Court rules GSPC (J) liable for IGST on services from ANP under Reverse Charge Mechanism

The court ruled that GSPC (J) is liable to pay IGST on the import of services from ANP under the Reverse Charge Mechanism. The payment made pursuant to the Deed of Settlement and Release qualifies as a supply of service under GST regulations, falling within the GST era. As ANP is in a non-taxable territory and GSPC (J) is in a taxable territory, the GST liability rests with GSPC (J) as the recipient of the service. The time of supply is determined as the date of payment of the settlement amount.

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Issues Involved:

1. Whether the payment of settlement fees pursuant to the Deed of Settlement and Release signed for the Timor-Leste Oil Block Production Sharing Contract qualifies as a 'supply' under Goods and Service Tax (GST) regulations.
2. Whether the payment of settlement fees against the demand made by Autoridade Nacional do Petroleo E Minerais (ANP) attracts levy of GST under GST regulations.

Detailed Analysis:

Issue 1: Whether the payment of settlement fees pursuant to the Deed of Settlement and Release signed for the Timor-Leste Oil Block Production Sharing Contract qualifies as a 'supply' under Goods and Service Tax (GST) regulations.

The applicant, M/s. GSPC (JPDA) LTD., entered into a Production Sharing Contract (PSC) with Timor Sea Designated Authority for exploration activities in Block JPDA 06-103. Due to arbitration proceedings initiated by the Timor-Leste Government against the Government of Australia, the PSC was terminated by ANP, which demanded payment for the estimated cost of exploration not carried out and damages for breach of local content obligations.

The applicant argued that the PSC is not a service contract and that the payment of exploration costs cannot be considered towards the supply of services. They contended that the settlement amount should not be chargeable to GST under the Reverse Charge Mechanism (RCM) because:
1. The PSC is not a contract for services to the Designated Authority.
2. The settlement payment is towards exploration cost, which is not taxable under GST regulations.
3. The settlement payment does not relate to any supply or independent supply and thus cannot be treated as 'consideration' towards supply.
4. The termination of the PSC arose due to an unintended event and did not originate from any obligation to tolerate an act, making the settlement amount non-taxable as a supply of services.

Issue 2: Whether the payment of settlement fees against the demand made by Autoridade Nacional do Petroleo E Minerais (ANP) attracts levy of GST under GST regulations.

The applicant further submitted that the payment pertains to a period before the GST regime and is related to a block in a non-taxable territory. They argued that the settlement amount is not taxable under GST regulations because:
1. The demand raised by ANP pertains to a period before the GST regime.
2. The PSC is for a block in a non-taxable territory, and the operator and unincorporated joint venture (UJV) are also in non-taxable territories.
3. The settlement payment is not in relation to any supply or independent supply and thus cannot be treated as a 'consideration' towards supply.

Findings:

1. Nature of Payment: The payment made by GSPC(J) to ANP is not 'Cost Petroleum' or exploration/reimbursement cost as per the CBEC Circular dated 12-2-18. The payment is made in pursuance of the Deed of Settlement and Release dated 15-7-2020, where ANP agreed to release the performance guarantee and tolerate non-payment of exploration costs and damages for breach of the PSC.

2. Supply of Service: The activities performed by ANP for GSPC(J) for the consideration of the settlement payment qualify as a supply of service under Section 7 of the CGST Act and Schedule II (5)(e), which includes "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act."

3. GST Era: The Deed of Settlement and Release and the ICC Order both date from 2020, which falls within the GST era. Thus, the subject supply falls within the scope of GST.

4. GST Liability: Since ANP is located in a non-taxable territory and GSPC(J) is in a taxable territory, the supply of service by ANP to GSPC(J) is considered an import of service. As per Section 13 of the IGST Act and Entry No. 1 of Notification No. 10/2017-Integrated Tax (Rate), the GST liability is on the recipient (GSPC(J)) under the Reverse Charge Mechanism.

5. Time of Supply: The time of supply is the date of payment of the settlement amount by GSPC(J) to ANP, as per Section 12 (3)(b) of the CGST Act, 2017.

Ruling:

GSPC (J) is liable to pay IGST on the import of the subject supply of service from ANP under the Reverse Charge Mechanism.

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