TMI Blog2024 (3) TMI 1262X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible for rate of tax prescribed vide entry serial number 21(ia) of Notification No. 11/2017-CT(R), dated 28.06.2017? or is classifiable under SAC Heading No. 9954? - HELD THAT:- 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 are three distinct successive stages in the entire gamut of oil and gas extraction which contribute to completion of the work of oil and gas extraction. For the services to be eligible to classification under the instant SAC Heading No. 998621, it is required that the service should support the main activity of oil and gas extraction by the infrastructure put in place for the purpose. From the detailed scope of work as mentioned in the EPC Contract, brief extracts of which have been reproduced above, we observe that M/s Vedanta Limited has planned to undertake major expansion in their production and processing capacity with consequent increase proposed in the sales and the instant EPC Contract has been awar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said service code includes construction services for mining and related facilities associated with mining operations. Since, oil and gas exploration is also a form of mining; therefore, the construction services proposed to be supplied by the Appellant for constructing facilities for handling the increased production capacity are appropriately classifiable under the SAC Heading No. 9954 - so far as classification of the supplies proposed to be undertaken by the Appellant are concerned, the composite supply in the instant cases shall be treated as supply of service defined as works contract and the pronouncement of the AAR, therefore, needs no interference up to that extent. As already observed by us, entry Sl. No. 3(ii) of Notification No. 11/2017-CT (R), dated 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, it is observed that up to Notification No. 3/2019- CT (R), dated 29.03.2019, major changes have been made in the said entry under Sl. No. 3 of the basic Notification No. 11/2017-CT (R), dated 28.06.2017 to provide for different r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act, 2017 ('RGST Act') having registration number 08AABCL5967DIZE. 2. The Appellant have informed that Cairn (Vedanta's upstream Oil Gas vertical) is the operator of Onshore RN-ON-90/1 block which is located in Barmer basin and having various Oil and gas discoveries, including Mangala, Bhagyam and Aishwariya fields, collectively known as MBA field, as the major producing field along with marginal producing satellite fields. The productions from various well pads of MBA other satellite fields are processed at the Mangala Processing Terminal ( MPT') at Barmer district of Rajasthan. 3. With a view to further augment facilities and infrastructure for enhancing the liquid handling capacity from 800 KBLPD to 1300 KBLPD at MPT based on the projected production scenarios expected increase in total liquid, the Appellant have entered into an Engineering, Procurement and Construction Contract ( EPC contract ) with Vedanta Limited in January, 2019 for construction of customized additional infrastructure facilities under Vedanta's Mangala Upgradation Project Stage 2 FPC 2 or MUPS2-EPC2 Project at Mangala wells ( subject services ). The Appellant have provided a copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of works. b) Providing and mobilizing all engineering procurement resources for execution of project. c) Providing and mobilizing all construction resources for execution of project. The construction team is primarily responsible for performing pre-construction activities, review of all the construction/fabrication drawings prior to start of site construction and updating same as per actual site conditions etc. d) Appraisal and taking cognizance of site-conditions, Government rules regulations, bye-laws, applicable codes standards, requirements of authorities having jurisdiction over the work site(s), environmental pollution concerns including conditions/ stipulations laid downs by concerned authorities etc. e) Obtaining all necessary approvals work permits from concerned authorities for performing the work, including shifting' relocation of existing facilities other utilities, etc. f) Coordinating with vendors, suppliers, fabricators to perform all activities including expediting, inspection testing, transportation, loading/unloading, storing, shifting liaison with the authorities, etc. g) Identifying planning access to sites as may be required for construction of project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) of heading 9986 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 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 the applicant are classified under 'Professional, Technical or Business Service relating to exploration, mining, or drilling of petroleum crude or natural gas or both' under Sr. No. 21(ia) (Professional, Technical or Business Service to Mining) of the Rate Notification. and attracts GST @ or Sr. No. 21 (ia) of Heading 9983 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 and attracts GST @ 12%. Answer - No. Question - 3 - Further, if the subject services are not classified under any of the aforesaid entry, what would be the appropriate classification for the same and what rate GST would be imposable? Answer - The activities of supply. designing engineering, installation, Commission of project under EPC contract by the Appellant shall attract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner v. Sree Ganesar Textile Mills Ltd, 2015 (321) E.L.T. A270 (S.C.); Commissioner v. Bihariji Manufacture Co. Pvt. Ltd., 2015 (323) E.L.T. A23 (S.C.); Commissioner v. Modern Denim Ltd., 2006 (199) E.L.T. A181 (S.C); Kirloskar Oil Engines Ltd. v. Commissioner of Central Excise, Nashik, 2017 (349) E.L.T. 299 (Tri. -Mumbai): Walters Kluwer India Ltd v. Commissioner of Service Tax, 2014 (36) S.T.R 396 (Tri-Del.); Industrial Filter Fabrics Pvt. Ltd. v. Commr. of C. Ex., Indore, 2014 (307) E.L.T. 131 (Tri. - Del.) 11.4 That the Appellant submitted that Vedanta has decided to undertake a project for up-gradation of the MPT wherein, as part of increasing the overall liquid handling capacity at the processing terminal, various infrastructure facilities are required to be upgraded at the processing terminal and well pads. For this purpose, the Appellant have entered into contract to undertake infrastructure augmentation. 11.5 The Appellant set out the relevant text of the Heading 9986 as figures in the Rate Notification: Support services to exploration. mining or drilling of petroleum crude or natural gas or both. As per the appellant, a look at the aforesaid provision would revea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of derricks erection, their repair and dismantling services. (b) Well casing, cementing, plugging abandoning of wells; Well casing is a tubular structure placed in the drilled well to maintain the well opening, while well cementing is performed by circulating a cement slurry through the inside of the casing and out into the annulus through the casing shoe at the bottom of the casing string. Well plugging and abandoning is carried out when a well is no longer economically producing oil and natural gas, the well is evaluated for retirement and will undergo a process called plug and abandonment. These kinds of services are also covered in Heading 9986. (c) Test drilling and exploration: Test drilling and exploration are carried out to identify and discover possible areas where wells can be drilled for the purpose of carrying out mining. (d) Fire extinguisher services: Extinguishers are installed as pan of petroleum extraction infrastructure to ensure safety from spreading fire during extraction. Exploration drilling and tire extinguisher services are also covered within the scope of Heading 9986. 11.10 The Appellants submitted that a cumulative reading of the detailed nature of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vered therein and the heading includes a host of other activities which form part of the oil and gas extraction. 11.16 As stated above by the Appellant, the Heading 9986, inter alia, Includes within its ambit, services in the nature of derrick erection and repair, well casing, cementing etc. It also covers test drilling and exploration services . If the contention of the AAR, Rajasthan that Heading 9986 would only cover services which are provided after creation of infrastructure and facility of exploration, is to be accepted, it would apparently lead to absurdity since Heading 9986 itself covers test drilling and exploration within its ambit. Therefore, by stressing on its exclusion, the AAR, Rajasthan is clearly going against the established principle of interpretation that one cannot go beyond the words of the statute. In this regard, reliance is placed on the following decisions wherein it has been held that one should adhere as closely as possible to the literal meaning of the words used: a) Commercial Taxes Officer v. Bombay Machinery Store, 2020 (36) G.S.T.L 161 (S.C.) b) Union of India v. Ind-Swift Laboratories Ltd., (2011) 4 SCC 635 c) Bansal Wire Industries Ltd. v. State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acilities at Mangala oil field. Such scope includes the following activities to be performed/ installations to be done: a) Augmentation of Liquid handling capacity b) Augmentation of Produced water treatment facility c) Augmenting existing Injection Water System capacity d) New Back Wash System e) New LP Steam condensate system at MP f) Augmenting Instrument Air Nitrogen Capacity g) Augmenting of other facilities 11.25 The Appellant submitted that a perusal of the aforesaid activities would reveal that they are essentially part of the overall development of the oil field wherein the catering to the increased liquid handling facility is squarely in relation to that purpose. 11.26 In view of the above, it can be seen that the activities performed by the Appellant under the EPC contract are directed towards up-gradation of the processing terminal and well pads are indelibly linked to the petroleum operations carried out by Vedanta at the RJ block. 11.27 The Appellant reiterated that the impugned Ruling, at Para 5 states that, ..Support services shall include the services to be provided for exploration, once the infrastructure/facility for exploration is built complete in all respect a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e increase in production capacity of the oil field. 11.32 In the light of the above, given that the activities performed by the Appellant are inextricably linked to the petroleum operations, the Impugned Ruling pronounced by the AAR, Rajasthan lacks the legal and factual basis, and accordingly is liable to be set aside. Submission III: Specific description should prevail over general description 11.33 The Appellant submitted that, without prejudice, if at all the activities performed by them appear to fall under SAC Heading No. 9954 as against SAC Heading No. 9986, still, in terms of the Rules of Interpretation, the classification entry giving more specific description to the activities performed by the Appellant shall apply over the entry providing a more general description 11.34 The Appellant submitted that the reference is made to the Rules of Interpretation falling under the UNCPC which gains significance for the purpose of classification under the GST law because the Explanatory Notes to the Scheme itself -is based on the same. 11.35 The relevant extract of the interpretative rules enshrined under the UNCPC provides thus: 56. the CPC, the classification of products other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... description overrules a general description: Ascent Meditech Ltd. v. CCE, Vapi [2014 (309) E.L.T. 712 (Tri - Ahmd.)] [Affirmed in 2015 (320) ELT A281 (Supreme court)] Pepsico India Holdings Pvt. Ltd. v. Dy Commercial (A) IV, Commercial Taxes, Jaipur [2018(16) G.S.T.L. 249 (Raj.)] Dabur India Ltd. v. CCGST [2020(34) G.S.T.L. Sanwar Agarwal v. Commissioner of Customs (Port) [2016 (336) E.L.T. 42 (Cal.)] 11.40 The Appellant submitted that without prejudice to the above submission that heading 9986 provides a more specific description when compared to the general entry under heading 9954 that even in case where the headings merit equal consideration, resort must be taken to clause (c) of the general interpretative rules. They submitted that an application of clause (c) of the interpretative rules quoted above also warrants classification under Heading 9986. 11.41 The Appellant submitted that as per the said rule, 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 therefore are of the view that as heading 9986 appears later to the SAC Heading No. 9954 in the numerical orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11/2017 Central Tax (Rate) dated 28.06.2017 and GST @ 18% (9% CGST 9% SGST) is payable. . They submitted that, the AAR, Rajasthan proceeded to ride on the subject services as classifiable under Heading 9954(ii). 11.47 The Appellant also submitted that the AAR, Rajasthan failed to apply the applicable provisions of the Rate Notification and missed the relevant provisions in force for the period in respect of which the present Ruling was sought. 11.48 The Appellant submitted that the AAR, Rajasthan has approached the entire issue with a premeditated mind and with the singular objective of rejecting the benign rate of GST on the services provided by them in as much as the impugned Ruling seeks to classify the services under a classification entry which was not even in force during the period for which the Ruling was sought. 11.49 The Appellant set out the relevant provisions of the SAC Heading No. 9954 (ii) as follows: (ii) Composite supply off works contract as defined in clause 119 of Section 2 of Central Goods and Services Tax Act, 2017. 11.50 The Appellant submitted that the aforesaid provision existed in the statue books since 28.06.2017. Thereafter, vide Notification No. 03/2019 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extraction This service code includes derrick erection, repair and dismantling services: well casing, cementing, pumping, plugging and abandoning 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 11.57 The Appellant submitted that on a reference to the above, it can be seen that the aforesaid services include, well casing, cementing, pumping, plugging and abandoning of wells, test drilling and exploration services in connection with petroleum and gas extraction. According to the Appellant, a look at the nature of services covered in the aforesaid entry reveals that it includes services relating to oil wells which include its cementing, pumping, casing, plugging and abandonment. Further, the entry also includes, inter alia, test drilling in connection with the petroleum and gas. 11.58 The Appellant further stated that the relevant Explanatory Note uses the expression includes which means that the activities which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inextricably linked to mining operations ought to be covered within the scope of the Heading 9986. The mining and petroleum operations include a wide range of inter-related and inter-dependent activities which are indelibly linked to each other and help forming a coherent value chain. 11.63 The Appellant reiterated that under the EPC Contract, their scope of work involves up gradation of various liquid handling facilities at Mangala oil field. Such scope includes the following activities to be performed/ installations to be done, Augmentation of Liquid handling capacity Augmentation of Produced water treatment facility Augmenting existing Injection Water System capacity New Back Wash System New LP Steam condensate system at MP Augmenting Instrument Air Nitrogen Capacity Augmenting of other facilities From this, the Appellant find it evident that they are providing support services to Vedanta by carrying out the up-gradation of the processing terminal and well pads, 11.64 Therefore, according to the Appellant, construction of such facilities forms an indispensable part of the support activities for mining and petroleum operations and the inclusive list provided in the Explanatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been pronounced by the AAR, Rajasthan is incorrect, and without any legal basis. Clearly, the nature of activities performed by the Appellant are covered within the scope of Heading 9986, and therefore, the impugned Ruling is liable to be set aside Submission VI: The scope of the Heading 9986 does not exclude works contract services. 11.73 The Appellant submitted that the entire basis of the impugned Ruling seems to rest on the fallacious understanding of the kind of services and activities which are covered within the Heading 9986 and the activities performed by the Appellant under the EPC contract. 11.74 As per the Appellant, the impugned Ruling, at Para 7, states that, The contract is for the engineering, procurement commissioning of MUPS2-EPC-2 project including various infrastructure facilities. all commissioned. What would be transferred is the project including the civil work and land involved in the project. Various civil structure would be created various equipment would be installed.. In case of this contract the said project cannot be shifted anywhere; it is essentially of the nature of immovable property. The project after completion at the time of transfer will be im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcular 114, it is also beyond doubt that most of the support services which are associated with , inter alia , petroleum operations are covered under Heading 9986. 11.79 The Appellant submitted that one of the basis on which the AAR, Rajasthan denied the benefit of Heading 9986 to the activities performed by them is that its activities are in the nature of works contract services which are not covered under Heading 9986. The Appellant reiterated that in terms of Circular 114, which defines the scope of the Heading 9986, the following services are included within its ambit: (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 11.80 According to the Appellant, a reading of the aforesaid list of indicative services would reveal that many of the aforesaid services are in the nature of works contract. Services like well casing, cementing, pumping and abandoning of wells, derrick erection, etc. are such services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x leviable on the services that merits classification under the Heading 9983, The relevant portion of the said entry is reproduced herein below: S. No. Heading Description of services Rate 21 Heading 9983 (Other professional, technical and business services) (ia) Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both 12% 11.87 The relevant portion of Heading 9983 as prescribed under the Scheme of Classification is as follows: S. No. Chapter Section Heading or Group Service Code (Tariff) Service Description (1) (2) (3) (4) 296 Heading 9983 Other professional, technical and business services 11.88 The Appellant submitted that on a bare reading of the aforesaid heading and corresponding service description, it is seen that the said entry is broad in its entirety, as it includes business services. The term 'business' has been defined under Section 2(17) of the CGST Act, which is reproduced herein below for ease of reference: (17) 'business' Includes (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided relating to mining, would merit classification under the said entry. The phrase 'relating to' or 'in relation to' is a very broad expression and has a wide ambit. The Hon bie Supreme Court in Daypack Systems (P) Ltd vs. UOI, [1988 (36) E.L.T. 201 (SC)] has held that the term 'in relation to' is a very broad expression, which pre-supposes another subject matter. The Appellant are of the view that these are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context. They add that term 'relating to' has been held to be equivalent to or synonymous with 'concerning with' and 'pertaining to'. Therefore, they submitted that entry (ia) of Sr. No. 21 includes a broad range of services which pertain or concern with the activity of mining. 11.92 The Appellant submitted that the services provided by them are in relation to the mining activity of Vedanta, as stated above in detail. Hence, in the present case, they submitted that the supply of services by the Appellant to Vedanta in relation to the mining activities under the project merits classification under Heading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both', and resultantly, attract GST @ 12%. According to the Appellant 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. 11.96 The Appellant submitted that without prejudice to the submissions made above the supply of services made by them 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. Therefore, according to the Appellant, on these grounds as well, the impugned Ruling pronounced by the AAR, Rajasthan is liable to be dismissed. PERSONAL HEARING 12. A virtual hearing in the matter was held on 11.01.2022. Sh. Rohit Jain, Advocate and Sh. Rahul Khurana, Advocate, Authorized Representatives of the Appellant attended the hearing. They reiterated the submissions already made under grounds of ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntling 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 As per the Appellant the use of the term includes implies an expansion in scope of the term and should be given a wide connotation. See Tetragon Chemie Private Limited and Ors v. CCE and Ors [2001 (138) ELT 0414 Tri-LB], Stove Kraft Pvt. Ltd. v. State of Karnataka [2006(2) TMI 603], Bharat Coop. Bank (Mumbai) Ltd v. Coop Bank Employees Union [2007(4) SCC 685], Regional Director Employees's State Insurance Corporation v. High Land Coffee Works of Pfx. Saldanha Sons [1991(7) TMI 367] 12.6 The Appellant submitted that the expansive scope of entry 998621 is re-iterated in the CBIC Circular No. 114/33/2019-GST dated 11.10.2019 which specifically states that Most of the activities associated with the exploration, mining or drilling of petroleum crude or natural gas fall under heading 9986 . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se based on its description, the most specific description shall be preferred over a more general description. 12.10 According to the Appellant, the impugned Order has failed to consider the submission that SAC Heading No. 9954 is a general entry which is applicable for works contract services. They added that even if it is to be assumed that the supply of services under the EPC contract is a composite supply in the nature of a works contract, the service will still merit classification under SAC Heading No. 998621 which is a specific entry for services that support the activity of oil and gas extraction, They have placed reliance upon Ascent Meditech Ltd. v. CCE, Vapi [2014 (309) E.L.T. 712 (Tri. -Ahmd.)] [Affirmed in 2015 (320) ELT A281 (Supreme Court)], Pepsico India Holdings Pvt. Ltd. v. Dy. Commercial (A) IV, Commercial Taxes, Jaipur [2018(16) G.S.T.L. 249 (Raj.)], Dabur India Ltd. v. CCGST [2020(34) G.S.T.L. 9(All.)], Sanwar Agarwal v. Commissioner of Customs (Port) [2016 (336) E.L.T. 42 (Cal.)]. 12.11 The Appellant submitted that even in case where the headings merit equal consideration, resort must be taken to clause (c) of the general interpretative rules which states that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices relating to exploration and extraction of oil and gas which are not specifically covered under the Heading 9986, would fall under Heading 9983 under Sr. No. 21(ia) of Rate Notification and attract 12% GST. 13. Further, the Appellant vide email dated 16.03.2022 have also submitted additional submission which is brief of ground already submitted during appeal and additional submissions already submitted by them. Nothing extra has been added. 14, Due to change of Members of AAAR, another personal hearing was held on 13.09.2023, in which Sh. Rohit Jain, Advocate and Sh. Rahul Khurana, Advocate, authorized Representatives of the Appellant appeared attended the hearing. They reiterated the submissions already made under grounds of appeal and the submissions made by them vide letters dated 18.01.2022 16.03.2022. During the hearing, Counsels provided executive summary of the submissions dated 13.092023, which is a brief of grounds already submitted during appeal and additional submissions already made by them. 15, The Counsel vide letter dated 19.09.2023 (received on mail on 20.09.2023) made additional submissions which are already submitted by them and nothing extra has been added. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g gone through the submissions made by the Appellant both in the application seeking advance Ruling and in the instant appeal vis-a-vis the Advance Ruling pronounced by the AAR for Rajasthan we deem it appropriate to examine the matter at length based on the documents submitted by the Appellant order to arrive at a finding in accordance with the legal provisions governing the subject. To facilitate analysis, the detailed examination and findings based thereon have been divided into the following Sections:- Section Sub- Section Description A. Activity in brief as narrated by the Appellant B. Appellant's understanding of law on the subject B.1. Main Contention as to classification of supply B.2. Alternate classification suggested C. Appellant'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 cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll pads, has various exiting pipelines running through it. With a view to further augment facilities and infrastructure for enhancing the liquid handling capacity from 800 KBLPD to 1300 KBLPD at MPT based on the projected production scenarios expected increase in total liquid, the Appellant have entered into an Engineering, Procurement and Construction Contract ( EPC contract ) with Vedanta Limited in January, 2019 for construction of customized additional infrastructure facilities under Vedanta's Mangala Up-gradation Project Stage 2 EPC - 2 or MUPS2-EPC2 Project at Mangala wells B. Appellant s understanding of law on the subject: The Appellant have referred to the rules of interpretation of the United Nations Central Product Classification as also CBIC's Circular No. 114/33/2019- GST, dated 11l.10.2019 and argued that the services they supply can be defined as support services to oil and gas extraction deserving classification under Heading 998621. B.1. Main contention of the Appellant is that the activities performed by them in accordance with their contract with M/s Vedanta Limited deserve to be classified under SAC Heading No. 998621 as most of the activities associated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs vide order dated 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 rejected: The first question of the Appellant as to whether the services provided by the appellant are classifiable under Sr. No. 24 (ii) of heading 9986 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as 'Support services to exploration, mining or drilling of petroleum crude or natural gas or both' and attracts GST @ 12%. has been answered by the AAR in negative D.2. Classification sought under heading 9983, in the alternate was also rejected: The question of the Appellant as to whether the services provided by the applicant are classified under 'Professional, Technical or Business Service relating to exploration. mining, or drilling of petroleum crude or natural gas or both' under Sr. No. 21 (ia) (Professional, Technical or Business Service to Mining) of the Rate Notification. and attracts GST @ 12% or Sr. No. 21(ia) of Heading 9983 of Notification No. 11/2017- Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not include services supplied before the 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 8/2019 and the original production of oil and gas in the oil field had in fact started in the year 2010 itself. F.3. Rules of classification not referred: We also observe that the Appellant have contended that the rules of classification as per the explanatory notes require that if at all the services performed by the Appellant appear to be falling under SAC Heading No. 9954 as against Heading 9986, still, in terms of the cardinal rule of interpretation for purposes of classification of goods and services, the classification entry giving a more specific description to the activities performed by the Appellant shall apply over the entry providing a, more general description. It is their contention that SAC Heading No. 9954 is a general entry which is applicable for works contract services while even if the services supplied under the EPC contract are considered to be a composite supply in the nature of a works contract, the service will still merit classification under SAC Heading N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Appellant need to be examined in the light of the EPC Contract in question as the determination of the questions depend upon the true nature of the activities proposed to be carried out by the Appellant. H.1 Nature or activities as per the EPC Contract: (i) We observe that in the appeal dated 19.10.2021 praying for setting aside of the Ruling dated 13.09.2021 pronounced by the AAR, the Appellant have stated that with a view to further augment facilities and infrastructure for enhancing the liquid handling capacity to 1300 KBLPD at MP T based on the projected production scenarios expected increase in total liquid, the Appellant have entered into an Engineering, Procurement and Construction Contract ( EPC contract ) with Vedanta Limited in January, 2019 for construction of customized additional infrastructure facilities under Vedanta's Mangala Upgradation Project Stage 2 EPC 2 or MUPS2-EPC2 Project at Mangala wells ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioning and Operations personnel, Project and Construction Management, Interface Management (Internal External) by Interface Management Team(IMT) and satisfactory handover to company of the facilities forming an integral part of Mangla upgradation with applicable hook-up tie-in with the existing proposed facilities. (B) Contractor's scope also include providing mobilizing all project management resources and all construction resources, as required, (C) Contractor shall deploy all resources (including manpower, tools tackles, equipments etc.) for execution of the work. Contractor shall supply labour, materials, equipments, spare parts and accessories, construction equipment, construction utilities and supplies, temporary materials, structures and facilities. (D) Contractor shall deploy requisite resources for design engineering, procurement supply, fabrication installation, construction, testing, inspection pre-commissioning and commissioning of the facilities. (E) Contractor shall be responsible for performing the design detailed engineering including feed verification of the facilities proposed to be installed as part of EPC-2 project. (F) Various documents proposed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 are three distinct successive stages in the entire gamut of oil and gas extraction which contribute to completion of the work of oil and gas extraction. For the services to be eligible to classification under the instant SAC Heading No. 998621, it is required that the service should support the main activity of oil and gas extraction by the infrastructure put in place for the purpose. Before we proceed further to examine the scope of services to be supplied by the Appellant, we may make it clear that the narration under the said SAC Heading No. 998621 seeks to enlarge the scope of the service by declaring that some of the activities shall also be included in the scope of the support services. Inclusion clause, therefore, expands the scope Of the service which has to be understood by the words employed to describe it. Hence, it is evident that any service that supports the activity of oil and gas extraction comes within the purview of the instant SAC Headi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges are as follows:- ( A) Page-408. 4.1 Augmentation of Liquid Handling capacity: The production fluid from cluster 'D shall be routed to a new slug catcher V-240 to handle 420 KBLPD 17 MMSCFD of liquids and gas respectively form the wells, The separated oil is pumped by new oil slug catcher shall be operating at 3.5 barg. A Piping bypass across the existing HIP PS systems shall also be installed to reduce the pressure drop in the existing system. A new HIPPS Z-204 shall be installed before the new slug catcher. (B) Page-409. 4.2 Augmentation of Produced Water Treatment facility: The total water handling capacity of existing produced water treatment system is - 1200 KBWPD (skim tanks + Retrofitted depurators + converted Export Oil tanks). De-oiled water pumps skim oil pumps of the existing facility had been relocated elsewhere in the plant. Hence, new Skimmed Oil pumps P-408J/K/L De oiled water Transfer Pumps P 406J/K/L are required and shall be located at the existing location and hooked up with the existing Piping and shall be executed as part of this scope. 4.3 Augmenting Existing Injection Water System Capacity: - The Injection water system consists of IW tanks, IW Booster ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant in this regard is that the scope of Heading 9986 does not exclude Works Contract Service. As can be seen from the appeal as also from the EPC Contract submitted by the Appellant, 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 Pam-9.5 titled Construction of process Facilities at MPT/Well pads- construction of the new facilities shall be performed after proper survey, designing, ground scanning, leveling of site including cutting 'filling of land, fencing, barricading, display of appropriate warning, construction of all types of buildings/sheds/control rooms/ sub- stations buildings, cross over platform, drainages, roads, boundary walls, fencing gates etc. (iv) From the provisions of the EPC Contract as discussed above we find that the Appellant have been tasked with installation and construction of the proposed facilities concerning the augmentation of Liquid Handling capacity along with various infrastructure which is aimed at capacity expansion of MPT. (v) From perusal of the said scope of work we observe that the Appellant are Obliged by the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant have been tasked with establishment of infrastructure facilities for oil and gas extraction, the activities undertaken by the Appellant in pursuance of the EPC Contract cannot, by any stretch of imagination, be said to be support services to oil and gas extraction. The distinction between the activities undertaken by the Appellant in terms of the EPC contract and the activities included in the definition of SAC Heading No. 998621 is strikingly clear. Therefore, we hold that the activities undertaken by the Appellant in pursuance of the EPC Contract cannot be classified under SAC Heading No. 998621 as these are not in the nature of support services to oil and gas extraction. H.3. Ingredients of services classifiable under Heading 9983: (i) We also observe that the Appellant have, in the alternate, claimed classification of the supplies proposed to be made by them under Heading 9983 as 'Other professional, technical and business services relating to exploration, milling or drilling of petroleum crude or natural gas or both' as also covered by entry at Sl. No. 21(ia) of the Rate Notification. It is their contention that the said entry uses the phrase 'relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n own account basis. Note: This intellectual property product may be produced with the intent to sell or license the information io others. (iii) On analysis of the contents of the explanatory notes above, we observe that so far as SAC Heading No. 998343 is concerned, the same has a very narrow scope/limited coverage of mineral exploration and evaluation information which is certainly not the activity proposed to be undertaken by the Appellant in pursuance of the instant EPC Contract as already discussed at length above. Thus, we find it difficult to agree to the suggestion that the activities undertaken by the Appellant fall under the said SAC Heading No. 998343. However, SAC Heading No. 998341 covers a wide range of activities which include provision of advice, guidance and operational assistance concerning the location of oil and gas fields including feasibility studies. But, we observe that the Appellant have not proposed to undertake any such activity rather the Appellant have proposed to undertake establishment/ creation/construction of infrastructure facilities for oil and gas extraction which are quite different and distinct from the advice concerning location of gas fields ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill still merit classification under Heading 9986 which is a specific entry for services that support the activity of mining of natural gas. (ii) The Ruling pronounced by the AAR has been contested by the Appellant that it is based on a non-existent provision of law. We deem it appropriate to first examine the Ruling vis-a-vis the contention accordingly. On examination of the Ruling, we observe that the Ruling consists of three different parts. Fist part of the Ruling declares that the supplies proposed to be undertaken by the Appellant answer to the description of works contract service. Second part of the Ruling suggested classification of the supplies under Heading 9954. And according to the third part of the Ruling, the supplies proposed to be undertaken by the Appellant attract GST @ 18% in terms of entry at Sl. No. 3(ii) of Notification No. 11/2017-CT(R), dated 28.06.2017. (iii) We observe that there is no denying the fact that Notification No. 11/2017-CT(R), dated was amended vide Notification No. 3/2019-CT(R), dated 29.03.2019 whereby entry at Sl. No. 3(ii) of Notification No. 11/2017-CT(R), dated 28.06.2017 was omitted with effect from 01.04.2019. Admittedly, entry at Sl. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g all project management resources for performance of works. The project management team is to be fully equipped with planning/ scheduling software and analysis tools manned with competent and experienced manpower complete with sound project management, reporting, and project control system. (D) Performing construction activities, review of all the construction/ fabrication drawings prior to start of site construction and updating same as per actual site conditions, etc (E) Appraisal and taking cognizance of site-conditions, government rules regulations, bye-laws, applicable codes standards, requirements of authorities having jurisdiction over the work site(s), environmental pollution concerns including conditions/ stipulations laid downs by concerned authorities, etc as per Contract SOW (F) Obtaining all necessary approvals work permits from concerned authorities for performing the work like shifting/ relocation of existing facilities other utilities, etc. (G) Ensure safe and acceptable testing. (H) Surplus/waste material are to be removed from sites. (I) Conduct a performance guarantee test run for the complete system prior to handing over the plant to Vedanta. From perusal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onflict suggesting preference to specific description under SAC Heading No. 998621 to general description under SAC Heading No. 9954 because the nature of activities clearly indicates that the supply is classifiable under SAC Heading No. 9954. (viii) We further observe that the instant matter in hand does not simply involve supply of services only, rather as mentioned in the EPC contract and as also admitted by the Appellant in the appeals, supply of goods is also involved in the contract and such goods have been used in the execution of the EPC contract as the Appellant are required to construct the Complete Pipeline Network/System and its handover 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , supply by way of services specified at items (i), (ia), (ib), (ic). (id). (ie) and in column (3) shall attract central tax prescribed against them in column (4) subject to conditions specified against them in column (5) and shall not be levied at the rate as specified under this entry. (xii) We observe that the said item (xii) of entry at Sl. No. 3 of Notification No. 11/2017- CT (R), dated 28.06.2017, as amended up to Notification No. (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 0. The Ruling pronounced by the AAR, therefore, needs to be modified up to that extent. I. 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 the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity for exploration. In this regard, we observe that classification of the supplies depends upon the scope of the work assigned to the Appellant which has already been discussed at length in the above Paras. As can be seen the contract in the instant case is an Engineering, Procurement and Construction (EPC) Contract awarded by M/s Vedanta Limited for provision of services for augmentation of Liquid handling capacity along with Surface Facilities at MP T within RJ-ON-90/1I block and the Appellant have been assigned the responsibility to develop the infrastructure for surface facilities. The scope of the work described in details in the contract clearly established that the supplies relate to construction of new facilities/ infrastructure for oil gas extraction which are quite distinct from the support services to oil and gas extraction. What has been included in the support services under Heading 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) Alternatively, whether the services provided by the Appellant are classified under S. No. 21 (ia) of heading 9983 of the Rate Notification as Other technical and business services relating to exploration, mining or drilling or 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 Sl. 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 FPC 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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