In re Worley Services India Private Limited (GST AAR Maharashtra)
Question 1:- Whether the services provided by the Applicant are classified under SI. No. 24(ii) of heading 9986 of the Rate Notification as ‘Support services to exploration, mining or drilling of petroleum crude or natural gas or both’ under SAC 998621 and attracts GST @ 12% in terms of SI. No. 24(ii) of Rate Notification.
Answer: – Answered in the negative.
Question 2:- Alternatively, whether the services provided by the Applicant are classified under SI No. 21 (ia) of heading 9983 of the Rate Notification as ‘Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both’ and attracts GST @ 12% in terms of SI. No. 21(ia) of Rate Notification.
Answer: – Answered In the negative.
Question 3:- Further, if the subject services are not classifiable under the aforesaid entry, what would be the appropriate classification for the same and at what rate GST would be imposable?
Answer: – In view of the discussions made above, the subject services are covered under Sr. No. 21 (ii) of Notification 11/2017 — CTR dated 28.06.2017 as amended, attracting tax rate of 18%.
Read AAAR Order: GST on services for augmentation of oil/gas facilities
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, MAHARASHTRA
The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act” respectively] by M/s. Worley Services India Private Limited the applicant, seeking an advance ruling in respect of the following questions:
A. Whether the services provided by the Applicant are classified under SI No. 24(ii) of heading 9986 of the Rate Notification as ‘Support services to exploration, mining or drilling of petroleum crude or natural gas or both’ under SAC 998621 and attracts GST @ 12% in terms of SI. No. 24(ii) of Rate Notification?
B. Alternatively, whether the services provided by the Applicant are classified under SI No. 21(ia) of heading 9983 of the Rate Notification as ‘Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both’ and attracts GST @ 12% in terms of SI. No. 21(ia) of Rate Notification?
C. Further, if the subject services are not classifiable under the aforesaid entry, what would be the appropriate classification for the same and at what rate GST would be imposable?
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression ‘GST Act’ would mean CGST Act and MGST Act.
2. FACTS AND CONTENTION — AS PER THE APPLICANT
2.1 Worley service India Private Limited, the Applicant registered Indian Company, is a part of Worley karsons limited, which is a global engineering company providing project delivery and consulting services to the resources and energy sectors and other complex process industries.
2.2 The Applicant, registered under the MGST Act, is engaged in the provision of project management constancy (‘PMC’) services. The PMC services are provided to various natural oil and gas companies as well as oil and gas mining and exploration companies.
RDG Gas Development Project (Project 1)
2.3 Vedanta Limited (‘VL’) in the business of exploration and mining of various natural resources, is the operator of the onshore hydrocarbon block – RN-ON-90/1 located at Barmer district, Rajasthan (hereinafter, referred to as the ‘block’) for itself and its Joint Venture (‘N’) partners, namely Cairn Energy Hydrocarbons Limited (‘CEHL’) and Oil and Natural Gas Corporation Limited (‘ONGC’).
2.4 VL had discovered various oil and gas fields at the block, and currently the block has two processing terminals. The Mangala Processing Terminal (‘MPT’) is located in northern part of block and primarily processes oil from three of the northerly oil fields at Mangala, Bhagyam and Aishwariya. The Raageshwari Gas Terminal (‘RGT’) is located in southern part of block and currently processes gas from the Raageshwari deep gas field.
2.5 The gas produced from RGT has been used for meeting energy requirements at the MPT, etc and VL intends to develop new Raageshwari deep gas (‘RDG’) facilities under the RDG Gas Development Project and therefore, has executed a single contract on Engineering, procurement and construction (‘EPC’) with the EPC contractor who is responsible for all the engineering, procurement, and construction activities to complete Project. Applicant has been appointed as a Project Management Consultant to manage the Project right from the detail design to commissioning and is inter alia required to review, monitor, manage and control all aspects of the execution of the Project.
All Development/Production — Debottlenecking Project (Project 2)
2.6 This Project involves Field Development Plan (‘FOP’) preparation and execution, well facilities, development of surface facilities and well development and covers end to end integrated gas well construction which includes well pad facilities, intra-field pipeline networks, facilities at central gathering pad and trunk line to the VL’s processing facility. The Development Project covers various fields and project coverage includes Intrafield pipeline augmentation, Development for production ramp up of Development wells & surface facilities, etc.
The Applicant has been appointed as a Project Management Consultant to manage the Project right from the detail design to commissioning and is inter alia required to review, monitor, manage and control all aspects of the execution of the Project.
PMC services
2.7 VL has entered into separate agreements dated 29.05.2018 and 10.01.2019 with the Applicant in relation to Project 1 and Project 2, hereinafter also referred to as ‘Projects’ respectively, for supply of PMC services. The PMC services are customized and tailor made to suit the requirements of VL and further require extensive technical and sound expertise. As per the agreements, the Applicant is required to continuously review, monitor, manage and control all aspects of the execution of the projects and at on behalf of VL to complete it with quality, on time and within the approved cost. The Applicant appointed to manage the Projects right from details to designing to commissioning and close out of Projects with VL. The Applicant has established offices at the site of the Projects and at VL office. Agreements lists down the description of the PMC services in relation to the projects. The scope of work of the Applicant, as per the agreements, includes, Project Governance, schedule Management, Project documentation review and engineering management, performance Management, Cost Reporting Control, Risk, Issue and Scope Management, Procurement Management, Quality Management, Health, Safety and Environment Management, Material and Construction Management, Contract Management, Communication Management, EPC Contractor/Sub-Vendor/Sub-Contractor Management, Commissioning and Completion Management and Integrated Project Management Office (‘PMO’). Applicant acts as a single point of contact and also has to consolidate works of all Project Contractors and sub-contractors of various modules of the Projects in close coordination with the Project Team/Business Planning Team/Technical Services and Project Delivery Support Team. Applicant’s activities include Project Planning, Scheduling and Review, Risk Management and Stakeholder Management.
2.8 The Applicant raises invoices on VL, and classifies the aforesaid services under Service Accounting Code (‘SAC’) 998339 as ‘Project management services for construction projects’ and pays Goods and Services Tax (‘GST’) @ 18% as per the residuary entry under SI No. 21 of Notification No. 8/2017-Integrated Tax (Rate) dated 28.6.2017, hereinafter, referred to as ‘Rate Notification’.
2.9 With issuance of Notification No. 19/2019 – Integrated Tax (Rate) dated September 30, 2019, and effective October 1, 2019, Applicant is of the belief that, the subject services are classifiable under SI No. 24(ii) of heading 9986 of the Rate Notification – ‘Support services to exploration, mining or drilling of petroleum crude or natural gas or both’ under SAC 998621, attracting GST @ 12% for the supply of the said services and has therefore filed the present application.
B. STATEMENT CONTAINING APPLICANT’S INTERPRETATION OF LAW AND/OR FACTS 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 SI No. 24(11) OF HEADING 9986 OF THE RATE NOTIFICATION UNDER SAC 998621
2.10 In the present case, the Applicant provides customized and tailor made PMC services to suit the specific requirements of VL. On account of the unique nature and complexity of the services, the Applicant has the work force of professionally trained engineers who possess the qualification, technical expertise and skill sets required for executing the Projects and achieving the desired objective. Such services are in the nature of operational or administrative assistance in any manner to VL, and merits classification as ‘support services to exploration, mining or drilling of petroleum crude or natural gas, or both under SI No. 24(ii) of heading 9986 of the Rate Notification under SAC 998621’.
2.11 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. The heading 9986 of SAC relates to ‘Support services to agriculture, hunting, forestry, fishing, mining and utilities’. Heading 9986 of the SAC relates to support services and inter alia covers mining. The term ‘support services’ has not been defined under the CGST Act. However, the said principle has been recognized and used by Courts in order to determine the true nature of the term or phrase, in State of Madras v. Ganon Dunkerley & Co. (Madras) Ltd., AIR 1958 SC 650 and Association of Leasing and Financial Service Companies v. Union of India (‘UOI’), 2010 (20) S.T.R. 417 (SC).
Under the erstwhile Finance Act, 1994, the term ‘support services’ was defined as follows:
‘support services’ means infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis;’
Further, meanings from few legal dictionaries are set out below for ready reference:
2.14 A reading of above definitions reveal that the term ‘support’ signifies anything which helps in sustenance, keeps something going, enables something to exist or continue. Further, as per erstwhile Finance Act, ‘support services’ would include all operational, administrative, consulting and management services, or any other such support services, which the entities or recipients would carry out themselves, but have outsourced the same to the supplier of such services.
2.15 In the present case, VL has contracted with an EPC contractor for the purpose of development of Raageshwari well pads, pipelines, etc. as well as for execution of development wells and surface facilities to increase prospect of mining and pursuant sale of gas, procured from the fields therefrom.
2.16 VL was required to review, monitor and manage the activities of such EPC contractor for the development Project but has outsourced the same to the Applicant vide separate agreements covering the scope of PMC services. In light of the said scope of work, Applicant has been outsourced the activity of administration and management of the entire Projects, on behalf of VL. The Applicant supports VL to efficiently complete the Projects so as to assist in increasing the mining activity and sales of gas from the respective fields of the Projects. In view of this, it is submitted that the said activity carried out by the Applicant squarely falls within the ambit of support services.
2.17 Further the service description provided under Heading 9986 of SAC includes all kinds of support services which are co-related to the activity of mining or exploration and envisages a wide spectrum of activities within its ambit. This can be gathered from the amendment made vide Notification No. 19/2019 – Integrated Tax (Rate) dated September 30, 2019,, wherein ‘support services exploration, mining or drilling of petroleum crude or natural gas or both, was subtitled to read as ‘support services to exploration, mining or drilling of petroleum crude or natural gas or both.’ The amendment had widened the scope of services, in as much as, such services would cover all ancillary or incidental activities to the main activity of mining or exploration of natural gases, and not only those support services which directly involves mining or exploration of gas. The term ‘to’ indicates contact or proximity to the subject or, more specifically, means ‘towards’. 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 with the activities of exploration and mining. The PMC services provided by the Applicant are evidently related to the activity of mining and hence would find place under the said entry.
2.18 The services provided by the Applicant are in the nature of support services and are required to be provided inter alia in support to mining. The term ‘mining’ is not defined under the CGST Act and the Rate Notification. Hence, in order to the understand the scope and ambit of the said term, the following definitions of mining/mining operations/mines have been extracted for ease of reference:
