TaxTMI 
TaxTMI 
2021 (10) TMI 306
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.... to the Appellant for a period from October 2013 to June 2017 and it is the adjudication on this show cause notice that has led to the filing of this appeal. For the period from July 2012 to December 2014, proceedings had also been initiated against the Appellant on similar issues by a show cause notice dated 09.12.2015 and though the demand of Rs. 5.43 crores raised in the show cause notice was confirmed by an order dated 29.05.2017 passed by the Adjudicating Authority, but this order was set aside by the Tribunal in the order dated 11.06.2020 rendered in B.G. Exploration & Production India Ltd. vs. Commissioner of Service Tax (Audit-I) [Service Tax Appeal No. 87085 of 2017 decided on 11.06.2020] on merits as well as for the reason that the demand was proposed for a period which fell outside the normal period of limitation prescribed under section 73(1) of the Finance Act. In the present appeal, the period from October 2013 to March 2016 is beyond the normal period of limitation contemplated under section 73(1) of the Finance Act and this would involve a demand of Rs. 38.64 crores. 3. The Appellant is primarily engaged in the business of developing, exploring and producing oil ....
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....s of employees as were required for carrying out the Joint Operations. The said employees reported to the Managing Director of the Appellant, who in turn became accountable to the Operator Board comprising the Holders. The salary expenses in terms of Article 3.2(c) of the Agreement were borne by the Holders and the Appellant paid the salaries of the employees and other costs. 5. On payment of the employee costs by the Appellant, the same was accounted as 'salary cost' in the consolidated statement for expenses of the Joint Operations. The said salary expenses paid by the Appellant were borne by the Holders in their respective participating interest i.e. 40:30:30. Even the recruitment cost, travel expenses and training expenses incurred towards the employees were borne by the Holders in proportion to their participating interest. The Appellant claims that all such charges recovered by the Appellant from RIL and ONGC were only in the nature of reimbursements, pursuant to the sharing of the salary costs amongst the three constituents of the Contract. 6. A show cause notice dated 16.04.2015 was, however, issued to the Appellant. After making reference to the Contract date....
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....ember 2014 and accordingly, an amount of Rs. 5.43 crores that was proposed in the show cause notice dated 09.12.2015 on the same issue was reduced. The Commissioner also imposed penalty and interest. 8. Shri Jitendra Motwani learned Counsel appearing for the Appellant made the following submissions: (i) The issue involved in this appeal stands settled by the order dated 11.06.2020 passed by the Tribunal in the Appellant's own case on the show cause notice dated 09.12.2015 issued on the same issues; (ii) The Government of India, Enron Oil and Gas India Ltd. (which was subsequently substituted by the Appellant), RIL and ONGC had entered into a production sharing contract for the Panna- Mukta and mid and south Tapti fields in December 1994. The said Contract was an unincorporated joint venture between the Government of India, the Appellant, RIL and ONGC, entered into with a common objective of exploring oil reserves and exploiting such reserves, if commercially viable. The Contract provided for the roles and responsibilities of each of the co-venturer, the modalities for undertaking the joint venture by constituting a management committee as also for sharing of th....
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....le; (ii) By virtue of Explanation (3) to section 65B(44) of the Finance Act, the Appellant and the Holders are to be treated as distinct persons and that in lieu of manpower supply to the Holders, the Appellant charged salary expenses from the Joint Venture, which is nothing but a consideration received from the joint venture against service provided by the Appellant to the joint venture; and (iii) The Tribunal had in its earlier order dated 11.06.2020 placed reliance on the decision of the Tribunal in Cricket Club of India vs. Commissioner of Service Tax, Mumbai [2015 (4) STR 973 ], which was a part of the batch of appeals before the Supreme Court in Calcutta Club Ltd., wherein the Supreme Court in paragraph 82 of the judgement held that the principle of mutuality applies only to incorporated club or association and would not apply to an unincorporated association of body of individuals. PMT-JV, being an unincorporated association of persons, was a distinct person from the Appellant and consequently there was a liability to service tax on the consideration received by the Appellant for the service rendered by it. 10. The submissions advanced by the learn....
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....o enter into public-private partnerships with private parties, with a view to optimise production of such natural resources. Accordingly, the Government of India issued a Notice Inviting Offers for joint ventures to develop medium sized oil fields in India. Pursuant to the said Notice Inviting Offers, the Government of India entered into contracts with private parties for production of petroleum and the costs and profits were shared between the Government and the private parties as per the formula prescribed and agreed in the Contracts. The purpose of the said Contracts was to obtain capital investment and technical expertise from the private parties to achieve the objective of optimum production. The common objective was to explore, develop and produce the maximum amount of mineral resource for commercial sale. 16. The Contracts can be broadly divided into three phases, namely (i) Exploration Phase; (ii) Development Phase and (iii) Production Phase. I. Exploration Phase This phase inter alia entails survey of a particular block to explore whether there is petroleum. High technical skills are involved in the said phase and heavy investment is entailed. ....
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.... would not in any manner be reimbursed by the Government. Further, the ability of the Government of India and the Holders to share surplus profits is dependent upon there being a distributable surplus after deduction of the costs incurred by the Holders. 21. The question as to whether the Appellant was rendering any services to the PMT-JV, of which it was a constituent member, has been dealt with earlier by Tribunal in the decision rendered on 11.06.2020 in the case of the Appellant. This order arose out of the show cause notice dated 09.12.2015 and the order impugned in this appeal arises out of the show cause notice dated 16.04.2015. The charges levelled in the two show cause notice are identical. The relevant portion of the decision of Tribunal is reproduced below: "13. Under the 'negative list' regime, in which demarcation between services was superfluous, the obliteration of boundaries permitted the definition of 'service', as '(44) ...any activity carried out by a person for another for consideration, and includes a declared service, but shall not include - ..' in section 65B of Finance Act, 1994, to encompass all 'activities' save those exogenic....
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....er the partner does for the furtherance of the business of the partnership, he does so only for advancing his own interest as he has a stake in the success of the venture.....All the resources and contribution of a partner enter a common pool of resources required for running the joint enterprise and the such an enterprise is successful the partners become entitled to profits as a reward for the risks taken by them for investing their resources the venture....' found approval of the Hon'ble Supreme Court with dismissal of appeal of Revenue. 15. It is incumbent upon participants in collaborative undertaking to contribute capital for attainment of the common purpose. It is the nature of the undertaking, in terms of permanence and of purpose, that determines the mode of contribution. In the impugned 'production sharing contract', Government of India brings in its rights over the resources, M/s Oil & Natural Gas Corporation handles contracts and documentation, M/s Reliance Industries Ltd manages financial and commercial requirements and the appellant vested with responsibility for technical operations. The deployment of personnel is in pursuance of that obligation. No....
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....king the technical operations. The man power deployed by the Appellant was in furtherance of its own interest as also that of the joint venture and not by way of any service to unincorporated joint venture. Also, the cost incurred by the Appellant for this purpose was its capital contribution to the joint venture and it cannot be said that consideration was received by the Appellant for arranging man power. 23. It is natural that in such public private partnerships, the public enterprise generally brings in the resource over which it has exclusive rights, such as the waterfront or the right to exploit the minerals, while the private party brings in the required capital, either in monetary terms or in kind or by way of equity. The equity brought in by the co-venturer, in this case by making available man power, cannot be considered as a service rendered to the unincorporated joint venture. It is this capital contribution along with the capital contribution made by others which forms the hotchpotch of the unincorporated joint venture. 24. The Tribunal in Mormugao Port Trust, explained that public private partnerships between the Government/Public Enterprises and Private p....
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....r obvious feature of a joint venture would be that the parties participate in such a venture not as independent contractors but as entrepreneurs desirous to earn profits, the extent whereof may be contingent upon the success of the venture, rather than any fixed fees or consideration for any specific services. 17 The question that arises for consideration is whether the activity undertaken by a co- venture (partner) for the furtherance of the joint venture (partnership) can be said to be a service rendered by such co-venturer (partner) to the Joint Venture (Partnership). In our view, the answer to this question has to be in the negative inasmuch as whatever the partner does for the furtherance of the business of the partnership, he does so only for advancing his own interest as he has a stake in the success of the venture. There is neither an intention to render a service to the other partners nor is there any consideration fixed as a quid pro quo for any particular service of a partner. All the resources and contribution of a partner enter into a common pool of resource required for running the joint enterprise and if such an enterprise is successful the partners become e....
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....ed upon another decision of the Tribunal in the case of Cricket Club of India, which has since been affirmed by the Supreme Court in Calcutta Club. However, while doing so the Supreme Court has held that the principle of mutuality would not apply to a unincorporated club or association. The PMT-JV being an unincorporated association of persons, the principle of mutuality was inapplicable for services between the JV and the co-venturer; and (b) The same had relied upon the decision in the case of Mormugao Port Trust, which had been distinguished by the Tribunal in the case of Badve Helmets Pvt. Ltd. vs. CCE [2018 (10) GSTL 435 ]. 28. This contention of the Department is entirely misplaced inasmuch as the order dated 11.6.2020 of the Tribunal is not premised on the principle of mutuality. Further, the Department has assumed that merely because the unincorporated association and its members are deemed to be distinct persons, this by itself is enough to establish that a service has been provided by the Appellant to the unincorporated joint venture. This presumption is not tenable as the burden to prove that there was a rendition of service for a consideration is a sine qua ....
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....antum of consideration on which ad valorem tax will be levied. This fundamental will not after in the scheme of the negative list too; a service that is clearly identifiable has to be provided or agreed to be provided before it can be taxed. The factual matrix of the existence of a monetary flow combined with convergence of two entities for such flow cannot be moulded by tax authorities into a taxable event without identifying the specific activity that links the provider to the recipient." 30. The arrangement in question can also be viewed from another perspective i.e. the Appellant had entered into employment contracts on behalf of the unincorporated joint venture as the latter was incapable of entering into contracts in its own name. All activities of the unincorporated joint venture are conducted in the name of its constituent members. Unless such an activity is undertaken by a constituent member as an independent service provider for the joint venture for a consideration, there is neither a rendition of service nor can there be any liability to service tax. This position also evolves from paragraph 4.2 of the Circular dated 24.09.2014, wherein it has been clarified that a m....