TMI Blog2024 (2) TMI 1358X X X X Extracts X X X X X X X X Extracts X X X X ..... Notification No. 11/2017-CT(R), dated 28.06.2017? - HELD THAT:- The Appellant have not denied the fact that supply of service under the EPC Contract in question also involves transfer of property in goods. The only contention by the Appellant in this regard is that the scope of SAC Heading No. 9986 does not exclude Works Contract Service. As can be seen from the appeal as also from the EPC Contract, the Appellant have been assigned the work related to establishment of infrastructure for the proposed expansion in the production and processing capacity. As mentioned in Para-D1-8 titled General Design Guidance, the new surface facilities shall be designed for design life of 25 years and new well pads are to be connected with an independent fiber optic cable upto existing RGT terminal. The Appellant are obliged by the contract for satisfactory handover of complete RDG Gas Processing Terminal including Non Process Buildings, receiving end substation at RDG Terminal including roads and drains within RDG Terminal, Intra-field Pipeline, irrigation water pipeline and approach roads between well pads to the Company M/s Vedanta Limited, complete with applicable hook-up tie-in with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 28.06.2017 was omitted with effect from 01.04.2019 and, therefore, the supplies proposed to be undertaken by the Appellant could not have been eligible for the rate prescribed therein. However, we observe that up to Notification No. 3/2019-CT (R), dated 29.03.2019, major changes have been made in the said entry under SI. No. 3 of the basic Notification No. 11/2017-CT (R), dated 28.06.2017 to provide for different rates of tax for supplies under the categories of supply of construction services or supply of works contract services - the item (xii) of entry at SI. No. 3 of Notification No. 11/2017- CT (R), dated 28.06.2017, as amended up to Notification No. 3/2019-CT (R), dated 29.03.2019 prescribes Central Tax @ 9% on the supplies proposed to be undertaken in terms of the EPC Contract and therefore, the supplies proposed to be undertaken by the Appellant attract tax at the rate of 18%. The Ruling pronounced by the AAR, therefore, needs to be modified up to that extent. The appeal is disposed of. - SH. MAHENDRA RANGA AND DR. RAVI KUMAR SURPUR, MEMBER Present for the Appellant : Shri Rohit Jain, Advocate Shri Rahul Khurana, Advocate At the outset, we would like to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajasthan. This block contains 38 major Oil Gas discoveries, with significant gas potential in the southern area. Raageshwari Deep Gas (RDG), discovered in 2003, is a tight gas field situated in the southern area of the block and is under production since 2010 with significant infrastructure in place. Its Gas Processing Terminal is known as Raageshwari Gas Terminal (RGT) 4. With a view to further augment facilities and infrastructure for enhancing the development of the RDG field in order to maximize the resource monetization with cost optimization, Vedanta Limited awarded the Engineering, Procurement and Construction ( EPC Contract or Contract ) to the Appellant for Provision of Services for Development of Integrated Gas Surface Facilities. 5. SCOPE OF WORK - AUGMENTATION OF FACILITIES INFRASTRUCTURE UNDER RDG PROJECT Under tire RDG Project, the Appellant are required to undertake various activities as under: a) Augmentation of Well Pads and Well Fluid Gathering Pipelines b) Augmentation of Existing Gas Processing Terminal capacity with New RDG Gas Processing Terminal Construction of various infrastructure as required in the expansion of the ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re Gas detection system, Fire Fighting items, Construction equipment, etc. This includes supply of special tools, tackles, consumables etc. for Pre-Commissioning, Commissioning testing of equipment/ packages. Contractor s scope of supply shall also include Construction Commissioning spares, mandatory spares for all equipment and packages under its scope of supply. 6.4 Construction of customized facilities - Contractor shall supply all construction management, supervision, labour, materials, construction equipment, tools and tackles, testing instruments and equipment, Plant and machinery, systems and specialist services required to ensure that all construction activities. 6.5 Construction - The scope of work for construction includes the following: (a) Mobilization/ demobilization: (b) Site survey Preparation: (c) Arranging the materials at site from Vendors (d) Construction of facilities 6.6 Testing Pre-Commissioning 6.7 Commissioning 6.8 Clean-up Restoration 6.9 Test Runs 7. The Appellant have also encapsulated following extracts of relevant clauses of the Contract: (i) Clause D1-18- The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. In those cases where certain items are not fully detailed in the Scope of Work, the design shall be according to the high standards of engineering commensurate with those included in the Contract. This includes all Vendor supplied packages or systems which are part of scope of work and complete interface engineering of all Packages. Review all existing drawings /documents, survey data and carry out additional surveys as Contractor deems necessary. Contractor to conduct design review including incorporation of all recommendations and prepare close-out report. Conduct safety audits and reviews and also conduct constructability review at RDG site. (iii) Clause D1-22.3- Company considers it important that quality of products, facilities, and services used during execute phases of the projects shall be fit-for-purpose and built to last for the lifetime of the facilities. The primary objective of inspection and testing is to ensure that implementation of quality control processes by Contractors and their Vendors/Suppliers in accordance with the approved QAP, QCP and IIP and to verify that the product or service conforms to specification. Contractor shall be responsible for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. 9. The Appellant submitted that they are of the considered view that the subject services are appropriately classifiable under the Heading 9986 [Sr. No. 24(ii)] (viz., Support services to exploration, mining or drilling of petroleum crude or natural gas or both ) or alternatively under the SAC Heading 9983 [Sr. No. 21(ia)] (viz., Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both ) and are liable to attract 12% GST under the CGST Act. By filing the application under Section 97(1) of the RGST Act/ CGST Act before the AAR, Rajasthan, the Appellant had sought to confirm this classification. The AAR, Rajasthan have answered the questions of the Appellant, vide their Ruling dated 13.09.2021 as under: Question 1 - Whether the services provided by the applicant are classified under Sr. No. 24(ii) (Heading 9986) of the Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 (as amended) as Support services to exploration, mining or drilling of petroleum crude or natural gas or both and attracts GST @ 12% Answer : - No Question 2 - Whether the services provided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and ready to start exploration. 11.3 That the Appellant submitted that tire above presumptions by the AAR, Rajasthan are outrightly incorrect, bad in law and without any basis. The findings recorded by the AAR, Rajasthan with respect to the classification of the subject services are wholly misconceived and shows lack of understanding of the activities required to be performed by the Appellant under the EPC Contract. It is a trite law that decisions based on presumption and surmises have no place in die eyes of law. In this regard, reliance has been placed upon by the appellant on the following decisions wherein it has been held that an order based on presumption, surmises and conjectures is liable to be quashed: Commissioner v. Sree Ganesar Textile Mills Ltd, 2015 (321) E.L.T. A 270 (S.C.); Commissioner v. Bihariji Manufacture Co. Pvt. Ltd., 2015 (323) E.L.T. A 23 (S.C.); Commissioner v. Modern Denim Ltd., 2006 (199) E.L.T. A 181 (S.C.); Kirloskar Oil Engines Ltd. v. Commissioner of Central Excise, Nashik, 2017 (349) E.L. T. 299 (Tri. -Mumbai); Wolters Kluwer India Ltd v. Commissioner of Service Tax, 2014 (36) S.T.R 396 (Tri.-Del.); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt services which are classifiable under the SAC Heading No. 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 11.9 The Appellant submitted few of the services included in the aforesaid scope: (a) Derrick erection, repair and dismantling: A derrick is a lifting device composed at minimum of one guyed mast, as in a gin pole, which may be articulated over a load by adjusting its guys. A pictorial representation of derrick is set out below: Derricks are used for moving materials vertically and horizontally, comprised of a hoisting mechanism and pulleys or sheaves to create a mechanical advantage to lift large loads. The Appellant 1, 2 and 4 submitted that Heading 9986 includes these kinds of derricks erection, their repair and dismantling services. (b) Well casing, cementing, plugging aban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the language used therein unless there are compelling reasons, such as, where a literal construction would reduce the provision to absurdity or prevent manifest intention of the legislature from being carried out They submitted that this view was also supported by the Hon ble in ITC Ltd. v. Commissioner of Central Excise, New Delhi, 2004 (171) E.L.T. 433 (S.C.). 11.14 The Appellant submitted that derrick erections help move heavy materials across the oil field, whereas well casing and cementing is done to ensure smooth surface around the well wall to ensure optimum extraction and transport of oil. These facilities are primarily implemented before initiating the mining operations at the oil field to prepare the well pads and related infrastructure for extraction. 11.15 The Appellant submitted that a mere reading of the title of SAC Heading No. 998621 in the scheme of classification, which states, Support services to oil and gas extraction , would reveal that the scope of the SAC Heading No. 998621 is not limited to exploration, but includes a wider term extraction . In fact, test drilling and exploration is just one of the activities covered therein and the heading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpleted and the well pads have now been built to extract and mine the oil and natural gas, it is clear that all the performance of its responsibilities by the Appellant under the contract would be having relation to the production and extraction of oil/natural gas and not exploration. 11.21 The Appellant submitted that even if AAR, Rajasthan s contention, that Heading 9986 covers only post exploration related activities on the field, is to be accepted, even on that count, the activities of the Appellant under the contract squarely falls within the purview of SAC Heading No. 9986. 11.23 The Appellant submitted that in view of the above, the impugned Ruling pronounced by the AAR, Rajasthan is liable to be set aside. Submission II: The services rendered by the Appellant under the contract are inextricably linked to petroleum operations. 11.24 The Appellant submitted that the impugned Ruling has been pronounced without appreciating the facts of the case and the responsibilities of the Appellant under the EPC Contract. 11.25 The Appellant submitted that under the terms of the EPC Contract, the scope of work of the Appellant involves augmentation of various facilities an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creation of infrastructure facility, and hence cannot be treated as support services to petroleum extraction. 11.31 The Appellant submitted that the services rendered by them are linked to, and in connection with, the petroleum operations. This fact has never been disputed by the AAR, Rajasthan. They added that the only contention raised by the AAR, Rajasthan to deny the benefit of Heading 9986 to the Appellant is that Heading 9986 does not cover creation of infrastructure/ facility, which the Appellant vehemently opposed and found without any credible basis in the law. 11.32 The Appellant submitted that the facilities are being developed by them to support the petroleum operations carried out by Vedanta as the enhanced oil field infrastructure will enable Vedanta to manage and cater to maximize the resource monetization and cost optimization. The support services by the Appellant are necessary and aid in the extraction of petroleum operations and therefore should be classified under Heading 9986. According to them, the impugned Ruling also clearly missed the fact that the ultimate end use of the activities performed by the Appellant for Vedanta is its use in the increase in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the above, it is reiterated that the services supplied by them merit classification under heading 9986 which is a specific entry for services which support the petroleum operations. 11.38 The Appellant submitted that it is the cardinal rule to be applied for classification of any goods or services that in case of two competing headings, the heading which provides the most specific description shall be preferred to headings providing a more general description. 11.39 As per the Appellant, the AAR, Rajasthan proceeded to classify the subject services under the SAC Heading No. 9954 without considering their submissions. The Appellant submitted that SAC Heading No. 9954 is a general entry which is applicable for Works Contract Services. Even if it is to be assumed that the services supplied under the EPC contract is a composite supply in the nature of a works contract, the service will still merit classification under heading 9986 which is a specific entry for services that support the activity of mining of natural gas. 11.40 The Appellant placed reliance on the following decisions wherein the aforesaid cardinal principle on classification of goods/ services has been follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices to exploration, mining or drilling of petroleum crude or natural gas or both 11.45 The Appellant submitted that in view of the above, the activities performed by the Appellant under the EPC Contract are more directly related to the petroleum operations carried out by Vedanta at the Rajasthan Block and therefore, in terms of the legal principles enunciated above, the impugned Ruling is liable to be rejected. Submission IV: The Impugned Ruling has been issued based upon a non-existent provision of the law 11.46 The Appellant submitted that the impugned Ruling pronounced by the AAR, Rajasthan is entirely based upon a provision which was not even in existence at the time when the transaction, in respect of which the Ruling has been sought, was undertaken. 11.47 The Appellant submitted that the impugned Ruling, at Para 13, states that, ... services provided under the EPC contract awarded to the Appellant by M/s Vedanta for setting up of a project broadly ranging from designing, engineering, ..........pre-commissioning commissioning training, etc. and satisfactory hand over of complete various infrastructure facilities all customized as per contract, it is a wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time of the applicable case. In this regard, reliance has been placed on the following judgments: (a) Carrier Point v. Commissioner of Central Excise, Jaipur, 2018 (10) G.S.T.L. 213 (Raj.) (b) Pillar Inductions (I) Ltd. v. Commissioner of Central Excise, Chennai, 2004 (166) E.L T. 43 (Tri. -Chennai) (c) Commissioner of Customs, Chennai v. Madras Aluminum Co. Ltd., 2016 (339) E.L.T. 295 (Tri. - Chennai) 11.54 As per the Appellant, the impugned Ruling is liable to be set aside as the AAR, Rajasthan vide the impugned Ruling have proceeded to classify goods under an entry which does not even exist. Submission V: The scope of the activities covered under Heading 9986 is inclusive in nature and not exhaustive 11.55 The Appellant submitted that the AAR, Rajasthan while pronouncing the impugned Ruling has completely disregarded the provisions of the law, and more specifically, failed to properly analyze the Scheme annexed to the Rate Notification. 11.56 The Appellant further submitted that the AAR, Rajasthan has erred in concluding that services supplied by the Appellant are not covered under the explanatory notes for service code 998621 in as much as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Stove Kraft Pvt. Ltd. Vs State of Karnataka (2006(2) TMI 603] wherein on the aspect of classification of goods, Karnataka High Court, inter alia, held that the word includes is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute. According to them, when it is so used, these words and phrases must be construed as comprehending not only such things as they signify according to their nature and import, but also things which the interpretation clause declares that they shall include. As per the Appellant, words used in an inclusive definition denote extension and cannot be treated as restricted in any sense. 11.62 The Appellant submitted that the Hon ble Apex Court in the case of Bharat Coop. Bank (Mumbai) Ltd Vs Coop Bank Employees Union [2007 (4) SCC 685] observed that the term includes used in a legislature is enumerative but not exhaustive, to extend the scope so as to bring within it matters, which in its ordinary meaning may or may not comprise. Similarly, the Apex Court in the case of Regional Director Employees s State Insurance Corporation Vs High Land Coffee Works of Pfx. Saldanha S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that it is noteworthy that the explanatory notes referred by the AAR, Rajasthan are an inclusive definition and hence the scope is not exhaustive (but merely indicative) or limited to only the above specified services. An inclusive definition is expansive in nature and would cover all transactions possessing similar features. 11.71 The Appellant are of the view that the above submission finds support from the interpretative rules for the explanatory notes under the UNCPC which explains the non-exhaustive nature of the list of services mentioned therein. The relevant extract of interpretative rules under the UNCPC reads: 62. It should be noted that the explanatory notes are not intended to present an exhaustive list of all the products under each heading; they should be regarded only as lists of examples to illustrate the subclass content. 11.72 In light of the above, the Appellant submitted that the AAR, Rajasthan has ignored the interpretative rules mentioned in the UNCPC and arrived at erroneous conclusions based on its own assumptions and presumptions 11.73 The Appellant submitted that in view of the inclusive nature of the Explanatory Note which seeks t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 119) of the CGST Act, 2017 defines Works contract as follows: (119) works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract; The Appellant submitted that a look at the aforesaid definition would reveal that works contract includes within its ambit, inter alia, services relating to construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property. 11.79 The Appellant submitted that by concluding that the services performed by them are outside the purview of Heading 9986 merely because it is a works contract service, the impugned Ruling seems to have misread the law and tried to read something which does not exist. It is an established principle of law that one cannot go beyond the words used in a statue. In this regard, the following cases may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding 9986, therefore, there is no merit in the argument that the Heading 9986 does not cover activities which are in the nature of works contract. 11.85 Therefore, according to the Appellant, on this ground alone, the impugned Ruling is liable to be set aside. Submission VII: Alternatively, the subject services should be classified as other professional, technical and business services under heading 9983 11.86 The Appellant submitted that the impugned Ruling, at Para 5 states that, ...Other professional, technical business services are classified under Heading 9983. The heading covers other professional, technical and business services relating to exploration, mining or drilling of petroleum crude of natural gas or both. This heading covers pure services of other Professional, technical business related and not the services provided under the EPC contract which include engineering, procurement construction. As discussed in Para 5 above, the Appellant have to undertake designing, engineering, procurement, construction of customized facility, commissioning of permanent facility, test run hand over of complete facility so designed, constructed, tested commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 total is at or 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; 11.91 The Appellant submitted that the aforesaid definition of business is an inclusive definition. That it is a settled law that the term include is very generally used in interpretation clauses in order to enlarge the meaning of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ambit of Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both and consequently attract GST @12%. 11.95 The Appellant submitted that 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, they add that it has clarified that certain services such as technical and consulting services in relation to exploration would merit classification under Heading 9983 of the Rate Notification. The relevant extract of the Circular is reproduced herein below: 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; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the impugned Order seeks to classify the services provided by the Appellant under Entry no. (ii) of SAC Heading No. 9954 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 ( Rate Notification ) which provided a rate of tax for composite supply of works contract as defined in clause 119 of Section 2 of Central Goods and Services Tax Act, 2017 . According to them the Entry (ii) stands omitted vide Notification No. 03/2019 -Central Tax (Rate) dated 29.03.2019, effective from 01.04.2019 as under: (b) against serial number 3, - a. item (ii) and the entries relating thereto in columns (3), (4) and (5) shall be omitted; 12.2 It is settled principle of law that the basis of a Ruling or a decision must be in accordance with the provisions of law as it stood at the relevant time. See Carrier Point v. CCE [2018 (10) G.S.T.L. 213 (Raj.) [Pillar Inductions (I) Ltd. v. CCE [2004(166) E.L.T. 43 (Tri-Chennai)], CC v. Madras Aluminium Co. Ltd. [2016 (339) E.L.T. 295 (Tri-Chennai). Given that Entry (ii) under SAC Heading No. 9954 did not exist in statute book during the relevant period for which the Ruling is sought, the Ruling is bad in law and hence is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der heading 9986 . 12.7 The Appellant submitted that the findings in the impugned Order at Para 5 are that the classification of support services to oil and gas extraction under Heading 9986 is only applicable when the exploration/production had started and the support services do not include services supplied before the creation of the infrastructure for production, suffers from fallacy and complete non-consideration of facts. Without prejudice and even assuming this contention to be valid, the Order has utterly failed to appreciate the fact that the contract was awarded during the year 2018/2019 and the original production of oil and gas in the oil field had in fact started in the year 2010. Being one of the largest onshore oil discoveries in India, the information is readily available in the public domain. 12.8 The Appellant submitted that in terms of the Explanatory Notes, several support services including well casing, test drilling and exploration services, cementing etc. which are undertaken before commencement of production, also fall under the scope of the Heading 998621. Therefore, the findings in the Order that SAC Heading No. 998621 would only cover services whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e general interpretative rules which states that when services are classifiable prima facie under two headings, the same should be classified under the heading which occurs last in the numerical order. The Appellant are of the considered view that as Heading 9986 appears later to the SAC Heading No. 9954 in the numerical order, the services are classifiable under Heading 9986. Reliance has been placed on Biomax Life Sciences Ltd. v. CC. [2021 (375) E.L.T. 263 (Tri. - Hyd.)], CC (Port) v. Praman International [2019 (365) E.L.T. 846 (Tri.-Kolkata)], Paswara Impex Ltd. v. CC [2013 (292) E.L.T. 562 (Tri.-Ahmd)], Kamal Kachola v. CCE [2004 (174) E.L.T. 87 (Tru-Mumbai], 12.12 The Appellant submitted that by concluding that the services performed by tire Appellant are outside the purview of Heading 9986 merely because it is a works contract service, the impugned Order seems to have misread the law and tried to read something which does not exist. 12.13 The Appellant submitted that a plain reading of the Explanatory Notes to SAC Heading No. 998621 shows that it includes services such as well casing, cementing, pumping and abandoning of wells, derrick erection, etc. which requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions which are already submitted by them and nothing extra has been added. DISCUSSION AND FINDINGS 16. We have carefully gone through the entire material available on record, appeal papers filed by the Appellant, Ruling pronounced by the AAR Rajasthan, additional written submissions dated 18.01.2022, 16.03.2022 19.09.2023 made on behalf of the Appellant and oral submissions made by the authorized representatives of the Appellant at the time of personal hearing held on 11.01.2022 as well as on 13.09.2023. 17. Before proceeding to decide the appeal, we need to first decide as to whether the appeal has been filed within stipulated period (i.e. thirty days from the date on which the Ruling sought to be appealed against is communicated to the Appellant) prescribed under Section 100 (2) of CGST Act, 2017 or not. We find that the date of communication of the Order of AAR, Rajasthan to the Appellant was 21.09.2021 and the appeal was filed on the portal on 19.10.2021. Thus, we find that the Appellant have filed the appeal within statutory period of 30 days of date of communication of the Order of AAR. Therefore, we may proceed to decide the appeal. 18. We find tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant s analysis of the activity for classification C.1. Classification under support service of business- Heading 9986 C.2. Classification under other professional, technical business services- Heading 9983 D. Ruling pronounced by the AAR D.1. Classification suggested under SAC Heading No. 998621 rejected D.2. Classification suggested under Heading 9983, in the alternate, also rejected D.3. What is the correct classification E. Analysis of classification and rate of tax suggested by AAR F. Appellant s arguments against Ruling of AAR F.1. Non-existing entry suggested by AAR F.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il gas discoveries including Mangala, Bhagyam and Aishwariya fields, with significant gas potential in the southern area; (iii) Raageshwari Deep Gas (RDG), discovered in 2003, is a tight gas field situated in tire southern area and is under production since 2010 with significant infrastructure in place. (iv) Eighteen well pads are operational in the Mangala Field. A number of wells have been drilled in the aforementioned fields for exploration, development production of hydrocarbons. (v) The oil gas produced from these fields are collected and transported to a central processing facility at Mangala through a network of existing in-field pipelines. The central processing facility is also termed as Mangala Processing Terminal (MPT). The existing pipeline corridor at Mangala Field, between MPT and various well pads, has various exiting pipelines running through it. M/s Vedanta Limited have awarded EPC contract to the Appellant to have their services rendered at their oil and gas fields in the block. With a view to further augment facilities and infrastructure for enhancing the development of the RDG field in order to maximize the resource monetization with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arely in relation to that purpose. C.2. Classification under other professional, technical and business services-Heading 9983 The Appellant have submitted that the activities carried out by them can in the alternate be classified as other professional, technical and business services under Heading 9983 as the Appellant provide services by way of proper management of the project right from the detail design and planning of the project till its final test run, commission and hand over in fully functional form and 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, on behalf of M/s Vedanta Limited. D. Ruling pronounced by AAR: The AAR for Rajasthan has pronounced Ruling vide order dated 13.09.2021 rejecting the classification as sought by the Appellant under SAC Heading No. 998621 or under Heading 9983 and held that the supplies proposed to be undertaken by them are classifiable under Heading 9954. D.1. Classification sought under SAC Heading No. 998621 was reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by the Appellant under Entry SI. No. 3(ii) of SAC Heading No. 9954 of Notification No. 11/2017-Central Tax (Rate), dated 28.06.2017 which provided a rate of tax for composite supply of works contract as defined in clause 119 of Section 2 of Central Goods and Services Tax Act, 2017 but the said entry (ii) stands omitted vide Notification No. 03/2019-Central Tax (Rate), dated 29.03.2019, effective from 01.04.2019 and, therefore, the Ruling has classified the supplies under a non-existing entry of the rate notification. F.2. Nature of activity undertaken not appreciated: The Appellant have also contended that the findings in the impugned order of AAR to the effect that the classification of support services to oil and gas extraction under Heading 9986 is only applicable when the exploration/production had started and the support services do not include services supplied before tire creation of the infrastructure for production, suffers from fallacy and complete non-consideration of facts in as much as the contract was awarded during the year 2018/2019 and the original production of oil and gas in the oil field had in fact started in the year 2010 itself. F.3. Rules o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g No. 998621 of the Scheme of classification of services? G.2. Classification under Heading 9983: Whether the alternate suggestion of the Appellant seeking classification of the proposed supplies in question under Heading 9983 is acceptable in view of the nature of supplies proposed to be made by them? G.3. Classification under Heading 9954: Whether the classification as pronounced by the AAR under SAC Heading No. 9954 is sustainable and what is the effect of AAR s Ruling pronouncing tax rate as prescribed vide entry SI. No. 3(ii) of Notification No. 11/2017-CT(R), dated 28.06.2017 which stood deleted at the material point of time ? G.4. AAR s ruling- classification vis-a-vis rate of tax: What is the correct classification of the supplies proposed to be made by the Appellant in pursuance of the EPC Contract entered with M/s Vedanta Limited? H. Examination of submissions and analysis of evidence: In view of the questions framed by us for determination in these proceedings, we find that the nature of activities carried out by the Appellant in terms of the EPC Contract with M/s Vedanta Limited is required to be analysed and the submissions of the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we deem it appropriate to examine the nature of the activities proposed to be undertaken by the Appellant for effecting the supplies in terms of the EPC Contract. Some of the salient features of the EPC Contract relevant to the issues at hand, as contained in clause D-1-18 titled SOW for Development , referred to by the Appellant as containing the scope of services are reproduced below:- (A) The scope of Contractor includes, but is not limited to, pre-bid engineering, Site Surveys, verification of soil and topography data, FEED, Detail Engineering, Procurement, Fabrication, Manufacturing, Assembly, Inspection Testing, Packing, Shipping, Site establishment, Delivery and Unloading at site. Storage and Preservation, Complete Erection and Installation, Facilities Construction, Pipeline laying, Insulation, Painting, Dismantling, removal and disposal of existing facilities, Hooks-ups, Site Acceptance Testing, Pre-Commissioning Commissioning, RFSU, Performance Guarantee Test Run(s) (PGTR), Training of Company s Commissioning and Operations personnel, Project and Construction Management, Interface Management (Internal External) by Interface Management Team(IMT) and satisfacto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, sales, internal consumption, provisions to handle chemical dosages, scale, corrosion inhibitors etc. in future. (G) Contractor to design the well pad piping network and other facilities with flexibility to test the well(s) through Surface Well Testing unit (provided by others) without affecting other wells on the same pads. (H) All pressure vessels and columns shall be designed and constructed as per ASME Sec VII Div 1 and shall be code ASME U stamped. ASME U stamping is not required for vessels required in utility services such as air, water etc. (I) Contractor shall ensure that the new control systems i.e. PCS, ESD and FGS, being added for the RDG shall be properly designed and engineered to have seamless integration with the existing control system network in RGT and Well Pads, it shall be possible to view and operate RDG terminal, RGT and all well pads from new RDG control room. Contractor to note that the Existing control Room at RGT will be converted to unmanned control room. (J) Providing mobilizing all construction resources, as required, for execution of project. The construction team shall be fully equipped with all tools and tackles, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard, we observe that the broad Heading 9986 in the Explanatory Notes is titled as support services to agriculture, hunting, forestry, fishing, mining and utilities and the sub-heading 99862 is titled as support services to mining . SAC Heading No. 998621 has been described as follows:- 998621 Support services to oil and gas extraction This service code includes derrick erection, repair and dismantling services; well casing, cementing, pumping, plugging and abandoning of wells; test drilling and exploration services in connection with petroleum and gas extraction; specialized fire extinguishing services; operation of 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, cf. 998341 (iii) As can be seen from the language of the heading of the service, the service in question has to be in the nature of support to the main activity which is that of oil and gas extraction. There is no denying the fact that the activity of oil and gas extraction can be undertaken by using the infrastructure which is already in place. It, therefore, follows that there a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven in the Explanatory Notes which have already been discussed above. H.2.1 Details of EPC contract w.r.t classification under Heading 998621 (i) We observe that the EPC Contract which has been submitted by the Appellant describes the nature of activities undertaken by the Appellant in detail. Explaining the scope of the said document (EPC Contract), it has been mentioned in the introductory part that the existing capacity and facilities at the Raageshwari Deep Gas Field are being expanded to achieve higher production/ processing capacity. Explaining the design basis for new facilities it has been mentioned that with a view to ramping up the gas sales volume and to meet the sales gas requirement, a total of 42 new wells were required to be drilled and hydraulically fractured and this included five wells approved in original FDP and 37 new wells as part of revised FDP. In Section D. 1 of the EPC Contract it has been mentioned that keeping in view the RDG Field Production Profile as described in Para-D.1-3 and the overall surface facilities consisting of well pads and well fluid gathering pipelines, RDG Gas Processing Terminal and product and effluent evacuation facilities/ i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation unit to be designed at a rate of 70 MMSCFD sales gas rate. Another HCDP unit of 45 MMSCFD capacity Parallel to the above unit for catering to upside case of 135 MMSCFD sales gas. (C) Page-112: - New gas processing terminal processing scheme is devised with technically feasible and most favorable building blocks/technologies. The selected processing scheme of the new gas processing facility is schematically depicted in figure below. - Treated gas from the new conditioning unit and existing RGT to be compressed in common export gas compressor system to boost the pressure to required battery limit delivery pressure and sent to pipeline (being executed by third party) for sales after metering. (D) Page-113: - Condensate recovered from both the existing and new gas conditioning facility to be processed together in new condensate stabilization system to recover the stabilized and un-stabilized condensate product. The off-gas from condensate stabilization system is to be recycled back to the slug catcher with the help of a recycle gas compressor. (E) Page-114: Para- D1-7.1(a): Location Elevation of Well Pads and Well Counts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of various types of material such as concrete for foundation and structural steel material. The legal requirement part of the EPC Contract, in Para- D1-10, lists various approvals required to be obtained by the Appellant for RDG Phase-2B development which include environmental clearance and approval for construction from DGMS for new RDG Terminal, well pads and GSPL dispatch station with specific stipulation that construction approval before start of execution and commissioning approval before RFSU stage are essentially required to be obtained by the contractor. (v) We observe that the EPC Contract also contains provisions concerning land requirement and existing and new facility interface as follows:- (A) Para- D1-14: Land Requirement: The company (M/s Vedanta) has acquired the land for terminal, well pads and pipeline corridor and the contractor shall optimally plan the well construction and limit any modification works within the land already acquired by Company. Any additional land, as necessitated by Contractor for execution of works (temporary / construction aid / storage yard etc.) shall be arranged by Contractor at Contractor s sole risk and cost and is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y existing facilities at the RDG. (viii) Coming to the proposed classification under SAC Heading No. 998621 we observe that the said heading covers support services to oil and gas extraction which is self-explanatory in as much as the services proposed to be classified under this heading provide support to the main activity of oil and gas extraction and such activity of extraction eventually requires the infrastructure facilities established. These three parts of the entire gamut of oil and gas extraction are clearly distinguished from each other. Support service has to be essentially distinct from the main activity of oil and gas extraction. And establishment of infrastructure facilities in the form of well pads, pipelines, processing terminals besides control buildings, sub-stations, switchyards and fire stations, to illustrate a few, is clearly a distinct feature of the activity of oil and gas extraction. Hence, support service to oil and gas extraction is clearly distinguishable from establishment of infrastructure facilities for oil and gas extraction and the former cannot be confused with the latter. H.2.2 We observe that the description of the service in the explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planning of the project till its final test run, commission and hand over in fully functional form and 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, on behalf of M/s Vedanta. The Appellant have also referred to and relied upon the CBIC Circular to claim that the wordings used under the Heading 9983 of the Rate Notification is broad in nature, various services which are provided in relation to exploration, mining or drilling would fall within its ambit and attract GST @ 12%. (ii) On going through the explanatory notes, and as also clarified vide the CBIC Circular dated 11.10.2019 referred to above, we observe that the services relating to exploration, mining or drilling of petroleum crude or natural gas are described under Heading 9983, which are reproduced below:- 998341: Geological and geophysical consulting services: This service code includes provision of advice, guidance and operational assistance concerning the location of mineral deposits, oil and gas fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for augmentation of existing well pads, development of new well pads and for augmentation of well fluid gathering pipeline network and new gas processing terminal. These aspects of the contract of the Appellant cover such activities which do not answer the description of geological or geophysical consulting services or mineral exploration and evaluation services. This will be more clearly analyzed in the latter part of our analysis when the issue will be examined with reference to construction services. H.4: Construction Services under Heading 9954: (i) We observe that in response to the query by the Appellant as to what would be the correct classification of the supplies proposed to be undertaken by them in pursuance of the EPC Contract, the AAR has pronounced the Rulings dated 13.09.2021 declaring that the activities of supply, survey, designing, installation and commissioning of project under the EPC contract to be undertaken by the Appellant shall attract GST @ 18% under SI. No. 3(ii), Heading No. 9954, of Notification No. 11/2017-CT(R), dated 28.06.2017. However, the Appellant have challenged the said classification mainly on the ground that the supplies proposed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e omission of the given entry from the rate notification in question by itself does not make the instant supply eligible to lower rate of tax until other aspects of the Ruling concerning the description of the supply based on its nature and classification under the given heading are examined to determine the appropriate rate of tax. Hence, we observe that it is important to examine the other aspects of the Ruling with reference to the tine nature of the supplies as given in the EPC Contract. (iv) We observe that the AAR has pronounced classification of the supply under the SAC Heading No. 9954 relating to construction services with the observation that the supply being composite in nature and covered under the description of work contract as defined under clause (119) of Section 2 of the CGST Act, 2017. The Appellant have opposed the Ruling mainly on the ground that the said category of service i.e. construction service provides only a general description of the supply while support service to exploration, mining or drilling of petroleum crude or natural gas or both is a specific description of the supplies proposed to be undertaken by them. Though there is no denying the fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction activities including storage and issuance of materials, logistics. (K) Company has acquired the land for installation of proposed facilities. Contractor shall optimally plan the construction methods and limit the construction works within the land already acquired by Company. (L) New independent HP and LP intra-field well fluid gathering pipelines is to be considered from the three new well pads. These new pipelines to connect to the trunk lines at existing well pad WP-05. (M) A new 20 trunk pipeline is proposed to be laid from WP-05 to RDG terminal Parallel to existing 12 pipeline. (vi) On perusal of the provisions of the EPC Contract which have been summarized above, we observe that the Appellant have been assigned the task of construction of various facilities which are integral to the proposed gas production capacity enhancement from the Raageshwari Deep Gas Field. Buildings, pipelines, terminals, roads and grid power facilities are some of such constructions which form part of the contract. The contract clearly provides that the Appellant are responsible for satisfactory hand over of complete RDG Gas Processing Terminal with buildings, roads and pi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been used in the execution of the EPC contract as the Appellant are required to undertake the construction activities and after installation and commissioning of the entire facilities, handover the complete RDG Gas Processing Terminal along with buildings, road, pipelines etc. We are, therefore, in agreement with the AAR in holding that the composite supply of construction services and goods involved in the execution of the contract amount to supply of works contract service. Hence, we may refer to clause (119) of Section 2 of the CGST Act, 2017 which reads thus:- (119) works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract; (x) We observe that the supplies involving both services and goods as proposed to be undertaken by the Appellant are, thus, covered by the definition of works contract which being composite supply, is treated as supply of services in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification No. 11/2017- CT (R), dated 28.06.2017, as amended up to Notification No. 3/2019-CT (R), dated 29.03.2019 prescribes Central Tax @ 9% on the supplies proposed to be undertaken in terms of the EPC Contract and therefore, the supplies proposed to be undertaken by the Appellant attract tax at the rate of 18%. The Ruling pronounced by the AAR, therefore, needs to be modified up to that extent. 1. Some specific arguments In view of what has been discussed above, we observe that the issues involved stand addressed in the light of legal position which applies to the supplies proposed to be undertaken by tire Appellant under the EPC Contract. However, before concluding the matter, we deem it appropriate to discuss some points which have specifically been raised by the Appellant. These points are discussed as follows:- (i) The Appellant have argued in their written submission dated 18.01.2022 that the instant EPC Contract was awarded during the year 2018-19 whereas the original production of oil and gas in the oil field had started in the year 2010. Thus, the Ruling by the AAR suffers from fallacy in as much as the same has rejected classification under the category s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Procurement and Construction (EPC) Contract awarded by M/s Vedanta Limited for provision of services for development of Integrated Gas Surface Facilities for Raageshwari Deep Gas Field within RJ-ON-90/1 block and the Appellant have been assigned the responsibility to develop the infrastructure for surface facilities of three new well pads with 22 numbers of new wells. The scope of the work described in details in the contract clearly established that the supplies relate to construction of new facilities/infrastructure for gas extraction which is quite distinct from the support services to oil and gas extraction. What has been included in the support services under SAC Heading No. 998621 by way of inclusion clause has to be viewed with reference to support services and cannot be so interpreted to relate it to construction services. In that view of the matter, whether it be derrick erection or repair and dismantling services, well casing, cementing pumping, plugging and abandoning of well, all these activities have to be understood in the nature of support services only and none of them relates to creation of infrastructure or facilities for oil and gas extraction by way of construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess services relating to exploration, mining or drilling of petroleum crude or natural gas or both and attracts GST @ 12% in terms of SI. No. 21(ia) of Rate Notification. (3) Further, if the subject services are not classifiable under the aforesaid entry, what would be the appropriate classification for the same and at what rate GST would be imposable? (ii) Thereafter, the MAAR passed the Order No. GST-ARA-27/2020-21/B-38 dated 31.03.2022 and held that the services provided by Worley Services are neither covered under SI. No. 24(ii) nor under SI. No. 21(ia) of Rate Notification on the following grounds: The service code 998621 includes services provided to the oil and gas mining sector by way of actual participation in the mining activity and in the subject case, it is actually the EPC contractor who is giving support services to VEDANTA LIMITED by being responsible for all the engineering, procurement and construction activities to deliver the completed Projects. In view of this the impugned services are not covered under S. No. 24(ii) of the Rate Notification The Explanatory Notes to service code 998341 is restricted to geological and geophysical consul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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