2021 (10) TMI 306 - AT - Service Tax

Tribunal rules deployment in joint venture as capital contribution, not taxable service

The Tribunal held that the Appellant's activities, involving the deployment of personnel in a joint venture, were considered a capital contribution rather ... Levy of service tax - contribution to Joint Venture / Partnership arrangements - reimbursement/cost charged to the Joint Account by the Appellant namely, salaries of employees working for the joint venture - cost of the employees and labour provided by the Appellant - entire cost recovered by the Appellant should be subjected to service tax recoverable from the Appellant with interest and penalty or not - whether the Appellant was rendering any services to the PMT-JV, of which it was a constituent member? - October 2013 to June 2017 - extended period of limitation - HELD THAT:- The issue has been dealt with earlier by Tribunal in the decision rendered in BG EXPLORATION & PRODUCTION INDIA LTD VERSUS COMMISSIONER OF SERVICE TAX (AUDIT-I) MUMBAI [2020 (10) TMI 579 - CESTAT MUMBAI] in the case of the Appellant. This order arose out of the show cause notice dated 09.12.2015 and the order impugned in this appeal arises out of the show cause notice dated 16.04.2015. The charges levelled in the two show cause notice are identical - it was held in the case that It is found that it is parties to the ‘production sharing contract’ who constitute a joint venture and that the Explanation below section 65B (44), intended to cover supply of services to a constituent of ‘unincorporated associations’ or ‘body of persons’ by the latter is not relevant to the present dispute. Further, the fulfilment of obligation to contribute to the capital of the joint venture is beyond the scope of taxation under Finance Act, 1994 as it does not amount to consideration. Under the Contract in question, the Central Government was to bring in its rights over the resources, while ONGC was to handle contracts and documentation, RIL was to manage financial and commercial requirements and the Appellant was vested with the responsibility of undertaking the technical operations. The man power deployed by the Appellant was in furtherance of its own interest as also that of the joint venture and not by way of any service to unincorporated joint venture. Also, the cost incurred by the Appellant for this purpose was its capital contribution to the joint venture and it cannot be said that consideration was received by the Appellant for arranging man power - The equity brought in by the co-venturer, in this case by making available man power, cannot be considered as a service rendered to the unincorporated joint venture. It is this capital contribution along with the capital contribution made by others which forms the hotchpotch of the unincorporated joint venture. There is no dispute that the joint venture in the present case has been constituted in terms of the Contract, which is a contractual arrangement between the Government of India, the Appellant, ONGC and RIL. The said joint venture was entered into for maximizing the extraction of crude petroleum/natural gas from the identified blocks and to share the profits from the venture - it is clearly impermissible to hold that the contribution made by a co-venturer (partner) in the course or furtherance of the joint-venture is a service rendered to the joint venture for a consideration. It is not in dispute that in a partnership or a joint venture, whatever a partner does for the furtherance of the business, he does so also for advancing his own interest, as he has a stake in the venture. All the resources contributed by the partners enter into a common pool required for running of the enterprise. There is no contractor-contractee or principal-agent relationship between the co-venturer and the joint-venture, which is a pre-requisite for a service to be liable to tax under the Finance Act. It can safely be concluded that the Government of India with the Appellant, RIL and ONGC had entered into a joint venture agreement, whereunder each co-venturer had its own set of obligations and the responsibility discharged by each of the co-venturers towards the venture was not by way of any service rendered to the joint venture, but in their own interest in furtherance of the common objective of the joint venture. Service tax liability, therefore, could not have been fastened upon the Appellant. Extended period of limitation - HELD THAT:- It is not necessary to examine the contention of the Appellant regarding the invocation of the extended period of limitation. Appeal allowed. Issues Involved:1. Whether the Appellant provided taxable manpower services to the joint venture (PMT-JV).2. Whether the Appellant's activities constituted a service for consideration under section 65B(44) of the Finance Act, 1994.3. Applicability of Explanation 3(a) of section 65B(44) of the Finance Act.4. Whether the extended period of limitation under section 73(1) of the Finance Act was applicable.Detailed Analysis:1. Whether the Appellant provided taxable manpower services to the joint venture (PMT-JV):The Appellant, engaged in oil and gas exploration, was part of a joint venture (PMT-JV) with Reliance Industries Ltd. (RIL) and Oil and Natural Gas Corporation Ltd. (ONGC). The Appellant hired employees to fulfill its obligations under the joint venture agreement, and the salary costs were shared among the joint venture partners. The Commissioner had concluded that the Appellant was providing manpower services to the joint venture and thus liable for service tax. However, the Tribunal noted that the Appellant's activities were in furtherance of the joint venture's objectives and not as an independent service provider. The Tribunal held that the Appellant's deployment of personnel was a capital contribution rather than a taxable service.2. Whether the Appellant's activities constituted a service for consideration under section 65B(44) of the Finance Act, 1994:Section 65B(44) defines 'service' as any activity carried out by a person for another for consideration. The Tribunal examined whether the Appellant's activities met this definition. The Tribunal referenced its earlier decision in the Appellant's case, where it was established that the Appellant's actions were part of its capital contribution to the joint venture. The Tribunal reiterated that the Appellant's deployment of personnel did not constitute a service rendered to the joint venture for consideration but was a necessary expense for the joint venture's operations.3. Applicability of Explanation 3(a) of section 65B(44) of the Finance Act:Explanation 3(a) treats an unincorporated association and its members as distinct persons. The Commissioner had used this explanation to argue that the Appellant and PMT-JV were distinct entities, and the Appellant's activities were taxable services. However, the Tribunal found that the explanation was not applicable as the Appellant's actions were in furtherance of the joint venture's objectives and not as an independent service provider. The Tribunal emphasized that the burden of proving that a service was rendered for consideration was on the Department, which had not been met.4. Whether the extended period of limitation under section 73(1) of the Finance Act was applicable:The Commissioner had invoked the extended period of limitation, citing suppression of facts with intent to evade tax. However, the Tribunal did not find it necessary to address this issue in detail, as it had already concluded that the Appellant's activities did not constitute taxable services. The Tribunal set aside the demand for service tax, interest, and penalties, rendering the question of limitation moot.Conclusion:The Tribunal concluded that the Appellant's activities were part of its capital contribution to the joint venture and did not constitute taxable services. The Appellant's deployment of personnel was in furtherance of the joint venture's objectives and not as an independent service provider. The Tribunal set aside the Commissioner's order, allowing the appeal and negating the service tax demand, interest, and penalties.