Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that Cost Petroleum and Profit Petroleum cannot be said to be a consideration flowing from the Government of India to the assessee and that the components of “Cost Petroleum” and “Profit Petroleum” are inherent and embedded part of the Production Sharing Contract( PSC ). The two member bench of CESTAT has held that such components cannot be treated as “consideration” for the “services rendered” by the appellant.
The assessee M/s.Hardy Exploration and Production ( India ) Incorporation, earlier known as M/s. Vaalco Energy (India) Inc is into the business of exploration and production of crude oil and natural gas. The assessee is registered with the Service Tax Department. On the basis of intelligence that the assessee has not been paying service tax on the services of ‘Survey and exploration rendered by them as an “Operator” and on production cost recovered from the Petroleum produced, investigation was initiated against the assessee.
The assessee contended that the activity of survey or exploration of deposits of gases and oil done by the appellant would fall within the definition. The taxable service is given in Section 65 (105) (zzv) reads as “to any person, by any person, in relation to survey and exploration of mineral”. Assessee also pointed out that the Board Circular No.80/10 /2004-Service Tax has clarified that services in the nature of survey and exploration may result in locating of oil, crude etc. which implies that of whether the oil or crude is located, the activity falls under “survey and exploration services”. The assessee pointed out that the said services has been introduced with effect from 10.09.2004. The gross amount received by appellant in relation to such activity is chargeable to service tax prior to and after 1.7.2012.
The assessee further contended that in regard to the mining services, there is no definition of ‘mining’ in the Finance Act, 1994. However, in terms of Section 2 (1) (j) of Mines Act, 1952, ‘Mine’ means any excavation where any operation for the purpose of searching for or obtaining minerals has been or carried out and includes all bore holes, oil wells and accessary crude conditioning plants including the pipe conveying mineral oil within the oil fields. The assessee pointed out that taxable service has been defined in Section 65 (105) (zzzy) to mean any service provided or to be provided to any person, by any other person in relation to mining of mineral, oil or gas.
Revenue contended that the observations of the adjudicating authority are rendered by misinterpreting the provisions of the PSC, and thus has erroneously assumed that the relationship between the GOI and the operator (assessee) is that of an owner – contractor. Revenue further contended that by virtue of Article 28 of the PSC provides that title to petroleum shall be transferred to the contractors in accordance with the terms of the contract. The PSC also provides that the title to petroleum sold to Government, or its nominee shall get transferred at the delivery point.
The bench comprising Sulekha Beevi C.S ( Member, Judicial ) and Vasa Seshagiri Rao (Member, Technical) has held that “cost petroleum” and “profit petroleum” cannot be treated as “consideration” for the “services rendered” by the appellant. The bench noted that these are inherent and embedded part of the Production Sharing Contract( PSC )
Assessee was represented by K.Shivarajan. Revenue was represented by Rudra Pratap Singh
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