TMI Blog2023 (7) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... leviable on such difference in values between two different documents i.e., Balance sheet and ST-3 Returns. This issue has already been decided by the Co-ordinate Bench of this Tribunal in the case of SYNERGY AUDIO VISUAL WORKSHOP P. LTD. VERSUS COMMR. OF ST, BANGALORE [ 2008 (1) TMI 188 - CESTAT BANGALORE] , holding that levy of service tax on the sole basis of balance sheet/income tax returns, etc. is unsustainable in law - The Co-ordinate Bench of this Tribunal in the case of in the case of M/S. MAHINDRA HOLIDAY AND RESORTS INDIA LTD. VERSUS THE COMMISSIONER OF LTU, CHENNAI [ 2018 (10) TMI 35 - CESTAT CHENNAI] had held that balance sheet entries per se cannot be considered as income or expenditure for the purpose of considering it as gross value for levy of service tax. Management or Business Consultant s service - 1% of the total amount received from unincorporated joint venture towards parent company income or affiliate of the operator outside India to support and manage petroleum operations - HELD THAT:- This issue is no more res integra in view of the decision of this Tribunal in the case of appellant themselves in BG EXPLORATION PRODUCTION INDIA LTD VERSUS COM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RDER This appeal has been filed under Sub-section (1) of Section 86 of the Finance Act, 1994 (for short, the said Act ), by M/s. BG Exploration and Production India Limited (herein referred to as appellants ) having been aggrieved by the Order-in-Original No. 12-13/ST-VII/RS/2014 dated 26.12.2014 passed under Section 73 of the said Act by the Commissioner, Service Tax-VII, Mumbai as adjudicating authority. 2. The brief facts of the case are that the appellants are registered with the Service Tax Registration No.AAACE4569KST003 for providing taxable services, inter alia, under the category of management consultancy services, consultancy engineer services, cargo handling services, goods transport by road services, commissioning and installation services, mining services, business support services, supply of tangible goods services and telecom services covered under the taxable services defined under section 65 (105) of the Finance Act, 1994. The appellants are engaged in the business of mining of mineral oil and natural gas and for this purpose have executed Production Sharing Contract (PSC) for extraction of mineral oil and natural gas at the Panna Mukta oilfields an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n SCN/Statement of Demand dated 14.12.2012 Description Value of services (in Rs.) Total (in Rs.) Mining Services Expat salaries Receivables Gross value of services 226,48,88,302 33,11,12,844 101,23,78,267 360,83,79,413 Service Tax payable 37,16,63,080 Service tax paid 32,54,71,922 Short payment of Service Tax demanded 4,61,91,158 Interest applicable rate under Section 75 Penalty Under Section 76,77, 78 4. The show cause notices referred above were adjudicated by the Commissioner, Service Tax-VII, Mumbai vide common Order-in-Original No.12-13/ST-VII/RS/2014 dated 26.12.2014, confirming the adjudged demand of service tax proposed in the SCNs under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by BGIL to the appellants in relation to Mining Services for the period prior to 01.06.2007 which is not taxable for service tax. (ii) The balance sheets included certain provision entries , which are not towards any rendition of services, and hence are not taxable for service tax. (iii) The balance sheets included expenses towards taxes paid by the Appellant, which are not taxable for service tax. 6.3. Learned Advocate also claimed that it is settled law that levy of service tax on the sole basis of balance sheet/ income tax returns, etc. is unsustainable in law. In this regard, he placed reliance on the judgment of the Tribunal in the case of Synergy Audio Visual Workshop P. Ltd. v. Commissioner of S.T., Bangalore 2008 (1) TMI 88 CESTAT Bangalore and Mahindra Holiday and Resorts India Ltd. vs. The Commissioner of LTU, Chennai (26.09.2018 - CESTAT - Chennai): MANU/CC/0236/2018. Further, he stated that in the instant case, that the difference in the amounts/value between the balance sheet and the ST-3 returns are not attributable to any rendition of Management Business Consultancy service by BGIL. The difference is however due to inclusion of certain amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd employee relations services calculated on the basis of one percent of the expenditures. It is pertinent that clause 2.6.2 is a sub-clause under General and Administrative Costs (clause 2.6). Thus, these are all executory costs and will not fall under Management and Business Consultant services. Further, such allocations are in the nature of reimbursement of expenditures i.e., an indirect expense incurred by the Appellant while carrying out its obligations under the Joint Venture. Thus, the allocation of 1% was only sharing of expenses and not a consideration for service. The Appellant is a member of the Joint Venture and there can be no service to itself as per the doctrine of mutuality. On the proposition that allocation of expenses cannot be regarded as service , the Appellant also places reliance on the judgment of the Tribunal in the case of Morugao Port Trust v Commissioner of Cus, C.Ex ST, Goa 2017 (48) STR 69 (Tri. Mum.) 6.5. As regards the issue at (iii), he stated the SAP posting date i.e. the date on which the amount for above services was credited / debited in the books of accounts of the Appellant is correctly considered for payment of Service Tax and there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet of appellants under the taxable category of services and further deciding whether interest is payable on the alleged delay in payment of service tax under reverse charge mechanism. 10.1. We note that Government of India, Ministry of Petroleum Natural Gas (MoP G) had enacted Oilfields (Regulation and Development) Act,1948 in order to provide for the regulation of oilfields and for the development of mineral oil resources and amended the said Act periodically. In terms of Section 3(b) ibid, mines means any excavation for the purpose of searching for or obtaining mineral oils and includes an oil well. Further under Section 3(c) mineral oils include natural gas and petroleum; and under Section 3(d) mining lease means a lease granted for the purpose of searching for, winning, working, getting, making merchantable, carrying away or disposing of mineral oils or for purposes connected therewith, and includes an exploring or a prospecting license. Section 3(e) defines that Oilfield means any area where any operation for the purpose of obtaining natural gas and petroleum, crude oil, refined oil, partially refined oil and any of the products of petroleum in a liquid or sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Panna Mukta), 28 exploration blocks under Pre-NELP Exploration regime and 254 blocks under NELP regime with National Oil Companies and private (Both Indian and foreign)/ Joint Venture companies. 10.4. The above details of the Petroleum Exploration Policy and Licensing provisions make it clear that license granted by the Government for exploration of oil field under PEL is distinct and different from license granted for mining as PML. The various activities involved under PEL include seismic acquisition like 2D seismic, 3D seismic, Gravity Magnetic, seismic processing and interpretation along with drilling of exploratory wells and appraisal. Subsequently, separate license is being obtained for Development and Production of petroleum including activities of development drilling, development-petroleum exploitation facility, production/operations and decommissioning after completion of commercial production. 10.5. We also find that Panna-Mukta-Tapti joint venture (PMT JV), consisting of ONGC, RIL and BGIL as joint operators, carries out petroleum operations in the Panna Mukta and Mid South Tapti Contract Areas situated in western India offshore, pursuant to production shari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anagement; 11.3. We also find from the Union budget documents dealing with indirect taxation proposals, that the Ministry of Finance, Tax Research Unit in its instructions in D.O. F.No. 334/1/2007-TRU dated 28.02.2007 while explaining the scope of changes brought through the Budget, 2007 had stated that the in continuation of the policy of widening of the service tax base, the Finance Bill, 2007 proposes to, levy service tax on more services, expand or clarify the scope of existing services, and carve out separate services from the existing services and specify them as separate taxable services. The detailed explanatory notes relevant to the above changes are extracted below: 6.2 MINING SERVICE [section 65(105)(zzzy)]: Presently, geological, geophysical or other prospecting, surface or sub-surface surveying or map-making services relating to location or exploration of deposits of mineral, oil or gas are leviable to service tax under survey and exploration of mineral service [section 65(105)(zzv)]. Services such as- site formation and clearance, and excavation and earth moving, drilling wells for production / exploitation of hydrocarbons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 11.4. We find that this issue has already been decided by the Co-ordinate Bench of this Tribunal in the case of M/S. Synergy Audio Visual vs. The Commissioner Of Service Tax 2008(1) TMI 88, holding that levy of service tax on the sole basis of balance sheet/income tax returns, etc. is unsustainable in law. The relevant paragraph of the said judgement is extracted below: 5.1 The other ground is for confirming demands is that the appellants had shown certain amounts due from the parties in their Income Tax returns and Revenue has proceeded to demand Service Tax on this amount shown in the Balance Sheet. The appellants have relied on large number of judgments which has settled the issue that amounts shown in the Income Tax returns or Balance Sheet are not liable for Service Tax. In view of these judgments, the appellant succeed on this ground also. The impugned order is set aside and the appeal is allowed. We also find that the Co-ordinate Bench of this Tribunal in the case of in the case of Mahindra Holidays and Resorts India Ltd. vs Commissioner of LTU, Chennai - MANU/CC/0236/2018 had held that balance sheet entries per se cannot be considered as income or expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligations by a party to the joint venture is intended to serve itself and, thereby, the joint-venture and the fulfillment of obligations to contribute to the capital of the joint venture is beyond the scope of taxation under Finance Act, 1994, as it does not amount to consideration. The relevant paragraphs of the above judgment is extracted below: 11. We have no doubt that agreement among entities for rendering of service to another entity is the essence of joint venture ; however, it is doubtful if joint operation agreement , mandated by the terms of the production sharing contract , can be deemed to be one such in the absence of an external beneficiary. In the impugned contract, the several participating interests are, collegially, designated as contractor in the singular and in furtherance of the policy of the Government of India to involve corporate participation for efficient harnessing of natural resources as codified in the production sharing contract agreed upon. This, then, would be the primary association as joint venture comprising of four entities, including Government of India, for viability in extraction of natural resource as the common goal. The manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pgraded scheme into the sphere of tax administration was the outcome of carefully calibrated strategy to reach this goal. In the classificatory regime, adopted in the beginning, the definition of service , as enumerated series, did not reflect its essence, viz., substitution of self performance with the descriptive limit further encapsulated in provider recipient equation to which consideration , as measure of its value, was subordinated. 13. Under the negative list regime, in which demarcation between services was superfluous, the obliteration of boundaries permitted the definition of service , as (44) any activity carried out by a person for another for consideration, and includes a declared service, but shall not include - .. in section 65B of Finance Act, 1994, to encompass all activities save those exogenic to, and excepted in, it and aligned it with the essence of service by the expression for another , replacing to any person , to eliminate the recipient as a necessity. In the new scheme of tax, consideration , being the obligated recompense to the provider devolving on the person who opted for hiving off the undertaking of an activity, was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s required for running the joint enterprise and the such an enterprise is successful the partners become entitled to profits as a reward for the risks taken by them for investing their resources the venture.... found approval of the Hon ble Supreme Court with dismissal of appeal of Revenue. 15. It is incumbent upon participants in collaborative undertaking to contribute capital for attainment of the common purpose. It is the nature of the undertaking, in terms of permanence and of purpose, that determines the mode of contribution. In the impugned production sharing contract , Government of India brings in its rights over the resources, M/s Oil Natural Gas Corporation handles contracts and documentation, M/s Reliance Industries Ltd manages financial and commercial requirements and the appellant vested with responsibility for technical operations. The deployment of personnel is in pursuance of that obligation. No business venture can function without capital and the by-passing of transubstantiation of accumulated capital, in the form of cash and bank balances, into these rights and competencies does not derogate from that. Hence, the activity undertaken by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Amount in Rs.) 1 Mining Services 226,48,88,302 226,48,88,302 2 Expat salaries 33,11,12,844 38,55,32,507 3 Receivables shown in Balance Sheet 101,23,78,267 34,95,30,831 4 Total value of services 360,83,79,413 294,55,31,977 5 Service Tax payable/paid 37,16,63,079 32,54,71,922 6 Service Tax demanded in SCN 37,16,63,079 32,54,71,922 =4,61,91,157 From the details, we find that the difference in value leading to demand of service tax has arisen solely on account of the amount shown as receivables in the Balance Sheet, as the amount indicated on account of mining services as Sr. No. 1 of the table above are the same and in respect of expat salaries at Sr. No. 2 indicated by the appellants is higher, and on which service tax due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice. 33 . This precise issue was examined at length by the Division Bench of the Tribunal in the decision rendered by the Tribunal on 6-10-2021, in the case of the appellant itself, which decision is reported in 2021 (10) TMI 306-CESTAT (Mum). The Tribunal, after referring to the earlier decision of the Tribunal rendered on 11-6-2020 in the case of the appellant, which decision is reported in 2020 (10) TMI 579-CESTAT (Mum), the decision of the Tribunal in Mormugao Port Trust and the decision of the Supreme Court in Faqir Chand Gulati and after noticing that an appeal had been filed by the Department in the Bombay High Court against the decision of the Tribunal rendered on 11-62020, observed that the Government of India with the appellant, RIL and ONGC had entered into a joint venture agreement, where under each coventurer had its own set of obligations and the responsibility discharged by each of the co-venturers towards the venture was not by way of any service rendered to the joint venture, but in their own interest in furtherance of the common objective of the joint venture. Service tax liability, therefore, could not have been fastened upon the appellant. The paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o or more parties come together to carry out a specific economic venture, and share the profits arising from such venture. Such public private partnerships are at times described as collaboration, joint venture, consortium or joint undertaking. Regardless of the name or the legal form in which the same are conducted, they are essentially in the nature of partnership with each co-venturer contributing some of the resources for the furtherance of the joint business activity. The Tribunal held that such public private partnerships meet the test laid down by the Supreme Court in Faqir Chand Gulati v. Uppal Agencies Pvt. Ltd., for ascertaining whether or not the arrangement is one of joint venture. 25. The Civil Appeal filed by the Department (Commissioner v. Mormugao Port Trust) against the aforesaid decision of the Tribunal was dismissed by the Supreme Court both on the ground of delay as well as on merits and the judgment is reported in 2018 (19) G.S.T.L. J118 (S.C.). 26. There is no dispute that the joint venture in the present case has been constituted in terms of the Contract, which is a contractual arrangement between the Government of India, the appellant, ONGC and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service has been provided by the appellant to the unincorporated joint venture. This presumption is not tenable as the burden to prove that there was a rendition of service for a consideration is a sine qua non for any liability to service tax being attracted. No evidence has been led by the Department to establish this fact. On the contrary, the Tribunal in the decision rendered on 11-6-2020, arrived at a finding of fact to the effect that the Government of India along with the appellant, RIL and ONGC had entered into a joint venture agreement, where under each co-venturer had its own set of obligations and the responsibility discharged by each of the co-venturers towards the venture was not by way of a service being rendered to the joint venture, but in their own interest, in the course or furtherance of the common objective of the joint venture. 29. It is also pertinent to note that the decision of the Tribunal in Cricket Club of India had been relied upon by the Tribunal not in support of the proposition that there cannot be a levy to service tax by applying the principle of mutuality, but on the point that a mere flow of money by itself is not enough to fasten a service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er a rendition of service nor can there be any liability to service tax. This position also evolves from paragraph 4.2 of the Circular dated 24-9-2014, wherein it has been clarified that a member of a joint venture may provide support services to the joint venture for a consideration either in cash or in kind, which alone would be leviable to service tax. 31. Insofar as the decision of the Tribunal in Badve Helmets is concerned, the same is based on entirely different facts. In that case M/s. Vemmar SRL Italy, who was a equity holder had transferred know-how for a consideration of US $ 1,00,000/-. The said transfer of know-how was not in the course or furtherance of the venture nor was it by way of a capital contribution. Undisputedly, M/s. Vemmar SRL was acting as a independent service provider to the joint venture and was rendering services for a consideration. The facts in the case of Badve Helmets, being completely different with that of Mormagao Port Trust, as also those in the present case, the said decision cannot be relied upon nor does the same in any manner dilute the ratio laid down in Mormagao. In fact the Tribunal had in Mormagao specifically recorded that there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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