TMI Blog2022 (2) TMI 1045X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether the supply to be made by the applicant under the EPC contract awarded to them would be classified as Support services to mining or other Professional, Technical Business services relating to exploration, mining or drilling of Petroleum Crude or Natural Gas or Both or otherwise in any other service? - HELD 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. The applicant has to undertake the Designing, Engineering, Procurement, construction of customised facility, commissioning of permanent facility, Test run and hand over of complete facility so designed, constructed, tested commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th 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 EPC contract with M/s. Vedanta Limited ( Vedanta ) vide Contract No. 4600008952 dt. 14.08.2018. Vedanta is a globally diversified natural resources company which is engaged in the business of exploratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue 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 removal 1.5 The output from the sulphate removal plant is purified water which are used by Vedanta for drilling operations. It is pertinent to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 registration under this Act. As submitted earlier, the Applicant is registered in Rajasthan. Thus, the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract 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 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard are as hereunder- 1.18 It is submitted that the services supplied by the Applicant qualify as Support Service and merits classification under Heading 9986. Thus, it falls under Sr. No. 24(ii) of Notification No. 11/2017-CT, as amended. For the sake of ready reference, the relevant extract Sr. No. 24(ii)] is reproduced below: S.No Heading Description of Goods Rate 24 Heading 9986 (Support services to agriculture, hunting, forestry, 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 'suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ' us meaning towards That is the sense in which the ward is always used in all instruments connected with or relating to marine assurance. It has that meaning in a bill of lading, and I dan t know why we should adapt a different meaning in this policy of insurance ' - College v Harty (1851) 6 Ech 205 at 210, per Pollock CB Merriam Websters Dictionary Used as a function word to indicate movement or an action or condition suggestive of movement toward a place, person, or thing reached; used as a function word to indicate contact or proximity 1.23 From the above, it can be seen that the term to indicates contact or proximity to the subject or, more specifically. means towards . 1.24 Applying this to the present case, the Applicant submits that the support services to exploration, mining... would essentially mean support services which are towards or are most closely related to or in close proximity of the activities of exploration 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planatory Notes 998621 Support services to oil and gas extraction This service code includes derrick erection, repair and dismantling services; well casing, cementing, pumping, Pegging and abandoning of wells; test drilling and exploration services in connection with petroleum and gas extraction; specialized fire extinguishing services; operation of oi! or gas extraction unit on a fee or contract basis. This service code does not include geological, geophysical and related prospecting and consulting -Services, cf 998341 1.32 The aforesaid Explanatory Note provides an inclusive list of support services which are classifiable under the Heading 998621. The explicit list of activities includes:- a) derrick erection, repair and dismantling services; b) well casing, cementing, pumping, plugging and abandoning of wells; c) test drilling and exploration services in connection with petroleum and gas extraction; d) specialized fire extinguishing services; e) operation of oil or gas extraction unit on a fee or contract basis 1.33 A reference to the above list reveals that these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause the government doesn't want to burden this industry with additional tax cost. Given the fact that the oil and gas sector is still outside the ambit of GST which has led to the denial of ITC, the overall cost of this sector has increased greatly. It is because of this reason that, qua this sector, the Government has reduced the rate of services. 1.38 The Applicant also submits that this policy of offering the special/ benign rates to the upstream sector on account of both goods and services have been consistently followed by the Government. Even in the Pre-GST regime, the effective rate of GST for the EPC contracts was close to 12%. 1.39 Given the fact that these are capital intensive projects which not only take longer term to commence and produce results, the benefits accrue to the larger public and the nation's development. Therefore, while determining classification of activities or services which related to mining and petroleum operations, a purposive interpretation should be adopted. 1.40 In the light of the aforesaid, since the Subject services satisfies the specific description of the Heading 9986 under Sr. No. 24(ii) of Notification No. 11/2017-CT, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o sub-clause (a); (c) any activity or transaction in the nature of sub-clause (a). whether or not there is volume, frequency, continuity or regularity of such transaction; (d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business; (e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members. (f) admission, for a consideration, of persons to any premises; (g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation; (h) activities of a race club including by way of totalizator or a license to book maker or activities of a licensed book maker in such club; and (i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.' 1.45 The aforesaid definition of 'business' is an inclusive definition. It is settled law that the term 'include' is very generally used in interpretati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this contract is specifically designed and engineered to produce water quality for the mining sites for reducing the impact of Sulphate produced while undertaking petroleum operations and ensure efficient water treatment and management. Hence, the services rendered by the Applicant in relation to the present contract are of specialized and customized nature and specific to the mining operations. However, the activities relating to the operation and maintenance of the Sulphate Removal Plant are outside the scope of the Applicant. 1.49 The Applicant further submits that it is providing the Subject services by undertaking engineering, procurement, supply construction overall management of the project right from its detail design and planning till its final test run, commissioning and hand over in fully functional form to Vedanta. It is also, inter alia, required to review, monitor, manage and control all aspects of the execution of the project along with the day-to-day administration and logistics, such as, procurement, performance, HSE, quality and schedule management, among others, as per contract awarded by Vedanta. The said services are in relation to the mining activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration and evaluation' which do not merit classification under Heading 9986, would also get covered under the broad Heading 9983, as 'Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both and resultantly, attract GST @ 12%. The said Circular has not provided an exhaustive list of services which would merit qualification under Sr. No. 21(ia) of Rate Notification. It has merely clarified that certain technical and consulting services which are not specifically covered under the Heading 9986, would get covered within the Heading 9983. Given the purpose for which the Sulphate Removal Plant is constructed at the mining site, it forms an important part of the overall mining operations and hence, ought to qualify classification under Sr. No. 21 (ia) of the Rate Notification. 1.53 Therefore, without prejudice to the submissions made above, it is submitted that the supply of services made by the Applicant to Vedanta, in relation to the mining, would merit classification under Heading 9983 and attract GST @ 12% in terms of Sr. No. 21 (ia) of Rate Notification. B. QUESTIONS ON WHICH THE ADVANCE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tractor Management and satisfactory hand over of the facilities including associated QHSE management all as per contract. 2. The applicant has contended that under the EPC contract they are providing Engineering, Procurement and construction (EPC) services in relation to the construction of 'Sulphate Removal Plant' for Vedanta in the state of Rajasthan. Since services are in the nature of operational or administrative assistance provided by the applicant to Vedanta, it aptly merit classification as Support-services to mining as per heading 9986 of the Sr. No. 24 (ii) Rate notification No. 11/2017 central tax (Rate) dated 28/06/2017 (as amended). The applicant further contended that alternatively the supply of services by them 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 No. 11/2017 Central tax (Rate) dated 28/06/2017 (as amended). 3. Now the issue to be decided whether the supply to be made by the applicant under the EPC contract awarded to them would be classified as Support services ..... 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. In view of the above it is clear that the services provided by the applicant neither fall under Support services to exploration, mining or drilling of Petroleum crude or natural gas or other professional, technical and business services relating to exploration, mining or drilling of Petroleum crude or natural gas or Both. As per EPC contract the applicant has to complete the task of setting up of 'Sulphate Removal Plant' or SRP broadly ranging from designing, engineering, Surveys, procurement, fabrication, manufacturing, erection and installation, facilities construction, Testing, Pre commissioning Commissioning, Training etc satisfactory hand over of complete 'Sulphate Removal Plant', customised as per contract. The applicant has to start from the scratch and bring into existence a fully operational 'Sulphate Removal Plant'. The execution of the project would also involve the transfer of property in goods. 7. In light of these fact, we examine the definition of work contract as provided under Section 2(119) of the CGST Act 2017, which reads as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at; - a. Works contract in itself is a composite supply in which construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning etc. are involved along with transfer or property in goods. b. Under GST, as per definition of works contract service if construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning is for immovable property, then it will be classified as works contract. 13. Further, we observe that the activity proposed to be undertaken is a composite supply of works contract, the rate of tax in given service shall be determined in accordance with the Notification No. 11/2017-CT (Rate) dated 28.06.2017, as amended from time to time. The relevant portion of the S. No. 3(Heading 9954) (ii) of the Notification No. 11/2017-CT (Rate) dated 28/06/2017 (as amended) is as under Heading 9954 (Construction services) CGST Rate % SGST Rate % IGST Rate % Remarks ..... X X X X Extracts X X X X X X X X Extracts X X X X
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