TaxTMI 
TaxTMI 
TaxTMI 
2024 (3) TMI 891
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....t, 2017 (hereinafter also referred to as 'the RGST Act') by the Appellant on the portal on 29.10.2021 against AAR, Rajasthan Ruling Order No. RAJ/AAR/2021-22/21 dated 15.09.2021. As per the Appellant, the Order of the AAR was communicated to them on 21.09.2021. The Appellant vide letter dated 20.09.2023 submitted that the appeal has been filed within limitation period in pursuance of Hon'b1e Supreme Court Judgment dated 10.01.2022 in Suo Motu Writ Petition (C) No. 3 of 2020. BRIEF FACTS OF THE CASE 1. M/s Kalpataru Projects International Limited (earlier known as M/s Kalpataru Power Transmission Limited) ("the Appellant") registered under the Central Goods and Service Tax Act, 2017 (CGST Act) vide registration number 08AAACK8387R2ZI. They are engaged in developing infrastructure facilities mainly in power transmission projects, developing infrastructure facilities for laying of the cross country pipelines for Crude Oil, Refinery products and Natural Gas (along with all associated facilities. The Appellant executes Engineering, Procurement and Construction ("EPC") projects in Power Transmission One Towers, Oil and Gas and Railways infrastructure, as well as undertaking power t....
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....works for MIPA project as described in the Scope of Work of the Contract ("subject services"). 6. SCOPE OF WORK - AUGMENTATION OF PIPELINE INFRASTRUCTURE AT MANGALA OIL FIELD 6.1 As stated by the Appellant, eighteen well-pads are operation in the Mangala Field. Further, the Appellant submitted that Vedanta planned to augment its pipeline network, to cater to the increased production capacity of these Well Pads. For this, Vedanta planned to lay down a network of new customized pipelines between the existing well pads and MPT. Three types of Pipelines which are required to be constructed, as part of MIPA project as described below: a. Production Fluid Pipelines b. 'Injection water' Pipelines c. 'Power Fluid' Pipelines 6.2 Station Facilities -The Appellant submitted that they are required to construct customized piping associated station facilities, for terminating the pipelines, as per PIDs and Tender specifications. 6.3 Additional Requirements - The Appellant are also required to install the additional equipment and customized as per EPC contract such as Anchor Flanges, Valve Chambers, Provision for Temporary Pigging and Cathodic Protection. 7. SCOPE OF WORK - EXECUTION A....
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....nt are also required to deploy all resources for execution of the scope of work and is also to be responsible for arranging any external assistance/support (in the form of specialized or customized task required for completion of the works), if required, at its own cost and risk. 8. RESPONSIBILITIES OF APPELLANT UNDER THE SCOPE OF WORK 8.1 General Responsibilities Under the EPC contract, the Appellant have the following general responsibilities in relation to the design, construction and installation of customized infrastructure facilities: a) Providing & mobilizing all project management resources for performance of works. b) Providing and mobilizing all engineering & procurement resources for execution of project. c) Providing and mobilizing all construction resources for execution of project. The construction team is primarily responsible for performing pre-construction 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 author....
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....and supply all the materials (temporary and permanent) of all types/sizes/rating/quantity required for execution of the complete works in the contract as part of their firm scope of work with sole responsibility of the materials. 8.8 The scope of supply by the Appellant broadly includes but not be limited to Mobilization/ Demobilization, Construction of facilities, Commissioning, Testing and Clean-up & Restoration. 8.9 The Appellant submitted that they are required to arrange "No Objection Certificate" from the Local/statutory authorities, as applicable, and is to settle all the applicable compensations, dues, fees etc. 9. 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 Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 has been amended to include within its ambit, support services to, inter alia, mining activities, and Entry No. 21(ia) thereof has been newly inserted to cover within its ambit professional, technical and business services relating to petroleum operations, both taxable at 1....
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....17. 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 I: 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 infrastructures 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 the aforesaid basis given by the Authority for Advance Ruling would reveal that the AAR, Raj....
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.... 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, 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 inc....
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....ted 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". 11.14 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 infrastructure/ facility for exploration is built & complete in all respect and ready to start exploration, is to be accepted, still the finding held by the AAR, Rajasthan will not hold good. 11.15 Appellant reiterated that as part of augmentation of its production at the Mangala oilfield, Vedanta has decided to lay down new network of customized pipelines between the well pads and the processing terminal. The Appellant have been contracted by Vedanta to lay down those pipelines to cater to the increased production. 11.16 The Appellant submitted that even if AAR, Rajasthan's contention, that Heading 9986 covers only post exploration related activities on the field, is to be accepted, even on that count, the activities of the Appellant under t....
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....ng the infrastructure/ facility for exploration. 11.23 The Appellant submitted that the AAR, Rajasthan further stated that the Appellant are carrying out EPC contract wherein it is required to undertake designing, engineering, procurement, construction of customized facility, commissioning of permanent facility, Test run and hand over of complete facility so designed. They further stated that since these activities involved designing, engineering and construction, those are in the form related to the creation of infrastructure facility, and hence cannot be treated as support services to petroleum extraction. 11.24 The Appellant submitted that the services rendered by them are linked to, and in connection with, the petroleum operations. This fact has never been disputed by the AAR, Rajasthan. They added that the only contention raised by the AAR, Rajasthan to deny the benefit of SAC Heading No. 9986 to the Appellant is that SAC Heading No. 9986 does not cover creation of infrastructure/ facility, which the Appellant vehemently opposed and found without any credible basis in the law. 11.25 The Appellant submitted that the facilities are being developed by them to support the petro....
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....s which cannot be classified by reference to (a) shall be classified as if they consisted of the service which gives them their essential character, in so far as this criterion is applicable; (c) When services cannot be classified by reference to (a) or (b), they shall be classified under the category that occurs last in numerical order among those that equally merit consideration" 11.30 The Appellant submitted that in the light of the above, it can be seen that the subject services are customized in nature and considering the above, it is reiterated that the services supplied by them merit classification under SAC Heading 9986 which is a specific entry for services which support the petroleum operations. 11.31 The Appellant submitted that it is the cardinal rule to be applied for classification of any goods or services that in case of two competing headings, the heading which provides the most specific description shall be preferred to headings providing a more general description. 11.32 As per the Appellant, the AAR, Rajasthan proceeded to classify the subject services under the SAC Heading No. 9954 without considering their submissions. The Appellant submitted that SAC Head....
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....nder SAC Heading No. 9954 - 'General construction services' and are paying GST @ 18% under Sr. No. 3 of the Rate Notification. Given the scope of work involved in the project and further by virtue of the amendment made in the Notification effective from October 1, 2019 wherein a specific amendment was made in Sr. No. 24 (ii) of the Rate Notification which attracts GST @ 12%, the Appellant stated that the subject services should merit classification under Sr. No. 24 (ii) as 'support services to exploration, mining or drilling of petroleum crude or natural gas or both' 11.38 The Appellant submitted that in view of the above, the activities performed by the Appellant under the EPC Contract are more directly related to the petroleum operations carried out by Vedanta at the Rajasthan Block and therefore, in terms of the legal principles enunciated above, the impugned Ruling is liable to be rejected. Submission IV: The Impugned Ruling has been issued based upon a non-existent provision of the law 11.39 The Appellant submitted that the impugned Ruling pronounced by the AAR, Rajasthan is entirely based upon a provision which was not even in existence at the time when the transaction, in....
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.... the subject services rendered by the Appellant to Vedanta under the EPC contract merits classification under Heading 9954(ii) of the Rate Notification, evidently when such provision of law was not even existent at the relevant time. 11.45 As per the Appellant it is an established principle of law that the provision of law, on the basis of which any action has been taken by an Authority or a decision or Ruling has been pronounced, must be in force at the time of the applicable case. In this regard, reliance has been placed on the following judgments: (a) Carrier Point v. Commissioner of Central Excise, Jaipur, 2018 (10) G.S.T.L. 213 (Raj.) (b) Pillar Inductions (I) Ltd. v. Commissioner of Central Excise, Chennai, 2004 (166) E.L.T. 43 (Tri.-Chennai) (c) Commissioner of Customs, Chennai v. Madras Aluminum Co. Ltd., 2016 (339) E.L.T. 295 (Tri. - Chennai) 11.46 As per the Appellant, the impugned Ruling is liable to be set aside as the AAR, Rajasthan vide the impugned Ruling have proceeded to classify goods under an entry which does not even exist. Submission V: The scope of the activities covered under leading 9986 is inclusive in nature and not exhaustive 11.47 The Appellan....
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.... made to Tetragon Chemie Private Limited and Ors Vs CCE and Ors [2001 (138) ELT 0414 Tri-LB]. wherein in the context of interpretation of an inclusive Chapter Note, the Delhi Tribunal, inter alia, held that the Chapter Heading is to be given a wide connotation and is not to be restricted to the illustrations provided in the Chapter Note. 11.53 The Appellant also referred 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. According to them, 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. As per the Appellant, words used in an inclusive definition denote extension and cannot be treated as restricted in any sense. 11.54 The Appellant submitted that the Hon'ble Apex Court in the case of Bharat Coop. Bank (Mumbai) Ltd V....
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.... referred by the AAR, Rajasthan are an inclusive definition and hence the scope is not exhaustive (but merely indicative) or limited to only the above specified services. An inclusive definition is expansive in nature and would cover all transactions " possessing similar features. 11.61 The Appellant are of the view that the above submission finds support from the interpretative rules for the explanatory notes under the UNCPC which explains the non-exhaustive nature of the list of services mentioned therein. The relevant extract of interpretative rules under the UNCPC reads: "62. It should be noted that the explanatory notes are not intended to present an exhaustive list of all the products under each heading; they should be regarded only as lists of examples to illustrate the subclass content. " 11.62 In light of the above, the Appellant submitted that the AAR, Rajasthan has ignored the interpretative rules mentioned in the UNCPC and arrived at erroneous conclusions based on its own assumptions and presumptions 11.63 The Appellant submitted that in view of the 'inclusive' nature of the Explanatory Note which seeks to cover support services in relation to the petroleum....
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....ation, 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 some other form) is involved in the execution of such contract;" The Appellant submitted that a look at the aforesaid definition would reveal that works contract includes within its ambit, inter alia, services relating to construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property. 11.69 The Appellant submitted that by concluding that the services performed by them are outside the purview of Heading 9986 merely because it is a 'works contract' service, the impugned Ruling seems to have misread the law and tried to read something which does not exist. It is an established principle of law that one cannot go beyond the words used in a statue. In this regard, the following cases may be noted: (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 Wi....
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....ultipurpose supply vessel, hiring of survey vessel etc. 11.76 Appellant submitted that above answer to the FAQ provided by the MoPNG expressly provides that the services required in connection with the petroleum operations include pipe-laying services. The Appellant reiterated that the EPC contract with Vedanta involves design, installation and laying down of various customized pipelines within the Mangala oi1 field as a part of their intra-field network pipeline augmentation project. Therefore, pipe-laying activities undertaken by the Appellant on behalf of Cairn are very much part of the petroleum operations and hence ought to be covered within the inclusive list of support services which are classifiable under the Heading 998621. 11.77 The Appellant further submitted that their arguments also find support in the Petroleum Tax Guide 1999 ("Tax Guide") issued by the MoPNG which compiles specific provisions of various tax laws as applicable to the petroleum operations under NELP. Para 3(k)of the Tax Guide defines "Petroleum Operations" as follows: "(k)"Petroleum Operations" means, as the context may require, Exploration Operations, Development Operations or Production Operation....
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....the delivery point and also including incidental operations not specifically referred to herein but required for the most efficient and economic development and production of the said Petroleum accumulations in accordance with good international petroleum industry practices." They submit that the term "Development operations", inter alia, includes "other producing and injection facilities required to produce, process and transport Petroleum into main oil storage or gas processing facilities, either onshore or offshore, including the laying of pipelines within or outside the Contract Area" 11.80 The Appellant reiterated that the EPC contract given by Cairn involves laying down of customized intra-field pipelines between the well pads and oil processing facility to carry various fluids including the production oil and such pipelines are to be laid and installed within the Contract Area provided by Cairn, onshore. 11.81 The Appellant also submitted that by virtue of the clear definition given by the Tax Guide for 'Development operations' which seeks to include laying down of pipelines in the onshore Contract Area as a part of incidental activities which are connected to the Petrol....
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....g to exploration, mining or drilling of petroleum crude or natural gas or both." 11.84 Without prejudice to the above submissions, the Appellant submitted that 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. 11.85 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% 11.86 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 bus....
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....serted vide Rate Notification with effect from October 1, 2019. The aforesaid entry was introduced by the Government in order classify particular services such as management and consultancy services relating inter alia mining, and which do not merit classification as support services to mining under Heading 9986. 11.90 The Appellant submitted that 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'b1e 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 'pertaini....
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....r 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%. 11.94 The Appellant submitted that 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%. 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. 11.95 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 ....
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....6. It is undisputed that the services supplied by the Appellant are linked to or in connection with the petroleum operations. 12.5 The Appellant submitted 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....
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....ption. In this regard, the Appellant submitted that, the Preface to the Explanatory Notes to the Scheme of Classification 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 (....
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....Notification. The use of the term "business services" and a plain reading of the definition 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....
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.... from 21.09.2021 in light of the aforesaid judgment of Hon'ble Supreme Court. We note that the appellant has filed the appeal on 29.10.2021 that is within the prescribed time limit. We find that the appeal has been filed by the appellant within the prescribed time. Therefore, we proceed further to decide the appeal on merit. 20. We find that the Appellant have sought Advance Ruling in respect of the activities undertaken by them for M/s Vedanta Limited which as per their version involved provision of service including supply of material amounting to transfer of property in goods. The Appellant had sought Advance Ruling to clarify as to whether the activities undertaken by them are/were classifiable either under SAC Heading No. 9986 eligible for rate of tax prescribed vide entry serial number 24(ii) or alternatively under SAC Heading No. 9983 eligible for rate of tax prescribed vide entry serial number 21(ia) of Notification No. 11/2017-CT(R), dated 28.06.2017. 21. The AAR for Rajasthan has pronounced the Advance Ruling holding that the activity undertaken by the Appellant by way of supply, survey, designing, installation and commissioning of project under EPC contract shall b....
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.....1. Nature of activities as per EPC contract H.2. Ingredients of services classifiable under Heading 998621 H.3. Ingredients of services classifiable under Heading 9983 H.4. Construction services under Heading 9954 I. Some specific arguments J. Reliance on Ruling of Maharasthra, Order No. MAH/AAAR/DS-RM/14/2022-23 dated 03.01.2023 K. Conclusion and findings A Activity in brief as narrated by the Appellant: As can be seen from the submissions made by the Appellant in the appeal papers, the Appellant are stated to be engaged in providing services to M/s Vedanta Limited, which is stated to be a globally diversified natural resources company engaged in exploration and mining of various natural resources. As stated by the Appellant:- (i) Cairn, Vedanta's upstream Oil & Gas Division, is the operator of Onshore RJ-ON-90/1 block, on behalf of themselves and their joint partners, Cairn Energy Hydrocarbons Limited and Oil and Natural Gas 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 Aishw....
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....C Contract and found that based on the ingredients of the activities as discussed in detail in the contract, the same merit classification under SAC Heading No. 998621 or in the alternate under Heading 9983. C.1 Classification under support service of business-heading 9986 The Appellant have submitted that with a view to augment the production from existing well pads at Mangala, M/s Vedanta awarded an EPC Contract to Appellant in March-2018 for constructing additional network of customized Intra-field pipelines under MIPA Project. The Project involves design, supply and installation of new specialized and customized pipelines of varying sizes for transportation of Production Fluid, Power Fluid and Injection Water between the well pads and the Mangala Processing Terminal by Vedanta. The Appellant further submitted that pipe-laying activities undertaken by the Appellant on behalf of Cairn are very much part of the petroleum operations and hence ought to be covered within the inclusive list of support services which are classifiable under the Heading 998621. C.2 Classification under other professional, technical and business services-Heading 9983 The Appellant have submitted that ....
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....General Construction Service. E. Analysis of classification and rate of tax pronounced by AAR: We note that the Ruling as pronounced by the AAR classified the supplies involved in survey, designing, installation and commissioning of project under EPC contract by the Appellant under SAC Heading No. 9954 which relates to construction services. Second part of the Ruling concerns the rate of tax applicable on the said supplies by the Appellant and it has been ruled that the supplies, which are in the nature of works contract, will attract GST @ 18% in terms of Sl. No. 3 (ii) of Notification No. 11/2017-Central Tax (Rate), dated 28.06.2017. F. Appellant' arguments against Ruling of AAR: The Appellant have challenged the Ruling pronounced by AAR mainly on three counts, one of them being classification under a non-existing entry in the rate notification while the other grounds concern nature of activity undertaken by the Appellant not appreciated and also the rules of classification not referred. F.1. Non-existing entry 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 Headi....
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.... providing the same. It has been submitted by the Appellant, that these services, involve civil work as well as supply of goods as part of performance of such activities and can very well take the shape of works contract and bringing such works contract services out of the purview of Heading 9986 is clearly a result of misreading of the law and lack of understanding of the oil and gas industry. Alternatively it has been suggested that the services supplied by the Appellant would also merit classification as "other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both" under Entry No. 21(ia) of Heading 9983 of the Rate Notification. G. Questions for determination: In view of the submissions made by the Appellant in the appeal and the Rulings pronounced by the AAR, we observe that the issues for determination before us are as follows:- G.1 Classification under Heading 998621: Whether the supplies proposed by the Appellant 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 9....
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....hus, the Appellant have submitted only a part of the EPC Contract which describes in detail the scope of work proposed to be supplied by the Appellant to M/s Vedanta Limited. Since we have to decide the question of classification of the supplies proposed to be made by the Appellant in terms of the said EPC Contract, we are mainly concerned with the provisions of the EPC Contract governing the scope of work assigned to the Appellant. (iii) With a view to deciding the classification of supplies proposed to be made by the Appellant in the context of their claim of classification under Heading 998621 as 'support services to exploration, mining or drilling of petroleum crude or natural gas or both' or the alternate claim of classification under Heading 9983 as 'other professional, technical and business services 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 7 titled 'Scope of work of....
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....serve 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 extraction can be undertaken by using the infrastructure which is already in place. It, therefore, follows that there are three distinct successi....
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....ch 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 for augmentation of production from existing well pads at Mangala, additional network of Intrafield Production fluid, Power fluid & injection Water Pipelines is required to be installed. The project involves design and installation of new Pipelines with sizes varying from 10" to 30" and piping lengths varying from 2 to 8 Km's along with a few branch (loop) lines, connecting well pads and MPT terminal. We may usefully refer to some of the provisions as contained at different pages are as follows:- (A) Page-414. 8.4 Third Party inspection: The contractor shall be solely responsible for arranging third party Inspection services for execution of project including testing/ inspection services for procurement including pipe mills/coating plant/ fabrication shops vendors works. (B) Page-416. 8.7 CLOSURES O....
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....ned to undertake major expansion in their production and processing capacity with consequent increase proposed in the sales and the instant EPC Contract has been awarded to the Appellant with mandate to establish the required infrastructure for the expansion proposed. Additional network of Intrafield Production fluid, Power fluid & injection Water Pipelines is required to be installed. The project involves design and installation of new Pipelines with sizes varying from 10" to 30" and piping lengths varying from 2 to 8 Km's along with a few branch (loop) lines, connecting well pads and MPT terminal, electrical works and instrumentation work are indicative of the fact that new facilities, in addition to the existing facilities, are being created by Mls Vedanta Limited for enhancement of oil and gas production and sales. (iii) After analyzing the broad outlines of the contract awarded to the Appellant, we find it appropriate to examine the nature of work assigned to the Appellant under the EPC Contract in question. We observe that the Appellant have not denied the fact that supply of service under the EPC Contract in question also involves transfer of property in goods. The onl....
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....es is required to be installed. The project involves design and installation of new Pipelines with sizes varying from 10" to 30" and piping lengths varying from 2 to 8 Km's along with a few branch (loop) lines, connecting well pads and MPT terminal to illustrate a few, is clearly a distinct feature of the activity of oil and gas extraction. Hence, support service to oi1 and gas extraction is clearly distinguishable from establishment of infrastructure facilities for oil and gas extraction and the former cannot be confused with the latter. H.3. Ingredients of services classifiable under leading 9983: (i) We also observe that the Appellant have, in the alternate, claimed classification of the supplies proposed to be made by them under Heading 9983 as 'Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both' as also covered by entry at Sl. No. 21(ia) of the Rate Notification. It is their contention that the said entry uses the phrase 'relating to' which signifies that any professional, technical and/or business services provided relating to mining, would merit classification under the said entry a....
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....n analysis of the contents of the explanatory notes above, we observe that so far as SAC Heading No. 998343 is concerned, the same has a very narrow scope/limited coverage of mineral exploration and evaluation information which is certainly not the activity proposed to be undertaken by the Appellant in pursuance of the instant EPC Contract as already discussed at length above. Thus, we find it difficult to agree to the suggestion that the activities undertaken by the Appellant fall under the said SAC Heading No. 998343. However, SAC Heading No. 998341 covers a wide range of activities which include provision of advice, guidance and operational assistance concerning the location of oil and gas fields including feasibility studies. But, we observe that the Appellant have not proposed to undertake any such activity rather the Appellant have proposed to undertake establishment/ creation/ construction of infrastructure facilities for oil and gas extraction which are quite different and distinct from the advice concerning location of gas fields. Further, the provision of advice with regard to exploration and development of oil and natural gas properties or feasibility studies is also n....
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....ining of natural gas. (ii) The Ruling pronounced by the AAR has been contested by the Appellant that it is based on a non-existent provision of law. We deem it appropriate to first examine the Ruling vis-a-vis the contention accordingly. On examination of the Ruling, we observe that the Ruling consists of three different parts. First part of the Ruling declares that the supplies proposed to be undertaken by the Appellant answer to the description of works contract service. Second part of the Ruling suggested classification of the supplies under Heading 9954. And according to the third part of the Ruling, the supplies proposed to be undertaken by the Appellant attract GST @ 18% in terms of entry at Sl. No. 3(ii) of Notification No. 11/2017-CT(R), dated 28.06.2017. (iii) We observe that there is no denying the fact that Notification No. 11/2017-CT (R), dated 28.06.2017 was amended vide Notification No. 3/2019-CT(R), dated 29.03.2019 whereby entry at SI. No. 3(ii) of Notification No. 11/2017-CT (R), dated 28.06.2017 was omitted with effect from 01.04.2019. Admittedly, entry at Sl. No. 3(ii) did not exist in the rate notification when the application seeking Advance Ruling was file....
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.... all project management resources, as required, for performance of work. (C) Appraisal and taking cognizance of site conditions. Complying with Indian Governments/State Governments' rules and regulations, bye laws, applicable codes and standards and requirements of authorities having jurisdiction over the work sites. (D) Various documents proposed to be prepared and submitted by the contractor during Design & detailed engineering shall broadly include process, Piping, civil & structural, electrical, Mechanical equipment, Instrumentation & controls, HSE, Operation & Control. (E) The contractor shall have to install the proposed Pipelines in existing corridors adjacent to the existing pipelines" (F) Carry out pre-construction surveys and verification of the proposed routes and Station location. (G) Perform engineering for procurement. (H) Perform construction & installation engineering including reports, operation and maintenance manual, waste management plan etc. From 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 th....
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....sifiable 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 construct the Complete Pipeline Network/System and its handover 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 some other form) is involved in the execution of such contract;" (x) We observe that the supplies invo....
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....s 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 S1. 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." I. 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 the 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 argued in their written submission dated 18.01.2022 that the instant EPC Contract was awarded during the year 2018/2019 whereas the original production of oil an....
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....he above Para. (iii) As can be seen the contract in the instant case is an Engineering, Procurement and Construction (EPC) Contract awarded by Mls Vedanta Limited for provision of services for augmentation of pipelines along with Surface Facilities at MPT within RJ-ON-90/1 block and the Appellant have been assigned the responsibility to develop the infrastructure for surface facilities. The scope of the work described in details in the contract clearly established that the supplies relate to construction of new facilities/ infrastructure for oil gas extraction which are quite distinct from the support services to oil and gas extraction. What has been included in the support services under Heading 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 view of the matter, whether it be derrick erection or repair and dismantling services, well casing, cementing pumping, plugging and abandoning of well, all these activities have to be understood in the nature of support services only and none of them relates to creation of infrastructure or facilities for oil and gas extraction ....
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....ss 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 support services to VEDANTA LIMITED by being responsible for all the engineering, procurement and construction activities to deliver the completed Projects. In view of this the impugned services are not covered under S. No. 24(ii) of the Rate Notification * The Explanatory Notes to service code 998341 is restricted to geological and geophysical consulting services a....