AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (7) TMI 351
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....e 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 drilling services, exploration and mining relate....
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.... 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 / equipment for making its units of various services / equipment compatible with the rig power supply for which CONTRACTOR shall interact with....
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....w. 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 (as a part of main service under the Contract)and thus, GST can be charged at the rate of 12% equivalent to the GST rate applicable for supply of composite works contract services? On Verification of basic....
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....he 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-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government....
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....sement 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, or to do an act is considered as supply of service. The relevant provision in this regard is extracted below: "5. Supply of services The following shall be treated as supply of services, namely:- ... (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do....
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....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 GST prescribed for a supply in the nature of a 'works contract'. 6.17 In terms of the foregoing factual matrix and position in law, we have analyzed on the ensuing paragraphs that whether the LIH charges are to be treated as part of the overall bundle of services under the Contract, and accordingly charged to GST at the rate of 12% as a 'works contract', or, are to be treated as a service of 'agreeing to the obligation of tolerating a situation' and t....
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....ause 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 also no contemplation of a transference in property therein. As stated hereinabove, the contract only contemplates that certain capital goods in the form of equipment will be provided/ deployed for the operations, which may or may not be irretrievably lost during operations, and, in such a case, payment is required to be made by ONGC to the Applicant. Moreover, the LIH equipment are also distinct from consumables under the Contract. It is also pertinent to note that, had the Contract been for a ....
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....nstruction... 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 provided by Government or a local authority by way of tolerating non-performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Government or the local authority? Answer : Non-performance of a contract or breach of contract is one of the conditions normally stipulated in the Government contracts for supply of goods or services. The agreement entered into between the parties stipulates that both the service provider and service recipient abide by the terms and conditions of the contract. In case any of the parties breach the con....
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....ation 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 payment - the fact that there are two agreements remains unaltered. It is contended by the appellant that the liquidated damages cannot be treated as an independent supply .However we do not agree with same. When the contract specifically provides for the payment of the damages. it itself manifests that there is a separate contractual agreement between the two parties." (emphasis supplied) 6.24 In terms of the aforesaid, a clause in relation to liquidated damages or contractual penalties, which are outside the stream of the routine supplies under the contract, was treated as a distinct supply of service....
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....quent 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 of the Central Goods and Service Tax Act, 2017, the Goods and Service Tax Rules, 2017. We place the findings as under: 7.4 The Applicant was awarded a Contract bearing letter of Award No. 9010024545 dated 05.10.2016 by M/s Oil and Natural Gas Company Limited {for brevity referred as 'ONGC or the Customer or the Recipient'}. The said contract was for Hiring of Bundled Services for 05 Rigs and in accordance with terms and conditions as envisaged in the Scope of the Work read with Payment Schedule and other clauses of the Contract. It is seen from clause 2.3 (and wordings thereof) of the Letter of Award dated 05.10.2016 that the said bundled servi....
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....ent 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 given his conclusion that 'reimbursement of LIH equipment/tools' may be classifiable as service under Entry-5(e) of Schedule-II of the CGST Act, 2017 i.e. as "service viz agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act'. 7.5(iv) It is a settled law that any Advance Ruling given by an authority is applicable and has an effect in the matters relating to the individual applicant only. As a matter of principle, the Ruling in a particular issue and an applicant cannot be made applicable to issue of a different person, as a right. It is also settled principle that the ratio of the judgments of the Hon'ble Courts/the Tribunals/t....
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....nt}, 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: 'Goods' means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply - Section -2(52) 'Services' means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged -Section-2(102) 7.7. Sub-Section-(1) of Section-7 of the CGST Act, 2017 gives an inclusive definition to expression 'Supply', which reads ....