EPC contract for petroleum exploration infrastructure classified as work contract taxable at 18% GST under Heading 9954(ii)

AAR Rajasthan ruled that services under an EPC contract for petroleum exploration infrastructure do not qualify as "support services to exploration/mining" under Heading 9986 or "professional/technical services" under Heading 9983. The contract involves designing, engineering, procurement, construction, and commissioning of permanent facilities, creating immovable property. The AAR classified this as a work contract involving composite supply of goods and services, taxable at 18% GST under Heading 9954(ii) of Notification 11/2017-Central Tax (Rate).

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Issues Involved:
1. Classification of services provided by the applicant under GST.
2. Determination of the applicable GST rate for the services provided.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by the Applicant:
The applicant, engaged in engineering, procurement, and construction (EPC) services for the upgradation of facilities at an oil field, sought clarification on whether these services qualify as "Support services to exploration, mining or drilling of petroleum crude or natural gas or both" under Heading 9986 or "Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both" under Heading 9983.

The applicant argued that the services provided were integral to the petroleum operations and should be classified under Heading 9986 or 9983, attracting a GST rate of 12%. They emphasized that the services involved designing, planning, development, construction, installation, test run, final commissioning, and handover of various infrastructure facilities, which are critical to the petroleum extraction process.

However, the authority noted that the explanatory note to service code 998621 under Heading 9986 includes services like derrick erection, well casing, cementing, pumping, and test drilling, which are directly linked to the extraction process. The services provided by the applicant, which include designing, engineering, procurement, construction, and commissioning of infrastructure, do not fall under these categories. Similarly, Heading 9983 covers "pure services" related to professional, technical, and business services, which do not encompass the comprehensive EPC services provided by the applicant.

2. Determination of the Applicable GST Rate:
The authority concluded that the services provided by the applicant under the EPC contract qualify as a "works contract" as defined under Section 2(119) of the CGST Act, 2017. The contract involves building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, or commissioning of immovable property, with the transfer of property in goods involved in the execution of the contract.

As per Section 8 of the CGST Act, the tax liability on a composite supply is determined based on the principal supply. Since the services provided by the applicant form a composite supply of works contract, they are classified under Heading 9954 (ii) of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, attracting a GST rate of 18% (9% CGST and 9% SGST).

Conclusion:
The authority ruled that the services provided by the applicant do not qualify as "Support services to exploration, mining or drilling of petroleum crude or natural gas or both" under Heading 9986 or "Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both" under Heading 9983. Instead, they are classified as a composite supply of works contract under Heading 9954 (ii), attracting a GST rate of 18%.

Ruling:
1. The services provided by the applicant are not classified under S. No. 24(ii) of Heading 9986 and do not attract GST @ 12%.
2. The services provided by the applicant are not classified under S. No. 21 (ia) of Heading 9983 and do not attract GST @ 12%.
3. The activities of supply, designing & engineering, installation, and commissioning of the project under the EPC contract by the applicant attract GST @ 18% under S. No. 3 Heading 9954 (ii) of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.

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