TaxTMI 
TaxTMI 
2021 (10) TMI 367
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....ty and the Diploma Ministerial on mineral activities; that GSPC(JPDA) holds 20% participating interest(PI) in Block JPDA 06-103 and the list of other concessionaries and their participating interest(PI) are as follows: * Oilex limited: 10% PI (Operator of the Block JPD 06-103). * Videocon JPDA 06-103 limited: 20% PI. * Bharat Petro Resources JPDA limited: 20% PI. * Pan Pacific Petroleum (JPDA 06-103) Pty Limited: 15% PI. * Japan energy E&P JPDA Pty limited: 15% PI. 3. The applicant has further submitted that PSC provides right to carry on petroleum operations jointly to all the Concessionaries (hereinafter referred to as 'Contractor') on Production Sharing basis which outlines all the rights, responsibilities and other contractual liabilities of all the Concessionaries and Designated Authority in respect of exploration activities in Block JPDA 06-103; that Timor-Leste Government initiated arbitration proceeding against the Government of Australia to have Certain Maritime Agreements in Timor Sea(CMATS) Treaty declared as void ab initio and accordingly, the termination of CMATS would result in automatic termination of Timor Sea Treaty governing petroleum operations in the ....
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.... 3. Releases Releases by Claimant 3.1 On receipt of Respondent's proportionate share of the Settlement Sum in accordance with clause 2.2, the Claimant releases: (a) that Respondent; and (b) that Respondent's directors, officers, employees and agents and each of them, past and present From all actions, proceedings, accounts, rights, claims, demands, liabilities, costs and expenses, wherever and however arising, whether known or unknown, whether at law or in equity at the Execution Date, arising out of or relating in any way to the Dispute, the Proceeding and/or the PSC. 3.2 Upon release of a Respondent under this clause 3, that Respondent's respective Parent Company Guarantee shall immediately lapse and shall be returned by the Claimant. Releases by Respondents 3.3 Subject to the Proceedings being settled on the terms set out in clause 2, the Respondents release: (a) the Claimant; and (b) the Claimant's directors, officers, employees and agents, and each of them, past and present, from all actions, proceedings, accounts, rights, claims, demands, liabilities, costs and expenses, wherever and however arising, whether known or unknown, whether at law or in equity....
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....e Contract, contractor is responsible for providing required services only and not hold ownership in the resulting products whereas in PSC, contractors hold ownership in resulting products. * In Service Contract, direction and control of the operation is with Designated Authority of Government whereas in PSC control of operation is jointly by both the parties i.e. Designated Authority of Government and contractor. * In Service Contract, role of contractor is service provider whereas in PSC role of contractor is partner. * In Service Contract, payment to contractor is fixed fees or buyback priority whereas in PSC, contractor has share in the resulting profit. * In Service Contract, contractor is required to bear full operation risk and costs whereas in PSC, operation cost is recoverable on actual as 'Recoverable Cost' from Designated Authority on commencement of commercial production. In the instant case, since the contract with Designated Authority is not a service contract, payment of exploration cost to Designated Authority cannot be considered towards supply of services. 5. In terms of PSC for JPDA 06-103 Block, Contractor is required to incur exploration cost as per....
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.... called 'Cost Petroleum'. It was clarified that the cost petroleum is not a consideration for service to Government and thus not taxable under GST regulations. 9. GST Ruling GSTR 2001/4(GSTR), issued by the Australian Tax office explains the GST treatment of court order and out of court settlement. As per the said ruling, if a payment is made under an out of court settlement and there is no earlier or current supply, the payment will not be treated as consideration for a supply at all. 10. Hon'ble Bombay High Court, in the case of Bai Mamubai Trust, Vithaldas Laxmidas Bhatia, Smt. Indu Vithaldas Bhatia vs. Suchitra (109 taxmann.com200), has held that GST is not payable on damages/compensation paid for a legal injury. The principle laid down by the Court is that such payment does not have the necessary quality of reciprocity to make it a 'supply' and, therefore, GST is not payable on such amount. 11. In view of the above analysis, settlement amount payable by the applicant should not be chargeable to GST under RCM due to the reasons summarized as follows: (i) PSC is not the contract for services to Designated Authority. (ii) Settlement payment is towards exploration cost w....
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....ins to period prior to GST regime and accordingly is not taxable under GST regulations. 9. The applicant submits that in view of the above submission, share of settlement amount payable by the applicant as a partner of UJV should not be chargeable to GST under RCM due to the following reasons: (i) Amount payable to ANP pertains to period prior to GST regime. (ii) Production Sharing Contract is for the block in JPDA which is in non-taxable territory. Unincorporated Joint venture formed under Joint operating Agreement and Operator of the UJV are in non-taxable territory. (iii) PSC is not the contract for services to Designated Authority. (iv) Share of settlement payment by applicant could not be said to be in relation to any supply or independent supply either under 'agreeing to obligation to do an act' or any other category of supply and therefore settlement amount payable could not be treated as a 'consideration' towards supply. 10. The applicant vide further submission dated 20-7-2021 submitted as follows: 1. Settlement amount was agreed between parties vide Deed of the Settlement and Release dated 15th July 2020 wherein a settlement sum is payable by Concessionaries t....
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....otice dated 15th July 2015 terminated the PSC with a demand of payment estimated cost of exploration not carried out and damages for breach of its local content obligations. They have submitted a copy of the notice. 2. In terms of the said demand notice dated 15th July 2015, the demand for payment of US$ 17,018,789.51 became due and payable on 14th August 2015. 3. ANP had on 8th October 2018 filed request for Arbitration with the Secretariat of the International Court of Arbitration of the International Chamber of Commerce. 4. Settlement amount was agreed between parties vide Deed of the Settlement and Release dated 15th July 2020 wherein a settlement sum is payable by Concessionaries to ANP. Copy of Deed of the Settlement and Release dated 15th July 2020 is submitted. 5. On 21 August 2020 the parties to the Arbitration notified the Arbitral Tribunal that settlement had been reached and requested that a Final Consent Award be issued by the Arbitral Tribunal in accordance with the terms set out in a settlement agreement agreed by the parties. 6. On 24 August 2020 the Arbitral Tribunal declared the proceedings closed in accordance with Art. 27 of the ICC Rules. 7. Pursuan....
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....s and after that the case in the international chamber of commerce is withdrawn. In view thereof, in terms of GST regulation, the time of supply would be the date immediately following sixty days from the date of Issuance of invoice or any other document, by whatever name called, in lieu thereof by the supplier. In the instant case ANP has issued a letter dated 15.07.2015 for demanding cost of exploration not performed. Said date and sixty days from the said date are covered under the period prior to implementation of GST. Accordingly, since time of supply is prior to GST regime, GST cannot be applicable on the said payment. c. Further, as per Section 142(11)(b) of CGST Act, the levy of tax under GST would inter alia, not apply on services to the extent it was leviable under service tax law and services were completed in pre-GST period. Transitional provision under Section 142(11)(b) read as under. "Section 142(11) b) : Notwithstanding anything contained in Section 13 no tax shall be payable on the services under this Act to the extent tax was leviable on the said services under Chapter V of Financial Act, 1994". d. Section 142(10) allows the levy of tax on goods or services ....
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....ision is reproduced herein: "In the present case apart from manufacturing and receiving the cost of the same, the appellants were also receiving the compensation charges under the head ex-gratia job charges. The same are not covered by any of the Acts as described under Section 66E(e) of the Finance Act, 1994. The said sub-clause proceeds to state various active and passive actions or reactions which are declared to be a service namely; to refrain from an act, or to tolerate an act or a situation, or to do an act. As such for invocation of the said clause, there has to be first a concurrence to assume an obligation to refrain from an act or tolerate an act etc. which are clearly absent in the present case. In the instant case, if the delivery of project gets delayed, or any other terms of the contract gests breached, which were expected to cause some damage or loss to the appellant, the contract itself provides for compensation to make good the possible damages owning to delay, or breach, as the case may be, by way of payment of liquidated damages by the contractor to the appellant. As such, the contracts provide for an eventuality which was uncertain and also corresponding conse....
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....i Soya the service recipient in this case. According to the agreement between the Ruchi Soya and Suzlon, Suzlon would maintain the wind turbine generators in working condition so that they would be available for use by the Ruchi Soya. It is further provided in the 'Machine availability clause' of the agreement that if the availability of the wind turbine generators dropped between 92.5% and 95.5%, then Suzlon would have to compensate Ruchi Soya an amount equal to 3% of the annual operation and maintenance charges for every 1% of shortfall below 95.5% of average machine availability, subject to an overall maximum of 50% of the annual operation and maintenance charges payable by Ruchi Soya. As the wind turbine generators broke down and were so unavailable for use by Ruchi Soya, Suzlon issued a credit note to Ruchi Soya for Rupees one crore and thirty-three lakhs. During the course of the service tax audit conducted on the Appellant, for the FY 2015-16 the service tax authorities raised an objection that service tax should be discharged by Ruchi Soya on the amount received from Suzlon. The authorities reasoned this amount is taxable under Section 65B(44) of Finance Act, 1944, ("the Ac....
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....ent as a whole and considering the intent and purpose of the contract is necessary in ascertaining taxability. * It is opined that when the agreement is read in its entirety it is evident that the machine availability clause is incorporated to ensure that the terms of agreement are not violated and Suzlon does not compromise on the quality of service. Should the quality of service be inadequate, the commercial interests of Ruchi Soya are safeguarded in the form of compensation payable by Suzlon. * Reference was made to the decision of South Eastern Coalfields Ltd. v. Commissioner of Central Excise And Service Tax, Raipur that recovery of liquidated damage cannot be construed to be payment for any service per se as the objective of imposing compensation and providing for it in an agreement is to ensure that the defaulting act is neither undertaken nor repeated, which would indicate that the machine availability clause does not show Ruchi Soya tolerating the default committed by Suzlon. * It is held that "the amount cannot be called as consideration for the tolerance of service provided. * The tax department's contention that receiving compensation from the service provider i....
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....tion and the contents of submission dated 29-6-21. Further as per the request of the applicant, another personal hearing (through video conferencing) was accorded on 12-8-2021 for which Shri Anil Chauhan, C.A. appeared. During the course of personal hearing, Shri Chauhan was enquired if the performance guarantee was encashed before the settlement to which he replied that till the completion of settlement, performance guarantee was not encashed. FINDINGS 18. At the outset we would like to make it clear that the provisions of CGST Act, 2017 and GGST Act, 2017 are in parimateria and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the GGST Act. 19. We have carefully considered all the submissions made by the applicant. From the facts presented before us, we find that the prime reason GSPC(J) and other contractors of ANP sought Termination of the PS Contract was due to the uncertainty arising out of the arbitration proceedings initiated by the Timor-Leste G....
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....m'. It was clarified that the cost petroleum is not a consideration for service to Government and thus not taxable under GST regulations. The subject payment under consideration is not Cost Petroleum. ii. The subject payment is not Exploration Cost/ Reimbursements cost as contended by GSPC (J) in subject application. ANP vide its letter dated 15-7-2015 terminated PS Contract and raised demand for cost of exploration. We do not find a situation of payment of amount of exploration cost or reimbursement cost by GSPC (J) to ANP in pursuance to this letter. Thus exploration/ reimbursement cost payment is not the matter under consideration. iii. Further, We note that the amount of demand made by ANP for breach of PSC is USD 1,70,18,789.72 whereas the settlement amount as per Deed of Settlement and Release dated 15-7-2020 is USD 80,00,000. iv. The subject payment to be paid by GSPC(J) to ANP is to be borne by GSPC(J) as the liability is several and each Respondent is obliged to pay only its respective proportionate share of the Settlement Sum per the ICC Order dated 16-9-20 and not jointly and severally, as submitted by the applicant. v. The subject payment is not for the breach o....
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....a situation, or to do an act; As per said Schedule II (5) (e), the said activity shall be treated as Supply of Service. iv. We hold that subject activities performed by ANP to GSPC (J) for consideration of subject payment is Supply of Service in the GST era. 21.3 Is subject Supply in GST era or not? i. We note that the subject payment is made in pursuance to the Deed of Settlement and Release, wherein ANP has agreed to provide creation Service to GSPC (J). ii. We note the date of Deed of Settlement and Release is 15-7-20. iii. We note the ICC Order is dated 16-9-20, ordering GSPC(J) to pay 20% of USD 80,00,000, liability of which is to be borne by GSPC(J) individually and not jointly and severally by all the concessionaires. iv. We note that the subject agreement and subject ICC order both are dated in the year 2020. v. GST era has been ushered with effect from 1-7-2017. Thus we hold that subject activity falls within the scope of Supply, as per Section 7 CGST Act. And that the subject Supply is within the umbrella of GST era. 21.4 GST liability, whether, on ANP or GSPC(J)? i. We note that ANP is in non-taxable territory. ii. We note that GSPC(J) is in taxable ter....
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....supply of service by ANP which is in non taxable territory to GSPC(J) which is in taxable territory. This is import of service by GSPC(J) and the GST liability mechanism is Reverse Charge. 23. Time of Supply of Service i. As per Section 12 (3) (b) of CGST Act, 2017, we find the time of supply is the date of payment of subject 20% of USD 80,00,000 by GSPC(J) to ANP. For we understand that ICC order dated 16-9-20 holds good that payment be made by GSPC(J) and there is no provision or need to raise an invoice in this regard by ANP on GSPC(J). ii. We dismiss the contention of the applicant that subject payment to ANP pertains to period prior to GST regime, for we made our thought process clear by holding that subject payment to ANP is in pursuance of the Deed of Settlement and Release. We do not hold that subject payment is in nature of Cost Petroleum charges arising out of obligation of PS Contract, but is in nature of Agreement charges to be paid to ANP arising out of the Deed of Settlement and Release dated 5-8-20. 24. We note that GSPC(J) has cited case laws. 24.1 We hold the time of supply in subject matter is the date of payment of the 20% of USD 80,00,000 by GSPC(J) to AN....
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....uchi Soya Industries Limited wherein the demand of service tax by the Department on the amount of Rs. 1.33 crores issued in the form of credit note by Suzlon to Ruchi Soya (who is the service recipient) as the wind turbine generators provided by them broke down and were so unavailable for use by Ruchi Soya; CESTAT decision in the case of Honda Cars India Limited [Final Order No. 51650/2020] involves service tax demand on amount paid by Honda Cars India ltd. towards reimbursement of costs to Honda Japan which is an issue different from the present case; CESTAT decision in the case of Ford India Private Limited Chennai involves demand of Service Tax on amount received by M/s. Ford India pvt.ltd. under the head 'Business Auxiliary Service' In both these cases of Honda cars and Ford India, the issue held was there was no identifiable service. These decisions of service tax era are at variance with subject matter where Supply of service as per GST scheme of law has been identified and established. Before passing the subject Ruling, we make known that this Authority is a creature of GST statute and for pronouncing Rulings, we are confined within the four walls of this statute. By travers....