2014 (1) TMI 257 - AT - Service Tax

Appellants not liable for service tax in CS and EEZ; Tribunal allows appeals and refund claim.

RELIANCE INDUSTRIES Versus COMMISSIONER OF SERVICE TAX

The Tribunal held that the appellants were not liable to pay service tax on a reverse charge mechanism for services provided in the Continental Shelf (CS) ... Services in relation to Continental Shelf of India (C.S.) and Exclusive Economic Zone of India (EEZ) - reverse charge - Notification 16/2010-ST dated 27.2.2010 - 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 - pre-construction services - Held that:- 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 - 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. In the provisions of Notification 14/2010-ST, 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. 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 - Decided in favour of assessee. Issues Involved:1. Taxability of services provided in the Continental Shelf (CS) and Exclusive Economic Zone (EEZ) of India.2. Applicability of Notification No. 14/2010-ST and Notification No. 16/2010-ST.3. Refund claim for service tax paid under protest.4. Interpretation of 'India' as per the amended rules.Issue-wise Detailed Analysis:1. Taxability of Services Provided in the Continental Shelf (CS) and Exclusive Economic Zone (EEZ) of India:The appellants are engaged in the exploration and production of mineral oil and natural gas, receiving various services from Foreign Service Contractors at offshore locations including CS and EEZ. Services provided/used/consumed in these areas were not taxable prior to 27/02/2010. Notification No. 14/2010-ST extended the provisions of Chapter V of the Finance Act, 1994 to the whole of CS and EEZ for specific purposes, making certain services taxable. The appellant contended that pre-construction and construction services in these areas were either not extended by the Finance Act or were exempt under the IOS Rules 2006 until 01.07.2012. The lower authorities failed to recognize that the service legislation did not apply to the entire CS and EEZ until 01.07.2012.2. Applicability of Notification No. 14/2010-ST and Notification No. 16/2010-ST:Notification No. 14/2010-ST extended the Finance Act provisions to CS and EEZ for activities related to the construction of installations, structures, and vessels for prospecting, extraction, or production of mineral oil and natural gas. Notification No. 16/2010-ST amended the definition of 'India' in the IOS Rules to include installations, structures, and vessels in CS and EEZ for the same purposes. The appellants argued that pre-construction services, such as surveys and exploration, were not taxable until 01.07.2012 as they did not pertain to construction activities. For construction services, the appellants contended that they remained exempt under the Reverse Charge Mechanism due to the exemption granted under the IOS Rules, 2006.3. Refund Claim for Service Tax Paid Under Protest:The appellants paid service tax under protest for certain services and later claimed a refund, which was rejected by the Dy. Commissioner of Central Excise & Service Tax, LTU, Mumbai, and upheld by the Commissioner (Appeals). The appellants argued that pre-construction services were not taxable as they did not pertain to the construction of installations, structures, and vessels. The Commissioner (Appeals) held that all services related to prospecting, extraction, or production of mineral oil and natural gas were taxable under Notification No. 14/2010-ST, making pre-construction services liable to service tax on a reverse charge mechanism.4. Interpretation of 'India' as per the Amended Rules:The definition of 'India' was amended in the IOS Rules to include installations, structures, and vessels in CS and EEZ for prospecting, extraction, or production of mineral oil and natural gas. The appellants argued that only services consumed at constructed installations, structures, or vessels were taxable under the reverse charge mechanism. The Commissioner (Appeals) rejected this argument, stating that Notification No. 14/2010-ST made all services in CS and EEZ taxable if related to prospecting, extraction, or production of mineral oil and natural gas.Judgment:The Tribunal found that the provisions of Notification No. 14/2010-ST extended the Finance Act to CS and EEZ for activities related to the construction of installations, structures, and vessels for prospecting, extraction, or production of mineral oil and natural gas. Notification No. 16/2010-ST amended the definition of 'India' to include these installations, structures, and vessels. The Tribunal held that the appellants had not provided any service that made them liable to pay service tax on a reverse charge mechanism for services provided to or by installations, structures, and vessels in CS and EEZ. Therefore, the impugned order was set aside, and the appeals were allowed.Conclusion:The Tribunal allowed the appeals, setting aside the impugned order, and concluded that the appellants were not liable to pay service tax on a reverse charge mechanism for services provided to or by installations, structures, and vessels in CS and EEZ. The refund claim for service tax paid under protest was justified.