TaxTMI 
TaxTMI 
2023 (7) TMI 827
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....ling services, goods transport by road services, commissioning and installation services, mining services, business support services, supply of tangible goods services and telecom services' covered under the taxable services defined under section 65 (105) of the Finance Act, 1994. The appellants are engaged in the business of mining of mineral oil and natural gas and for this purpose have executed 'Production Sharing Contract (PSC)' for extraction of mineral oil and natural gas at the Panna & Mukta oilfields and the Tapti oilfield. In undertaking such activities under the PSC, the appellant along with M/s Oil and Natural Gas Corporation Limited (ONGC) and Reliance Industries Ltd. (RIL) have been entered into a Joint Operating Agreement (JOA) for performing field operations on above stated oilfields. 3. It appears from the materials on record that an enquiry was initiated by the department on the basis of information received that the appellant is earning income under the head 'parent company overheads', from unincorporated joint venture with ONGC and RIL, but were not discharging service tax liability; and further the appellants were receiving various services from foreign-b....
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....Tribunal. 6.1. Learned Advocate appearing for the appellants stated that appellant is engaged in the business of mining mineral oil and natural gas. The Government of India has executed 'Production Sharing Contract' (PSC) for extraction of mineral oil and natural gas at the Panna & Mukta Oil Field and the Tapti Oil Field. To undertake the activities under the PSC, the Appellant along with ONGC and RIL had entered into a Joint Operating Agreement (JOA).The true nature of the transactions under the said Production Sharing Contract is that of a "Joint Venture" between the Government of India, the Appellant, RIL and ONGC, and that it involves no rendition of service. The learned Advocate submitted that the demand of service tax raised by the Department is arising on account of following four issues namely, (i) Service tax demand on the difference in value indicated between the ST-3 returns and the Balance Sheet for Rs.25,73,96,914/- (ii) Service tax demand on '1% indirect cost allocation from the Joint Venture' for Rs.5,33,87,455/- (iii) demand of interest under Section 75 on alleged delay in payment of Service Tax under reverse charge mechanism (iv) Service tax de....
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....ave voluntarily paid the same along with interest of Rs.4,76,07,998/-. He also submitted that the appellant had rendered services 'Management & Business Consultancy' and 'Mining Services' to the Appellant. While the management & business consultancy service was leviable for service tax throughout the relevant period and the Appellant has duly discharged tax on the same, he stated that 'mining services' became taxable by an introduction of a new entry [Section 65 (105) (zzzy)] vide the Finance Act, 2007 with effect only from 01.06.2007. The appellant's balance sheets included the expenses towards 'mining services' also for the period prior to 01.06.2007, which were not leviable for service tax. By way of the impugned order, the Department has demanded service tax on such expenses which are related to 'mining services' even for the period prior to 01.06.2007, by classifying them as 'management & business consultancy services', which is illegal, wholly without jurisdiction and directly contrary to the law settled by the Hon'ble Supreme Court and various High Courts. He placed reliance on the judgements in the case of Greenwich Meridian Logistics (I) Pvt. Ltd. v Commissioner Of Service....
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....providing 'manpower supply services' from India to customers located outside India and fall under the taxable category 'Manpower Supply Services'. The value of services indicated in the debit notes issued by the Appellant to the Parent Company for above services is in foreign currency. During the period 201112, the Export Rules classified all taxable services (for the purpose of determination of export) into three categories i.e., based on location of property, based on place of performance of service and based on location of recipient of services, and accordingly prescribed different criteria for the determination of whether a service qualifies as export of services. In the instant case, the services rendered by the Appellant is an export of service, which is classifiable under the third category in the Export Rules i.e., location of the recipient of service, and hence he claimed that the same is not leviable for service tax. 6.7. In view of the aforesaid submissions, the learned Advocate prayed that their Appeal be allowed, and the impugned Order be set aside. 7. Learned Special Counsel appearing for Revenue reiterated the findings recorded by the Commissioner in th....
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.... and Government of India, MoP&G grants such license. 10.2. We further note from the policy documents of the MoP&G, that New Exploration Licensing Policy (NELP) was formulated by the Government of India, during 1997-98 to provide a level playing field to both Public and Private sector companies in exploration and production of hydrocarbons with Directorate General of Hydrocarbons (DGH) as a nodal agency for its implementation. Government of India's commitment to the liberalization process is reflected in NELP, which has been conceptualized keeping in mind the immediate need for increasing domestic production. To attract more investment in oil exploration and production, NELP has steered steadily towards a healthy spirit of competition between National Oil Companies and private companies. Till the adoption of Liberalisation policy in 1991-1992, petroleum exploration and production (E&P) activities were carried out in India only by public sector oil companies viz., ONGC and Oil India Limited (OIL). 10.3. Under this policy, Petroleum Exploration Licence (PEL) and Petroleum Mining Lease (PML) are granted. PEL is granted for a period of 7 years in inland and shallow water areas a....
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....,83,449/- towards payment made by the appellants to their parent company and the amount of Rs.47,14,86,535/- indicated in the ST-3 Returns towards services provided by their parent company on RCM basis. The learned Commissioner in the impugned order discussed the issue at length in paragraphs 21 to 22.1 and concluded that "the services are received for use in the management of business and exploration activities. It cannot, therefore, be said that services received are only classifiable under 'Mining services' and not under 'Management or Business Consultant' services. In fact, taxability is a settled issue and is not the subject matter of the present SCN. The SCN only seeks to demand service tax on the differential value i.e.., value declared in Balance Sheet and the value declared in the ST-3 Returns and also on the amount received from the joint venture and booked as 'other income' which is not included in the taxable income.". 11.2. In this regard, we find that the taxable category of services under Section 65(105) of the Finance Act, 1994, inter alia, specify the following in respect of mining and management consultant. "Section 65 (105) "taxable service" means any se....
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....lassified under the appropriate taxable service. Services provided in relation to mining of mineral, oil and gas are comprehensively covered under this proposed service. With this, services provided in relation to both exploration and exploitation of mineral, oil or gas will be comprehensively brought under the service tax net. 6.2.1 The trend is to outsource part or whole of the mining activities. Since exploration and mining of mineral, oil or gas are comprehensively brought under the service tax, field formations may undertake necessary action. 7.7 MANAGEMENT CONSULTANT'S SERVICE: (i) Renamed as management or business consultant's service [Section 65(105)(r)], and (ii) to explicitly include business consultancy in the definition itself [Section 65(65)]." The above details indicate clearly that there is change in the scope of services covered under the service tax net. The mining services have been comprehensively covered so as to include sub-contracted, out sourced services and certain more specific services connected with mining. Similarly, business consultancy has been specifically included under the scope management and business consultant serv....
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.... DR. Accounting Standard makes it mandatory for an assessee to maintain its accounts in a particular manner. It is essentially to act as a balancing factor. It is only an entry made in the balance sheet and it is a settled position that a balance sheet entry could never become an income or an expenditure, as the case may be. Hence, viewed from this angle, an amount showed in the balance sheet could neither be an income nor a consideration nor a payment or the gross amount charged in terms of Section 67(a) and (c) and hence, it is nothing but a financial adjustment in the nature of book entry." In view of the above findings given by the co-ordinate Benches of the Tribunal, we find that the adjudged demand of Service Tax merely on the basis of difference between the figures indicated in the Balance Sheet and ST-3 Returns do not legally sustain. However, we find that the short payment of service tax during the period 1.6.2007 to 31.3.2008, for an amount of Rs.8,68,65,143/- along with interest thereon for Rs.4,76,07,998/- which were paid by the appellants on 19.12.2011, and which was also appropriated by the original authority in the impugned order, is sustainable in view of th....
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....ompensation for the mutually exclusive risks undertaken by the contractor. The participating interests in the 'joint operations' have not come together of their own accord for the common purpose of bearing the risk but from one stipulation in the contract setting forth the common purpose including the participation in the proceeds of 'profit petroleum' that is extracted. The 'joint operations' does not render service, within the meaning of section 65B(44) of Finance Act, 1994, as there is no beneficiary entity outside the 'production sharing contract (PSC)', to which 'joint operations' is subordinated, for determination as joint venture to which the Explanation could be applied. This looming presence of 'production sharing contract' to the exclusion of any other independent or subordinate agreement and the indispensability of the Government of India to such contracts has been ordained by the Hon'ble Supreme Court in Reliance Natural Resources Ltd v. Reliance Industries Ltd [(2010) 7 SCC 1)]. 12. In its truest sense, service is the satisfaction of one's need by another person with the existence of a 'provider' as sine qua non in any service transaction and with accumulated capita....
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.... of conformity with this definition. 14. In Cricket Club of India Ltd v. Commissioner of Service Tax, Mumbai [2015 (40) STR 973 (Tri-Mumbai), on examination of the several types of payments made to clubs by members, the Tribunal dealt with entrance fees, held to be akin to capital contribution, thus '11....Consideration is, undoubtedly, an essential ingredient of all economic transactions and it is certainly consideration that forms the basis for computation of service tax. However, existence of consideration cannot be presumed in every money flow.... 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.' before concluding that '14....Each category of fee or charge, therefore, needs to be examined severally to determine whether the payments are indeed recompense for a service before ascertaining whether that identified service is taxable. xxx 16.....Wages of employees and costs of running the establishment,...., are necessary expenses for such sus....
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.... intended as the vehicle for contribution by the participating interests to the capital requirements of the venture. As such capital contributions are obligated for the establishment and operation of a business venture, it is not 'consideration' for rendering of any taxable service. 16. From our discussion supra, we find that it is parties to the 'production sharing contract' who constitute a joint venture and that the Explanation below section 65B (44), intended to cover supply of services to a constituent of 'unincorporated associations' or 'body of persons' by the latter is not relevant to the present dispute. Further, the fulfillment of obligation to contribute to the capital of the joint venture is beyond the scope of taxation under Finance Act, 1994 as it does not amount to consideration. The performance of such obligations is intended to serve itself and, thereby, the joint-venture. As the demand confirmed in impugned order is not on the consideration for rendering of a service, we are not required to decide on the other issues." In view of the detailed justification for decisions arrived at by this Tribunal, in the above cases for the same appellant, we are unabl....
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....ent Company on behalf of the Appellants for which service tax was paid under 'Mining services' as explained above paragraph. The learned Commissioner had demanded interest on these service tax payments taking invoice as relevant date for payment of service tax. In this regard, we find that inasmuch as the appellant had paid the short payment of service tax along with interest as explained in para 11.4, which have also been appropriated by the learned Commissioner and for the rest of the demands under SCN adjudged by the Commissioner is not sustainable, we do not find any need to delve in to this issue. 15. We also find that contractual arrangements between various parties to joint venture agreement under production sharing contract in the PannaMukta-Tapti joint venture (PMT JV), were examined in great detail in the case of appellants by the co-ordinate Bench of the Tribunal in B.G. Exploration & Production India Ltd., Vs. Commissioner of CGST & C. Ex. Navi Mumbai - 2022 (63) G.S.T.L. 351 (Tri.-Mumbai), holding that the performance of a party in the joint venture agreement does not amount to a contractor-contractee or principal-agent relationship between the coventurer and the join....
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....e for the purpose of achieving a common objective and sharing the profits arising from such operations. Under the Contract in question, the Central Government was to bring in its rights over the resources, while ONGC was to handle contracts and documentation, RIL was to manage financial and commercial requirements and the appellant was vested with the responsibility of undertaking 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 pow....
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....e of the business, he does so also for advancing his own interest, as he has a stake in the venture. All the resources contributed by the partners enter into a common pool required for running of the enterprise. There is no contractor-contractee or principal-agent relationship between the co-venturer and the joint-venture, which is a prerequisite for a service to be liable to tax under the Finance Act. 27. As is evident from the submissions made by the Department, the decision of the Tribunal rendered on 11-6-2020 in the appellants case has been assailed on the grounds that : (a) The same had relied 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....
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....priate consideration, a service cannot be held to have been provided. In a taxation scheme that specifies the particular targets of taxation, tax liability will arise when a provider conforming to the relevant description in the charging section performs an activity that conforms to the relevant description in the charging section on the request, and for the benefit, of a recipient conforming to the relevant description in the charging section. Service, its taxability and the provision of the taxable service to a recipient, in that order, are necessary pre-requisites to ascertaining the quantum 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 entere....