2024 (2) TMI 1358 - AAAR - GST

EPC contract services for gas processing infrastructure classified under construction services, attract 18% GST under Section 100(2)

The AAAR Rajasthan ruled that an appeal filed on 19.10.2021 against an AAR order communicated on 21.09.2021 was within the 30-day statutory period under ... Maintainability of appeal - time limitation - whether the appeal has been filed within stipulated period (i.e. thirty days from the date on which the Ruling sought to be appealed against is communicated to the Appellant) prescribed under Section 100 (2) of CGST Act, 2017 or not? - HELD THAT:- The date of communication of the Order of AAR, Rajasthan to the Appellant was 21.09.2021 and the appeal was filed on the portal on 19.10.2021 - the Appellant have filed the appeal within statutory period of 30 days of date of communication of the Order of AAR. Classification of service - provision of service including supply of material amounting to transfer of property in goods - whether the activities undertaken are/were classifiable either under SAC Heading No. 9986 eligible for rate of tax prescribed vide entry serial number 24(ii) or alternatively under SAC Heading No. 9983 eligible for rate of tax prescribed vide entry serial number 21(ia) of Notification No. 11/2017-CT(R), dated 28.06.2017? - HELD THAT:- The Appellant have not denied the fact that supply of service under the EPC Contract in question also involves transfer of property in goods. The only contention by the Appellant in this regard is that the scope of SAC Heading No. 9986 does not exclude Works Contract Service. As can be seen from the appeal as also from the EPC Contract, the Appellant have been assigned the work related to establishment of infrastructure for the proposed expansion in the production and processing capacity. As mentioned in Para-D1-8 titled General Design Guidance, the new surface facilities shall be designed for design life of 25 years and new well pads are to be connected with an independent fiber optic cable upto existing RGT terminal. The Appellant are obliged by the contract for satisfactory handover of complete RDG Gas Processing Terminal including Non Process Buildings, receiving end substation at RDG Terminal including roads and drains within RDG Terminal, Intra-field Pipeline, irrigation water pipeline and approach roads between well pads to the Company M/s Vedanta Limited, complete with applicable hook-up & tie-in with the existing & proposed facilities. This provision of the contract makes it amply clear that the Appellant have been assigned the work of establishment of new facilities for natural gas extraction alongside the already existing facilities at the RDG. Since, the Appellant have been tasked with establishment of infrastructure facilities for oil and gas extraction, the activities undertaken by the Appellant in pursuance of the EPC Contract cannot, by any stretch of imagination, be said to be support services to oil and gas extraction. The distinction between the activities undertaken by the Appellant in terms of the EPC contract and the activities included in the definition of SAC Heading No. 998621 is strikingly clear. Therefore, the activities undertaken by the Appellant in pursuance of the EPC Contract cannot be classified under SAC Heading No. 998621 as these are not in the nature of support services to oil and gas extraction. So far as SAC Heading No. 998343 is concerned, the same has a very narrow scope/limited coverage of mineral exploration and evaluation information which is certainly not the activity proposed to be undertaken by the Appellant in pursuance of the instant EPC Contract - SAC Heading No. 998341 covers a wide range of activities which include provision of advice, guidance and operational assistance concerning the location of oil and gas fields including feasibility studies - the Appellant have not proposed to undertake any such activity rather the Appellant have proposed to undertake establishment/ creation/ construction of infrastructure facilities for oil and gas extraction which are quite different and distinct from the advice concerning location of gas fields. SAC Heading No. 9954 of the Scheme of Classification covers the overall construction services with SAC Heading No. 995425 the general construction services of mines and industrial plants. The explanatory notes clarify that the said service code includes construction services for mining and related facilities associated with mining operations. Since, oil and gas exploration is also a form of mining; therefore, the construction services proposed to be supplied by the Appellant for creating gas extraction facility enhancing the existing production capacity are appropriately classifiable under the SAC Heading No. 9954. Entry SI. No. 3(ii) of Notification No. 11/2017-CT (R), dated 28.06.2017 was omitted with effect from 01.04.2019 and, therefore, the supplies proposed to be undertaken by the Appellant could not have been eligible for the rate prescribed therein. However, we observe that up to Notification No. 3/2019-CT (R), dated 29.03.2019, major changes have been made in the said entry under SI. No. 3 of the basic Notification No. 11/2017-CT (R), dated 28.06.2017 to provide for different rates of tax for supplies under the categories of supply of construction services or supply of works contract services - the item (xii) of entry at SI. No. 3 of Notification No. 11/2017- CT (R), dated 28.06.2017, as amended up to Notification No. 3/2019-CT (R), dated 29.03.2019 prescribes Central Tax @ 9% on the supplies proposed to be undertaken in terms of the EPC Contract and therefore, the supplies proposed to be undertaken by the Appellant attract tax at the rate of 18%. The Ruling pronounced by the AAR, therefore, needs to be modified up to that extent. The appeal is disposed of. Issues involved:1. Classification of services under SAC Heading 998621.2. Alternative classification under SAC Heading 9983.3. Correct classification under SAC Heading 9954.4. Validity of AAR's ruling on classification and applicable tax rate.Summary:I. Classification under SAC Heading 998621:The Appellant contended that the services provided under the EPC contract should be classified as 'support services to oil and gas extraction' under SAC Heading 998621. They argued that their activities, including construction and installation of infrastructure for gas extraction, fall within this category as per the CBIC Circular No. 114/33/2019-GST and the United Nations Central Product Classification (UNCPC). However, the ruling clarified that the services provided by the Appellant involve the creation of infrastructure, which is distinct from support services to oil and gas extraction. Support services, as defined, include activities like derrick erection, well casing, and cementing, which are directly related to the extraction process, not the establishment of infrastructure. Hence, the Appellant's activities do not fall under SAC Heading 998621.II. Alternative classification under SAC Heading 9983:The Appellant alternatively suggested that their services could be classified under SAC Heading 9983 as 'other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both.' They argued that their project management services, including design, planning, and commissioning, fall within this category. However, the ruling noted that SAC Heading 9983 primarily covers geological and geophysical consulting services and mineral exploration and evaluation, which are distinct from the construction and installation activities undertaken by the Appellant. Therefore, the Appellant's services do not merit classification under SAC Heading 9983.III. Classification under SAC Heading 9954:The ruling confirmed that the services provided by the Appellant are classifiable under SAC Heading 9954, which pertains to construction services. The Appellant's activities, including the construction of well pads, pipelines, terminals, and other infrastructure, clearly fall within this category. The ruling emphasized that the Appellant's contract involves a composite supply of services and goods, amounting to a works contract as defined under clause (119) of Section 2 of the CGST Act, 2017. Therefore, the appropriate classification for the Appellant's services is under SAC Heading 9954.IV. Validity of AAR's ruling on classification and applicable tax rate:The Appellant challenged the AAR's ruling on the grounds that it was based on a non-existent provision of law, as the relevant entry in the rate notification had been omitted. The ruling acknowledged this omission but clarified that the classification under SAC Heading 9954 remains valid. The applicable tax rate for the Appellant's services, as per item (xii) of entry at SI. No. 3 of Notification No. 11/2017-CT (R), dated 28.06.2017, is 18% (9% CGST + 9% SGST).Conclusion:The Appellant's services are correctly classified under SAC Heading 9954 as construction services, attracting a tax rate of 18%. The claims for classification under SAC Heading 998621 or 9983 are not sustainable based on the nature of the activities described in the EPC contract. The ruling of the AAR, except for the tax rate reference, is upheld.