TaxTMI 
TaxTMI 
2020 (7) TMI 351
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....ceforth, for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST or AP GST Act would be mentioned as being under the GST Act. 3. Brief Facts of the case: 3.1 Halliburton Offshore Services Inc. is a global service provider, engaged in providing various oilfield services to Exploration and Production companies across the globe. Presently, the Applicant has contracted for supply of bundled oilfield services to support the various oil and gas related operations in KG Offshore, East Coast of Indian Offshore waters. 3.2 The Applicant is a Company incorporated under the laws of Cayman Islands and has its Project office located in India at International Business Park, 17th Floor, Oberoi Garden City, Mohan Gokhale Road, Yashodham, Goregaon, Mumbai, Maharashtra 400063. Apart from this, the Applicant has a unit set up in the state of Andhra Pradesh at Plot No. 5A3, Unit - 2, ADB Road, Vakalpudi, East Godavari, Andhra Pradesh - 533004 which unit is registered under the GST Laws and from where the Applicant is providing taxable output supplies. 3.3 The Applicant is engaged in providing comprehensive range of oil field related services such as ....
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....RACTOR also to provide Drill water, Pot-water etc. for rigs, AHTSVs, PT/ and other OPERATOR's vessels as per Scope of Work. Vessels also have to carry HFHSD (free issue item by OPERATOR) for rigs from shore base. vii) Subsea Well Heads, Running Tools including drill ahead tool and services including Service Engineer. viii) Liner Hanger Service along with crew. ix) Miscellaneous Services like Coring (with Core Barrel & Core head), Casing & tubular running, Torque Turn (for premium casings & tubing up to 14" including tubing & landing string during completion), Hole openers, Under-reamers, Multiple Activation Circulating Bypass Tool (MACB), casing cutting & Fishing Tools, H2S equipment, 7" casing clean-out string and other tubular strings, odd size special drill bits, scrappers etc. x) Capable and experienced services crew at Rig/Base personnel as per List of (Crew) Personnel and scope. xi) It shall be responsibility of CONTRACTOR to provide any cross-overs between its tools and drill stems of various rigs for which CONTRACTOR shall coordinate with Rig Contractors. xii) It shall be responsibility of CONTRACTOR to provide any items....
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....ACTOR'S account." The applicant had filed an application in form GST ARA-01,Dt:19.11.2019, by paying required amount of fee for seeking Advance Ruling on the following issues, as mentioned below. 4. Question raised before the Authority: The applicant filed the present application seeking a ruling from this Authority on the following issues: Determination of liability and consequent classification to pay Goods and Services Tax ('GST') on reimbursement received towards Lost in Hole / Damages beyond Repair equipment (collectively referred as 'LIH equipment') by the Applicant under the Contract with the Customer i.e., whether reimbursement received towards LIH equipment can be considered as a supply as per Section 7 of the CGST Act, 2017 and hence, liable to GST? If reimbursement received towards LIH equipment can be considered as supply and liable to GST, what would be the classification and the rate of GST applicable on such supply? Whether the same would be treated as "agreeing to tolerate an act" as per clause 5(e) of Schedule II of the CGST Act, 2017 and subject to GST at the rate of 18% or the same would be treated as a composite supply of works contract service (a....
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....irmation of such LIH equipment by ONGC, as per terms and conditions of the agreement signed between the Applicant and ONGC, the Applicant raises an invoice on ONGC for reimbursement of amount towards LIH equipment as per the calculation provided in the contract. ONGC approves the calculation and makes payment for LI H equipment / tools only if the LIH did not occur due to gross negligence / mistake of the Applicant. 6.4 The Contract executed by the Applicant with ONGC contain clauses for compensation of such LIH equipment. (clause 31(b) of the Contract). In other words, in the event of any loss of equipment/tools in hole other than as a result of gross negligence on part of the Applicant, ONGC reimburse the Applicant for such lost equipment / tools as per the Agreement. 6.5 To determine the applicability of GST on reimbursement received towards LIH equipment, we refer to the charging provision contained under Section 9 of the CGST Act which provides that GST is levied on a 'supply' of goods and/or services. "9. Levy and collection. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-Stat....
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....ipment is only made after an irretrievable loss of the said goods and consequently, there is no supply of 'goods' in relation to the reimbursement received towards LIH equipment. 6.9 However, as the definition of services is wide enough to cover to anything other than goods, the reimbursement received towards LIH equipment would get covered under the broad definition of a supply of 'services' under Section 7 of the CGST Act. B. classification and the rate of GST applicable on supply of goods and services 6.10 Having stated that the reimbursement received towards LIH equipment would qualify as supply of service, it is pertinent to determine the classification of service for discharging GST. 6.11 In this case, it is submitted that there are two possible classifications viz. a) "agreeing to tolerate an act" as per clause 5(e) of Schedule II of the CGST Act; or b) "composite supply of works contract service" (as a part of main service under the Contract)" as per clause 6(a) of of Schedule II of the CGST Act. 6.12 As per clause 5(e) of the Schedule II of the CGST Act, agreeing to the obligation to refrain from an act, or to tolerate an act or a situation....
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.... a supply of that particular supply which attracts the highest rate of tax." 6.14 In terms of the foregoing, a composite supply is to be taxed per the principal supply, while a mixed supply is to be taxed per that constitutive element which attracts the highest rate of tax. 6.15 As regards a supply of 'works contract', the same is treated as a composite supply of service, per Entry 6 of Schedule II, which is reproduced below. "6. Composite supply The following composite supplies shall be treated as a supply of services, namely: - (a) works contract as defined in clause (119) of section 2" The term 'works contract' is defined at Section 2(119) as under: "(119) "works contract" means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract" 6.16 In terms of the notifications prescribing the applicable rates of GST, there is a singular rate of GS....
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....ct. Furthermore, the LIH equipment, being in the nature of capital goods deployed/ used at site, are also not in the nature of consumables. This is all the more so, given that the Contract separately identifies and charged for certain goods as consumables (e.g. mud/ brine chemicals). Even in terms of the clauses under the Contract, reimbursement towards LIH equipment does not find mention under the scope of work at Annexure H to the General Conditions of the Contract, but is a separate clause under the Special Conditions of the Contract contemplating a potential event that may or may not occur during the tenure of the Contract. There is also a separate event of invoicing for the reimbursement for LIH equipment, which is contingent on both the accident resulting in irretrievable loss of the goods, as well as the acceptance by ONGC that the same was not on account of the gross negligence/ mistake of the Applicant. Accordingly, the LIH equipment clause contemplates a contingency which may occur outside the normal stream of supply under the Contract, in which case a compensatory payment is to be made by the Customer to the Applicant. vi) As regards the LIH equipment, there is ....
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.... Version) The situation in which events or conditions combine or happen together 6.21 As per the aforesaid definitions, supplies in conjunction with each other would imply supplies that are made together or in combination. Accordingly, where the LIH equipment is a scenario which is entirely contingent and accidental in nature, it cannot be stated that ONGC has contracted for a reimbursement towards LIH equipment in conjunction with the drilling services. For the same reason, it cannot be said that LIH equipment would form part of the services for 'building, construction... of any immovable property' so as to qualify as a composite supply of 'works contract', i.e. as the true nature of LIH is an accidental occurrence which may not even occur during the execution of the 'works contract'. 6.22 The aforesaid position also finds support in the FAQs on 'Government Services' issued by the Directorate General of Taxpayer Services (DGTS), which in the context of the exemption for liquidated damages and contractual penalties under Government contracts for supplies of goods/ and or services, has clarified as follows: "Question 18 : What is the significance of services ....
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....ny Limited [2018 (13) GSTL 177 (AAR-GST)] = 2018 (5) TMI 1332 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA, which was also upheld by the Appellate Authority for Advance Rulings (AAAR) in In Re : Maharashtra State Power Generation Company Limited [2018 (17) GSTL 451 (App. A.A.R.-GST)] = 2018 (9) TMI 1185 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA. In this regard, the relevant findings of the AAAR are set out below: "49 We agree with the AAR when they say that value of the work done and which is to be paid is not affected by the amount deducted therefrom towards liquidated damages. The consideration remains unchanged and how the amount is recovered would not change the nature of the supply. Also, neither the definition of 'contract price' nor 'contract value' as given in the Agreement refers to the contingency of liquidated damages. Contract price is defined in clause 3.13 (A) as the total lump sum price plus the price variations. This is an independent clause having no relation to the eventuality of liquidated damages, for which as we have said above, a separate clause has been given. The fact that the liquidated damages are recovered from the bill is only a method of p....
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.... considered as a supply as per Section 7 of the CGST Act, 2017. b. Reimbursement received towards LIH equipment can be treated as "agreeing to tolerate an act" as per clause 5(e) of Schedule II of the CGST Act, 2017 and subject to GST at the rate of 18%. 7. Discussion and Findings: 7.1 We have examined the issues raised in the application. The taxability and the applicable rate of tax for the goods and services supplied or to be supplied, as governed under the provisions of respective GST Acts are examined. 7.2 The Applicant sought Advance Ruling on the following Question/aspect "Determination of liability and consequent classification to pay Goods and Services Tax ('GST') applicable on the reimbursement received by the Applicant under the Contract from the Customer towards Lost in Hole/Damage Beyond Repair of equipment/tool (in short equipment) during execution of the services mentioned in the Contract." 7.3 The undersigned has examined the Applicant's question for advance Ruling in the light of the Statement of facts furnished in Exhibit-II to the Application along with the Documents/material provided by the Applicant vis-a-vis the legal provisions o....
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....' under Entry 5(e) of Schedule-II to the CGST Act, 2017. 7.5 (ii) It has been stated and committed by the Applicant at Para-21 (under Exhibit-III) that 'there is not contemplation of transference of title to the LIH equipment". For merit classification of an activity under a 'Works Contract Service under Entry-6 of Schedule-II', there must be transfer of goods involved in the activity. By their own submission and admission, the activity under question cannot be a 'works contract service' as there is no transfer of goods involved. 7.5 (iii) The Applicant had given detailed submissions with analysis and inter-alia drew attention to specific references to FAQs on 'Government Services' issued by the Directorate General of Taxpayer Services (DGTS) {Question: 18 of FAQ} and to an Advance Ruling given by the Maharashtra Authority in Re: Maharashtra State Power General Company Ltd [2018 (13) GSTL 177 (AAR-GST)] = 2018 (5) TMI 1332 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA and Appellate authority's ruling on the said Advance Ruling under Re: [2018 (17) GSTL 451 (Ap. AAR-GST] = 2018 (9) TMI 1185 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA. And whereby the Applicant has give....
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...., under the facts and circumstances of the present case (under mutually agreed terms and conditions of the Contract) it is ample clear that 'reimbursement of LIH Equipment/tools' cannot be collate with the activity of 'agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act'. And accordingly, the said activity of 'reimbursement of LIH Equipment/tools' did not merit classifiable as Service under Entry 5(e) of Schedule-II to the CGST Act, 2017. 7.6. Having negated possible or probable classification of the event of 'reimbursement of LIH equipment/tools by the Customer' under category supply of services {as raised/contemplated by the Applicant}, the undersigned proceed to examine as to whether the said incidence or activity be classified as 'Supply of Goods or not'- including the main aspect whether it falls within the meaning of supply or not. Accordingly, reference is drawn to the legal frame work for the concept of supply and the meaning of goods/Service under the CGST Act, 2017 and the Rules made there under: Section-2(52) and Section-2(102) of the CGST Act, 2017 defines 'Goods' and 'Services' respectively as under: '....