BG Exploration & Production India Ltd. Vs Commissioner of Service Tax (CESTAT Mumbai)
Held that as a party to the joint-venture, obligations and responsibilities discharged by co-venturer cannot be brought under service tax levy. Accordingly, demand of service tax set aside.
Facts- The appellants are engaged in the business of mining of mineral oil and natural gas and for this purpose have executed ‘Production Sharing Contract (PSC)’ for extraction of mineral oil and natural gas at the Panna & Mukta oilfields and the Tapti oilfield. In undertaking such activities under the PSC, the appellant along with M/s Oil and Natural Gas Corporation Limited (ONGC) and Reliance Industries Ltd. (RIL) have been entered into a Joint Operating Agreement (JOA) for performing field operations on above stated oilfields.
It appears from the materials on record that an enquiry was initiated by the department on the basis of information received that the appellant is earning income under the head ‘parent company overheads’, from unincorporated joint venture with ONGC and RIL, but were not discharging service tax liability; and further the appellants were receiving various services from foreign-based service providers, including the appellant’s parent company, for which consideration has been paid in convertible foreign exchange without properly discharging service tax liability. Accordingly the Department had initiated show cause proceedings for demand of service tax which is short paid along with proposal for recovery of interest and imposition of penalty.
Conclusion- Held that as a party to the joint-venture, obligations and responsibilities discharged by co-venturer cannot be brought under service tax levy.
Further, as the entire demand raised in the impugned order is based on the records as per ST-3 Returns filed by the appellant and the amounts indicated in the appellant’s balance sheet, this could only lead to an irresistible conclusion that no suppression or intention to evade payment of tax could be levelled against the appellant.
The Mumbai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that no service tax is leviable under the obligations and responsibilities discharged by the co-venturer in a joint venture.
BG Exploration & Production India Lt, the appellant assessee registered with the Service Tax Registration for providing taxable services under the category of ‘management consultancy services, consultancy engineer services, cargo handling services, mining services, business support services, supply of tangible goods services and telecom services’ covered under the taxable services defined under section 65 (105) of the Finance Act, 1994.
The assessee appealed against the order passed by the Commissioner for the demand of service tax which was short paid along with a proposal for recovery of interest and imposition of penalty.
Rohan Shah, Mihir Deshmukh, C. Sabri Rajan and Mohammad Anajwalla, the counsels for the assessee contended that the assessee along with Oil and Natural Gas Corporation (ONGC) and Reliance Industries Ltd (RIL )had entered into a Joint Operating Agreement (JOA).
Also stated that the true nature of the transactions under the said Production Sharing Contract was that of a “Joint Venture” between the Government of India, the assessee, RIL and ONGC and that it involves no rendition of service.
Further submitted that the levy of service tax on the sole basis of balance sheet/ income tax returns, etc. was unsustainable in law and the department had demanded service tax on such expenses which are related to ‘mining services’ even for the period prior by classifying them as ‘management and business consultancy services’, which was illegal, wholly without jurisdiction and directly contrary to the law.
S. K. Mathur, the counsel for the revenue contended that in the absence of documentary evidence explaining the reasons for the difference in values in service tax Returns and the Balance Sheet, no evidence was produced to indicate that the services had been rendered outside India, and other evidence, the claim made by the assessee is not supported.
Also submitted that the order passed by the Commissioner was just, legal, and proper. Hence he requested that the appeal filed by the assessee may be disallowed.
The Bench observed that as a party to the joint venture, the obligations and responsibilities discharged by co- venturer cannot be brought under service tax levy and there was reasonable cause for the failure to discharge tax liabilities which had been rectified by the assessee duly paying the service tax along with interest thereon.
The two-member panel comprising S.K Mohanty (Judicial) and M.M S.K Parthiban (Technical) quashed the penalty imposed for the non-payment of service tax by the assessee.
FULL TEXT OF THE CESTAT MUMBAI ORDER
This appeal has been filed under Sub-section (1) of Section 86 of the Finance Act, 1994 (for short, ‘the said Act’), by M/s. BG Exploration and Production India Limited (herein referred to as ‘appellants’) having been aggrieved by the Order-in-Original No. 12-13/ST-VII/RS/2014 dated 26.12.2014 passed under Section 73 of the said Act by the Commissioner, Service Tax-VII, Mumbai as adjudicating authority.
2. The brief facts of the case are that the appellants are registered with the Service Tax Registration No.AAACE4569KST003 for providing taxable services, inter alia, under the category of ‘management consultancy services, consultancy engineer services, cargo handling services, goods transport by road services, commissioning and installation services, mining services, business support services, supply of tangible goods services and telecom services’ covered under the taxable services defined under section 65 (105) of the Finance Act, 1994. The appellants are engaged in the business of mining of mineral oil and natural gas and for this purpose have executed ‘Production Sharing Contract (PSC)’ for extraction of mineral oil and natural gas at the Panna & Mukta oilfields and the Tapti oilfield. In undertaking such activities under the PSC, the appellant along with M/s Oil and Natural Gas Corporation Limited (ONGC) and Reliance Industries Ltd. (RIL) have been entered into a Joint Operating Agreement (JOA) for performing field operations on above stated oilfields.
3. It appears from the materials on record that an enquiry was initiated by the department on the basis of information received that the appellant is earning income under the head ‘parent company overheads’, from unincorporated joint venture with ONGC and RIL, but were not discharging service tax liability; and further the appellants were receiving various services from foreign-based service providers, including the appellant’s parent company, for which consideration has been paid in convertible foreign exchange without properly discharging service tax liability. Accordingly the Department had initiated show cause proceedings for demand of service tax which is short paid along with proposal for recovery of interest and imposition of penalty. The proposals in two SCNs dated 22.10.2011 and 14.12.2012 in brief are as follows:
4. Service Tax demand in SCN dated 22.10.2011
