Project management consultancy services to oil and gas companies attract 18% GST, not 12% exploration support rate

AAR Maharashtra ruled that project management consultancy services provided to oil and gas companies do not qualify for 12% GST under either support services to exploration/mining (SAC 998621) or other professional services relating to exploration/mining (SAC 9983). The AAR determined that actual support services are provided by EPC contractors performing engineering, procurement, and construction activities, while the applicant's services fall outside the scope of geological/geophysical consulting or mineral exploration categories. Consequently, the PMC services are classified under the residual entry for professional services, attracting 18% GST.

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Issues Involved:
1. Classification of services under SI No. 24(ii) of heading 9986.
2. Classification of services under SI No. 21(ia) of heading 9983.
3. Appropriate classification and applicable GST rate if not covered under the aforementioned entries.

Detailed Analysis:

Issue 1: Classification under SI No. 24(ii) of heading 9986

5.2 The Applicant provides Project Management Consultancy (PMC) services to Vedanta Limited (VL) for the RDG GAS Development Project and the All Development/Production-Debottlenecking Project. These services involve managing the projects from design to commissioning, reviewing, monitoring, managing, and controlling all aspects of the execution.

5.7 Both projects pertain to the oil and gas sector, specifically for the augmentation of oil/gas facilities, thus relating to mining of oil/gas. The Applicant was previously classifying their services under SAC 998339 as 'Project management services for construction projects' and paying GST at 18%.

5.9 The Applicant contends that their services should now fall under Sr No. 24(ii) of heading 9986 as 'Support services to exploration, mining or drilling of petroleum crude or natural gas or both' under SAC 998621, attracting GST at 12%.

5.11.2 However, the Explanatory notes for service code 998621 include services provided to the oil and gas mining sector by way of actual participation in the mining activity, such as derrick erection, repair, dismantling services, well casing, cementing, pumping, plugging, and abandoning of wells, test drilling and exploration services in connection with petroleum and gas extraction. The Applicant's services do not directly involve these activities but rather involve operational and administrative assistance.

5.11.3 Therefore, the impugned activity is not covered under Heading 998621, and the first question is answered in the negative.

Issue 2: Classification under SI No. 21(ia) of heading 9983

5.12.1 The second question is whether the services provided by the Applicant are classified under SI No. 21(ia) of heading 9983 as 'Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both' attracting GST at 12%.

5.12.2 The Applicant's activities include reviewing, monitoring, managing, and controlling all aspects of the execution of the project undertaken by the EPC Contractor, such as reviewing project performances, investigating performance issues, reviewing EPC Contractor's costing schedule, identifying milestones, and monitoring schedule variances.

5.12.5 According to Circular No. 114/33/2019-GST, the scope of entry at Sr. No. 21(ia) under heading 9983 is governed by the explanatory notes to service codes 998341 and 998343 of the Scheme of Classification of Services. These notes include geological and geophysical consulting services and mineral exploration and evaluation.

5.12.7 The impugned services are not covered by these explanatory notes as they are not connected to geological and geophysical consulting services or mineral exploration and evaluation services.

5.12.8 Therefore, the impugned services are not covered under Sr. No. 21(ia) of Notification 11/2017-CTR dated 28.06.2017 as amended by Notification No. 20/2019-CTR dated 30.09.2019 (SAC 9983).

Issue 3: Appropriate Classification and GST Rate

5.13 The professional, technical, and business services supplied by the Applicant to VL are not covered under Sr. No. 21(ia) (SAC 9983) and Sr. No. 24 (SAC 9986) of Notification 11/2017-CT(R) dated 28.06.2017 as amended. Therefore, they fall under the residual Entry No. 21(ii) of Notification 11/2017-CT(R) dated 28.06.2017 as amended, attracting a tax rate of 18%.

Order:

Question 1: Whether the services provided by the Applicant are classified under SI No. 24(ii) of heading 9986Rs. Answer: Negative.

Question 2: Alternatively, whether the services provided by the Applicant are classified under SI No. 21(ia) of heading 9983Rs. Answer: Negative.

Question 3: Appropriate classification and GST rate if not covered under the aforementioned entriesRs. Answer: The services are covered under Sr. No. 21(ii) of Notification 11/2017-CTR dated 28.06.2017 as amended, attracting a tax rate of 18%.

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