TaxTMI 
TaxTMI 
2023 (7) TMI 827
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...., consultancy engineer services, cargo handling 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 w....
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.... service tax proposed in the SCNs under Section 73(2) of the said Act and imposing mandatory penalties under Section 78 and Section 77 ibid besides imposition of interest on confirmed demands as above. 5. The assessee, being aggrieved with the order passed by the Commissioner preferred this appeal before the 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 indic....
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....iness Consultancy' service by BGIL. The difference is however due to inclusion of certain amounts as expenses in the balance sheet which were not leviable for service tax. Further, he stated that on the basis of reconciliation made between these figures, the appellants had accepted a differential amount of service tax short paid for an amount of Rs.8,48,65,143/- and have 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' e....
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....the books of accounts of the Appellant is correctly considered for payment of Service Tax and there is no delay in payment of Service Tax. Thus, interest cannot be demanded and the Impugned Order to above extent should be set aside. 6.6. On the last issue at (iv), he claimed that the amount which is disclosed as 'receivable' by the Appellant is towards consideration for 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 ....
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....oleum, crude oil, refined oil, partially refined oil and any of the products of petroleum in a liquid or solid state, is to be or is being carried on. In terms of the legal provisions under Section 4(2) of the Oilfields (Regulation and Development) Act,1948, no mining lease shall be granted after commencement of this Act otherwise than in accordance with the rules made under this Act 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 th....
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....nna & Mukta and Mid & South Tapti Contract Areas situated in western India offshore, pursuant to production sharing contracts executed with the Government of India. 11.1. In the SCN dated 22.10.2011, the department had raised demand of Rs.25,73,96,914/- as differential service tax to be paid on account of difference inn the figures between the values indicated in Balance Sheets for Rs.72,88,83,449/- 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-....
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....ces such as- • site formation and clearance, and excavation and earth moving, drilling wells for production / exploitation of hydrocarbons (development drilling) • well testing and analysis services • sub-contracted services such as deploying workers and machinery for extraction / breaking of rocks into stones, sieving, grading, etc. • outsourced services, provided for mining are individually classified 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(10....
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....Co-ordinate Bench of this Tribunal in the case of in the case of Mahindra Holidays and Resorts India Ltd. vs Commissioner of LTU, Chennai - MANU/CC/0236/2018 had held that balance sheet entries per se cannot be considered as income or expenditure for the purpose of considering it as gross value for levy of service tax. The relevant portion of the judgement is extracted below: "8.1 With regard to the securitization income, we are not able to subscribe to the findings of the lower authority or the arguments advanced by the Ld. 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 Be....
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....as codified in the 'production sharing contract' agreed upon. This, then, would be the primary association as joint venture comprising of four entities, including Government of India, for viability in extraction of natural resource as the common goal. The manner in which the contract provides for distribution of 'profit petroleum' and 'cost petroleum' is a business model for ensconcing within itself the alienation of risk by the Government of India which necessarily mandates a working arrangement for the disaggregation of 'cost petroleum' as compensation 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 whi....
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....ervice by the expression 'for another', replacing 'to any person', to eliminate the recipient as a necessity. In the new scheme of tax, 'consideration', being the obligated recompense to the provider devolving on the person who opted for hiving off the undertaking of an activity, was no longer mere measure of value but translatable as the span of service rendered. Thus, 'service' was the extent of activity entrusted to a provider for such consideration as rendered it economically gainful to be outsourced. We now subject the expenditure booked by the appellant to test 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 ....
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....vested with responsibility for technical operations. The deployment of personnel is in pursuance of that obligation. No business venture can function without capital and the by-passing of transubstantiation of accumulated capital, in the form of cash and bank balances, into these rights and competencies does not derogate from that. Hence, the activity undertaken by the appellant with its cost equivalence recorded in the books is nothing but capital contribution. The adjudicating authority has erred in concluding that the mechanism of 'cash call' prescribed in the 'joint operations agreement' is consideration for services; it is 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 '....
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....bove issue is limited to the difference in the figures indicated in respect of 'receivables' as per the Balance sheet. On this issue, we have already dealt it in great detail at paragraph 11.4 on the basis of the decisions taken by the coordinate bench of this Tribunal. Hence, we do not find it necessary to again re-examine the same here. 14. We find that the service tax paid by the appellants on various category included reimbursement of salary cost of the Appellants Parent Company employees working for the Joint Venture-expat salaries for which service tax was paid under 'Management Consultancy services', third party charges, management service unit charges and other costs incurred by the Parent 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 ....
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....he purpose this order are as follows: "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 11-6-2020 in the case of the Appellant. xxxxxxxx 22. It is an admitted fact that though an appeal has been filed before the Bombay High Court against the order dated 11-6-2020 of the Tribunal, but the said order has neither been stayed or set aside. It is also evident from the contentions urged by the Department that there is no dispute on the proposition that the Contract is an example of public private partnership in which the Government and private enterprises are in a joint venture 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 furt....
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....venture was entered into for maximizing the extraction of crude petroleum/natural gas from the identified blocks and to share the profits from the venture. The management committee comprising of representatives of the Government of India, the appellant, ONGC and RIL undertook all the strategic, financial and other operative decisions with respect to the venture. Thus, all the pre-requisites of being a joint venture are clearly met. In this backdrop, it is clearly impermissible to hold that the contribution made by a co-venturer (partner) in the course or furtherance of the joint venture is a service rendered to the joint venture for a consideration. It is not in dispute that in a partnership or a joint venture, whatever a partner does for the furtherance 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....
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....ty. It is obligatory on the part of the Department to show that the said flow of money is a consideration for rendition of a service, in which case alone there can be a liability to service tax. The said burden has not been discharged in the facts of the present case. The relevant findings of the Tribunal in Cricket Club of India, which were relied upon by the Tribunal in the case of the appellant, are reproduced herein below : "11........................ Consideration is, undoubtedly, and 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. Without an identified recipient who compensates the identified provider with appropriate 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 th....
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....d that there can be situations where a co-venturer or a partner can render taxable service to the joint venture/firm under an independent contract between the coventurer/partner and the joint venture/ partnership and that such a contract should have been entered into in individual capacity, independent as a co-venturer, for a specific consideration. 32. Unlike in the case of Badve Helmets, where one of the co-ventures had entered into a separate and independent agreement with the joint venture for a specific consideration, in the facts of the present case there is no such agreement outside the scope of the joint venture that had been entered into between the appellant and the PMT-JV. The making available of man-power was the appellant's obligation as a co-venturer to the venture, by way of capital contribution and was not an independent service for a consideration being rendered by the appellant to the PMT-JV. 33. It can safely be concluded that the Government of India with the appellant, RIL and ONGC had entered into a joint venture agreement, where under each co-venturer had its own set of obligations and the responsibility discharged by each of the coventurers ....