The Hyderabad bench of the Customs Excise and Service Tax Appellate Tribunal ( CESTAT ) set aside the order, ruling that no service tax was payable due to the non-fulfillment of the stipulated event.
The appellant – M/s B.G. Shirke Construction Technology Pvt Ltd was a Multi-Locational Service Provider registered with the Department. The registration was obtained on 30.10.2012 and was amended subsequently on 30.10.2015 for providing taxable services viz., ‘Mining of Mineral, Oil or Gas service’ and also for payment of service tax on services received viz., ‘Business Support service’, ‘Supply of Tangible Goods service’, ‘Works Contract service’, ‘Security/Detective Agency service’, ‘Manpower Recruitment and Supply Agency service’, etc., under Reverse Charge Mechanism.
The appellant entered into a service contract with Oil and Natural Gas Corporation Ltd ( ONGC for short ) vide contract dated 16.07.2007 for ‘development of Manepalli Field of KG onshore’. The contract was initially entered by BG Shirke Construction Technology Pvt Ltd. Thereafter, under business transfer agreement with its fully subsidary company viz., the appellant for transfer of assets and liabilities with entire running business of oil and gas division, the said activity is being carried on by the appellant company under a separate Centralized Service Tax registration and GST registration dated 31.08.2016 and 01.07.2017 respectively.
Mr. Bharat Raichandani representing appellant urged that the impugned orders are cryptic and non-speaking and have been passed mechanically, without application of mind. He further urges that the point of taxation is not triggered in the facts of the present case. The services are in the nature of continuous supply of service. The event specified in the contract to trigger the point of taxation was not yet reached and hence, no tax was payable for the period under dispute. The services rendered by the appellant to ONGC are in the nature of exploration; thereafter, development; and thereafter, production of gas/oil.
The Commissioner has erroneously excluded the portion of Rule 3 of Point of Taxation Rules, which reads – “which requires the receiver of service to make any payment to service provider”, from the provision to Rule 3. If the said proviso is read in toto, it evidently provides that in case of continuous supply, the date of completion of service shall be the date of completion of the event specified in the contract, which requires the receiver of service to make any payment to the service provider.
Further evidently missed out in not reading Article 15 to the contract properly, which provides that the appellant is not entitled for any advance payment, whatsoever. Further, the contractor is entitled to raise monthly bill of service charges based on percentage of contractor share as per the contract on the basis of supply of gas/oil to ONGC.
The two member bench of the tribunal comprising Anil Choudhary ( Judicial member) and A.K Jyotishi ( Technical member) found that admittedly appellant have not reached the stipulated event where it can raise invoice pursuant to supply of crude oil/gas to ONGC, during both the periods under dispute. Further find that the value of taxable turnover determined by the Commissioner in the impugned order is hit by proviso to Rule 3 of Point of Taxation Rules, as admittedly, the stipulated event for completion of service i.e., supply of crude oil/gas by the appellant to ONGC was not achieved
Further hold that addition of notional value towards profit @ 10% is also bad and against the provisions of law. It was also held that the impugned orders, being in the nature of best judgment assessment, were bad under the admitted facts that the appellants have maintained proper records of the transactions and were registered with the department and have regularly filed the returns. Furthermore found that the impugned orders are cryptic and nonspeaking.
CESTAT allowed the appeals and set aside the impugned orders.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
