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2020 (11) TMI 1041 - AAAR - GSTClassification of supply - reimbursement of LIH Damaged beyond repair goods/equipment - supply of drilling services and reimbursement of LIH are composite supply or not - rate of GST applicable to supply of drilling services, being the principal supply, should apply to all the supplies made under the contract with ONGC - challenge to AAR decision - HELD THAT:- In the instant case, the appellant uses certain specialized equipment / tools for drilling oil and gas wells in offshore and onshore environment to pre-defined bottom hole targets which are carried out beneath the surface of the earth. There is a probability that the equipment / tools used for drilling services might get stuck or lost due to uncontrollable or unforeseen down hole environmental situations in the Oil and gas well and might not be retrievable. When such equipment / tools are lost in hole or damaged beyond repair, drilling services cannot be performed until new equipment / tools are made available by the Applicant. This leads to disruption of services due to such LIH equipment. The payment made in the form of reimbursement for the damages /replacement of the Lost in Hole (LIH) equipment necessitates the appellant to replace the tools / equipment instantly in order to continue the drilling services. Hence, the reimbursement of LIH is meant to buy and replace the lost goods. The reimbursement of LIH tools/equipment is nothing but the consideration received for the procurement of damaged goods i.e., the damaged tools/ lost in hole equipment, in the course of its business of drilling operations. Whether the supply of drilling services and reimbursement of LIH are composite supplies or not? - HELD THAT:- Following are the parameters for determining the supplies as composite supplies a. There should be a taxable person and a recipient. b. Transaction should consist of two or more taxable supplies of goods or services or both; and c. The two or more taxable supplies should be naturally bundled and supplied in conjunction with each other in the ordinary course of business. It is need to be examined whether all the above parameters are meted out by the present transaction in discussion. The taxable person, being the appellant makes the taxable supplies to the recipient, being ONGC. The supply of bundled services in relation to the drilling/mining services undertaken by the appellant comprise of supply of certain goods and services. While the LIH reimbursement is another supply comprising of the cost in case of damage of equipment or toolsat an agreed depreciated value of the original FOB price of the equipment in case of the damages of equipment /tools beyond repair or loss. In context of the conditions of (a) and (b)cited, being satisfied, it now needs to be scrutinized whether the drilling services and LIH reimbursement are ‘naturally bundled’ and ‘supplied in conjunction with each other’ in the ordinary course of business. In the instant case the contract agreement expressly provides that there is no single price or at no point of time, the customer pays the same amount for both the supplies in discussion. Besides, the two supplies i.e., the drilling services and LIH reimbursement are nowhere expressly advertised as a package - in terms of the clauses under the Contract, reimbursement towards LIH equipment does not find mention under the scope of work at Annexure II to the General Conditions of the Contract, but is a separate clause under the Special Conditions of the Contract contemplating a potential event that may or may not occur during the tenure of the Contract. Thus, the said supplies are not made in conjunction with each other, which implies that they are not meant to be made together or in combination in the normal course of business as a single package of composite supplies. It is clarified beyond doubt that the supply of drilling services and reimbursement of LIH are not composite supplies. Therefore, the rate of GST applicable to supply of drilling services shall not be applicable to all the supplies made under the contract with ONGC, Basing on the nature of actual goods involved in the subject activity, and their HSN classification notified for the goods, the provisions relating to chargeability and levy of GST under the CGST Act and the Rules made there under are applicable to the supply of goods. The Ruling of Authority for Advance Ruling is upheld.
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