibilities beyond tangible goods provision. ... Classification of taxable services u/s 65A - Supply of Tangible Goods service u/s Section 65(105)(zzzzj) versus Mining of Mineral, Oil or Gas service' u/s Section 65(105)(zzzy) versus Survey and Exploration of Mineral, Oil and Gas service – Rules of interpretation – use of own equipment for providing services - drilling of wells for production/exploitation Hydrocarbons (developmental drilling) is put along with site formation and clearance and excavation and earth moving, which are not part of Survey and exploration of mineral service - contemporanea exposito and intention of the Government – Held that:- There are five elements [i.e. A source rock, Migration, Trap, Seal or cap rock and Reservoir] which are required to be complied with to identify source of potential petroleum Hydrocarbon drill location. - In our opinion, this is what is covered by the definition of Survey and Exploration as far as oil/gas is concerned. - the wells drilled as per the GSPC's specification in the location identified after ensuring that the five elements of prospect are existing in the activity subsequent to survey and cannot be said to be a part of the service which is preliminary to mining or drilling activity - Follwoing decision of Atwood Oceanics Pacific Ltd. Versus Commissioner of Service tax, Ahmedabad [2012 (12) TMI 425 - CESTAT, AHMEDABAD] - Decided against assessee. Issues:Classification of services under supply of tangible goods services before and after 16/05/2008, applicability of penalties under Sec. 76 and Sec. 78 of the Finance Act 1994, interpretation of contract clauses for service classification.Analysis:1. The appellants argued that their pre-mining and exploration activities should be classified under supply of tangible goods services only post-16/05/2008 when brought under the Service Tax net. They contended that the services provided were correctly classifiable as such, emphasizing misinterpretation by the adjudicating authority and disputability of the issue, challenging the imposition of penalties under Sec. 76.2. The Revenue, represented by the AR, highlighted contract clauses indicating that the services provided were not solely tangible goods supply, supporting the correctness of the demand and penalties imposed. Referring to a previous judgment involving similar services, the AR argued for rejecting the appeals based on identical facts.3. Upon thorough consideration and case record review, it was found that the contract between the appellants and GSPCL involved not only equipment supply but also obtaining permits, training staff, and other responsibilities beyond tangible goods provision, leading to the classification as 'Mining Services' before 16/05/2008.4. Citing a previous judgment involving comparable services, it was established that the services provided by the appellants fell under 'Mining Services' pre-16/05/2008, aligning with the settled law laid by the tribunal. However, penalties imposed were set aside for the appellant who paid the disputed tax post-adjudication, under the provision of section 80 of the Finance Act, 1994, due to a genuine belief in non-liability for service tax on their activities.5. The judgment delivered on 26/07/2013 affirmed the correct classification of services as 'Mining Services' before 16/05/2008, while acknowledging the appellants' bonafide belief regarding service tax liability and setting aside penalties accordingly.