Service Tax not leviable on Cost Petroleum for rendering Mining Services to Govt: CESTAT [Read Order]

The Mumbai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that “Cost Petroleum” under the “Production Sharing Contract” cannot be treated as “consideration” for rendering “mining services” to the Government of India and therefore, the department cannot levy service tax on the same.

The appellant is engaged in the business of developing, exploring and producing oil and gas from the contracted areas in Mid and South Tapti Fields and Panna & Mukta Fields.

The Government of India entered into contracts with private parties for production of petroleum and the costs and profits were shared between the Government and the private parties as per the formula prescribed and agreed in the Contracts. The purpose of the said Contracts was to obtain capital investment and technical expertise from the private parties to achieve the objective of optimum production. The common objective was to explore, develop and produce the maximum amount of mineral resource for commercial sale.

The department alleged that the recovery of “Cost Petroleum” and “Profit Petroleum” represents consideration received by the appellant for providing “mining service” to the Government of India.

While considering the appeal filed by the appellants, CESTAT President Justice Dilip Gupta and Technical Member Mr. P Anjani Kumar observed that “the Circular dated 24.09.2014, on which reliance has been placed by the learned special counsel appearing for the Department, is not applicable to the facts of the present case. It needs to be noted that the said Circular is generically in relation to Joint Ventures. The subsequent Circular dated 12.02.2018 is specifically on the issue involved in the present case, namely taxability of “Cost Petroleum” in relation to a Production Sharing Contract.”

“A perusal of the aforesaid Circular reveals that Contractors carry out the exploration and production of petroleum for themselves and not as a service to the Government of India and “Cost Petroleum” is not a consideration for service to Government of India and thus not taxable per se. It is, therefore, more than apparent that the aforesaid Circular only confirms the view taken by the Tribunal in the decision rendered on 06.10.2021,” the bench said.

Deleting the orders of the lower authorities, the Tribunal concluded that “it is, therefore, not possible to sustain the order dated 31.12.2018, which has been assailed in Service Tax Appeal No. 86004 of 2019 and Service Tax Appeal No. 86007 of 2019, as also the order dated 31.08.2020 that has been assailed in Service Tax Appeal No. 86312 of 2020.”

To Read the full text of the Order CLICK HERE

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