AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 133
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....uring the period. Therefore, further investigation was conducted with M/s. Shree Renuka Sugars Ltd. (SRSL) and the details were provided by SRSL. They have paid various amounts in the form of royalty. Further investigation conducted and it was found that the appellant is not paying service tax on the free supply of electricity and steam received by the appellant from SRSL, the amount paid by SRSL to the appellant for supply of bagasse which amount had been fixed by the State of Maharashtra and the Sugar Commissioner, sharing of power revenue, use of certain machineries, repairs and maintenance of machinery required to be done by SRSL and insurance charges incurred by them. In view of that, various show cause notices were issued to the appellant and the matters were adjudicated, demands proposed in the show cause notices were confirmed along with interest and penalties were also imposed for the period September 2011 to December 2013 and January 2014 to March 2015. Aggrieved from the said orders, the appellant is before us. 3. Learned counsel for the appellant submits that the appellant owned 278 acres of land of which 117 aces was non-agricultural on which....
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....e property to SRSL as proposed in the show cause notice by the respondent. It is his submission that the main object of PDA is boot financing arrangement developed by the State of Maharashtra to enable financing of sick sugar co-operative societies and for the protection of its farmer members and the farmers of Maharashtra. The main object of the boot agreement was that SRSL would build/own/operate a cogeneration power plant for generating electricity and steam, which would then be transferred to the appellant on a consideration of Rs.101/- at the end of the prescribed period of ten years. Crushing of sugarcane requires power and steam and the establishment of such a power project requires huge financial outlay which these sick co-operative sugar companies like the appellant was unable to carry out. 50% of the electricity was to be sold to MSEB. This would enable SRSL to recover some of its cost. Further, under the boot agreement, SRSL was required to supply electricity and steam free of cost to the appellant so that the appellant could use the same to crush the sugarcane and the bagasse so generated from the crushing of sugarcane was to be suppl....
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....ot invokable in the facts and circumstances of the case. Therefore, the demands raised beyond the normal period should be set aside. Further, he submitted that in that circumstances, no penalty can be imposed on the appellant. 5. On the other hand, learned authorised representative supported the impugned order. 6. We find that in this case the main issue is that the appellant has entered into a project development agreement with SRSL under the guidance of the State of Maharashtra, wherein to get relief, the appellant as a sick unit had an arrangement made wherein SRSL has to install a power generation plant and the electricity so generated shall be supplied 50% to the appellant and 50% is to be sold to MSEB. In terms of that, the appellant was crushing the sugarcane supplied by SRSL and the same is to be crushed and shall be supplied to SRSL which SRSL shall convert in sugar and sell in the open market. This type of agreement shows that it is a joint venture between the appellant and SRSL, wherein the role of the appellant and SRSL has been defined in PDA and both the parties are discharging their duties and operating to meet out the purpose of the joi....
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....ns; xx xx xx 22. The show cause notice, after referring to the Production Sharing Contract dated 22-12-1994, mentions that the transaction between the Government of India and the appellant are on principal-to-principal basis in view of the Article 7 of the said contract and, therefore, the appellant and the Government of India are two separate and distinct juridical persons; the appellant provides "mining services" which are received by the Government of India; and the appellant recovers the cost of service from the Government of India by way of deduction from account/book adjustment at the time of profit sharing. It, therefore, proposes that the appellant should have paid service tax on such "mining services" on the aforesaid consideration received by the appellant. 23. According to the appellant, the commercial nature of the transaction under the Production Sharing Contract dated 22-12-1994 between the Government of India, ONGC, RIL and the appellant is a joint venture and the activities undertaken by the co-venturers within the....
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....ced and saved from the Contract Area in a particular period as reduced by Cost Petroleum and calculated as provided in Article 14. ARTICLE 13 Recovery of Costs 13.1 The Contractor shall be entitled to recover Contract Costs out of the total volume of Petroleum produced and saved from the Contract Area in each Financial Year in accordance with the provisions of this Article, and, in respect of sole risk or exclusive operations, Article VII of the Operating Agreement. 13.1.1 Development Costs incurred by the Contractor in the Contract Area shall be aggregated, and the Contractor shall be entitled to recover out of Cost Petroleum the aggregate of such Development Costs at the rate of one hundred per cent (100%) per annum, provided, however, that, subject to the remaining provisions of this Article 13.1, the Contractor shall not, for the purposes only of determining the volume of Petroleum to which Contractor shall be entitled under Article 13.1 as Cost Petroleum, claim as Contract Costs Contractor's Development Costs incurred after the Effective Date in connection with Development Operations under the Development Plan for Panna and Mukta Fields (as ....
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....13.5 Development Costs incurred by the Contractor in the Contract Area up to the date of Commercial Production from the Contract Area shall be aggregated, and the Contractor shall be entitled to recover out of the Cost Petroleum from that Contract Area the aggregate of such Development Costs at the rate of one hundred per cent (100%) per annum of such Development Costs beginning from the date of such Commercial Production from the Contract Area. 13.6 The Contractor shall be entitled to recover out of the Cost Petroleum produced from the Contract Area the Development Costs which it has incurred on such Contract Area after the date of Commercial Production from the Contract Area at the rate of one hundred per cent (100%) per annum of such Development Costs beginning from the date such Development Costs are incurred. 13.7 The Contractor shall be entitled to recover in full during any Financial Year the Production Costs incurred in the Contract Area out of the Cost Petroleum. 13.8 If during any Financial Year the Cost Petroleum is not sufficient to enable the Contractor to recover in full the Contract Costs due for recovery in that Financial Year in accordanc....
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....d receive twenty-five percent (25%) and the Contractor shall be entitled to take and receive seventy-five percent (75%) of the total Profit Petroleum from the Contract Area with effect from the start of the succeeding Financial Year. 14.2.4 When the Investment Multiple of the Companies at the end of any Financial Year in respect of the Contract Area is equal to or more than three (3.0) but is less than three and one-half (3.5), the Government shall be entitled to take and receive forty per cent (40%) and the Contractor shall be entitled to take and receive sixty per cent (60%) of the total Profit Petroleum from the Contract Area with effect from the start of the succeeding Financial Year. 14.2.4 When the Investment Multiple of the Companies at the end of any Financial Year in respect of the Contract Area is equal to or more than three and one-half (3.5), the Government shall be entitled to take and receive fifty per cent (50%) and the Contractor shall be entitled to take and receive fifty per cent (50%) of the total Profit Petroleum from the Contract Area with effect from the start of the succeeding Financial Year. ARTICLE 27 Title to Petroleum, ....
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.... 2.4 Production Costs 2.4.1 Production Costs are expenditures incurred on Production Operations in respect of the Contract Area after the start of production from the Field (which are other than Exploration and Development Costs). The balance of General and Administrative Costs and Service Costs not allocated to Exploration Costs or Development Costs shall be allocated to Production Costs. xx xx xx 2.6 General and Administrative Costs General and Administrative Costs are expenditures incurred on general administration and management primarily and principally related to Petroleum Operations in or in connection with the Contract Area, and shall include. xx xx xx SECTION 3 Costs, Expenses, Expenditures and Incidental Income of the Contractor 3.1 Costs Recoverable and Allowable without further Approval of the Government. Costs incurred by the Contractor on Petroleum Operations pursuant to the Contract as classified under the headings referred to in Section 2 ....
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....and Development Costs. Article 13.8 provides the manner of recovery of Contract Costs where the "Cost Petroleum" is insufficient to enable the Contractor to recover the Contract Costs. 29. In so far as Profit Petroleum is concerned, "Profit Petroleum" means all Petroleum produced and saved from the Contract Area in a particular period as reduced by "Cost Petroleum" and calculated as provided in Article 14. 30. Article 14 read with Appendix D states that the Government of India and the Contractor will share "Profit Petroleum" in accordance with following pre-defined percentages/Investment Multiple. Sr. No . Investment Multiple Government of India Share of "Profit Petroleum" Contractor Share of "Profit Petroleum " 1. Less than 2 5% 95% 2. Between 2.02.5 15% 85% 3. Between 2.53.0 25% 75% 4. Between 3.03.5 40% 60% 5. More than 3.5 50% 50% 31. The Order dated 31-12-2018 makes reference to an illustrative calculation of the recovery of "Cost Petroleum" and "Profit Petroleum" by the Contractors pursuant to the Production Sharing Contract, basis t....
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.... 11-6-2020 in the case of the appellant, which decision is reported in 2020 (10) TMI 579-CESTAT (Mum), the decision of the Tribunal in Mormugao Port Trust and the decision of the Supreme Court in Faqir Chand Gulati and after noticing that an appeal had been filed by the Department in the Bombay High Court against the decision of the Tribunal rendered on 11-6-2020, observed that the Government of India with the appellant, RIL and ONGC had entered into a joint venture agreement, whereunder each co-venturer had its own set of obligations and the responsibility discharged by each of the co-venturers towards the venture was not by way of any service rendered to the joint venture, but in their own interest in furtherance of the common objective of the joint venture. Service tax liability, therefore, could not have been fastened upon the appellant. The paragraphs of the decision relevant for the purpose this order are as follows : "21. The question as to whether the appellant was rendering any services to the PMT-JV, of which it was a constituent member, has been dealt with earlier by Tribunal in the decision rendered on 11-6-2020 in the case of the Appellant. xx  ....
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....me or the legal form in which the same are conducted, they are essentially in the nature of partnership with each co-venturer contributing some of the resources for the furtherance of the joint business activity. The Tribunal held that such public private partnerships meet the test laid down by the Supreme Court in Faqir Chand Gulati v. Uppal Agencies Pvt. Ltd., for ascertaining whether or not the arrangement is one of joint venture. 25. The Civil Appeal filed by the Department (Commissioner v. Mormugao Port Trust) against the aforesaid decision of the Tribunal was dismissed by the Supreme Court both on the ground of delay as well as on merits and the judgment is reported in 2018 (19) G.S.T.L. J118 (S.C.). 26. There is no dispute that the joint venture in the present case has been constituted in terms of the Contract, which is a contractual arrangement between the Government of India, the appellant, ONGC and RIL. The said joint venture was entered into for maximizing the extraction of crude petroleum/natural gas from the identified blocks and to share the profits from the venture. The management committee comprising of representatives of the Government of India, t....
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....cted. No evidence has been led by the Department to establish this fact. On the contrary, the Tribunal in the decision rendered on 11-62020, arrived at a finding of fact to the effect that the Government of India along with the appellant, RIL and ONGC had entered into a joint venture agreement, whereunder each co-venturer had its own set of obligations and the responsibility discharged by each of the co-venturers towards the venture was not by way of a service being rendered to the joint venture, but in their own interest, in the course or furtherance of the common objective of the joint venture. 29. It is also pertinent to note that the decision of the Tribunal in Cricket Club of India had been relied upon by the Tribunal not in support of the proposition that there cannot be a levy to service tax by applying the principle of mutuality, but on the point that a mere flow of money by itself is not enough to fasten a service tax liability. It is obligatory on the part of the Department to show that the said flow of money is a consideration for rendition of a service, in which case alone there can be a liability to service tax. The said burden has not been discharged in the f....
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....t services to the joint venture for a consideration either in cash or in kind, which alone would be leviable to service tax. 31. Insofar as the decision of the Tribunal in Badve Helmets is concerned, the same is based on entirely different facts. In that case M/s. Vemmar SRL Italy, who was a equity holder had transferred know-how for a consideration of US $ 1,00,000/-. The said transfer of know-how was not in the course or furtherance of the venture nor was it by way of a capital contribution. Undisputedly, M/s. Vemmar SRL was acting as a independent service provider to the joint venture and was rendering services for a consideration. The facts in the case of Badve Helmets, being completely different with that of Mormagao Port Trust, as also those in the present case, the said decision cannot be relied upon nor does the same in any manner dilute the ratio laid down in Mormagao. In fact the Tribunal had in Mormagao specifically recorded that there can be situations where a co-venturer or a partner can render taxable service to the joint venture/firm under an independent contract between the co-venturer/partner and the joint venture/ partnership and that such a contract shou....