By Puloma Dalal, Jayesh Gogri, Mandar Telang, Chartered Accountants
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Whether activities of drilling, completion or abandonment of exploratory wells would be classifiable under category of “Survey & Exploration of Mineral, Oil & Gas service” Or “Mining of mineral, oil & gas service” Or “Supply of tangible goods service”?
Facts:
The Appellant entered into an agreement for drilling, testing, completion at exploratory wells as per directions of its client. Appellant obtained service tax registration in February, 2009 under the category of “supply of tangible goods service” and started paying service tax. The Revenue entertained a view that Appellant’s activities could be classified under “Survey & Exploration of Min- eral, Oil & Gas service” from November, 2006 to May, 2007 and under “Mining of mineral, oil & gas service” from June, 2007 onwards. After verification of documents by the Respondent, Appellant deposited service tax along with interest for the period June, 2007 onwards. Thereafter, the Revenue demanded service tax for the period 2006 to 2009. The Appellant challenged the demand before the Commissioner (Appeals) and argued that their activities were post-exploration activities and as per CBEC Letter F. No. B2/8/2004-TRU dated 10-09-2004 the activities pertaining to survey and exploration were covered under “Survey & Exploration of mineral, oil & gas service” and not the activities relating to actual exploitation of mineral, oil & gas. The Commissioner (Appeals) dropped the demand pertaining to the period November, 2006 to May, 2007 under “Survey & Exploration service” but confirmed the demand from June 2007 under “Mining of mineral, oil & gas service” and consequently, Appellant as well as Respondent both preferred appeals before the Tribunal.
Held:
The Tribunal held that the activities undertaken had direct nexus with the mining as the activity undertaken is drilling of wells for exploration of minerals, therefore the said activity is classifiable under “Mining Service” from June 2007 onwards. The Tribunal observed that, even if the classification of service as interpreted by the Tribunal is held otherwise owing to the complexities involved, extended period was not applicable and service tax could not be recovered for the period prior to 01-06-2007, as SCN covering the period before June, 2007 was issued in April, 2009. The Tribunal held that the service tax was applicable from June, 2007 onwards under category of “mining service” and thereafter under “supply of tangible goods” service from 16-05-2008 onwards. The Tribunal set aside the penalties on the ground that Appellant’s act of depositing service tax along with interest before issuance of SCN shows Appellant entertained bonafide belief and intent of evasion was absent. Accordingly, the Tribunal rejected Respondent’s appeal while allowing Appellant’s appeal.
