TaxTMI 
TaxTMI 
2026 (8) TMI 1605
X X X X Extracts X X X X
X X X X Extracts X X X X
....n affirmed. 2. Briefly stated, the facts of the case are that M/s. Essar Oil and Gas Exploration and Production Limited (EOGEPL), formerly known as M/s. Essar Oil Limited (EOL) [hereinafter referred to as the "appellant"] is engaged in the business of exploration and production of crude oil and natural gas, including extraction and utilization of natural resources such as Coal Bed Methane (CBM). During the relevant period, the appellant was functioning as the designated Operator in respect of three exploration blocks allotted under the New Exploration Licensing Policy (NELP) of the Government of India. In connection therewith, Joint Venture arrangements were entered into with its coventurers, namely M/s. Oil and Natural Gas Corporation Limited (ONGC) and M/s. Essar Energy Holdings Limited (EEHL), and corresponding Joint Operating Agreements (JOAs) were executed governing the rights, obligations and participating interests of the respective co-venturers in relation to the exploration blocks. 2.1. The participating interests of the Joint Venture partners in the three exploration blocks are as follows: Sl. No. Block No. Participating Interest EOGEPL EEHL ONGC ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me to be issued invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994, proposing recovery of Service Tax amounting to Rs.54,06,102/- for the period October, 2013 to June, 2017, together with applicable interest under Section 75 and imposition of penalties under Sections 76(1), 77(2) and 78(1) of the Finance Act, 1994. The principal allegation contained in the notice was that the gross amounts recovered by the appellant from the respective Joint Ventures towards manpower and business support services constituted consideration for taxable services rendered by the appellant, as Operator to the Joint Ventures, and were accordingly exigible to Service Tax under the provisions of the Finance Act, 1994. 5.1. The appellant contested the allegations by filing its reply and participating in the adjudication proceedings. However, upon adjudication, the Additional Commissioner, Central Excise & Service Tax, Bolpur Commissionerate, vide Order-in-Original dated 06.03.2023, confirmed the proposed demand of Rs.54,06,102/- (inclusive of applicable cesses) under Section 73(1) of the Finance Act, 1994, together with applicable interest under Section 75. The adjudi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n power, thus there is no relation of contractor-contractee or Principal-agent relationship exist between coventure and joint venture which is a prerequisite for a transaction to be exigible to Service Tax under section 73 of Finance Act 1994. The following case laws have been adverted to: - a) B.G. Exploration & Production India Limited Vs Commissioner of CGST & C.EX,Navi Mumbai-[2022(63) G.S.T.L. 351.] b) Mormugao Port Trust Vs Commr.of Customs and C.Ex & ST before CESTAT 2017 (48) S.T.R. 69 (Tri. - Mumbai) c) Gujarat State Fertlizers & Chemicals Ltd & Anr Vs Commissioner of Central Excise - SC Civil Appeal No. 4066-4067/2015 Cost incurred by the operator partner based on joint operation agreement for the project is an allocation of cost and under no circumstances treated as Service. (i) Article 7 of the Joint Operating Agreement between the parties is in relation to cost and expenses part. Wherein, it has been clearly mentioned that the cost and expenses incurred by the operator on behalf of parties in carrying out the Joint account operations under this agreement will be borne and paid by the parties in proportion to their participat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Venture, given the fact that the Appellant is a partner therein. The company's consistent filing of Service Tax returns, coupled with the Department's failure to seek further details, is also contrary to the CBEC Supplementary Instructions, Chapter 3, Part VI, Paragraph 2.1, which envisages scrutiny of returns and empowers the proper officer to seek further documents or clarifications wherever considered necessary. (ii) The transactions in question pertain to the period from October 2013 to June 2017, whereas the Show Cause Notice came to be issued only on 05.04.2019. During the relevant period, Section 73(1) of the Finance Act, 1994 required the Department, in cases not involving fraud, collusion, wilful misstatement or suppression of facts, to issue the Show Cause Notice within the normal period of limitation prescribed therein. (iii) Had the Department entertained any doubt regarding the taxability of the transactions disclosed by the Appellant in its statutory records and returns, it ought to have initiated proceedings within the applicable normal period. Having failed to do so, the Department cannot circumvent the statutory limitation by mechanicall....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng out exploration and production activities in the said blocks, the appellant entered into Joint Operating Agreements (JOAs) with its respective Joint Venture partners, namely, M/s. Oil and Natural Gas Corporation Limited (ONGC) and M/s. Essar Energy Holdings Limited. Under the said contractual arrangement, the participating interests of the parties stood distributed as follows: ▪ Block CB-ON/3 - Appellant: 70% Participating Interest; ONGC: 30% Participating Interest [Financial Year 2013-14 to 2017-18]; ▪ Block AA-ONN-2004/3 - Appellant: 10% Participating Interest; EEHL: 90% Participating Interest [Financial Year 2013-14 to 2015-16]; ▪ Block AA-ONN-2004/5 - Appellant: 10% Participating Interest; EEHL: 90% Participating Interest [Financial Year 2013-14 to 2017-18]. 10.1. It is further borne out from the record that, in its capacity as the designated Operator under the respective JOAs, the appellant undertook the operational and administrative responsibilities relating to the exploration blocks and, towards meeting the expenditure incurred for such operations, raised 'cash calls' upon the Joint Venture participants in accordance with t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onsideration. According to the Revenue, the consideration for such alleged taxable services stood embodied in the 'cash calls' raised by the appellant upon the other participating members, the allocation of manpower and office costs having been made on the basis of the time writing methodology adopted by the appellant. It is, therefore, the Department's case that the element of 'service' stood clearly established, inasmuch as manpower, office space and allied administrative facilities were admittedly provided by the appellant and the corresponding costs thereof were specifically apportioned and recovered from the Joint Venture participants. Proceeding on the premise that the Joint Venture and its constituent members constitute distinct taxable persons, the Revenue has consequently treated the gross amounts so recovered towards the proportionate share of manpower and business support expenses as the value of taxable services rendered by the appellant to the Joint Ventures, thereby giving rise to the impugned demand of service tax. 13. In the backdrop of the aforesaid factual and legal premise, we find that that the issue that falls for our consideration is whether, in the fac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mbursed by each participant according to its agreed Participating Interest. Thus, the reimbursement contemplated under the Joint Operating Agreement is not in the nature of consideration flowing from a recipient towards a service provider, but merely represents each participant's contractual contribution towards the common expenditure incurred for execution of the joint enterprise. 14.2. In the present case, the appellant, acting as the designated Operator under the Joint Operating Agreements, admittedly discharged the operational responsibilities entrusted to it under the contractual arrangement. The manpower, administrative support, office facilities and allied operational resources deployed by the appellant were integrally connected with the execution of the petroleum operations undertaken by the Joint Venture itself. The expenditure incurred towards such activities was thereafter apportioned amongst the participating members strictly in accordance with their respective Participating Interests as stipulated under the Joint Operating Agreements. Such reimbursement, in our considered view, is nothing but allocation of common operational costs amongst the constituents of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of B.G. Exploration & Production India Limited Vs Commissioner of CGST & C.EX., Navi Mumbai [2022 (63) G.S.T.L. 351 (Tri. - Mum.)], it has been held that contributions made by co-venturers towards execution of the common venture do not constitute taxable consideration for services rendered inter se between the Joint Venture and its constituents. The relevant portion of the said order is reproduced below:- "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, the Appellant, ONGC and RIL undertook all the strategic, financial and other operative decisions with respect to the venture. Thus, all the pre-requisites of being a joint venture are clearly met. In this backdrop, it is clearly impermissible to hold that the contribution made by a co-venturer (partner) in the cou....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... co-venturer had its own set of obligations and the responsibility discharged by each of the coventurers 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. .... 33. It can safely be concluded 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." [Emphasis supplied] 15.1. Again, in Mormugao Port Trust Vs Commr.of Customs and C.Ex & ST [2017 (48) S.T.R. 69 (Tri. - Mumbai)], while dealing with an identical issue, the Tribunal at Mumbai has observed as follows: - "12. The arrangement between the Assessee and SWPL is the public-private partnership. In our view this arrangement in the nature of the joint ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id pro quo for any particular service of a partner. All the resources and contribution of a partner enter into a common pool of resource required for running the joint enterprise and if such an enterprise is successful the partners become entitled to profits as a reward for the risks taken by them for investing their resources in the venture. A contractor-contractee or the principal-client relationship which is an essential element of any taxable service is absent in the relationship amongst the partners/co-venturers or between the co-venturers and joint venture. In such an arrangement of joint venture/partnership, the element of consideration i.e. the quid pro quo for services, which is a necessary ingredient of any taxable service is absent." 16. We also find considerable force in the appellant's specific contention regarding the absence of monetary consideration. It has been categorically argued that the 'cash calls' raised by the appellant were not in consideration of any service allegedly rendered by it but merely represented contributions required for carrying out petroleum operations in terms of the Joint Operating Agreements. Such funds were utilized for meeting oper....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erating Agreements, all of which stood duly reflected in its statutory records and Service Tax returns. There is nothing on record to demonstrate any positive act of fraud, collusion, wilful misstatement or suppression of facts with intent to evade payment of Service Tax, which alone could justify recourse to the extended period. The Show Cause Notice dated 05.04.2019, covering the period from October 2013 to June 2017, has invoked the extended period in a purely mechanical manner without establishing the indispensable statutory ingredients therefor. Had the Department entertained any doubt regarding the taxability of the transactions so disclosed, it was always open to initiate proceedings within the normal period prescribed under Section 73(1). Having failed to do so, the extended period could not have been validly invoked. Therefore, in addition to our findings on merits, we hold that the demand, insofar as raised by invoking the extended period of limitation, is unsustainable in law. 18. In view of the foregoing discussion, and respectfully following the ratio laid down in the judicial pronouncements referred to hereinabove, we hold that the allegation of the Revenue that th....