TaxTMI 
TaxTMI 
TaxTMI 
2022 (2) TMI 1099
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....pali Marg, Vaishali Nagar, Jaipur-302021, Rajasthan - (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (a) given as under: - a. Classification of goods and /or services or both Further, the applicant being a registered person (GSTIN is 08AABCL5967DIZE as per the declaration given by him in Form ARA-01 ) the issue raised by the applicant is neither pending for proceedings nor proceedings were passed by any authority Based on the above observations, the applicant is admitted to pronounce advance ruling. A. Submission and interpretation of the applicant: 1.1 L & T Hydrocarbon Engineering Ltd. ("the Applicant") is a company registered Linder the Indian Companies Act, 1956. It is a subsidiary of L&T Limited, an Indian technology, engineering, construction, manufacturing and financial services conglomerate. The Applicant is engaged in the business of engineering, procurement fabrication, construction and project management providing integrated solutions to the Hydrocarbon Industry. The Applicant carries out construction of refinery, petrochemical, chemical project, gas gathering stations, crude oil & gas terminals, etc. ....
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.... pads out of which 15 were under 'polymer flood' and 3 were under 'water flood'. The well pads are distributed in different clusters depending upon their physical location in the field and stage of development There are separate networks for evacuation of production fluid as well as for supply of injection water and power fluid. 1.7 The production fluid received from well pads are processed in three oil trains consisting of slug catchers, production heaters, production separators and settling tanks. The oil from the settling tanks is further sent to Dehydrators and export tanks (complying with the acceptable technical requirements]. 1.8 The Produced water separated from different vessels and tanks in oil trains is gathered and treated in the produced water treatment facilities, whereas the power fluid requirement of Mangala is met by the power fluid pumps. The Injection Water (IW) system consists of IW tanks, IW booster pumps, IW heaters, IW filters & IW pumps which are common to both injection water & power fluid systems. SCOPE OF WORK - AUGMENTATION OF FACILITIES & INFRASTRUCTURE UNDER MUPS2-EPC2 PROJECT 1.9 Under the MUPS2-EPC2 Project, the Applicant is requi....
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....ystem capacity 1.14 The customized Injection water (IW) system consists of IW tanks, booster pumps, heaters, filters, IW pumps & Power fluid (PF) pumps. The overall injection water, requirement is -780 KBWTD & Power Fluid requirement is -400 KBWPD. Thus, the combined requirement of IW & PF is 1180 KBWPD. This increased IW & PF requirement necessitates augmentation of existing Injection Water & Power Fluid systems. 1.15 The Power Fluid stream is currently not filtered at MPT. Hence, new customized filter beds are envisaged for filtering the power fluid. The major facilities envisaged includes, new Injection Water Booster Pumps, water Heaters, water Filters, power fluid filters, injection & power fluid pumps, all customized as per the contract. New Back Wash System 1.16 The existing filters in the plant are presently being backwashed by filtered injection water, which has been found ineffective. Hence, Vedanta has decided to use heated fresh (Thumbli) water for filter backwashing purpose. The scheme is to be implemented for 2 nos. existing & 2 nos. new customized filter packages. 1.17 Water from the existing feed process water storage tank is to be pumped 2 nos. existing & 1 No ....
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....or, air dryer, etc. is to be finalized. Therefore, the scope of work for this system includes New customized instrument Air package, nitrogen generation package and new instrument air receiver. Augmentation of other facilities New Facility Features New Chemical injection skid at MPT Scope of work for this system includes: * Augmentation of chemicals injection as per adequacy reports of FEED done by EC. * > The first fill of chemicals for equipment supplied by the Applicant is to be in Applicant's scope. This includes chemicals required for commissioning, pre-commissioning & PGTR. Flare System the hydrocarbon gas release from the MUP-2 facilities is to be integrated with existing HP flare & LP flare headers by connecting HP & LP flare headers from MUP-2 facility to existing headers. No augmentation in LP & HP flare system in envisaged as part of the MUP-2, AU dead ends of flare header is to be provided with Fuel gas as purge gas. Any I hydrocarbon liquid that is contaminated by oil or chemical or salts is handled in following types of drain system as below: Drain System & Potable water Any hydrocarbon liquid that is contaminated by oil or chemicals or salts is handl....
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....ogistic Management, Site Management, Stakeholder Management, Regulatory Compliance, Site Restoration as applicable & satisfactory handover to Vedanta of the facilities, all customized as per the contract and forming an internal part of MUPS2-EPC2 Project. 1.23 All the works is to be carried out by the Applicant in accordance with the Vedanta's approved specifications, drawings, procedures, method statements, applicable codes & standards, scope of work, schedule of rates & other requirements of contract. The Applicant is required to deploy resources (including manpower, tools & tackles, equipment, etc.) for execution of the scope of work. The Applicant is also responsible for arranging any external assistance/ support, if required, at its own cost & risk. 1.24 The Applicant's obligation is to cover the provision of all plant & equipment & performance of all installation services required for design, the manufacture including procurement, quality assurance, construction, installation, associated civil works, pre-commissioning & commissioning of the facilities in accordance with the plans, procedures, specifications, drawings, codes & any other documents as specified in the ....
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....ies including expediting, inspection & testing, transportation, loading/ unloading, storing, shifting & liaison with the authorities, etc. (g) Identifying & planning access to sites as may be required for construction of project facilities. Design & Engineering 1.27 The Applicant's scope of work for Design & Engineering for the facilities forming part of this project includes engineering for facilities, procurement, construction/ installation/ commissioning & Test run. The Applicant is responsible to meet the design requirements and to install a safe and efficiently operable facility and not to be relieved or absolved in any manner whatsoever of any of its obligations under the contract. Further, the Applicant is required to perform the following activities at each engineering stage: (a) Pre-bid engineering: Review of engineering documents & generate addition engineering data/ information, identify proposed vendor suppliers for supply of procurements, identify specialist agencies, prepare list of engineering deliverables, etc. (b) Design & detailed engineering: Performing site surveys & adequacy of checks, prepare deliverable register, drawing lists, all types of design....
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....oved by Vedanta. Testing & Pre-Commissioning 1.31 The Applicant has to ensure safe and acceptable testing and pre-commissioning of all the facilities constructed under this contract, more specifically, the testing and pre-commissioning of the specified facilities, viz., piping, equipment & vessels, electrical, instrumentation & other miscellaneous facilities shall be performed as per acceptable specification and technical standards including hydrotest pressure and duration standards. In case of unsuccessful results, the Applicant is required to ensure re-testing till specified results are achieved. Commissioning 1.32 The Applicant submits that facilities forming permanent part of the system is required to be commissioned by the Applicant and it is responsible for preparation of system, subsystem mark up, test packs and tag list generation. The Applicant is also responsible for complying with Vedanta's prevailing completion assurance management system for facilities. 1.33 The Applicant also submits that prior to the handing over/ acceptance, the Applicant is required to perform performance run for specified duration for applicable equipment/ items and shall furnish vendor d....
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.... Heading 9983 [Sr. No. 21 (ia)] (viz.. "Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both ") and are liable to 12% rate of GST under the CGST Act. By filing the present application under Section 97(2)(a) of the RGST Act, the Applicant seeks to confirm this classification. (a) STATEMENT CONTAINING THE APPLICANT'S INTERPRETATION OF LAW AND/OR FACTS, AS THE CASE MAY BE, IN RESPECT OF THE QUESTION(S) ON WHICH THE ADVANCE RULING IS REQUIRED APPLICANT'S ELIGIBILITY FOR ADVANCE RULING 1.38. Section 97 of the Central Goods and Service Tax Act, 2017 ('CGST Act'), entails that advance ruling may be filed by an Applicant for a transaction of supply of goods or services being undertaken or proposed to be undertaken on following questions: - a) Classification of any goods or services or both; b) Applicability of a notification issued under the provisions of this Act; c) Determination of time and value of supply of goods or services or both; d) Admissibility of input tax credit of tax paid or deemed to have been paid; e) Determination of the liability to pay lax on any goods or se....
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....N system of classification of services, Rate Notifications under Central Goods and Services Tax ('CGST'), prescribe the adoption of the scheme of classification of services annexed to the respective Rate Notifications. In this regard, the Explanation to the Rate Notification prescribes as under: "Explanation - For the purposes this notification,- (ii) Reference to "Chapter", "Section" or "Heading", wherever they occur, unless the context otherwise requires, shall mean respectively as "Chapter ", "Section" and "Heading" in the Scheme of classification of services annexed to notification No. 11/2017-Central Tax (Rate) dated 26.06 2017. Therefore, while determining the classification of the subject services under the Rate Notification, reference must be made to the Scheme of Classification of Services ('Scheme of Classification') which forms part of such Notification. 1.43 It is a settled principle of law that while determining the taxability of a transaction, it is important to understand its true commercial nature'. Therefore, before analyzing the classification of the specialized construction services rendered by the Applicant, it is prudent to understand ....
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....t upgrading its infrastructure facilities, it would not be possible for Vedanta to enhance its production capacity. Therefore, the installation of aforesaid facilities forms an inextricable link to the petroleum operations and hence are sine quo none. 1.48 Further, for the purpose of carrying out the above customized enhancements in the facilities and infrastructure, the scope of work for the Applicant including the following:- a. Supervising, reviewing and monitoring the designs, drawings and other relevant documents for the effective completion of the project. b. Ensuring that the project is completed within established timelines and timelines as per the contract are adhered to. c. Reviewing and approving the procurement of materials in accordance with the standards and technical specifications of the contract for completion of the project. d. Overall supervising, and technically reviewing the construction activity carried on along with conducting quality assurance tests. e. Reviewing and approving the vendors/sub-contractors with the approval of Vedanta, for the effective completion of the project. f. Determining the risk factors involved in the project and identiti....
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.... "to" and "mining" used in that expression. Term "support services' has a wide meaning 1.53 Heading 9986 relates to support services and inter alia covers mining. The term "support services' has not been defined under the Central Goods and Services Tax Act, 2017 ('CGST Act'). The principle of nomen juris suggests that where definition of a term is not provided in a particular Act, the definition of the same can be borrowed from any other Act or statute. The said principle has been recognized and used by Courts in order to determine the true nature of the term or phrase, in State of Madras v. Ganon Dunkerley & Co. (Madras) Ltd., AIR 1958 SC 650 and Association of Leasing and Financial Service Companies v. Union of India ('UOI'), 2010 (20) S.T.R. 417 (SC). 1.54 In this regard, the term 'support services' had been defined under Section 65(49) under the erstwhile Finance Act, 1994 (inserted w.e.f. 1.6.2012), which is as follows: - (49) 'support services' means infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themsel....
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....understood as below: Dictionary Meaning Words & Phrases Legally defined, Lexis Nexis, Fourth Edition I think we ought to construe the word 'to ' us meaning towards That is the sense in which the ward is always used in all instruments connected with or relating to marine assurance. It has that meaning in a bill of lading, and I dan t know why we should adapt a different meaning in this policy of insurance ' - College v Harty (1851) 6 Ech 205 at 210, per Pollock CB Merriam Websters Dictionary Used as a function word to indicate movement or an action or condition suggestive of movement toward a place, person, or thing reached; used as a function word to indicate contact or proximity From the above, it can be seen that the term 'to' indicates contact or proximity to the subject or, more specifically, means 'towards'. 1.58 Applying this to the present contract, the Applicant submits that the 'Support Services to Mining' would essentially mean 'support services' which are 'towards' or are most closely related to or in close proximity with the activities of exploration and mining. Ambit of the term 'mining.' 1.59 As submitt....
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....ervices provided by the Applicant are integrally connected with that of mining operations undertaken by the Applicant on behalf of Vedanta, the objective of achieving the desired augmentation/development of the oil and gas facilities would not be fulfilled 1.62 Further, the innate nature of the Subject services as outlined in the agreements is to facilitate, review, monitor, manage and control all aspects of the execution of the project involving mining operations undertaken by the Applicant on behalf of Vedanta, to complete it with quality, on time and within the approved cost. The Applicant is also required to ensure that the project is professional managed right from detail design to commissioning & project closeout and holding complete responsibility for delivery in agreed schedule, cost, and quality. 1.63 In addition to the above, on perusal of the agreements, it is to be noted that the project is essentially for development / augmentation of existing oil and gas fields by way of enhancement of its existing infrastructure facilities. Accordingly, it is submitted that the services provided by the Applicant are integrally connected with the mining operations, such that the hol....
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....and therefore, the supply of services provided by the Applicant is squarely covered within the ambit Sr. No. 24(ii) of Heading 9986 of the Rate Notification. As a result, it is submitted that the said services would attract GST @ 12% in light of Sr. No. 24 (ii) of the Rate Notification as 'support services to exploration, mining or drilling of petroleum crude or natural gas or both '. Circular clarifies scope of support serves 1.68 The Applicant submits that on a reference to the Heading 9986 [SI. No. 24(ii)], it seems to include within its ambit, support services to exploration, mining and drilling of petroleum crude. The CBIC vide its Circular No. 114/33/2019-GST dated 11.10.2019 ("Circular No. 114") has also, inter alia, clarified the scope of support services to exploration, mining or drilling of petroleum crude or natural gas or both. While defining the girth of the aforesaid entry. It makes reference to the Explanatory Notes to the Scheme of Classification of Services which is based on the United Nations Central Product Classification and provides that the scope of aforesaid entry shall be. inter alia, governed by the Explanatory Note to service codes 998621 of the ....
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....e illustrations provided in the Chapter Note. 1.72 Reference is also made to the decision of Stove Kraft Pvt. Ltd. Vs State of Karnataka [2006(2) TMI 603] wherein on the aspect of classification of goods, Karnataka High Court inter alia held that the word 'includes' is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute When it is so used, these words and phrases must be construed as comprehending not only such things as they signify according to their nature and import, but also things which the interpretation clause declares that they shall include. The words used in an inclusive definition denote extension and cannot be treated as restricted in any sense. 1.73 The Apex Court in the case of Bharat Coop. Bank (Mumbai) Ltd Vs Coop Bank Employees Union [2007(4) SCC 685] observed that the term includes' used in a legislature is enumerative but not exhaustive, to extend the scope so as to bring within it matters, which in its ordinary meaning may or may not comprise. Similarly, the Apex Court in the case of Regional Director Employee's State Insurance Corporation Vs High Land Coffee Works o....
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....the Subject services may merit classification as 'Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both' under Sr No. 21 (ia) of Heading 9983 of the Rate Notification. 1.79 Sr. No. 21 of Rate Notification provides the rate of tax leviable on the services that merits classification under the Heading 9983. The relevant portion of the said entry is reproduced hereinbelow: Sr.No. Heading Description of services Rate 21 Heading 9983 (Other professional, technical and business services) (ia) Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both 12% 1. 80 The relevant portion of Heading 9983 as prescribed under the Scheme of Classification is as follows: Sr. No. Chapter, Section Heading, or Group Service Code (Tariff) Service Description (1) (2) (3) (4) 296 Heading 9983 Other professional, technical and business services 1.81 On a bare reading of the aforesaid heading and corresponding service description, it is seen that the said entry is broad in its entirety, as it includes business ....
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....ssification as support services to mining under Heading 9986. 1.84 It is pertinent to note that Entry at Sr. No. 21 (ia) of the Rate Notification uses the phrase 'relating to ', which signify that any professional, technical and/or business services provided relating to mining, would merit classification under the said entry. The phrase 'relating to' or 'in relation to' is a very broad expression and has a wide ambit. The Hon'ble Supreme Court in Doypack Systems (P) Ltd Vs. UOJ, [1988 (36) E.L.T. 201 (SC)], has held that the term 'in relation to' is a very broad expression, which pre-supposes another subject matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context. The term 'relating to' has been held to be equivalent to or synonymous with 'concerning with' and 'pertaining to'. Therefore, it is submitted that entry (ia) of Sr. No. 21 includes a broad range of services which pertain or concern with the activity of mining. 1.85 In the present case, the Applicant provides services by way of proper management of the project right fro....
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.... technical and business services relating to inter alia mining. It is pertinent to note that since the wordings used under the Heading 9983 of the Rate Notification is broad in nature, various services which are provided in relation to exploration, mining or drilling would fall within its ambit and attract GST @ 12%. 1.88 The Circular 114 thereafter clarifies that 'Geological and geophysical consulting services' and 'Mineral exploration and evaluation' which do not merit classification under Heading 9986, would also get covered under the broad Heading 9983, as 'Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both', and resultantly, attract GST @ 12%. The said Circular has not provided an exhaustive list of services which would merit qualification under Sr. No. 21(ia) of Rate Notification. It has merely clarified that certain technical and consulting services which are not specifically covered under the Heading 9986, would get covered within the Heading 9983. 1.89 Therefore, without prejudice to the submissions made above, it is submitted that the supply of services made by....
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....iness services relating to exploration, mining or drilling of petroleum goods under heading 9983 of notification of 11-02-2017 dated 28-06-2017 the applicants further seeks classification of the above entries if not covered under heading 9983 and 9986. * The details email to the jurisdictional officer were analyzed as per details, the applicants is engaged in primary activities of mining of petroleum products together with VEDANTA LTD. and does not seem to be support services. * However, the EPC contract enforced into with VEDANTA LTD can be covered under support services is a matter of analysis at higher level but as per detail provided the applicants seems to he associated with primary activity of mining of petroleum goods together with VEDANTA LTD. * In this regard CBIC has clarified vide notification no. 114/33/2019 GST dated 1 1/10/2019 on scope of support services to exploration, mining, or drilling of petroleum crude or natural gas or both. The comments are forwarded for further action. E. FINDINGS, ANALYSIS & CONCLUSION; 1. We have considered the submission in their application and also during personal hearing made by the applicant. We have also gone through the EPC....
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....ther service" 4. Support services to exploration, mining or drilling of Petroleum crude or natural gas are classified under heading 9986. the explanatory Note to service code 998621 provides the scope of the said entry i.e. Support Services to Oil & gas extraction, which is reproduced below "This service code includes derrick erection, repair and dismantling services, well casing, cementing, pumping, plugging and abandoning of wells, test drilling and exploration service in connection with petroleum and gas extraction, specialized fire extinguishing services, operation oil or gas extraction unit on a fee or contract basis. This service code does not include geological, geophysical and related prospecting and consulting services". 5. From the explanatory note it reveals that Support Services shall include the services to be provided for exploration, once the infrastructure/facility for exploration is built & complete in all respect and ready to start exploration. But it does not include the services to be provided before creating the infrastructure/facility. Under the EPC contract the applicant has to undertake activities from Designing, Engineering, Procurement, construction of....
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....enance, 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; The contract is for the engineering, procurement and commissioning of MLJPS2-EPC-2 project including various infrastructure facilities, all commissioned. What would be transferred is the project including the civil work and land involved in project. Various civil structure would be created and various equipment would be installed. The said project cannot be shifted anywhere; it is essentially of the nature of immovable property. The project after completion at the time of transfer will be an immobile property. It is thus, we are of the considered view that the work specified in the EPC contract qualifies as "work contract" and will be taxed accordingly. 8. According to Section 8 of Central Goods and Services Tax Act, 2017, the tax liability on a composite or a mixed supply shall be determined in the following manner, namely: - (a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and (b)....