TMI Blog2014 (10) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... y is not liable to service tax. However, the Commissioner in this case has relied on a subsequent letter issued by Directorate General of Hydrocarbons (DGHC) that wells are within 12 nautical miles of Indian landmass Hope Island, which is part of India is less than 12 nautical miles from all the wells. In our opinion, two opinions given by expert body like DGHC about the distance itself would show that demand cannot be extended beyond normal period. Moreover, it was also submitted that the appellant has explicitly communicated to GSPC that in the event any service tax is demanded, the burden would be on GSPC. In the absence of evidence to show that GSPC has not rejected this contention and in the absence of any such finding by the Commissioner, which compels us to accept this submission, what emerges is the fact that appellant had no reason not to pay service tax since in any case GSPC was liable to pay. - demand and penalty set aside - Decided in favor of assessee. - ST/634/2008-DB - Final Order No. 21054/2014 - Dated:- 7-7-2014 - SHRI B.S.V.MURTHY AND SHRI S.K. MOHANTY, JJ. For the Appellant: Mr. Sanjeev Sachdeva Mr. Neeraj Sharma, Advocates For the Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before we proceed, for better appreciation it would be better to reproduce the definition of the service which reads as under: Section 65(104a) Survey and exploration of mineral means geological, geophysical or other prospecting surface or subsurface surveying or map making service, in relation to location or exploration of deposits of mineral, oil or gas. The main focus of the Revenue is on the word exploration used in the definition. According to the Revenue, the well is drilled for exploration purposes and any activity undertaken for exploration of deposit of mineral, oil or gas is covered under this category. 5. Some of the terms of the contract which would reflect the nature of activity undertaken by the appellants are relevant and are reproduced below. Article 3 - Object of the Contract: Contractor shall drill, complete or abandon the well(s) identified by the Company s drilling program. Article 18 - Drilling Program: .Contractor shall prepare and move contractor s equipment to each well location designated by the company and carry out the work for each well as programmed by the company. Article 21 - Coring: Contractor shall core the well where specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s - Geological, Geophysical other prospecting, surface or sub-surface surveying or map making service in relation to location or exploration of deposits of Mineral, Oil or Gas. 11.2 M/s. Atwood has claimed that they have not undertaken any Geological, Geophysical or other prospecting, surface or sub-surface surveying or map making service and therefore, the services provided by them which is limited to drilling, testing, completion of exploratory wells as specified by the Company i.e. GSPC, cannot be classified under this service. 12. We are unable to accept the submissions made on behalf of Revenue. Subsequent clarification issued by the Ministry and reproduced in Para 8.6 above, in our opinion goes against the Revenues contention. Ministry has issued a letter on 28-2-2007 clarifying the scope of Mining of Mineral, Oil or Gas Service. While doing so, it was observed that, presently geological, geophysical or other prospecting, surface or sub-surface surveying or map making service, in relation to location or exploration of deposits of mineral, oil or gas are leviable to service tax under Survey and Exploration of Mineral Service . The letter goes on to observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is a porous sandstone or limestone. The oil collects in the pores within the rock. The reservoir must also be permeable so that the hydrocarbons will flow to surface during production. These are the five elements which are required to be complied with to identify source of potential petroleum Hydrocarbon drill location. In our opinion, this is what is covered by the definition of Survey and Exploration as far as oil/gas is concerned. 12.2 Further, it is settled law that object and content of the contracts cannot be determined and decided by looking at one paragraph or one clause but the whole contract has to be seen as a whole and considered. 12.3 The next question arises what is the drilling and testing covered by the letter issued by the Ministry issued in 2004. It is well known that in a Geological survey, drilling is done to confirm the other theoretical calculations. In the case of Oil, as mentioned in Wikipedia, offshore drilling refers to a mechanical process and. it is typically carried out in order to explore for and subsequently produce hydrocarbons which lie in rock formations beneath the seabed. Therefore, the wells drilled as per the GSPCs specification in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (104a). Tribunals observations in para 12.4 are relevant for this purpose. While clear cut views have been expressed in respect of classification of services for periods at (ii) and (iii) above, in regard to classification for the pre-1/6/2007 period, it has been stated that it is possible to entertain an opinion that the service did not fall under survey and exploration of minerals . It is further stated that even if this opinion is not correct, on the ground that extended period is not applicable, the demand is not sustainable. In this background, it has to be held that there is no categorical ratio on classification emerging from the aforesaid observations as far as the classification for the pre 1/6/2007 period is concerned. As per para 12.4 of the M/s. Atwood order, three factors have weighed with the Tribunal in regard to the classification aspect for the pre-1/6/2007 period viz., (a) Wikipedia, (b) letters issued by the Ministry and (c) definitions of service as per FA, 1994. 7.2 Further the learned special consultant also submitted that the appellant s themselves made submissions about the scope of expressions such as prospecting and exploration . These and oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduSpec, etc. Clause 18: Drilling Program - Contractor shall prepare and move Contractors Equipment to each well location designated by company and carry out the work for each well as programmed by company. Clause 33b: Compensation - Company shall pay Contractor, pursuant to Article 34, the applicable rates of compensation for work hereunder set forth in Schedule F (Prices). The applicable rate shall be determined in accordance with the provisions of the Article 33, calculated to the nearest hour. Schedule F - Specifies that the contractor is charging a specific amount on per day basis from the company in relation to the equipment supplied. This also shows that primarily the appellant is engaged only in drilling of wells and we cannot take a view that appellant is exploring for oil or prospecting for oil in terms of the agreement. Since on merits we have taken a view in favour of the appellant there is no need to go into the question as to whether demand is hit by limitation or not. Nevertheless, we have to take note of certain aspects and discuss this issue also. In this case, for a portion of period, extended period has to be invoked for confirming the demand. At ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter to them that no service tax would be liable in view of the fact that its distance in terms of nautical miles from Kakinada shore base is more than 12 nautical miles and therefore the activity is not liable to service tax. However, the Commissioner in this case has relied on a subsequent letter issued by Directorate General of Hydrocarbons (DGHC) that wells are within 12 nautical miles of Indian landmass Hope Island, which is part of India is less than 12 nautical miles from all the wells. In our opinion, two opinions given by expert body like DGHC about the distance itself would show that demand cannot be extended beyond normal period. 9. Moreover, it was also submitted that the appellant has explicitly communicated to GSPC that in the event any service tax is demanded, the burden would be on GSPC. In the absence of evidence to show that GSPC has not rejected this contention and in the absence of any such finding by the Commissioner, which compels us to accept this submission, what emerges is the fact that appellant had no reason not to pay service tax since in any case GSPC was liable to pay. Therefore, it can be clearly said that appellant had entertained a bona fide b ..... 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