Case Law Details
In re Ion Exchange India Limited (GST AAR Rajasthan)
AAR held that services provided under EPC contract awarded to the applicant by M/S Vedanta for setting up of a ‘Sulphate Removal Plant’ broadly ranging from designing, engineering, Surveys, procurement, fabrication, manufacturing, erection & installation, facilities construction, Pre commissioning & Commissioning, training etc. and satisfactory hand over of complete ‘Sulphate Removal Plant’ as per contract, it is a “work contract” of composite supply. The composite supply is a mixed of goods & services and would be taxed accordingly under S. No. 3 Heading 9954 (ii) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 and GST @ 18 % (9% CGST and 9% SGST) is payable.
FULL TEXT OF THE ORDER OF AUTHORITY OF ADVANCE RULING, RAJASTHAN
Note: Under Section 100 of the CGST/RGST Act, 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/RGST Act, 2017, within a period of 30 days from the date of service of this order.
> At the outset, we would like to make it clear that the provisions of both the CGST Act and the RGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the RGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / RGST Act would be mentioned as being under the “GST Act”.
> The issue raised by M/s Ion Exchange India Limited, C/o Thapar Associates, 358/2, Near Axis Bank Limited, Rajapark, Jaipur- 302004, Rajasthan – (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (a) given as under: –
a. Classification of goods and /or services or both
> Further, the applicant being a registered person (GSTIN is 08AAAC11726L1ZK as per the declaration given by him in Form ARA-01) the issue raised by the applicant is neither pending for proceedings nor proceedings were passed by any authority. Based on the above observations, the applicant is admitted to pronounce advance ruling.
A. SUBMISSION AND INTERPRETATION OF THE APPLICANT;
1.1 M/S. ION Exchange India Limited (“Applicant”) is engaged in the business of water treatment, waste-water treatment and its recycling. The Applicant offers wide range of customized treatment plants for water, waste liquids and wastewater which are installed in thermal and nuclear power plants, fertilizer factories, refineries, and the petrochemical and other industries. As a part of its business operations, the Applicant enters into Engineering, Procurement and Construction (“EPC”)contracts with its customers.
1.2 As a part of its business operations, the Applicant has entered into an EPC contract with M/s. Vedanta Limited (“Vedanta”) vide Contract No. 4600008952 dt. 14.08.2018. Vedanta is a globally diversified natural resources company which is engaged in the business of exploration and mining of various natural resources. The Applicant has been informed that Cairn (Vedanta’s upstream Oil & Gas vertical) is the operator of Onshore RN-ON-90/1 block which is located in Barmer basin and having 38 oil and gas discoveries, including Mangala, Bhagyam and Aishwarya fields. The relevant extract of the EPC contract outlining the Scope of Work entered between the Applicant and M/s. Vedanta is enclosed.
1.3 According to the said EPC contract, the Applicant has to undertake the construction of ‘Sulphate Removal Plant’ or SRP with respect to the petroleum operations at Mangala wells (“Subject services”). For the purpose of construction of the said plant, the Applicant will have to undertake the following activities as per the specification & customization laid down in the EPC contract:-
a) Design and Engineering: Project Management;
b) Surveys (pre-engineering, pre-construction/ pre-installation and post installation;
c) Procurement and supply including vendor management, procurements and logistics management;
d) Manufacturing, fabrication, inspection and testing, FAT, packing, shipping, shipment insurance, transportation and delivery to site complete with associated loading/unloading and shifting of material;
e) Construction, erection and installation of facilities including construction management and Local Contractor Management;
f) Mechanical Completion, Tie-ins with existing facilities, SAT, site testing, pre-commissioning;
g) Commissioning, RFSU, Performance Guarantee Test Run including site restoration works and waste management;
h) Training and handover of facilities including associated QHSE management.
Details regarding Sulphate Removal Plant
1.4 Sulphate removal plant is a water treatment plant which treats the saline water on the basis of Nano filtration & Reverse Osmosis technology. This technology is used to separate sulphate Ions from Water. Since this is an EPC project, there are following steps in construction of the plant:
a) Engineering: Applicant is carrying out customized designing of this plant n their New Delhi office and uses various Engineering software to design the customized plant as per specifications provided by Vedanta Various disciplines like Civil, Mechanical, Piping, Pipeline, Electrical, Instrumentation and Telecom engineers work together and issue drawings which are used for construction of the customized plant after approval from Vedanta.
b) Procurement: The Applicant is the manufacturer of the key components of this plant. These components are manufactured specifically suiting and customized to the requirements of Vedanta. Applicant procures other auxiliary components from various reputed manufactures and supplies them to the customized plant location for construction.
c) Construction: Applicant has engaged various construction teams at plant location who construct the customized plant as per the approved design drawings. This construction team installs the component manufactured by Applicant and those supplied by various manufacturers. All these components are then assembled with the interconnecting process piping and pipeline as per approved design drawings. Respective electrical, instrumentation and telecom components are installed so that the plant is ready to function and controlled as per Vedanta specifications.
Reason for undertaking sulphate removal
1.5 The output from the sulphate removal plant is purified water which are used by Vedanta for drilling operations. It is pertinent to mention that while drilling petroleum crude Oil, Mangala wells produces hydrogen sulfide (H2S) which is very poisonous, corrosive and flammable. The increased concentration of H2S not only poses an integrity threat to the oil wells and surface facilities, it is also a safety hazard to personnel who comes in contact with the gas. Therefore, as a mitigating measure, sulphate free water is recommended for controlling the H2S.
1.6 The Applicant under the said contract is providing the services of execution of customized Sulphate Removal plant for Vedanta in the State of Rajasthan and invoices are raised charging 18% GST rate under Heading 9954. However, vide Notification No. 20/2019-Central Tax(Rate) dated 30.09.2019, Entry No. 24(ii) of the Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 (“Rate Notification”) has been amended to include within its ambit, inter alia, support services to mining, and Entry No. 21(ia) thereof has been newly inserted to cover within its ambit professional, technical and business services relating to petroleum operations, both taxable at 12% GST rate. Post the introduction of the more specific entries above, the Applicant intends to ascertain whether the Subject services supplied by it to Vedanta are classifiable under Sr. No. 24 (ii), viz., Support Services to Mining or under Sr. No. 21(ia), viz., Professional, Technical & Business Services to Mining.
1.7 Upon analysis of the various Headings of Classification of services under the Rate Notification, the Applicant intends to ascertain whether the Subject services are appropriately classifiable under the Heading 9986 [Sr. No. 24(ii)] (viz., “Support services to exploration, mining or drilling of petroleum crude or natural gas or both”) or alternatively under the Heading 9983 [Sr. No. 21(ia)] (viz., “Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both”) and are liable to 12% rate of GST under the CGST Act.
APPLICANT’S ELIGIBILITY FOR ADVANCE RULING
1.8 Section 97 of the Central Goods and Service Tax Act, 2017 (‘CGST Act’), entails that advance ruling may be filed by an Applicant for a transaction of supply of goods or services being undertaken or proposed to be undertaken on following questions:-
a) Classification of any goods or services or both;
b) Applicability of a notification issued under the provisions of this Act;
c) Determination of time and value of supply of goods or services or both;
d) Admissibility of input tax credit of tax paid or deemed to have been paid;
e) Determination of the liability to pay tax on any goods or services or both;
f) Whether applicant is required to be registered;
g) Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.
1.9 The Applicant submits that the issue on which advance ruling is sought in the instant matter post release of Notification No. 20/2019-Central Tax(Rate) dated 30.09.2019, is whether the services supplied by the Applicant to Vedanta qualify as Support Services to Mining (Sr. No. 24) or Professional, Technical or Business Services to Mining (Sr. No. 21) under the Rate Notification.
1.10 The term ‘Applicant’ under Section 95 (c) of CGST Act has been defined to mean any person registered or desirous of obtaining registration under this Act. As submitted earlier, the Applicant is registered in Rajasthan. Thus, the Applicant qualifies to be an ‘Applicant’ under Section 95(c) of the CGST Act. Further, the question sought by the Applicant is also covered under Section 97(2)(a) of CGST Act. Similar provisions exist in the RGST Act. Hence, present advance ruling application is maintainable before the Hon’ble Rajasthan Authority for Advance Ruling
A. SUPPLY OF SERVICES BY THE APPLICANT SHOULD BE CLASSIFIED AS ‘SUPPORT SERVICES TO EXPLORATION, MINING OR DRILLING OF PETROLEUM CRUDE OR NATURAL GAS OR BOTH UNDER Sr. No, 24(ii) OF HEADING 9986 OF THE RATE NOTIFICATION
1.11 The Applicant is of the view that the services regarding construction of water treatment plant qualify as ‘support services to mining’ under Sr. No. 24(ii) of the Rate Notification. The Applicant submits that the Rate Notification prescribes the principles of classification which are to be adopted while interpreting the entries provided therein. In this regard, the Explanation to the Rate Notification prescribes as under:
“Explanation. – For the purposes this notification,-
……………………………………….
(ii) Reference to “Chapter”, “Section” or “Heading”, wherever they occur, unless the context otherwise requires, shall mean respectively as “Chapter , “Section ” and “Heading” in the Scheme of classification of services annexed to notification No. 11/2017-Central Tax (Rate) dated 26.06.2017.
…………………………”
Therefore, while determining the classification of the subject services under the Rate Notification, reference must be made to the Scheme of Classification of Services (‘Scheme of Classification’) which forms part of such Notification.
1.12 The Hon’ble Supreme Court in the case of UOI v. Playworld Electronics Pvt. Ltd. reported at AIR 1990 SC 2002 held that while determining the taxability of a transaction, it is important to understand its true commercial nature. Therefore, before analyzing the classification of the construction services rendered by the Applicant, the nature and scope of the services being undertaken by the Applicant is discussed hereunder.
Nature of Subject services
1.13 The Applicant reiterates that it is engaged in the business of treatment of water, waste-water and its recycling, the activities required to be carried out by the Applicant under the scope of work of the EPC Contract involves the construction of customized Sulphate Removal plant based upon Nanofiltration & Reverse Osmosis technology to remove sulphate from water which is named as Sulphate Removal Plant.
1.14 Sulphate Removal Plant reduces the sulphate ions present in the Saline water to the acceptable levels for water injection. Sulphate removal is a technology utilized by the oil industry to produce low sulfate water for injection.
1.15 The Applicant further submits that there are innumerable benefits of the Sulfate Removal Plant in the overall mining operations. Few of them are listed below:
| BENEFITS OF SULPHATE REMOVAL PLANT | |
| Control sulfate in discharge water | SRP helps control the concentration of sulphate in the water used in concentrators, mines, and process effluents |
| Reduce scaling to improve plant availability | Removal of sulfate and calcium prevents scaling and reduces scaling-related maintenance costs |
Therefore, the Sulphate Removal Plant not only removes hazardous sulphate from saline water, it also helps reduce scaling.
1.16 The scope of the work to be undertaken by the Applicant in terms of the contract is as follows:
| SCOPE OF WORK | |
| Design and Engineering | Design and engineering, development of equipment data sheets, preparation of engineering drawings for manufacturing, fabrication and construction. |
| Project Management & surveys | Planning, scheduling, monitoring, progress reporting, quality assurance, quality control and overall project management functions |
| Procurement & Supply | Vendor management, Procurement and Logistics management; Manufacturing, Fabrication, Inspection and Testing, FAT, packing, shipping, shipment insurance, transportation and delivery to site complete with associated, Loading/ Unloading & Shifting of Material; |
| Construction, erection and installation | Execution of the complete construction activity and management of local contractors |
| Commissioning, RFSU, Performance Guarantee Test | Site Restoration works & waste management for ready for Startup activities and performance guarantee testing |
| Training and facility Handover | Associated Quality, health and safety environment management training |
| SPECIALIZED & CUSTOMIZED SERVICES | |
| The development of SRP covers three major elements, viz., Early Civil works, Inside Battery Limit –
primarily covering the technology part and Outside Battery Limit – primarily covering the Balance of plant. The Applicant is given an integrated EPC contract for all the above elements. |
|
| The Scope of work includes the technical compliance format, design basis and philosophy, standards specifications, engineers installation standards etc. | |
| The Scope of work also includes technical specification, design and engineering, softwares to be used, health and safety measures specific to the mining operations to be adopted, nature of vendors to make procurement from, etc. | |
Interpretation of the relevant entry
1.17 It is submitted that the services undertaken by the Applicant qualifies as support services under Sr. No. 24(ii) of the Rate Notification. Submissions in this regard are as hereunder-
1.18 It is submitted that the services supplied by the Applicant qualify as Support Service and merits classification under Heading 9986. Thus, it falls under Sr. No. 24(ii) of notification No. 11/2017-Central Tax (Rate) dated 26.06.2017., as amended. For the sake of ready reference, the relevant extract Sr. No. 24(ii)] is reproduced below:
| S.No | Heading | Description of Goods | Rate |
| 24 | Heading 9986 (Support services to agriculture, hunting, forestry, fishing, mining and utilities) | (i) …………………
(ii) Support services to exploration, mining ot drilling of petroleum crude or natural gas or both. (iii) ……………….. |
6% |
1.19 The Applicant submits that a reading of the aforesaid entry suggests that it covers support services to, inter alia, exploration, mining or drilling of petroleum crude oil. It is relevant to understand the meaning of the terms “support services” and “to” used in the “support services to exploration, mining….”.
Meaning of ‘support services ‘
1.20 The term ‘support services’ used in Heading 9986 has not been defined in the Rate Notification. Therefore, it is relevant to refer to the dictionary meaning of the term “support”. Meanings from few legal dictionaries are set out below for ready reference: there is no specific definition of the term “to” in the Rale Notification, however, it has been most acceptable position in law that in absence of any specific legal definition, the term used in common trade parlance may be resorted to. The term “to” is generally understood as below for ready refrences:
| Dictionary | Meaning |
| Black’s Law Dictionary, Fourth Edition | ‘Furnishing funds or means for maintenance; to maintain; to provide for; to enable to continue; to carry on.’
‘That which furnishes a livelihood; a source or means of living; subsistence, sustenance, or living’ ‘In a broad sense the term includes ah such means of living as would enable one to live in the degree of comfort suitable and becoming to his station of life’ |
| The Lexicon Law of British India – P. Ramanatha Aiyar | ‘Not only does the word ‘support’ includes bearing weight, it is also used by the student and understood in common phraseology as covering “to keep from falling’ and other kindered expressions.’
‘support’ generally means articles for ordinary sustenance as food etc., and doesn’t includes medicines, unless the context shows such intention.’ |
| Merriam Websters Dictionary | To assist, help; to provide a basis for the existence or subsistence of; to keep (something) going |
1.21 A reading of above definitions reveals that the term “support” signifies anything which helps in sustenance, keeps something going, enables something to exist or continue. Therefore, anything which supports an activity, essentially helps that activity to go on, provides base for its existence or sustenance or helps such activity to go on.
Meaning of the term “to “
1.22 While there is no specific definition of the term “to” in the Rale Notification, however, it has been most acceptable position in law that in absence of any specific legal definition, the term used in common trade parlance may be resorted to. The term “to” is generally understood as below :
| Dictionary | Meaning |
| Words & Phrases Legally defined, Lexis Nexis, Fourth Edition | I think we ought to construe the word ‘to ‘ us meaning towards That is the sense in which the ward is always used in all instruments connected with or relating to marine assurance. It has that meaning in a bill of lading, and I dan t know why we should adapt a different meaning in this policy of insurance ‘ – College v Harty (1851) 6 Ech 205 at 210, per Pollock CB |
| Merriam Websters Dictionary | Used as a function word to indicate movement or an action or condition suggestive of movement toward a place, person, or thing reached; used as a function word to indicate contact or proximity |
1.23 From the above, it can be seen that the term “to” indicates contact or proximity to the subject or, more specifically. means “towards”.
1.24 Applying this to the present case, the Applicant submits that the “support services to exploration, mining…” would essentially mean support services which are “towards” or are most closely related to or in close proximity of the activities of exploration and mining.
Scope of work of the EPC Contract is qua SRP
1.25 It is a settled principal of law that a contract is required to be read on the basis that it reflects the true intention of the parties thereto as regards the consideration agreed to be paid in return for the parties carried out under the contract.
1.26 In the instant case, the contract between the Applicant and M/s. Vedanta is for the customized/ specialized construction of SRP (Water treatment plant) wherein Applicant has to follow technical specifications and end to end responsibility of construction lies with the Applicant.
1.27 It is submitted that in the instant case, the Applicant will be constructing water treatment plant in accordance with the specifications provided by M/s. Vedanta. On the basis of the said specifications, the Applicant will procure goods and services which will be used for the construction of the said treatment plant. Once the construction of the water treatment plant is completed, Applicant will raise the invoice for constructing the water treatment plant. Activities regarding the operation and maintenance of the sulphate removal plant are outside the scope of the Applicant.
1.28 It is pertinent to mention that after the completion of the construction of the plant, the Applicant will not have any role in the usage of the plant by M/s. Vedanta.
1.29 On the basis of the above facts and in the light of the definition of the term “support” discussed in earlier paragraphs, the Applicant submits that services undertaken by the Applicant forms an important part of the overall mining operations.
CBIC Circular is also supportive of this position
1.30 The Applicant submits that on a reference to the Heading 9986 [Sr. No. 24(h)], it seems to include within its ambit, support services to exploration, mining and drilling of petroleum crude. The CBIC vide its Circular No. 114/33/2019-GST dated 11.10.2019 (“Circular No. 114”) has also inter alia clarified the scope of support services to exploration, mining or drilling of petroleum crude or natural gas or both. While defining the girth of the aforesaid entry, it makes, reference to the Explanatory Notes to the Scheme of Classification of Services which is based on
1.31 the United Nations Central Product Classification and provides that the scope of aforesaid entry shall be, inter alia, governed by the Explanatory Note to service codes 998621 of the Scheme. The relevant Explanatory Notes are set out below for ready reference:
| Heading | Explanatory Notes |
| 998621 “Support services to oil and gas extraction “ | This service code includes derrick erection, repair and dismantling services; well casing, cementing, pumping, Pegging and abandoning of wells; test drilling and exploration services in connection with petroleum and gas extraction; specialized fire extinguishing services; operation of oi! or gas extraction unit on a fee or contract basis.
This service code does not include geological, geophysical and related prospecting and consulting -Services, cf 998341 |
1.32 The aforesaid Explanatory Note provides an inclusive list of support services which are classifiable under the Heading 998621. The explicit list of activities includes:-
a) derrick erection, repair and dismantling services;
b) well casing, cementing, pumping, plugging and abandoning of wells;
c) test drilling and exploration services in connection with petroleum and gas extraction;
d)specialized fire extinguishing services;
e) operation of oil or gas extraction unit on a fee or contract basis
1.33 A reference to the above list reveals that these are primarily those activities which are inextricably linked to the petroleum operations and are indispensable to it. Activities like derrick erection, well casing, cementing and pumping, abandoning wells, test drilling and exploration services are some of the significant activities which forms the very basis of exploration and mining activities and are therefore explicitly provided under the Explanatory Notes to the Heading 998621. Copy of the relevant Circular is attached.
1.34 The occurrence of the expression “includes'” in the above Explanatory Notes suggests that it is not an exhaustive list but is merely indicative. In a catena of judgments, it has been held that the presence of the expression ‘includes’ suggest a scope of including more items in the inclusive list relatable to the subject. Therefore, all such activities which are inextricably linked to mining operations ought to be covered within the scope of the Heading 9986. The mining and petroleum operations includes a range of inter-related and interdependent activities which are indelibly linked to each other and helps forming a coherent value chain.
1.35 The Applicant reiterates that the removal of sulphate from the Saline water forms an important part of the overall petroleum operations since without its removal, it poses great threat to the oil wells and surface facilities and safety hazard to the facility personnel. Therefore, construction of sulphate removal plant forms an indispensable part of the support activities for mining and petroleum operations and the inclusive list provided in the Explanatory Note must be seen in that context.
1.36 In view of the ‘inclusive’ nature of the Note which seeks to cover support services in relation to the petroleum operations within Heading 9986, the Note ought to be offered its natural play to coverall such activities which are essential to the petroleum operations and in support of it.
Government Policy of Benign rate for Mining / Petroleum operations
1.37 The Applicant also submits that it has remained the stated policy of the government to prescribe benign rate of taxes to the activities and machines, equipment, parts and accessories thereof concerning mining and petroleum operations. The objective of offering a separate entry to, inter alia, mining and petroleum operations at a tax rate of 12% is effectively because the government doesn’t want to burden this industry with additional tax cost. Given the fact that the oil and gas sector is still outside the ambit of GST which has led to the denial of ITC, the overall cost of this sector has increased greatly. It is because of this reason that, qua this sector, the Government has reduced the rate of services.
1.38 The Applicant also submits that this policy of offering the special/ benign rates to the upstream sector on account of both goods and services have been consistently followed by the Government. Even in the Pre-GST regime, the effective rate of GST for the EPC contracts was close to 12%.
1.39 Given the fact that these are capital intensive projects which not only take longer term to commence and produce results, the benefits accrue to the larger public and the nation’s development. Therefore, while determining classification of activities or services which related to mining and petroleum operations, a purposive interpretation should be adopted.
1.40 In the light of the aforesaid, since the Subject services satisfies the specific description of the Heading 9986 under Sr. No. 24(ii) of Notification No. 11/2017-CT, as amended.
B. ALTERNATIVELY, THE SUPPLY OF SERVICES BY THE APPLICANT SHOULD BE CLASSIFIED AS ‘OTHER PROFESSIONAL, TECHNICAL AND BUSINESS SERVICES RELATING TO EXPLORATION, MINING OR DRILLING OF PETROLEUM CRUDE OR NATURAL GAS OR BOTH’ UNDER HEADING 9983 OF SR. No.21(ia) OF THE RATE NOTIFICATION
1.41 Without prejudice to the above submissions, the Subject services may merit classification as ‘Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both ‘ under Sr. No. 21(ia) of Heading 9983 of the Rate Notification.
1.42 Sr. No. 21 of Rate Notification provides the rate of tax leviable on the services that merits classification under the Heading 9983. The relevant portion of the said entry is reproduced herein below:
| Sr. No. | Heading | Description of services | Rate |
| 21 | Heading 9983 (Other professional, technical and business services) | (ia) Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both | 12% |
1.43 The relevant portion of Heading 9983 as prescribed under the Scheme of Classification is as follows:
| Sr. No. | Chapter, Section Heading, or Group | Service Code (Tariff) | Service Description |
| (1) | (2) | (3) | (4) |
| 296 | Heading 9983 | Other professional, technical and business services |
1.44 On a bare reading of the aforesaid heading and corresponding service description, it is seen that the said entry is broad in its entirety, as it includes business services. The term ‘business’ has been defined under Section 2(17) of the CGST Act. which is reproduced hereinbelow for ease of reference:
‘(17) ‘business ‘ includes,-
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit.
(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a). whether or not there is volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members.
(f) admission, for a consideration, of persons to any premises;
(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;
(h) activities of a race club including by way of totalizator or a license to book maker or activities of a licensed book maker in such club; and
(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.’
1.45 The aforesaid definition of ‘business’ is an inclusive definition. It is settled law that the term ‘include’ is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute. The said word is succeeded by the phrase ‘any trade, commerce, manufacture, profession……..whether or not it is for a pecuniary benefit . The definition of the word ‘business’ under the CGST Act makes it amply evident that it covers within its ambit, a wide range of activities. The said definition would also include operational administrative, consulting and management services.
1.46 Entry at Sr. No. 21 (ia) was inserted vide Rate Notification with effect from October 1, 2019. The aforesaid entry was introduced by the Government in order to classify particular services such as management and consultancy services relating inter alia to mining, and which do not merit classification as support services to mining under Heading 9986.
1.47 It is pertinent to note that Entry at Sr. No. 21 (ia) of the Rate Notification uses the phrase ‘relating to which signify that any professional, technical and/or business services provided relating to mining, would merit classification under the said entry. The phrase ‘relating to’ or ‘in relation to’ is a very broad expression and has a wide ambit. The Hon’ble Supreme Court in Doypack Systems (P) Ltd Vs. UOI, [1988 (36) E.L.T. 201 (SC)], has held that the term ‘in relation to ‘ is a very broad expression, which pre-supposes another subject matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context. The term ‘relating to’ has been held to be equivalent to or synonymous with ‘concerning with’ and ‘pertaining to’. Therefore, it is submitted that entry (ia) of Sr. No. 21 includes a broad range of services which pertain or concern with the activity of mining.
1.48 The Applicant submits that in the present case, it is required to execute the contract in accordance with the specifications provided by Vedanta. On the basis of the said specifications, the Applicant procures goods and services which are to be used for the execution of the Sulphate Removal plant. During the execution of the project, Applicant raises the invoices as per agreed milestones of the contract. The Applicant reiterates that the project for execution of Sulphate Removal Plant being constructed under this contract is specifically designed and engineered to produce water quality for the mining sites for reducing the impact of Sulphate produced while undertaking petroleum operations and ensure efficient water treatment and management. Hence, the services rendered by the Applicant in relation to the present contract are of specialized and customized nature and specific to the mining operations. However, the activities relating to the operation and maintenance of the Sulphate Removal Plant are outside the scope of the Applicant.
1.49 The Applicant further submits that it is providing the Subject services by undertaking engineering, procurement, supply & construction overall management of the project right from its detail design and planning till its final test run, commissioning and hand over in fully functional form to Vedanta. It is also, inter alia, required to review, monitor, manage and control all aspects of the execution of the project along with the day-to-day administration and logistics, such as, procurement, performance, HSE, quality and schedule management, among others, as per contract awarded by Vedanta. The said services are in relation to the mining activity of Vedanta, as stated above in detail. Hence, in the present case, it is submitted that the supply of services by the Applicant to Vedanta in Ration to the mining activities under the project merits classification der Heading 9983. Accordingly, by virtue of Sr. No. 21(ia) of the Rate Notification, it is submitted that the said activity may alternatively get covered within the broad ambit of ‘Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both ‘ and consequently attract GST @12%.
1.50 In addition to the above, it is also relevant to note that the Para 2 of the Circular 114 specifies that most of the activities associated with exploration, mining or drilling of petroleum crude or natural gas fall under Heading 9986 of the Rate Notification. Further, it has clarified that certain services such as technical and consulting services in relation to exploration, would merit classification under the Heading 9983 of the Rate Notification. The relevant extract of the Circular is reproduced hereinbelow:-
“2. The matter has been examined. Most of the activities associated with exploration, mining or drilling of petroleum crude or natural gas fall under heading 9986. A few services particularly technical and consulting services relating to exploration also fall under heading
9983. Therefore, following entry has been inserted under heading 9983 with effect from 1st October 2019 vide Notification No. 20/2019-Central Tax (Rate) dated 30.09.2019; –
‘(ia) Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both. “
1.51 The aforesaid Circular clearly states that technical and consulting services relating to exploration also fall under Heading 9983 and would also get classified under Sr. No. 21(ia) of Rate Notification as other professional, technical and business services relating to inter alia mining. It is pertinent to note that since the wordings used under the Heading 9983 of the Rate Notification is broad in nature, various services which are provided in relation to exploration, mining or drilling would fall within its ambit and attract GST @ 12%.
1.52 The Circular 114 thereafter clarifies that ‘Geological and geophysical consulting services’ and ‘Mineral exploration and evaluation’ which do not merit classification under Heading 9986, would also get covered under the broad Heading 9983, as ‘Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both and resultantly, attract GST @ 12%. The said Circular has not provided an exhaustive list of services which would merit qualification under Sr. No. 21(ia) of Rate Notification. It has merely clarified that certain technical and consulting services which are not specifically covered under the Heading 9986, would get covered within the Heading 9983. Given the purpose for which the Sulphate Removal Plant is constructed at the mining site, it forms an important part of the overall mining operations and hence, ought to qualify classification under Sr. No. 21 (ia) of the Rate Notification.
1.53 Therefore, without prejudice to the submissions made above, it is submitted that the supply of services made by the Applicant to Vedanta, in relation to the mining, would merit classification under Heading 9983 and attract GST @ 12% in terms of Sr. No. 21 (ia) of Rate Notification.
B. QUESTIONS ON WHICH THE ADVANCE RULING IS SOUGHT
1. With the introduction of Notification No. 20/2019-Central Tax (Rate) dated 30.09.2019, the applicant intends to ascertain whether the services with respect to EPC contract entered for execution of Sulphate Removal plant supplied to M/s Vedanta Ltd vide Contract no 4600008952 dated 14.08.2018 is covered under Sr. No. 24(ii) (Support Services to Mining) or Sr. No. 21(ia) (Professional, Technical or Business Service to Mining) of the Rate Notification.
2. Further, if the subject services are not classifiable under any of the aforesaid entries, what would be the appropriate classification for the same and at what rate GST would be imposable?
C. PERSONAL HEARING
In the matter personal hearing was granted to the applicant on 07.09.2021. Shri Rohit Jain (Advocate) authorized person of applicant appeared for personal hearing. During the personal hearing, he reiterated the submissions already made in the application. He further requested that the case may be decided at the earliest.
D. COMMENTS OF THE JURISDICTIONAL OFFICER
Comments received from the Assistant Commissioner, CGST Division-E, Range-21, Central Revenue Building Sector-10, Vidhyadhar Nagar, Jaipur are as under: –
*Based on the activities/services explained by them in the Annexure -II to their application, this office is of the opinion that the services rendered by M/s. ION Exchange India to M/s. Vedanta appears to be classifiable under Heading 9983.
E. FINDINGS, ANALYSIS & CONCLUSION:
1. We have considered the submission in their application and also during personal hearing made by the applicant. We have also gone through the EPC documents submitted for awarding EPC contract to the applicant for construction of ‘Sulphate Removal Plant’ or SRP with respect to the petroleum operations at Mangla wells. “The scope of work under the contract is that the applicant is required to undertake the construction of ‘Sulphate Removal Plant’ comprising of design and detail engineering, surveys, Procurement & supply, Fabrication, Manufacturing, Inspection & Testing, Packing & loading, Shipping, Site establishment, Delivery and unloading at site, Storage and preservation, erection and Installation, Facilities construction, Pre commissioning & commissioning, Training, Vendor management, procurement & Logistic Management, Site Management, local contractor Management and satisfactory hand over of the facilities including associated QHSE management all as per contract.
2. The applicant has contended that under the EPC contract they are providing Engineering, Procurement and construction (EPC) services in relation to the construction of ‘Sulphate Removal Plant’ for Vedanta in the state of Rajasthan. Since services are in the nature of operational or administrative assistance provided by the applicant to Vedanta, it aptly merit classification as “Support-services to mining” as per heading 9986 of the Sr. No. 24 (ii) Rate notification No. 11/2017-Central Tax (Rate) dated 26.06.2017. (as amended). The applicant further contended that alternatively the supply of services by them should be classified as other professional, Technical and Business services relating to exploration, mining or drilling of petroleum crude or natural gas or Both under Heading 9983 of Sr. No. 21 (ia) of the Rate notification No. 11/2017-Central Tax (Rate) dated 26.06.2017. (as amended).
3. Now the issue to be decided whether the supply to be made by the applicant under the EPC contract awarded to them would be classified as “Support services to mining or other Professional, Technical & Business services relating to exploration, mining or drilling of Petroleum Crude or Natural Gas or Both or otherwise in any other service”.
4. Support services to exploration, mining or drilling of Petroleum crude or natural gas are classified under heading 9986. The explanatory Note to service code 998621 provides the scope of the said entry i.e. Support Services to Oil & gas extraction, which is reproduced below “This service code includes derrick erection, repair and dismantling services, well casing, cementing, pumping, plugging and abandoning of wells, test drilling and exploration service in connection with petroleum and gas extraction, specialized fire extinguishing services, operation oil or gas extraction unit on a fee or contract basis. This service code does not include geological, geophysical and related prospecting and consulting services”.
5. From the explanatory note it reveals that Support Services shall include the services to be provided for exploration, once the infrastructure/facility for exploration is built & complete in all respect and ready to start exploration. But it does not include the services to be provided before creating the infrastructure/facility. Under the EPC contract the applicant has to undertake activities from Designing, Engineering, Procurement, construction of customised facility, commissioning of permanent facility, Test run and hand over of complete facility so designed, constructed, tested & commissioned. Thus it cannot be treated as support services to oil & gas extraction. Similarly, other professional, technical & business services are classified under heading 9983. The heading covers other Professional, Technical and business services relating to exploration, mining or drilling of Petroleum crude of natural gas or both. This heading covers “pure services” of other Professional, technical & business related and not the services provided under a EPC contract which include Engineering, Procurement & Construction. As discussed in Para 5 above, the applicant has to undertake the Designing, Engineering, Procurement, construction of customised facility, commissioning of permanent facility, Test run and hand over of complete facility so designed, constructed, tested & commissioned. Thus it cannot be classified as other professional. Technical and Business services relating to exploration, mining or drilling of petroleum crude or natural gas or Both.
In view of the above it is clear that the services provided by the applicant neither fall under “Support services to exploration, mining or drilling of Petroleum crude or natural gas or other professional, technical and business services relating to exploration, mining or drilling of Petroleum crude or natural gas or Both. As per EPC contract the applicant has to complete the task of setting up of ‘Sulphate Removal Plant’ or SRP broadly ranging from designing, engineering, Surveys, procurement, fabrication, manufacturing, erection and installation, facilities construction, Testing, Pre commissioning & Commissioning, Training etc & satisfactory hand over of complete ‘Sulphate Removal Plant’, customised as per contract. The applicant has to start from the scratch and bring into existence a fully operational ‘Sulphate Removal Plant’. The execution of the project would also involve the transfer of property in goods.
7. In light of these fact, we examine the definition of “work contract” as provided under Section 2(119) of the CGST Act 2017, which reads as under:-
(119) “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract;
The contract is for the engineering, procurement and commissioning of ‘Sulphate Removal Plant.’ What would be transferred is the plant including the civil work and land involved in plant. Various civil structure would be created and various equipment would be installed.
The said plant cannot be shifted anywhere; it is essentially of the nature of immovable property. The plant after completion at the time of transfer will be an immobile property. It is thus, we are of the considered view that the work specified in the EPC contract qualifies as “work contract” and will be taxed accordingly.
8. According to Section 8 of Central Goods and Services Tax Act, 2017, the tax liability on a composite or a mixed supply shall be determined in the following manner, namely:-
(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and
(b) …………
9. As per Section 2(30) composite supply is defined as,-
“composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;
10. Further principal supply is defined under Section 2(90) as,-
“principal supply” means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary;
11. Further, as per Para 6 of Schedule-II
Composite supply: –
The following composite supplies shall be treated as a supply of services, namely: –
(a) works contract as defined in clause (119) of section 2;
12. However, since composite supply of works contract has been explicitly classified as supply of service under Schedule II, the concept of works contract follows that; –
a. Works contract in itself is a composite supply in which construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning etc. are involved along with transfer or property in goods.
b. Under GST, as per definition of works contract service if construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning is for immovable property, then it will be classified as works contract.
13. Further, we observe that the activity proposed to be undertaken is a composite supply of works contract, the rate of tax in given service shall be determined in accordance with the notification No. 11/2017-Central Tax (Rate) dated 26.06.2017., as amended from time to time.
The relevant portion of the S. No. 3(Heading 9954) (ii) of the notification No. 11/2017-Central Tax (Rate) dated 26.06.2017. (as amended) is as under-
| Heading 9954 (Construction services) | CGST Rate % | SGST Rate % | IGST Rate % | Remarks | |
| (ii) Composite supply of works contract as defined in clause 119 of Section 2 of Central Goods and Service Tax Act, 2017 | 9 | 9 | 18 | – |
In view of the above we find that services provided under EPC contract awarded to the applicant by M/S Vedanta for setting up of a ‘Sulphate Removal Plant’ broadly ranging from designing, engineering, Surveys, procurement, fabrication, manufacturing, erection & installation, facilities construction, Pre commissioning & Commissioning, training etc. and satisfactory hand over of complete ‘Sulphate Removal Plant’ as per contract, it is a “work contract” of composite supply. The composite supply is a mixed of goods & services and would be taxed accordingly under S. No. 3 Heading 9954 (ii) of notification No. 11/2017-Central Tax (Rate) dated 26.06.2017. and GST @ 18 % (9% CGST and 9% SGST) is payable.
Based on the above discussion & finding we rule as under
Ruling
Question 1: With the introduction of Notification No. 20/2019-Central Tax (Rate) dated 30.09.2019, the applicant intends to ascertain whether the services with respect to EPC contract entered for execution of Sulphate Removal plant supplied to M/s. Vedanta Ltd vide Contract no 4600008952 dated 14.08.2018 is covered under Sr. No. 24(ii) (Support Services to Mining) or Sr. No. 21(ia) (Professional, Technical or Business Service to Mining) of the Rate Notification?
Answer – No.
Question 2: Further, if the subject services are not classifiable under any of the aforesaid entries, what would be the appropriate classification for the same and at what rate GST would be imposable?
Answer – The activities of supply designing & engineering, installation, Commission of Project under EPC contract by the applicant shall attract GST @18% (9% CGST and 9% SGST) under S.No. 3 Heading 9954 (ii) of the notification No. 11/2017-Central Tax (Rate) dated 26.06.2017.
