TaxTMI 
TaxTMI 
2024 (2) TMI 1358
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....f Notification No. 20/2019 -Central Tax (Rate) dated 30.09.2019, they had sought Advance Ruling before the AAR, Rajasthan to classify the said services under SAC heading 9986 or alternatively under SAC Heading No. 9983. Being aggrieved by the Rulings pronounced by the AAR, Rajasthan, they have filed an appeal before this authority. The present appeal has been filed under Section 100 of the Central Goods & Services Tax Act, 2017 (hereinafter also referred to as 'the CGST Act') read with Section 100 of the Rajasthan Goods & Services Tax Act, 2017(hereinafter also referred to as 'the RGST Act') by the Appellant on the portal on 19.10.2021 against AAR, Rajasthan Ruling Order No. RAJ/AAR/2021-22/17 dated 13.09.2021. The order was communicated to them on 21.09.2021 BRIEF FACTS OF THE CASE 1. M/s Petrofac International (UAE) LLC (hereinafter referred to as "PILL" or "Petrofac" or "Contractor" or "Appellant") and their parent company is reportedly a leading international service provider to the energy industry, with a diverse client portfolio including many of the world's leading energy companies. PILL is involved in designing, building, for the energy industries in Africa, CIS, I....
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....ution of project. The construction team is primarily responsible for performing preconstruction activities, review of all the construction/ fabrication drawings prior to start of site construction and updating same as per actual site conditions etc. (d) Appraisal and taking cognizance of site-conditions, Government rules & regulations, bye-laws, applicable codes & standards, requirements of authorities having jurisdiction over the work site(s), environmental & pollution concerns including conditions/ stipulations laid downs by concerned authorities etc. (e) Obtaining all necessary approvals & work permits from concerned authorities for performing the work, including shifting/ relocation of existing facilities & other utilities, etc. (f) Coordinating with vendors, suppliers, fabricators & to perform all activities 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. 6.2 Design & Engineering -The Appellant are required to perform the following activities at each en....
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....gement (Internal and external) by interface Management Team (IMT) and satisfactory handover of complete RDG Gas Processing Terminal including, Non Process Buildings, receiving end substation at RDG Terminal, including roads and drains within RDG Terminal, Intrafield Pipeline, irrigation water pipeline (quality same as potable water) approach roads between well pads. Contractor to design, engineer, procure, construct and commission the surface facilities in a manner that new terminal along with existing RGT Terminal can process -135 MMSCFD gas for sales and -20 MMSCFD for internal consumption and deliver Sales Gas as per Sales Gas Specification mentioned in Section DI-37. 2. Boundary conditions (inlet and outlet) far design is given under Section DI-37. Providing & mobilizing all project management resources, as required, for performance of works. The project management team shall be fully equipped with planning/scheduling software and analysis tools arid manned with competent and experienced manpower complete with sound project management, reporting, and project control system. It is the requirement of this Contract that all the project planning/scheduling activit....
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.... Quality Management System (QMS) that is at least equivalent to the requirements of ISO 9001.2008/201a Quality Management Systems Requirements. Contractor shall submit ISO 900a certificate or equivalent along with bid and ensure certifications copies applicable with intended scope of tender. (v) D1-26- Construction & Installation describes those activities required to achieve Mechanical Completion of the Plant, including Packages. Contractor's scope of work and activities which are required to be performed to achieve the Mechanical Completion, shall include, but not limited to, construction activities like all site preparation, civil and infrastructure including roads and drains, approach roads between well pads, pre-fabrication, pre-assembly, fabrication, erection and installation, testing, Mechanical Completion and readiness for Commissioning of the Plant/Pipeline & OHL, Well pads with all drawings and documents compiled for the facility. 8. The Appellant have been providing the subject services in the State of Rajasthan and classifying such services under SAC Heading 9954. However, vide Notification No. 20/2019-Central Tax (Rate) dated 30.09.2019, Entry No. 24(ii) of....
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....ading 9954) (ii) of the Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017. 10. Being aggrieved with the Ruling pronounced by the AAR, Rajasthan, the Appellant have filed appeal before this authority and their grounds of appeal are as under. GROUNDS OF APPEAL Submission 1: The Impugned Ruling has been issued based upon erroneous presumptions as to the facts and law 11.1 The Appellant submitted that the impugned Ruling, at Para 5 states that, "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 Appellant have to undertake activities from designing, engineering, procurement, construction of customized facility, commissioning of permanent facility, test run and hand over of complete facility so designed, constructed, tested and commissioned. Thus, it cannot be treated as support services to oil & gas extraction." 11.2 In view of the Appellant, a perusal of....
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....d network & evacuation facilities/ pipeline. 11.5 The Appellant set out the relevant text of the Heading 9986 as figures in the Rate Notification: "Support services to exploration, mining or drilling of petroleum crude or natural gas or both." As per the appellant, a look at the aforesaid provision would reveal that it includes support services which are related to exploration, mining or drilling of petroleum crude or natural gas or both. 11.6 The Appellant also referred to the Rules of Interpretation falling under Chapter III of the United Nations Central Product Classification ("UNCPC"). The UNCPC gains significance for the purpose of classification under the GST law because the Explanatory Notes to the Scheme of Classification of Services ("Scheme") is itself based on the UNCPC - as stated by the CBIC in Circular No. 114/33/2019-GST dated 11.10.2019. The interpretative rules for classification of services under the UNCPC are aligned with the above-mentioned settled principle of classification. 11.7 The Appellant further submitted that the Circular clarified the scope of the aforesaid entry as follows: "This service code includes derrick erection, re....
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.... Test drilling and exploration are carried out to identify and discover possible areas where wells can be drilled for the purpose of carrying out mining. (d) Fire extinguisher services; Extinguishers are installed as part of petroleum extraction infrastructure to ensure safety from spreading fire during extraction. Exploration drilling and fire extinguisher services are also covered within the scope of Heading 9986. 11.11 The Appellant submitted that a cumulative reading of the detailed nature of activities covered within the scope of Heading 9986 as per the Scheme would reveal that it covers diverse nature of activities ranging from test drilling and exploration, to casing and cementing of wells and derrick erection for the purpose of moving heavy material on the oil fields. 11.12 The Appellant submitted that the impugned Ruling, while denying the benefit of Heading 9986 to the Appellant, stated that Heading 9986 covers only those activities which are provided once tire infrastructure/ facility for exploration is built & complete in all respect and ready to start exploration. 11.13 The Appellant denied such interpretation of tire classification entry ....
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....refore, by stressing on its exclusion, the AAR, Rajasthan is clearly going against the established principle of interpretation that one cannot go beyond the words of the statute. In this regard, reliance is placed on the following decisions wherein it has been held that one should adhere as closely as possible to the literal meaning of the words used: a) Commercial Taxes Officer v. Bombay Machinery Store, 2020 (36) G.S.T.L. 161 (S.C.) b) Union of India v. Ind-Swift Laboratories Ltd., (2011) 4 SCC 635 c) Bansal Wire Industries Ltd. v. State of Uttar Pradesh, (2011) 6 SCC 545 d) CIT v. Calcutta Knitwears, 2014 (6) SCC 444 11.17 In the light of the above, the Appellant submitted that the AAR, Rajasthan has adopted a narrow view while deciding the purview of Heading 9986, in respect of which, even Circular 114 itself states that, "Most of the activities associated with exploration, mining or drilling of petroleum crude or natural gas fall under heading 9986". 11.18 Without prejudice, the Appellant submitted that if at all the contention of the AAR, Rajasthan, that Heading 9986 shall include the services to be provided for exploration, once the ....
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....d. 11.27 In view of the above, it can be seen that the activities performed by the Appellant under the EPC contract are directed towards up-gradation of the processing terminal and well pads and accordingly, are indelibly linked to the petroleum operations carried out by Vedanta at the RJ block. 11.28 The Appellant reiterated that the impugned Ruling, at Para 5 states 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 doesn't include the services to be provided before creating the infrastructure/facility. Under the EPC contact, the Appellant have to undertake activities from designing, engineering, procurement, construction of customized facility, commissioning of permanent facility. Test run and hand over of complete facility so designed, constructed, tested and commissioned. Titus, it cannot be treated as support services to oil & gas extraction." 11.29 In this regard, the Appellant submitted that one of the reasons contended by the AAR, Rajasthan for rejecting the classification Heading 9986 for the subject serv....
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.... classification entry giving more specific description to the activities performed by the Appellant shall apply over the entry providing a more general description. 11.35 The Appellant submitted that the reference is made to the Rules of Interpretation falling under the UNCPC which gains significance for the purpose of classification under the GST law because the Explanatory Notes to the Scheme itself is based on the same. 11.36 The relevant extract of the interpretative rules enshrined under the UNCPC provides thus: "56. In the CPC, the classification of products other than transportable goods, mainly services, shall be determined according to the terms of the categories as described in the divisions, groups, classes or subclasses in Sections 5 to 9 of CPC. When services are, prima facie, classifiable under two or more categories, classification shall be effected as follows, on the understanding that only categories at the same level (Sections, divisions, groups, classes or subclasses) are comparable: (a) The category that provides the most specific description shall be preferred to categories providing a more general description; (b) Composite ser....
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....t heading 9986 provides a more specific description when compared to the general entry under heading 9954 that even in case where the headings merit equal consideration, resort must be taken to clause (c) of the general interpretative rules. They submitted that an application of clause (c) of the interpretative rules quoted above also warrants classification under Heading 9986. 11.42 The Appellant submitted that as per the said rule, when services are classifiable prima facie under two headings, the same should be classified under the heading which occurs last in the numerical order. The Appellant therefore are of the view that as heading 9986 appears later to the SAC Heading No. 9954 in the numerical order, the services are classifiable under heading 9986. 11.43 In this regard, the Appellant have placed reliance on the following decisions: • Biomax Life Sciences Ltd. v. Commissioner of Customs, C.Ex. & S.T. [2021(375) E.L.T. 263 (Tri. -Hyd.) • Commissioner of Customs (Port) v. Praman International [2019 (365) E.L.T. 846 (Tri.-Kolkata)] • Paswara ImpexLtd. v. Commissioner of Customs [2013 (292) E.L.T. 562 (Tri.-Ahmd)] • Kama....
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....e for the period in respect of which the present Ruling was sought. 11.49 The Appellant submitted that the AAR, Rajasthan has approached the entire issue with a premeditated mind and with the singular objective of rejecting the benign rate of GST on the services provided by them in as much as the impugned Ruling seeks to classify the services under a classification entry which was not even in force during the period for which the Ruling was sought. 11.50 The Appellant set out the relevant provisions of the SAC Heading No. 9954 (ii) as follows: "(ii) Composite supply of works contract as defined in clause 119 of Section 2 of Central Goods and Services Tax Act, 2017." 11.51 The Appellant submitted that the aforesaid provision existed in the statue books since 28.06.2017. Thereafter, vide Notification No. 03/2019-Central Tax (Rate) dated 29-03-2019 w.e.f. 01-04-2019, the said clause was omitted from the Rate Notification. Therefore, the said provision existed in the status books during the period from 28.06.2017 to 31.03.2019 and post that date, it was omitted. 11.52 The Appellant submitted that the relevant period for classification of the subject services before the A....
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.... operation of 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, cf. 998341" 11.58 The Appellant submitted that on a reference to the above, it can be seen that the aforesaid services include, "well casing, cementing, pumping, plugging and abandoning of wells, test drilling and exploration services in connection with petroleum and gas extraction. " According to the Appellant, a look at the nature of services covered in the aforesaid entry reveals that it includes services relating to oil wells which include its cementing, pumping, casing, plugging and abandonment. Further, the entry also includes, inter alia, test drilling in connection with the petroleum and gas. 11.59 The Appellant further stated that the relevant Explanatory Note uses the expression "includes " which means that the activities which are provided in Heading 9986 are merely indicative in nature and it can include more such services which are of similar nature or ilk. In this regard, the Appellant added that the said phrase has a very wide connotation, thereby giving the Chapter Hea....
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....oherent value chain. 11.64 The Appellant submitted that under the terms of the EPC Contract, their scope of work involves augmentation of various facilities and infrastructure at Mangala oil field. Such scope includes the following activities to be performed/ installations to be done: a) Augmentation of Well Pads and Well Fluid Gathering Pipelines b) Augmentation of Existing Gas Processing Terminal capacity with New RDG Gas Processing Terminal c) Augmentation of product & Effluent Evacuation Facilities / Infrastructure 11.65 From this, the Appellant find it evident that they are providing support services to Vedanta by carrying out the activities of up-gradation of the processing terminal and well pads. 11.66 Therefore, according to the Appellant, construction of such facilities forms an indispensable part of the support activities for mining and petroleum operations and the inclusive list provided in the Explanatory Note must be seen in that context 11.67 The Appellant also reiterated the following from the Circular 114 issued by CBIC wherein it has been specifically stated as follows: "Most of the activities associated with the exploratio....
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....ore, the impugned Ruling is liable to be set aside. Submission VI: The scope of the Heading 9986 does not exclude works contract services. 11.75 The Appellant submitted that the entire basis of the impugned Ruling seems to rest on the fallacious understanding of the kind of services and activities which are covered within the Heading 9986 and the activities performed by the Appellant under the EPC contract. 11.76 As per the Appellant, the impugned Ruling, at Para 7, states that, The contract is for the engineering, procurement and commissioning of RDG gas Processing Terminal including Roads & drains, pipeline & 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 AAR, Rajasthan in respect of the Appellant at Para 7 found that:- "In case of this contract 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 immobile property. It is thus we are of the considered v....
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.... vide Circular 114, it is also beyond doubt that most of the support services which are associated with, inter alia, petroleum operations are covered under Heading 9986. 11.81 The Appellant submitted that one of the basis on which the AAR, Rajasthan denied the benefit of Heading 9986 to the activities performed by them is that its activities are in the nature of works contract services which are not covered under Heading 9986. The Appellant reiterated that in terms of Circular 114, which defines the scope of the Heading 9986, the following services are included within its ambit: (a) derrick erection, repair and dismantling services; (b) well casing, cementing, pumping, plugging and abandoning of wells; (c) test drilling and exploration services in connection with petroleum and gas extraction; (d) specialized fire extinguishing services; (e) operation of oil or gas extraction unit on a fee or contract basis 11.82 According to the Appellant, a reading of the aforesaid list of indicative services would reveal that many of the aforesaid services are in the nature of works contract. Services like well casing, cementing, pumping and aban....
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.... 11.88 The Appellant submitted that 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 herein below: S.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% 11.89 The relevant portion of Heading 9983 as prescribed under the Scheme of Classification is as follows: S. No. Chapter, Section Heading, or Group Service Code (Tariff) Service Description (1) (2) (3) (4) 296 Heading 9983 Other professional, technical and business services 11.90 The Appellant submitted that 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 services. The term 'business' has been defined under Section 2(17) of the CGST Act, which is reproduced herein below for ease of reference: (17) '....
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.... under Heading 9986. 11.93 The Appellant find it 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. UOI, [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. The Appellant are of the view that these are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context. They add that term 'relating to' has been held to be equivalent to or synonymous with 'concerning with' and 'pertaining to'. Therefore, they submitted that entry (ia) of Sr. No. 21 includes a broad range of services which pertain or concern with the activity of mining. 11.94 The Appellant submitted that the services provided by them are in relation to the mining activity of Vedanta, as stated above in detail. Hence,....
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....ical 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%. According to the Appellant 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. 11.98 The Appellant submitted that without prejudice to the submissions made above the supply of services made by them to Vedanta, in relation to the mining, would merit classification under Heading 9983 and attract GST @ 12% in terms of Sr. No. 21(ia) of Rate Notification. Therefore, according to the Appellant, on these grounds as well, the impugned Ruling pronounced by the AAR, Rajasthan is liable to be dismissed. PERSONAL HEARING 12. A virtual hearing in the matter was hel....
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....ted that the relevant Explanatory Notes for heading 9986 use the expression "includes" which means that the activities listed therein are merely indicative and would include services which are of similar nature or ilk. The Notes read: "998621 Support services to oil and gas extraction. This service code includes derrick erection, repair and dismantling services; well casing, cementing, pumping, plugging and abandoning of wells; test drilling and exploration services in connection with petroleum and gas extraction; specialized fire extinguishing services; operation of 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, cf. 998341" As per the Appellant the use of the term "includes" implies an expansion in scope of the term and should be given a wide connotation. See Tetragon Chemie Private Limited and Ors v. CCE and Ors [2001 (138) ELT 0414 Tri-LB], Stove Kraft Pvt. Ltd. v. State of Karnataka [2006 (2) TMI 603], Bharat Coop. Bank (Mumbai) Ltd v. Coop Bank Employees Union [2007 (4) SCC 685], Regional Director Employees' State Insurance Corporati....
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....ication of Services issued by the CBIC reads thus: The explanatory notes indicate the scope and coverage of the heading, groups and service codes of the Scheme of Classification of Services. These may be used by the assessee and the tax administration as a guiding tool for classification of services. However, it may be noted that where a service is capable of differential treatment for any purpose based on its description, the most specific description shall be preferred over a more general description. 12.10 According to the Appellant, the impugned Order has failed to consider the submission that SAC Heading No. 9954 is a general entry which is applicable for works contract services. They added that even if it is to be assumed that the supply of services under the EPC contract is a composite supply in the nature of a works contract, the service will still merit classification under SAC Heading No. 998621 which is a specific entry for services that support the activity of oil and gas extraction. They have placed reliance upon Ascent Meditech Ltd, v. CCE, Vapi [2014 (309) E.L.T. 712 (Tri. - Ahmd.)] [Affirmed in 2015 (320) ELTA281 (Supreme Court)], Pepsico India Holdings ....
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....on of "business" under Section 2(17) of the CGST Act implies a wide connotation given to the Entry. 12.15 The Appellant submitted that they provide services by way of proper management of the project right from the detail design and planning of the project till its final test run, commission and hand over in fully functional form. As per the Appellant, the CBIC Circular clearly states that any technical and consulting services relating to exploration and extraction of oil and gas which are not specifically covered under the Heading 9986, would fall under Heading 9983 under Sr. No. 21 (ia) of Rate Notification and attract 12% GST. 13. Further, the Appellant vide email dated 16.03.2022 have also submitted additional submission which is brief of ground already submitted during appeal and additional submissions already submitted by them. Nothing extra has been added. 14. Due to change of Members of AAAR, another personal hearing was held on 13.09.2023, in which Sh. Rohit Jain, Advocate and Sh. Rahul Khurana, Advocate, authorized Representatives of the Appellant appeared & attended the hearing. They reiterated the submissions already made under grounds of appeal and the submiss....
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....ll be classifiable under SAC Heading No. 9954 eligible for rate of tax prescribed vide entry serial number 3(ii) of Notification No. 11/2017-CT(R) dated 28.06.2017. The instant appeal seek to challenge the Order of the AAR for Rajasthan with prayer to set aside the Order and declare that the activity undertaken by the Appellant is classifiable under SAC Heading No. 998621 or, alternatively, under SAC Heading No. 9983. 19. After having gone through the submissions made by the Appellant both in the application seeking advance Ruling and in the instant appeal vis-a-vis the Advance Ruling pronounced by the AAR for Rajasthan we deem it appropriate to examine the matter at length based on the documents submitted by the Appellant in order to arrive at a finding in accordance with the legal provisions governing the subject. To facilitate analysis, the detailed examination and findings based thereon have been divided into the following Sections:- Section Sub- Section Description A. Activity in brief as narrated by the Appellant B. Appellant's understanding of law on the subject B.1. Main Contention as to classification of supply ....
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....as Corporation, located in Barmer District in the state of Rajasthan; (ii) The RJ-ON 90/1 Block contains 38 major oil & gas discoveries including Mangala, Bhagyam and Aishwariya fields, with significant gas potential in the southern area; (iii) Raageshwari Deep Gas (RDG), discovered in 2003, is a tight gas field situated in tire southern area and is under production since 2010 with significant infrastructure in place. (iv) Eighteen well pads are operational in the Mangala Field. A number of wells have been drilled in the aforementioned fields for exploration, development & production of hydrocarbons. (v) The oil & gas produced from these fields are collected and transported to a central processing facility at Mangala through a network of existing in-field pipelines. The central processing facility is also termed as Mangala Processing Terminal (MPT). The existing pipeline corridor at Mangala Field, between MPT and various well pads, has various exiting pipelines running through it. M/s Vedanta Limited have awarded EPC contract to the Appellant to have their services rendered at their oil and gas fields in the block. With a view to further au....
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.... oil field wherein the surface facilities and infrastructure will be augmented and such up gradation in infrastructure is squarely in relation to that purpose. C.2. Classification under other professional, technical and business services-Heading 9983 The Appellant have submitted that the activities carried out by them can in the alternate be classified as other professional, technical and business services under Heading 9983 as the Appellant provide services by way of proper management of the project right from the detail design and planning of the project till its final test run, commission and hand over in fully functional form and it is also, inter alia, required to review, monitor, manage and control all aspects of the execution of the project along with the day-to-day administration and logistics, such as, procurement, performance, HSE, quality and schedule management, among others, on behalf of M/s Vedanta Limited. D. Ruling pronounced by AAR: The AAR for Rajasthan has pronounced Ruling vide order dated 13.09.2021 rejecting the classification as sought by the Appellant under SAC Heading No. 998621 or under Heading 9983 and held that the supplies proposed to be und....
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....suggested by AAR: The Appellant have submitted that the impugned order seek to classify the services provided by the Appellant under Entry SI. No. 3(ii) of SAC Heading No. 9954 of Notification No. 11/2017-Central Tax (Rate), dated 28.06.2017 which provided a rate of tax for "composite supply of works contract as defined in clause 119 of Section 2 of Central Goods and Services Tax Act, 2017' but the said entry (ii) stands omitted vide Notification No. 03/2019-Central Tax (Rate), dated 29.03.2019, effective from 01.04.2019 and, therefore, the Ruling has classified the supplies under a non-existing entry of the rate notification. F.2. Nature of activity undertaken not appreciated: The Appellant have also contended that the findings in the impugned order of AAR to the effect that the classification of support services to oil and gas extraction under Heading 9986 is only applicable when the exploration/production had started and the support services do not include services supplied before tire creation of the infrastructure for production, suffers from fallacy and complete non-consideration of facts in as much as the contract was awarded during the year 2018/2019 and the origin....
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....pellant in pursuance of the EPC contract with M/s Vedanta Limited are classifiable under SAC Heading No. 998621 of the Scheme of classification of services? G.2. Classification under Heading 9983: Whether the alternate suggestion of the Appellant seeking classification of the proposed supplies in question under Heading 9983 is acceptable in view of the nature of supplies proposed to be made by them? G.3. Classification under Heading 9954: Whether the classification as pronounced by the AAR under SAC Heading No. 9954 is sustainable and what is the effect of AAR's Ruling pronouncing tax rate as prescribed vide entry SI. No. 3(ii) of Notification No. 11/2017-CT(R), dated 28.06.2017 which stood deleted at the material point of time ? G.4. AAR's ruling- classification vis-a-vis rate of tax: What is the correct classification of the supplies proposed to be made by the Appellant in pursuance of the EPC Contract entered with M/s Vedanta Limited? H. Examination of submissions and analysis of evidence: In view of the questions framed by us for determination in these proceedings, we find that the nature of activities carried out by the Appellant in terms of the EPC Con....
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.... relating to exploration, mining or drilling of petroleum crude or natural gas or both', we deem it appropriate to examine the nature of the activities proposed to be undertaken by the Appellant for effecting the supplies in terms of the EPC Contract. Some of the salient features of the EPC Contract relevant to the issues at hand, as contained in clause D-1-18 titled 'SOW for Development', referred to by the Appellant as containing the scope of services are reproduced below:- (A) The scope of Contractor includes, but is not limited to, pre-bid engineering, Site Surveys, verification of soil and topography data, FEED, Detail Engineering, Procurement, Fabrication, Manufacturing, Assembly, Inspection & Testing, Packing, Shipping, Site establishment, Delivery and Unloading at site. Storage and Preservation, Complete Erection and Installation, Facilities Construction, Pipeline laying, Insulation, Painting, Dismantling, removal and disposal of existing facilities, Hooks-ups, Site Acceptance Testing, Pre-Commissioning & Commissioning, RFSU, Performance Guarantee Test Run(s) (PGTR), Training of Company's Commissioning and Operations personnel, Project and Construction Management, ....
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....ife of 25 years. Contractor to design all facilities with option to handle higher volumes of production, sales, internal consumption, provisions to handle chemical dosages, scale, corrosion inhibitors etc. in future. (G) Contractor to design the well pad piping network and other facilities with flexibility to test the well(s) through Surface Well Testing unit (provided by others) without affecting other wells on the same pads. (H) All pressure vessels and columns shall be designed and constructed as per ASME Sec VII Div 1 and shall be code ASME U stamped. ASME U stamping is not required for vessels required in utility services such as air, water etc. (I) Contractor shall ensure that the new control systems i.e. PCS, ESD and FGS, being added for the RDG shall be properly designed and engineered to have seamless integration with the existing control system network in RGT and Well Pads, it shall be possible to view and operate RDG terminal, RGT and all well pads from new RDG control room. Contractor to note that the Existing control Room at RGT will be converted to unmanned control room. (J) Providing & mobilizing all construction resources, as requ....
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....lf based on the UNCPC as stated by CBIC in Circular No. 114/33/2019-GST dated 11.10.2019. (ii) In this regard, we observe that the broad Heading 9986 in the Explanatory Notes is titled as 'support services to agriculture, hunting, forestry, fishing, mining and utilities' and the sub-heading 99862 is titled as 'support services to mining'. SAC Heading No. 998621 has been described as follows:- "998621 Support services to oil and gas extraction This service code includes derrick erection, repair and dismantling services; well casing, cementing, pumping, plugging and abandoning of wells; test drilling and exploration services in connection with petroleum and gas extraction; specialized fire extinguishing services; operation of 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, cf. 998341" (iii) As can be seen from the language of the heading of the service, the service in question has to be in the nature of support to the main activity which is that of oil and gas extraction. There is no denying the fact that the activity of oil and gas extr....
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....ve that the scope of services provided by the Appellant needs to be examined in terms of the description of services given in the Explanatory Notes which have already been discussed above. H.2.1 Details of EPC contract w.r.t classification under Heading 998621 (i) We observe that the EPC Contract which has been submitted by the Appellant describes the nature of activities undertaken by the Appellant in detail. Explaining the scope of the said document (EPC Contract), it has been mentioned in the introductory part that the existing capacity and facilities at the Raageshwari Deep Gas Field are being expanded to achieve higher production/ processing capacity. Explaining the design basis for new facilities it has been mentioned that with a view to ramping up the gas sales volume and to meet the sales gas requirement, a total of 42 new wells were required to be drilled and hydraulically fractured and this included five wells approved in original FDP and 37 new wells as part of revised FDP. In Section D. 1 of the EPC Contract it has been mentioned that keeping in view the RDG Field Production Profile as described in Para-D.1-3 and the overall surface facilities consisting of well p....
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.... • Dehydration unit in integrated gas processing unit to be specified for total inlet flow corresponding to 135 MMSCFD sales gas. • One HCDP unit downstream of dehydration unit to be designed at a rate of 70 MMSCFD sales gas rate. • Another HCDP unit of 45 MMSCFD capacity Parallel to the above unit for catering to upside case of 135 MMSCFD sales gas. (C) Page-112: - New gas processing terminal processing scheme is devised with technically feasible and most favorable building blocks/technologies. The selected processing scheme of the new gas processing facility is schematically depicted in figure below. - Treated gas from the new conditioning unit and existing RGT to be compressed in common export gas compressor system to boost the pressure to required battery limit delivery pressure and sent to pipeline (being executed by third party) for sales after metering. (D) Page-113: - Condensate recovered from both the existing and new gas conditioning facility to be processed together in new condensate stabilization system to recover the stabilized and un-stabilized condensate product. The off-gas from conde....
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....cludes foundation, structures, buildings like control building, sub-stations, switchyard, fire stations and sheds, bituminous roads, paving and drains etc. and the contract contains provisions which prescribe the quality of various types of material such as concrete for foundation and structural steel material. The legal requirement part of the EPC Contract, in Para- D1-10, lists various approvals required to be obtained by the Appellant for RDG Phase-2B development which include environmental clearance and approval for construction from DGMS for new RDG Terminal, well pads and GSPL dispatch station with specific stipulation that construction approval before start of execution and commissioning approval before RFSU stage are essentially required to be obtained by the contractor. (v) We observe that the EPC Contract also contains provisions concerning land requirement and existing and new facility interface as follows:- (A) Para- D1-14: Land Requirement: The company (M/s Vedanta) has acquired the land for terminal, well pads and pipeline corridor and the contractor shall optimally plan the well construction and limit any modification works within the land alread....
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....le hook-up & tie-in with the existing & proposed facilities. This provision of the contract makes it amply clear that the Appellant have been assigned the work of establishment of new facilities for natural gas extraction alongside the already existing facilities at the RDG. (viii) Coming to the proposed classification under SAC Heading No. 998621 we observe that the said heading covers 'support services to oil and gas extraction' which is self-explanatory in as much as the services proposed to be classified under this heading provide support to the main activity of oil and gas extraction and such activity of extraction eventually requires the infrastructure facilities established. These three parts of the entire gamut of oil and gas extraction are clearly distinguished from each other. Support service has to be essentially distinct from the main activity of oil and gas extraction. And establishment of infrastructure facilities in the form of well pads, pipelines, processing terminals besides control buildings, sub-stations, switchyards and fire stations, to illustrate a few, is clearly a distinct feature of the activity of oil and gas extraction. Hence, support service to oil a....
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.... services which pertain to or concern with the activity of mining. To buttress their argument, the Appellant have further claimed that they provide services by way of proper management of the project right from the detailed design and planning of the project till its final test run, commission and hand over in fully functional form and it is also inter alia required to review, monitor, manage and control all aspects of the execution of the project along with the day-to-day administration and logistics, such as, procurement, performance, HSE, quality and schedule management, among others, on behalf of M/s Vedanta. The Appellant have also referred to and relied upon the CBIC Circular to claim that 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%. (ii) On going through the explanatory notes, and as also clarified vide the CBIC Circular dated 11.10.2019 referred to above, we observe that the services relating to exploration, mining or drilling of petroleum crude or natural gas are described under Heading 9983, wh....
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....o not the activity that the Appellant are obliged to undertake in pursuance of the EPC Contract. Strictly speaking, as observed earlier, the scope of the current contract for the Appellant cover under Phase 2B of RDG development project comprises of facilities for augmentation of existing well pads, development of new well pads and for augmentation of well fluid gathering pipeline network and new gas processing terminal. These aspects of the contract of the Appellant cover such activities which do not answer the description of geological or geophysical consulting services or mineral exploration and evaluation services. This will be more clearly analyzed in the latter part of our analysis when the issue will be examined with reference to construction services. H.4: Construction Services under Heading 9954: (i) We observe that in response to the query by the Appellant as to what would be the correct classification of the supplies proposed to be undertaken by them in pursuance of the EPC Contract, the AAR has pronounced the Rulings dated 13.09.2021 declaring that the activities of supply, survey, designing, installation and commissioning of project under the EPC contract to be u....
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....n the rate notification when the application seeking Advance Ruling was filed or when the Ruling was pronounced. Hence, the rate as prescribed vide the said entry was not available to the Appellant at the relevant point of time. However, we observe that the omission of the given entry from the rate notification in question by itself does not make the instant supply eligible to lower rate of tax until other aspects of the Ruling concerning the description of the supply based on its nature and classification under the given heading are examined to determine the appropriate rate of tax. Hence, we observe that it is important to examine the other aspects of the Ruling with reference to the tine nature of the supplies as given in the EPC Contract. (iv) We observe that the AAR has pronounced classification of the supply under the SAC Heading No. 9954 relating to construction services with the observation that the supply being composite in nature and covered under the description of work contract as defined under clause (119) of Section 2 of the CGST Act, 2017. The Appellant have opposed the Ruling mainly on the ground that the said category of service i.e. construction service provide....
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....on supervision as well as construction engineering) shall primarily be responsible for performing pre-construction activities, review of all the construction / fabrication drawings prior to start of site construction method statements and procedures, resolution of site queries, managing the construction activities including storage and issuance of materials, logistics. (K) Company has acquired the land for installation of proposed facilities. Contractor shall optimally plan the construction methods and limit the construction works within the land already acquired by Company. (L) New independent HP and LP intra-field well fluid gathering pipelines is to be considered from the three new well pads. These new pipelines to connect to the trunk lines at existing well pad WP-05. (M) A new 20" trunk pipeline is proposed to be laid from WP-05 to RDG terminal Parallel to existing 12" pipeline. (vi) On perusal of the provisions of the EPC Contract which have been summarized above, we observe that the Appellant have been assigned the task of construction of various facilities which are integral to the proposed gas production capacity enhancement from the Raageshwa....
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....s classifiable under SAC Heading No. 9954. (ix) We further observe that the instant matter in hand does not simply involve supply of services only, rather as mentioned in the EPC contract and as also admitted by the Appellant in the appeals, supply of goods is also involved in the contract and such goods have been used in the execution of the EPC contract as the Appellant are required to undertake the construction activities and after installation and commissioning of the entire facilities, handover the complete RDG Gas Processing Terminal along with buildings, road, pipelines etc. We are, therefore, in agreement with the AAR in holding that the composite supply of construction services and goods involved in the execution of the contract amount to supply of works contract service. Hence, we may refer to clause (119) of Section 2 of the CGST Act, 2017 which reads thus:- "(119) "works contract" means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in....
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.... items (i), (ia), (ib), (ic), (id), (ie) and (if) in column (3) shall attract central tax prescribed against them in column (4) subject to conditions specified against them in column (5) and shall not be levied at the rate as specified under this entry." (xiii) We observe that the said item (xii) of entry at SI. No. 3 of Notification No. 11/2017- CT (R), dated 28.06.2017, as amended up to Notification No. 3/2019-CT (R), dated 29.03.2019 prescribes Central Tax @ 9% on the supplies proposed to be undertaken in terms of the EPC Contract and therefore, the supplies proposed to be undertaken by the Appellant attract tax at the rate of 18%. The Ruling pronounced by the AAR, therefore, needs to be modified up to that extent. 1. Some specific arguments In view of what has been discussed above, we observe that the issues involved stand addressed in the light of legal position which applies to the supplies proposed to be undertaken by tire Appellant under the EPC Contract. However, before concluding the matter, we deem it appropriate to discuss some points which have specifically been raised by the Appellant. These points are discussed as follows:- (i) The Appellant have ar....
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....carried out before installation of the infrastructure and facility for exploration. In this regard, we observe that classification of the supplies depends upon the scope of the work assigned to the Appellant which has already been discussed at length in the above Paras. As can be seen the contract in the instant case is an Engineering, Procurement and Construction (EPC) Contract awarded by M/s Vedanta Limited for provision of services for development of Integrated Gas Surface Facilities for Raageshwari Deep Gas Field within RJ-ON-90/1 block and the Appellant have been assigned the responsibility to develop the infrastructure for surface facilities of three new well pads with 22 numbers of new wells. The scope of the work described in details in the contract clearly established that the supplies relate to construction of new facilities/infrastructure for gas extraction which is quite distinct from the support services to oil and gas extraction. What has been included in the support services under SAC Heading No. 998621 by way of inclusion clause has to be viewed with reference to support services and cannot be so interpreted to relate it to construction services. In that vi....
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....tion, mining or drilling of petroleum crude or natural gas or both' under SAC 998621 and attracts GST @ 12% in terms of SI. No. 24(ii) of Rate Notification. (2) Alternatively, whether the services provided by the Appellant are classified under S. No. 21(ia) of heading 9983 of the Rate Notification as 'Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both' and attracts GST @ 12% in terms of SI. No. 21(ia) of Rate Notification. (3) Further, if the subject services are not classifiable under the aforesaid entry, what would be the appropriate classification for the same and at what rate GST would be imposable? (ii) Thereafter, the MAAR passed the Order No. GST-ARA-27/2020-21/B-38 dated 31.03.2022 and held that the services provided by Worley Services are neither covered under SI. No. 24(ii) nor under SI. No. 21(ia) of Rate Notification on the following grounds: * The service code 998621 includes services provided to the oil and gas mining sector by way of actual participation in the mining activity and in the subject case, it is actually the EPC contractor who is giving sup....