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 Section 100(2) of CGST Act, 2017. Regarding service classification, the Authority held that EPC contract services for establishing gas processing infrastructure facilities were not classifiable under SAC Heading 9986 (support services to oil and gas extraction) or 9983, but under SAC Heading 9954 (construction services). The services attracted 18% GST rate under the amended notification provisions. The AAR ruling was modified accordingly and the appeal was disposed of.

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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.

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