2025 (12) TMI 95

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....missioner has been upheld and the appeal has been dismissed. 2. The issue that arise for consideration in this appeal is whether the compensation received by the appellant for equipments/tools "Lost-in-Hole" [LIH] while providing drilling service to the customers is required to be included in the value of taxable service for the purpose of payment of service tax. 3. The appellant provides oil field related services to exploration and production companies such as Oil and Natural Gas Corporation Ltd. [ONGC] These exploration and production companies are engaged in the business of producing oil and gas, which involves locating and extracting oil and gas. 4. The appellant entered into an Agreement dated 18.10.2013 with ONGC under which....

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....NGC. The appellant duly discharged service tax on the monthly equipment rental and personnel charges and same has not been disputed by the Department. 8. As the Services were carried out beneath the surface of the earth, there was a likelihood that some equipment /tools may either get stuck or lost due to uncontrollable or unforeseen downhole environmental situations in the oil and gas wells. Such equipment/tools which are stuck and cannot be retrieved or are lost are termed as LIH equipment. 9. These specialised equipment /tools were crucial and valuable to the appellant and their loss/damage brings disruption in provisioning of the Services. The Appellant had, therefore, to replace the specialised tools/equipment immediately to cont....

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....or reimbursement of LIH equipment/tools as per the formula provided in the Contract. The ONGC approves the calculation and makes payment for LIH equipment/tools only if it is satisfied that LIH did not occur due to gross negligence/mistake of the appellant. 13. As these specialised equipment/tools were imported without payment of customs duty in accordance with the Customs Notification, ONGC also approached and informed DGH about the loss of equipment/tools. Upon verification, the DGH issued a certificate addressed to ONGC confirming that the imported equipment/tools were lost in hole and were not retrievable. This allowed the appellant to continue to avail the benefit of customs duty exemption under the Customs Notification. 14. The ....

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....this Tribunal in M/s Halliburton Offshore Services Inc. vs. Additional Director General (Adjudication), New Delhi [2025 (4) TMI 245-CESTAT NEW DELHI]. 19. Shri Rakesh Kumar, learned authorized representative appearing for the department has, however, placed reliance upon the order passed by the Commissioner (Appeals). 20. The Division Bench of this Tribunal in Halliburton Offshore Services examined similar issue namely, whether the compensation received by the appellant for the LIH equipments/tools while providing drilling service to the customers is required to be included in the value of taxable service for the purpose of payment of service tax and held that it cannot be included. The relevant observations are as follows: "....