9911796707
TMI Blog2022 (2) TMI 1045X X X X Extracts X X X X X X X X Extracts X X X X ..... rk, Jaipur- 302004, Rajasthan - (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (a) given as under: - a. Classification of goods and /or services or both Further, the applicant being a registered person (GSTIN is 08AAAC11726L1ZK as per the declaration given by him in Form ARA-01) the issue raised by the applicant is neither pending for proceedings nor proceedings were passed by any authority. Based on the above observations, the applicant is admitted to pronounce advance ruling. A. SUBMISSION AND INTERPRETATION OF THE APPLICANT; 1.1 M/S. ION Exchange India Limited ("Applicant") is engaged in the business of water treatment, waste-water treatment and its recycling. The Applicant offers wide range of customized treatment plants for water, waste liquids and wastewater which are installed in thermal and nuclear power plants, fertilizer factories, refineries, and the petrochemical and other industries. As a part of its business operations, the Applicant enters into Engineering, Procurement and Construction ("EPC") contracts with its customers. 1.2 As a part of its business operations, the Applicant has entered into an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecifications provided by Vedanta Various disciplines like Civil, Mechanical, Piping, Pipeline, Electrical, Instrumentation and Telecom engineers work together and issue drawings which are used for construction of the customized plant after approval from Vedanta. b) Procurement: The Applicant is the manufacturer of the key components of this plant. These components are manufactured specifically suiting and customized to the requirements of Vedanta. Applicant procures other auxiliary components from various reputed manufactures and supplies them to the customized plant location for construction. c) Construction: Applicant has engaged various construction teams at plant location who construct the customized plant as per the approved design drawings. This construction team installs the component manufactured by Applicant and those supplied by various manufacturers. All these components are then assembled with the interconnecting process piping and pipeline as per approved design drawings. Respective electrical, instrumentation and telecom components are installed so that the plant is ready to function and controlled as per Vedanta specifications. Reason for undertaking sulphate r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposed to be undertaken on following questions:- a) Classification of any goods or services or both; b) Applicability of a notification issued under the provisions of this Act; c) Determination of time and value of supply of goods or services or both; d) Admissibility of input tax credit of tax paid or deemed to have been paid; e) Determination of the liability to pay tax on any goods or services or both; f) Whether applicant is required to be registered; g) Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term. 1.9 The Applicant submits that the issue on which advance ruling is sought in the instant matter post release of Notification No. 20/2019-Central Tax(Rate) dated 30.09.2019, is whether the services supplied by the Applicant to Vedanta qualify as Support Services to Mining (Sr. No. 24) or Professional, Technical or Business Services to Mining (Sr. No. 21) under the Rate Notification. 1.10 The term 'Applicant' under Section 95 (c) of CGST Act has been defined to mean any person registered or desirous of obtaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be carried out by the Applicant under the scope of work of the EPC Contract involves the construction of customized Sulphate Removal plant based upon Nanofiltration & Reverse Osmosis technology to remove sulphate from water which is named as Sulphate Removal Plant. 1.14 Sulphate Removal Plant reduces the sulphate ions present in the Saline water to the acceptable levels for water injection. Sulphate removal is a technology utilized by the oil industry to produce low sulfate water for injection. 1.15 The Applicant further submits that there are innumerable benefits of the Sulfate Removal Plant in the overall mining operations. Few of them are listed below: BENEFITS OF SULPHATE REMOVAL PLANT Control sulfate in discharge water SRP helps control the concentration of sulphate in the water used in concentrators, mines, and process effluents Reduce scaling to improve plant availability Removal of sulfate and calcium prevents scaling and reduces scaling-related maintenance costs Therefore, the Sulphate Removal Plant not only removes hazardous sulphate from saline water, it also helps reduce scaling. 1.16 The scope of the work to be undertaken by the Applicant in terms of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , fishing, mining and utilities) (i) ..................... 6% (ii) Support services to exploration, mining ot drilling of petroleum crude or natural gas or both. (iii) .................... 1.19 The Applicant submits that a reading of the aforesaid entry suggests that it covers support services to, inter alia, exploration, mining or drilling of petroleum crude oil. It is relevant to understand the meaning of the terms "support services" and "to" used in the "support services to exploration, mining....". Meaning of 'support services ' 1.20 The term 'support services' used in Heading 9986 has not been defined in the Rate Notification. Therefore, it is relevant to refer to the dictionary meaning of the term "support". Meanings from few legal dictionaries are set out below for ready reference: Dictionary Meaning Black's Law Dictionary, Fourth Edition 'Furnishing funds or means for maintenance; to maintain; to provide for; to enable to continue; to carry on.' 'That which furnishes a livelihood; a source or means of living; subsistence, sustenance, or living' 'In a broad sense the term includes ah such means of living as would enable on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xploration and mining. Scope of work of the EPC Contract is qua SRP 1.25 It is a settled principal of law that a contract is required to be read on the basis that it reflects the true intention of the parties thereto as regards the consideration agreed to be paid in return for the parties carried out under the contract. 1.26 In the instant case, the contract between the Applicant and M/s. Vedanta is for the customized/ specialized construction of SRP (Water treatment plant) wherein Applicant has to follow technical specifications and end to end responsibility of construction lies with the Applicant. 1.27 It is submitted that in the instant case, the Applicant will be constructing water treatment plant in accordance with the specifications provided by M/s. Vedanta. On the basis of the said specifications, the Applicant will procure goods and services which will be used for the construction of the said treatment plant. Once the construction of the water treatment plant is completed, Applicant will raise the invoice for constructing the water treatment plant. Activities regarding the operation and maintenance of the sulphate removal plant are outside the scope of the Applicant. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve list reveals that these are primarily those activities which are inextricably linked to the petroleum operations and are indispensable to it. Activities like derrick erection, well casing, cementing and pumping, abandoning wells, test drilling and exploration services are some of the significant activities which forms the very basis of exploration and mining activities and are therefore explicitly provided under the Explanatory Notes to the Heading 998621. Copy of the relevant Circular is attached. 1.34 The occurrence of the expression "includes'" in the above Explanatory Notes suggests that it is not an exhaustive list but is merely indicative. In a catena of judgments, it has been held that the presence of the expression 'includes' suggest a scope of including more items in the inclusive list relatable to the subject. Therefore, all such activities which are inextricably linked to mining operations ought to be covered within the scope of the Heading 9986. The mining and petroleum operations includes a range of inter-related and interdependent activities which are indelibly linked to each other and helps forming a coherent value chain. 1.35 The Applicant reiterate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-CT, as amended. B. ALTERNATIVELY, THE SUPPLY OF SERVICES BY THE APPLICANT SHOULD BE CLASSIFIED AS 'OTHER PROFESSIONAL, TECHNICAL AND BUSINESS SERVICES RELATING TO EXPLORATION, MINING OR DRILLING OF PETROLEUM CRUDE OR NATURAL GAS OR BOTH' UNDER HEADING 9983 OF SR. No.21(ia) OF THE RATE NOTIFICATION 1.41 Without prejudice to the above submissions, the Subject services may merit classification as 'Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both ' under Sr. No. 21(ia) of Heading 9983 of the Rate Notification. 1.42 Sr. No. 21 of Rate Notification provides the rate of tax leviable on the services that merits classification under the Heading 9983. The relevant portion of the said entry is reproduced herein below: Sr.No. Heading Description of services Rate 21 Heading 9983 (Other professional, technical and business services) (ia) Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both 12% 1.43 The relevant portion of Heading 9983 as prescribed under the Scheme of Classification is as follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rational administrative, consulting and management services. 1.46 Entry at Sr. No. 21 (ia) was inserted vide Rate Notification with effect from October 1, 2019. The aforesaid entry was introduced by the Government in order to classify particular services such as management and consultancy services relating inter alia to mining, and which do not merit classification as support services to mining under Heading 9986. 1.47 It is pertinent to note that Entry at Sr. No. 21 (ia) of the Rate Notification uses the phrase 'relating to which signify that any professional, technical and/or business services provided relating to mining, would merit classification under the said entry. The phrase 'relating to' or 'in relation to' is a very broad expression and has a wide ambit. The Hon'ble Supreme Court in Doypack Systems (P) Ltd Vs. UOI, [1988 (36) E.L.T. 201 (SC)], has held that the term 'in relation to ' is a very broad expression, which pre-supposes another subject matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context. The term 'relating to' has been held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices relating to exploration, mining or drilling of petroleum crude or natural gas or both ' and consequently attract GST @12%. 1.50 In addition to the above, it is also relevant to note that the Para 2 of the Circular 114 specifies that most of the activities associated with exploration, mining or drilling of petroleum crude or natural gas fall under Heading 9986 of the Rate Notification. Further, it has clarified that certain services such as technical and consulting services in relation to exploration, would merit classification under the Heading 9983 of the Rate Notification. The relevant extract of the Circular is reproduced hereinbelow:- "2. The matter has been examined. Most of the activities associated with exploration, mining or drilling of petroleum crude or natural gas fall under heading 9986. A few services particularly technical and consulting services relating to exploration also fall under heading 9983. Therefore, following entry has been inserted under heading 9983 with effect from 1st October 2019 vide Notification No. 20/2019- Central Tax(Rate) dated 30.09.2019; - '(ia) Other professional, technical and business services relating to exploration, min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. 2. Further, if the subject services are not classifiable under any of the aforesaid entries, what would be the appropriate classification for the same and at what rate GST would be imposable? C. PERSONAL HEARING In the matter personal hearing was granted to the applicant on 07.09.2021. Shri Rohit Jain (Advocate) authorized person of applicant appeared for personal hearing. During the personal hearing, he reiterated the submissions already made in the application. He further requested that the case may be decided at the earliest. D. COMMENTS OF THE JURISDICTIONAL OFFICER Comments received from the Assistant Commissioner, CGST Division-E, Range-21, Central Revenue Building Sector-10, Vidhyadhar Nagar, Jaipur are as under: - *Based on the activities/services explained by them in the Annexure -II to their application, this office is of the opinion that the services rendered by M/s. ION Exchange India to M/s. Vedanta appears to be classifiable under Heading 9983. E. FINDINGS, ANALYSIS & CONCLUSION: 1. We have considered the submission in their application and also during personal hearing made by the applicant. We have also gone through the EPC documents submitted for awar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction, repair and dismantling services, well casing, cementing, pumping, plugging and abandoning of wells, test drilling and exploration service in connection with petroleum and gas extraction, specialized fire extinguishing services, operation oil or gas extraction unit on a fee or contract basis. This service code does not include geological, geophysical and related prospecting and consulting services". 5. From the explanatory note it reveals that Support Services shall include the services to be provided for exploration, once the infrastructure/facility for exploration is built & complete in all respect and ready to start exploration. But it does not include the services to be provided before creating the infrastructure/facility. Under the EPC contract the applicant has to undertake activities from Designing, Engineering, Procurement, construction of customised facility, commissioning of permanent facility, Test run and hand over of complete facility so designed, constructed, tested & commissioned. Thus it cannot be treated as support services to oil & gas extraction. Similarly, other professional, technical & business services are classified under heading 9983. The heading co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding the civil work and land involved in plant. Various civil structure would be created and various equipment would be installed. The said plant cannot be shifted anywhere; it is essentially of the nature of immovable property. The plant after completion at the time of transfer will be an immobile property. It is thus, we are of the considered view that the work specified in the EPC contract qualifies as "work contract" and will be taxed accordingly. 8. According to Section 8 of Central Goods and Services Tax Act, 2017, the tax liability on a composite or a mixed supply shall be determined in the following manner, namely:- (a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and (b) ............ 9. As per Section 2(30) composite supply is defined as,- "composite supply" means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply; 10. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods & services and would be taxed accordingly under S. No. 3 Heading 9954 (ii) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 and GST @ 18 % (9% CGST and 9% SGST) is payable. Based on the above discussion & finding we rule as under Ruling Question 1: With the introduction of Notification No. 20/2019-Central Tax (Rate) dated 30.09.2019, the applicant intends to ascertain whether the services with respect to EPC contract entered for execution of Sulphate Removal plant supplied to M/s. Vedanta Ltd vide Contract no 4600008952 dated 14.08.2018 is covered under Sr. No. 24(ii) (Support Services to Mining) or Sr. No. 21(ia) (Professional, Technical or Business Service to Mining) of the Rate Notification? Answer - No. Question 2: Further, if the subject services are not classifiable under any of the aforesaid entries, what would be the appropriate classification for the same and at what rate GST would be imposable? Answer - The activities of supply designing & engineering, installation, Commission of Project under EPC contract by the applicant shall attract GST @18% (9% CGST and 9% SGST) under S.No. 3 Heading 9954 ..... 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