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M/s. Hardy Exploration & Production (I) Inc. Versus CST, Chennai

2018 (2) TMI 945 - CESTAT MUMBAI

Valuation - includibility - freight charges and equipment rental charges etc. - The department was of the view that as per Rule 5(1) of Service Tax (Determination of Value) Rules 2006, any expenditure or cost which are incurred by the service provider in the course of providing taxable services are to be treated as consideration and has to be included in the value of taxable services for levy of service tax - sub-rule 1 of Rule 5 of Service Tax (Determination of Value) Rules 2006 - Held that .....

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156/2010 - Final Order No. 40364/2018 - Dated:- 5-2-2018 - Ms. Sulekha Beevi, Member (Judicial) And Shri Madhu Mohan Damodhar, Member (Technical) Shri S. Muthu Venkataraman, for the Appellant Shri K. Veerabhadra Reddy, JC (AR) for the Respondent ORDER Per Bench The brief facts are that the appellants are engaged in the business of prospecting, exploring and production of petroleum products registered for Survey and Exploration of Mineral, Oil or Gas service. During the course of audit of account .....

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taxable services for levy of service tax. Show Cause Notice was issued raising the above allegations and proposing to demand service tax along with interest and for imposition of penalties. After due process of law, the original authority confirmed an amount of ₹ 1,88,83,236/- along with interest and imposed penalty of ₹ 1,90,00,000/- under Section 78 of the Act with an option to pay reduced penalty as per law. Aggrieved, the appellants are now before the Tribunal. 2. On behalf of L .....

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as service covered only activities in the nature of prospecting, surveying and map making activities. They have entered into a contract withr M/s. Odfjell Well Services Ltd., UAE, from whom they had taken the equipments on rent and the appellant is alleged to be liable to pay service tax on the freight charges and rent paid under reverse charge mechanism as provided under Section 66 A of the Finance Act, 1994. The equipment rentals paid by the appellant is in the nature of deemed sale and hence .....

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section has been introduced only w.e.f. 16.05.2008 and therefore the demand cannot sustain. The Ld. Counsel pointed out that the only provision invoked in the SCN is Rule 5 (1) of Service Tax (Determination of Value) Rules 2006, alleging that the appellant has not included the freight charges and equipment rental charges in the taxable value. These are expenses incurred by the appellant for providing the taxable services of Survey and Exploration of Mineral, Oil or Gas service. That therefore th .....

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h has been raised on the appellant as form part of gross taxable value of service while discharging service tax. For rendering the main service Survey and Exploration of Mineral, Oil or Gas service, equipments were rented out. These equipments are integral to the service activities and the rental charges paid have to be included in the gross value. The services could not have been provided without the use of the equipments, which makes it clear that the use of these equipments is the essential p .....

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red by appellant (company) with M/s. Odfjell Well Services Ltd., is noticed as under:- HARDY EXPLORATION & PRODUCTION (INDIA) INC., a company incorporated under the laws of State of Delaware, USA having its project office in India at 5th Floor, DBS Westminster Building 108, Dr. Radhakrishnan Salai, Chennai- 600004 (hereinafter called Company ) ODFJELL WELL SERVICES LIMITED, a company incorporated under the laws of Norway, having its Operating office at P.O. Box 17354, Jebel Ali Free Zone, Un .....

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ble of providing such Services as detailed in the Contract and is ready, willing and able to perform the Services and provide such Services. Contractor agrees to perform and complete the Services in conformity in all respects with the provisions of the Contract in consideration of the payments to be made by Company to Contractor as provided in the Contract. Except to any extent expressly stated elsewhere in the Contract, the Services are to be furnished on a non-exclusive basis and Company may a .....

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ht charges, equipment rental charges, clearing expenses, mobilization and demobilization expenses, travel and personnel expenses etc., while discharging the liability of service tax under the category of Survey and Exploration of Mineral, Oil or Gas service. As per the agreement entered by the appellant with the contractor M/s. Odfjell Well Services Ltd., UAE, the work involves drill vertical wells and evaluate the reservoir, test the well conventionally to evaluate reservoir potential for which .....

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pay service tax on freight charges and equipment rental charges. According to the department as per sub-rule 1 to Rule 5 Service Tax (Determination of Value) Rules 2006, any expenditure or costs incurred in the course of providing service has to be included in the value of the taxable services. The Ld. Counsel for the appellants has taken a contention that the equipment rental charges if at all would come only under the Supply of Tangible Goods service and that such services were not taxable dur .....

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xpenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service. 7. The applicability of Rule 5 (1) was considered by the Hon ble High Court of Delhi in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. (supra). The Hon ble High Court held that the inclusion of costs and expenditures in the gross taxable value by making provision in the Rules is .....

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xable service and nothing else. There is thus inbuilt mechanism to ensure that only the taxable service shall be evaluated under the provisions of 67. Clause (i) of sub-section (1) of Section 67 provides that the value of the taxable service shall be the gross amount charged by the service provider for such service . Reading Section 66 and Section 67(1)(i) together and harmoniously, it seems clear to us that in the valuation of the taxable service, nothing more and nothing less than the consider .....

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