The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) observed that no service tax can be levied on ONGC on the consideration received for the right to use natural resources.
The Department was of the view that as a recipient of service, M/s.ONGC Karaikal is liable to pay Service Tax in respect of services viz, rights to use of natural resources for exploration and production of crude and oil provided by Government of Tamil Nadu under reverse charge mechanism.
It was also viewed that the appellant had not discharged service tax on the royalty paid by them to the Government of Tamil Nadu during the period April 2016 to June 2017. Show Cause Notice was issued to the appellant proposing to demand the short paid service tax along with interest and for imposing penalties.
It was submitted by the appellant that the rendering of the alleged services of assignment of right to use natural resources is a one-time event which actually takes place no sooner than the rights under the assignment arrangement is granted. Such point in time would be the date and time when the contractual arrangement is set into motion under which the rights are contractually made available. This would therefore be the date, i.e., the date of execution of lease agreement between the parties. For this purpose, reliance is placed on the decision of the Supreme Court in the case of 20th Century Finance Corporation Ltd. v. State of Maharashtra.
The Special Counsel for department has argued that the activity of such assignment falls within the definition of ‘service’ as under Section 65B (44) introduced as early as w.e.f. 1.7.2012 itself. Though it is contended by department that the activity of ‘grant of lease’ for mining right falls within the definition of service under Section 65B (44), the demand is raised alleging that it falls within Sl.No.61 (introduced w.e.f 13.4.2016) and that the activity is an assignment of right to use natural resources.
A Two-Member Bench comprising Vasa Seshagiri Rao, Technical Member and CS Sulekha Beevi, Judicial Member observed that “The demand raised is indeed on the basis of Sl.No.61 of the exemption notification. Para 15 of the SCN also would show that the demand has been raised on the basis that the royalty which is paid periodically is not exempted from service tax. The argument put forward by the Counsel that the liability is derived on the basis of an exemption notification and not charging provision is not without substance.”
“The amount of royalty to be paid though differs periodically, in our view the payment of royalty is a regulation of checking the over exploitation of the resources of our mother earth. Being dominantly in the nature of regulatory fee, royalty does not fit into the definition of consideration for services provided, as under the service tax law” the Bench noted.
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