EPC contract services for oil and gas infrastructure classified under construction services SAC 9954, not support services SAC 9986

The AAAR held the appeal was maintainable as it was filed within the 30-day statutory period from communication of the AAR order. Regarding classification, the Authority determined that the appellant's EPC contract activities for establishing new oil and gas extraction infrastructure could not be classified under SAC 9986 (support services to oil and gas extraction) as these were infrastructure establishment services, not support services to existing operations. The services were properly classifiable under SAC 9954 (construction services for mines and industrial plants) as oil and gas exploration constitutes mining. The composite supply was treated as works contract services. Project management consultancy services were classified under SAC 998349 (other technical and scientific services) attracting 18% GST.

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Issues Involved:
1. Classification of Services under SAC Heading 998621.
2. Alternate Classification under SAC Heading 9983.
3. Classification under SAC Heading 9954.
4. Rate of Tax applicable to the services.

Summary:

Issue 1: Classification under SAC Heading 998621
The Appellant argued that their services should be classified under SAC Heading 998621 as "Support services to exploration, mining or drilling of petroleum crude or natural gas or both." The Appellate Authority examined the scope of work under the EPC contract, which involved activities such as augmentation of liquid handling capacity, produced water treatment facility, and construction of new facilities. The Authority concluded that these activities are related to the establishment of infrastructure for oil and gas extraction, not support services. Therefore, the classification under SAC Heading 998621 was rejected.

Issue 2: Alternate Classification under SAC Heading 9983
The Appellant alternatively sought classification 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." The Authority reviewed the explanatory notes and found that the Appellant's activities did not fit within the scope of geological and geophysical consulting services or mineral exploration and evaluation. The proposed services were related to the construction of infrastructure, not consulting or evaluation services. Hence, the alternate classification under SAC Heading 9983 was also rejected.

Issue 3: Classification under SAC Heading 9954
The AAR had classified the services under SAC Heading 9954 as "Construction services." The Appellant contested this, arguing that construction services provide a general description and should not apply. The Authority examined the EPC contract and found that the Appellant was responsible for constructing various facilities, including buildings, pipelines, and roads, integral to the oil and gas extraction infrastructure. The Authority confirmed that the services were appropriately classifiable under SAC Heading 9954.

Issue 4: Rate of Tax
The AAR had applied a rate of 18% GST under entry Sl. No. 3(ii) of Notification No. 11/2017-CT(R), which was omitted effective from 01.04.2019. The Authority noted that the correct rate of tax for the services under SAC Heading 9954 should be 9% CGST and 9% SGST, as per item (xii) of entry at Sl. No. 3 of the amended Notification No. 11/2017-CT(R).

Conclusion:
1. The services provided by the Appellant are classified under SAC Heading 9954 as "Construction services."
2. The proposed classification under SAC Heading 998621 and 9983 was rejected.
3. The applicable rate of tax is 9% CGST and 9% SGST.

Order:
The Ruling of the AAR dated 13.09.2021 is upheld with modifications regarding the rate of tax. The appeal is disposed of accordingly.

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