EPC contract for infrastructure facilities is a work contract & 18% GST is payable

In re L & T Hydrocarbon Engineering Ltd. (GST AAR Rajasthan)

As per EPC contract the applicant has to complete the task, of setting up of MUPS2-EPC-2 project broadly ranging from designing, engineering, procurement, fabrication, manufacturing, assembly, erection and installation, facilities construction, Testing, Pre commissioning & Commissioning, Training etc & satisfactory hand over of complete various infrastructure facilities, all customised as per contract. The applicant has to start from the scratch and bring into existence a fully operational various infrastructure facilities at MUPS-2-EPC-2 project. The execution of the project would also involve the transfer of property in goods.

The contract is for the engineering, procurement and commissioning of MLJPS2-EPC-2 project including various infrastructure facilities, all commissioned. What would be transferred is the project including the civil work and land involved in project. Various civil structure would be created and various equipment would be installed.

The said project cannot be shifted anywhere; it is essentially of the nature of immovable property. The project 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.

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 project broadly ranging from designing, engineering, procurement, fabrication, manufacturing assembly, erection & installation, facilities construction, insulation, dismantling, Pre commissioning & Commissioning training etc. and satisfactory hand over of complete various infrastructure facilities all customised 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 L&T Hydrocarbon Engineering Ltd. First Floor, D-236 & 237, SDC Monarch Building, Amrapali Marg, Vaishali Nagar, Jaipur-302021, 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 08AABCL5967DIZE 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 L & T Hydrocarbon Engineering Ltd. (“the Applicant”) is a company registered Linder the Indian Companies Act, 1956. It is a subsidiary of L&T Limited, an Indian technology, engineering, construction, manufacturing and financial services conglomerate. The Applicant is engaged in the business of engineering, procurement fabrication, construction and project management providing integrated solutions to the Hydrocarbon Industry. The Applicant carries out construction of refinery, petrochemical, chemical project, gas gathering stations, crude oil & gas terminals, etc. on turnkey basis. The Applicant is registered under the Rajasthan Goods and Service Tax Act. 2017 (‘RGST Act’) having registration number 08AABCL5976DIZE.

MANGALA UPGRADATION PROJECT STAGE 2 – EPC 2 (“MUPS2-EPC2”)

1.2 Vedanta Limited (“Vedanta”/ “Company”) 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 various oil and gas discoveries, including Mangala, Bhagyam and Aishwarya fields, collectively known as MBA field, as the major producing field along with marginal producing satellite fields.

1.3 The productions from various well pads of MBA & other satellite fields are processed at the Mangala Processing Terminal (“MPT”) at Barmer district of Rajasthan. MPT is currently operational with 3 oil processing trains with combined liquid handling capacity of 680 KBLPD (Kilo Barrel of Liquid Per Day). The oil train primarily consists of slug catcher, production heaters, production separator & settling tank for oil water separation and degassing. The Stabilized oil is further treated in electrostatic dehydrators to meet the technical requirement of < 0.5%.

1.4 The produced water separated from the oil trains is treated in produced water handling facility. Subsequently, treated produced water along with makeup aquifer water is heated, filtered, and pumped to respective fields for injection/ circulation/ artificial lift purposes. By debottlenecking the produced water system, Vedanta has already increased the total liquid handling capacity of its oil trains at MPT to 800 KBLPD with installation of additional Skim tanks.

1.5 With a view to further augment facilities and infrastructure for enhancing the liquid handling capacity to 1300 KBLPD at MPT based on the projected production scenarios & expected increase in total liquid, the Applicant has entered into an Engineering, Procurement and Construction Contract (“EPC contract”) with Vedanta Limited in January, 2019 for construction of customized additional infrastructure facilities under Vedanta’s Mangala upgradation Project Stage 2 – EPC – 2 or ‘MUPS2-EPC2″ Project at Mangala wells (“Subject services”).

1.6 The Mangala field has 18 well pads out of which 15 were under ‘polymer flood’ and 3 were under ‘water flood’. The well pads are distributed in different clusters depending upon their physical location in the field and stage of development There are separate networks for evacuation of production fluid as well as for supply of injection water and power fluid.

1.7 The production fluid received from well pads are processed in three oil trains consisting of slug catchers, production heaters, production separators and settling tanks. The oil from the settling tanks is further sent to Dehydrators and export tanks (complying with the acceptable technical requirements].

1.8 The Produced water separated from different vessels and tanks in oil trains is gathered and treated in the produced water treatment facilities, whereas the power fluid requirement of Mangala is met by the power fluid pumps. The Injection Water (IW) system consists of IW tanks, IW booster pumps, IW heaters, IW filters & IW pumps which are common to both injection water & power fluid systems.

SCOPE OF WORK – AUGMENTATION OF FACILITIES & INFRASTRUCTURE UNDER MUPS2-EPC2 PROJECT

1.9 Under the MUPS2-EPC2 Project, the Applicant is required to undertake designing, planning, development, construction, installation, test run, final commissioning and hand over of various infrastructure facilities as described in the subsequent paragraphs.

Augmentation of Liquid handling capacity

1.10 The Production fluid from ‘Cluster D’ is to be routed to a new customized Slug Catcher V-240 to handle-420 KBLPD and -17 MMSCFD of liquids and gas respectively from the wells. The slug catcher is to be operating at 3.5 barg. The oil so separated is pumped by new Oil Transfer Pumps P-265A/B/C to the inlet fluid header of the existing trains. The separated water from the new slug catcher is to be routed to the inlet of the existing Produced Water Treatment System. The separated gas is to be compressed in new Booster Compressor Package 7-351 A/B/C and sent to the existing fuel gas Scrubbers.

1.11 The new customized slug catcher vessel is to be provided with online sand removal systems. Sand removal system is to be connected to a new Sand Wash Package Z-471 for facilitating online removal of solids. A piping bypass across the existing system is also to be installed to reduce the pressure drop in the existing system. Therefore, the major facilities envisaged for installation under head includes new slug catchers, booster compressor package, oil transfer pumps and associated piping, etc.

Augmentation of Produced water treatment facility

1.12 The total water handling capacity of existing produced water treatment systems is 1200 KBWPD Due to relocation of existing de-oiled water pumps & skim oil pumps elsewhere in the plant, new customized skimmed oil pumps & deoiled water transfer pumps are required and hooked up with the existing piping as part of the scope.

1.13 The major facilities envisaged for installation under head includes the following:

a. New Oiled Water Transfer Pumps (3 nos): Out of 3 nos., Vedanta will supply 03 nos. However, installation, commission of these pumps including supply & installation of all related piping, civil-structural, electrical, instrumentation etc are in the Applicant’s scope.

b. New Skimmed Oil Transfer Pumps: These will be supplied by Vedanta, however, installation, commissioning of these pumps including supply & installation of all related piping, civil-structure, electrical instrumentation etc. are in Applicant’s scope.

Augmenting existing Injection Water System capacity

1.14 The customized Injection water (IW) system consists of IW tanks, booster pumps, heaters, filters, IW pumps & Power fluid (PF) pumps. The overall injection water, requirement is -780 KBWTD & Power Fluid requirement is -400 KBWPD. Thus, the combined requirement of IW & PF is 1 180 KBWPD. This increased IW & PF requirement necessitates augmentation of existing Injection Water & Power Fluid systems.

1.15 The Power Fluid stream is currently not filtered at MPT. Hence, new customized filter beds are envisaged for filtering the power fluid. The major facilities envisaged includes, new Injection Water Booster Pumps, water Heaters, water Filters, power fluid filters, injection & power fluid pumps, all customized as per the contract.

New Back Wash System

1.16 The existing filters in the plant are presently being backwashed by filtered injection water, which has been found ineffective. Hence, Vedanta has decided to use heated fresh (Thumbli) water for filter backwashing purpose. The scheme is to be implemented for 2 nos. existing & 2 nos. new customized filter packages.

1.17 Water from the existing feed process water storage tank is to be pumped 2 nos. existing & 1 No new customized injection water filter packages & 1 no. power fluid package by Filter water backwash pump after heating through filter backwash water heaters. The filtered water from the two nos. new filter packages is to be routed to a new ETP MPT-Z-942. The major facilities envisaged are New customized filter backwash pumps, heaters and effluent treatment package with sludge handling system.

New LP Steam & condensate system at MPT

1.18 IW & PF operating temperature required in 88° C. The current IW heaters use steam to heat the IW. But, since IW has polymer content, skin temperatures higher than 110° C created problems of scaling. Hence, LP steam is to be used in new heaters to limit the skin temperatures below’ 110° C. Since the existing LP steam supply is inadequate to meet the new heaters requirement, LP is to be generated as follows:-

a. New customized power fluid pump is HP steam turbine operated. The back pressure of steam at turbine exhaust is at MP steam level. This shall be let down by PROS to generate LP steam of 4 barg.

b. The balance demand shall be met by HP steam which shall be let down to LP steam level PRDS.

1.19 LP steam generated is to be used in Filter Backwash heater & new injection water heater. The condensate from the exchangers is to be routed to a new condensate flash drum where it flashes at a lower pressure of 0.5 barg. The condensate from the flash drum is to be pumped by new LP condensate pumps to the existing Air coolers to cool it down to 90 deg C & subsequently routed to the BFW tanks. The Applicant’s scope of work for this system includes PRDS, steam & condensate network, New LP condensate flash drum and Steam condensate return pumps, all customized as per the contract.

Augmenting Instrument Air Nitrogen Capacity

1.20 The Instrument Air and Nitrogen capacity in the plant needs to be augmented by installing new custom-made Instrument Air Package. The package is to consist of two new air compressors, two new air compressors liquid separators, two new air compressors after coolers, one new air dryer, one new air pre-filter and one new instrument Air receiver.

1.21 It is also envisaged that new IW & PF filters, new ETP package, Tanks blanketing will also require nitrogen. Based on all new user requirements, apart from those listed above, the capacity of Nitrogen generation skid including its compressor, air dryer, etc. is to be finalized. Therefore, the scope of work for this system includes New customized instrument Air package, nitrogen generation package and new instrument air receiver.

Augmentation of other facilities

New Facility	Features
New Chemical injection skid at MPT	Scope of work for this system includes: > Augmentation of chemicals injection as per adequacy reports of FEED done by EC. > The first fill of chemicals for equipment supplied by the Applicant is to be in Applicant’s scope. This includes chemicals required for commissioning, pre-commissioning & PGTR.
Flare System	the hydrocarbon gas release from the MUP-2 facilities is to be integrated with existing HP flare & LP flare headers by connecting HP & LP flare headers from MUP-2 facility to existing headers. No augmentation in LP & HP flare system in envisaged as part of the MUP-2, AU dead ends of flare header is to be provided with Fuel gas as purge gas. Any I hydrocarbon liquid that is contaminated by oil or chemical or salts is handled in following types of drain system as below:
Drain System & Potable water	Any hydrocarbon liquid that is contaminated by oil or chemicals or salts is handled in following types of drain systems: Non-Hazardous open drain Water drain from injection water tanks & injection water service equipment like IW filters. IW pumps, IW heaters is contaminated with salts & hence is to be collected in non-hazardous open drain system which is to be collected in non-hazardous open drain pit and then it is pumped to existing evaporation pit > No continuous drain is expected in this system. > This will be hooked up to existing facility. > Closed drain The existing closed drain header is to be extended to the MPT upgrade area for collecting any hydrocarbon containing drain from new process vessels. Apart from that, this system will also be used for collecting liquid during draining rag layer from slug catcher or drains drained during maintenance activities from equipment and process lines. AU drains from sample connections and level instruments in sour service is to be routed to closed drain system. > No closed drain drum is envisaged for MUP-2 facilities. > This will be hooked up to existing facility. > Potable & treated water shall be extended from existing facilities
Modification at well pads	The Applicant is required to undertake augmentation/ modifications work at Mangala well pads. The scope of work includes the following as per customization: > Augmentation / modifications in piping headers inside well pads. > Augmentation of utilities – Instrument air/ chemical injections etc. > Related civil-structural works. > Extension/ modifications in electrical heat tracing of new piping.

SCOPE Of WORK – EXECUTION UNPEB THE CONTRACT

1.22 The Applicant submits that its Scope of work under the MUPS2-EPC2 Project includes design & detail engineering, including FEED verification post bid during detailed engineering, procurement & supply, fabrication, manufacturing, assembly, inspection & testing, packing & loading, shipping, site establishment, delivery & unloading at site, storage & preservation, erection & installation, facilities construction, insulation, painting, dismantling. Hook-ups complete with applicable tie-in with the existing & proposed facilities, site acceptance testing (SAT), pre-commissioning & commissioning, RFSU, performance guarantee test run (PGTR) as per Contract , training of Vedanta’s commissioning & operations personnel as per SOW, Project Management, Construction Management, Logistic Management, Site Management, Stakeholder Management, Regulatory Compliance, Site Restoration as applicable & satisfactory handover to Vedanta of the facilities, all customized as per the contract and forming an internal part of MUPS2-EPC2 Project.

1.23 All the works is to be carried out by the Applicant in accordance with the Vedanta’s approved specifications, drawings, procedures, method statements, applicable codes & standards, scope of work, schedule of rates & other requirements of contract. The Applicant is required to deploy resources (including manpower, tools & tackles, equipment, etc.) for execution of the scope of work. The Applicant is also responsible for arranging any external assistance/ support, if required, at its own cost & risk.

1.24 The Applicant’s obligation is to cover the provision of all plant & equipment & performance of all installation services required for design, the manufacture including procurement, quality assurance, construction, installation, associated civil works, pre-commissioning & commissioning of the facilities in accordance with the plans, procedures, specifications, drawings, codes & any other documents as specified in the technical specifications. Such specifications include, provision of supervision & engineering services, supply of labour, material, equipment, spare parts & accessories, construction equipment, construction utilities and supplies, temporary materials, structures and facilities, transportation & storage, etc. In addition to the supply of mandatory spare parts included in the contract, the Applicant also supplies spare parts required for (he operation and maintenance of the facilities for the period specified as per specifications

1.25 RESPONSIBILITIES OF APPLICANT UNDER THE SCOPE OF WORK

General Responsibilities

1.26 the Applicant has the following general responsibilities in relation to the design, construction and installation of facilities as per Contract SOW:-

(a) Providing & mobilizing all project management resources for performance of works. The project management team is to be fully equipped with planning/ scheduling software and analysis tools & manned with competent and experienced manpower complete with sound project management, reporting, and project control system

(b) Providing and mobilizing all engineering & procurement resources for execution of project. The engineering team is to be fully equipped with software & analysis tools including commercially available proprietary software as well as in-house developed software/ analysis programs & manned with competent & experience manpower complete with arranging external specialist services as required.

(c) Providing and mobilizing all construction resources for execution of project. The construction team is primarily responsible for performing construction activities, review of all the construction/ fabrication drawings prior to start of site construction and updating same as per actual site conditions, etc.

(d) Appraisal and taking cognizance of site-conditions, government rules & regulations, bye-laws, applicable codes & standards, requirements of authorities having jurisdiction over the work site(s), environmental & pollution concerns including conditions/ stipulations laid downs by concerned authorities, etc as per Contract SOW

(e) Obtaining all necessary approvals & work permits from concerned authorities for performing the work like shifting/ relocation of existing facilities & other utilities, etc.

(f) Coordinating with vendors, suppliers, fabricators & to perform all activities including expediting, inspection & testing, transportation, loading/ unloading, storing, shifting & liaison with the authorities, etc.

(g) Identifying & planning access to sites as may be required for construction of project facilities.

Design & Engineering

1.27 The Applicant’s scope of work for Design & Engineering for the facilities forming part of this project includes engineering for facilities, procurement, construction/ installation/ commissioning & Test run. The Applicant is responsible to meet the design requirements and to install a safe and efficiently operable facility and not to be relieved or absolved in any manner whatsoever of any of its obligations under the contract. Further, the Applicant is required to perform the following activities at each engineering stage:

(a) Pre-bid engineering: Review of engineering documents & generate addition engineering data/ information, identify proposed vendor suppliers for supply of procurements, identify specialist agencies, prepare list of engineering deliverables, etc.

(b) Design & detailed engineering: Performing site surveys & adequacy of checks, prepare deliverable register, drawing lists, all types of design/ analysis/ calculation reports, updating EC prepared drawings and documents, performing safety studies, submit as-build drawings, etc.

(c) Engineering for Procurement: Providing for review the following documents, viz., Material specification and data sheet, bill of material, material requisition, bid evaluation summary, etc. and ensuring equipment, packages, instruments, etc. are as per Vedanta’s policy.

(d) Engineering for Construction Installation: Providing for review constructability reports, dismantling/ removal procedure, installation analysis, pre-commissioning procedures, construction risk, mitigation plan, etc.

Procurement & Supply

1.28 The Applicant is solely responsible for timely estimating, resourcing, ordering, arranging, expediting, inspection, transportation, handling, etc of all material of all sizes as per the requirements of the contract

1.29 The Applicant submits that the materials required to be procured as per aforesaid includes (a) The mechanical equipment, viz., de-oiled and injection water pumps, (b) Piping, viz., fitting, flanges, valves, nuts, holts, welding, test medium, etc., (c) Civil Structure, viz., earth, sand, brick, stones, anchor & structural bolts, (d) Electrical, Instrumentation & control, viz., substation budding, switchgear, wiring conduits, electrical distribution boards, etc., (e), ac age items, utilities and mandatory / commissioning spares, all customized as per the contract.

Construction of customized facilities

1.30 The scope of work for construction includes the following:

(a) Mobilization/ demobilization. Mobilizing all construction spreads & equipment as required for construction, inspection & testing proposed infrastructure. Appraisal & taking cognizance of site conditions and Indian bye-laws and regulations.

(b) Site Survey & Preparation: Review & verification of available site data & geotechnical information relating to installation site, performing preconstruction surveys, delineating existing facilities & suggesting re-routes, if required.

(c) Arranging the materials at site: Coordinating with vendors to ensure timely delivery of materials at site and perform necessary inspection with regard to quality, quantity, damaged material, etc.

(d) Construction of facilities : Construction of proposed facilities in the vicinity of existing operating pipelines, utilities as approved by Vedanta.

Testing & Pre-Commissioning

1.31 The Applicant has to ensure safe and acceptable testing and pre-commissioning of all the facilities constructed under this contract, more specifically, the testing and pre-commissioning of the specified facilities, viz., piping, equipment & vessels, electrical, instrumentation & other miscellaneous facilities shall be performed as per acceptable specification and technical standards including hydrotest pressure and duration standards. In case of unsuccessful results, the Applicant is required to ensure re-testing till specified results are achieved.

Commissioning

1 32 The Applicant submits that facilities forming permanent part of the system is required to be commissioned by the Applicant and it is responsible for preparation of system, subsystem mark up, test packs and tag list generation. The Applicant is also responsible for complying with Vedanta’s prevailing completion assurance management system for facilities.

1.33 The Applicant also submits that prior to the handing over/ acceptance, the Applicant is required to perform performance run for specified duration for applicable equipment/ items and shall furnish vendor data hooks, manuals and other reports.

Clean-up & Restoration

1.34 The Applicant is required to arrange NOC from local/ statutory authorities, as applicable, & to settle all applicable compensations, dues, fees, etc. In case any facilities are damaged during execution, it is to be restored/ re-instated to authority’s satisfaction.

1.35 All surplus/ waste materials are to be removed from respective sites and handed over to the authorities having jurisdiction or Vedanta, as applicable. The Applicant is also required to submit site clean-up/ restoration/ reinstatement plan for approval from Vedanta.

Test Runs

1.36 The Applicant submits that after the system has been stabilized by the Applicant during the trail runs, it is required to conduct a performance guarantee test run for the complete system prior to handing over the plant to Vedanta as per detailed procedures shared by Vedanta. In case during testing, any equipment or materials do not find to meet the design, rated or guaranteed performance, additional tests are to be undertaken to ensure that ail the facilities meet the stated requirements.

1.37 In relation to the aforesaid scope of work, the Applicant has been providing the Subject services in the State of Rajasthan since January, 2019 and invoices were 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 Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 (“Rate Notification”) has been amended to include within its ambit, support services to, inter alia, mining activities, 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 these more specific entries, the Applicant has decided to revaluate its current position, since the newly introduced entries seem to be more appropriate and accurate to cover the Subject services.

(h) Upon analysis of the various Headings of Classification of services under the Rate Notification, the Applicant is of the considered view that 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. By filing the present application under Section 97(2)(a) of the RGST Act, the Applicant seeks to confirm this classification.

(a) STATEMENT CONTAINING THE APPLICANT’S INTERPRETATION OF LAW AND/OR FACTS, AS THE CASE MAY BE, IN RESPECT OF THE QUESTION(S) ON WHICH THE ADVANCE RULING IS REQUIRED

APPLICANT’S ELIGIBILITY FOR ADVANCE RULING

1.38. 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 lax 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.

1.39 The Applicant submits that the issue on which advance ruling is sought in the instant matter is whether the service supplied by the Applicant to M/s. Vedanta qualify as Support services to mining under Sr. No. 24(ii) or Professional, technical or business services in relation to mining under Sr. No. 21 (ia) of the Rate Notification Therefore, advance ruling may be sought on these questions under Section 97(2)(a) of the CGST Act.

1.40 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 qualities 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

1.41 Under the EPC contract, the Applicant is providing end-to-end customized services in relation to the upgradation of certain relevant facilities of the Mangala oil field which is operated by Vedanta for carrying out petroleum operations. In other words, the Applicant is continuously reviewing, monitoring, managing and controlling all aspects of the execution of the MUPS2-EPC2 Project on behalf of Vedanta. Since such services are in the nature of operational or administrative assistance provided by the Applicant to Vedanta, it aptly merits classification as ‘support services to mining’ as per Heading 9986 of the Rate Notification.

1.42 The Applicant submits that the Rate Notification prescribes the principles of classification which are to be adopted while interpreting the entries provided therein. Given that classification of services is based on the HSN system of classification of services, Rate Notifications under Central Goods and Services Tax (‘CGST’), prescribe the adoption of the scheme of classification of services annexed to the respective Rate Notifications. 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 28.06.2017.

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.

1.43 It is a settled principle of law that while determining the taxability of a transaction, it is important to understand its true commercial nature’. Therefore, before analyzing the classification of the specialized construction services rendered by the Applicant, it is prudent to understand the significance and relevancy of these activities vis-a-vis the mining operations.

Nature of the Services rendered by the Applicant under the EPC contract

1.44 The Applicant submits that Vedanta is the operator of the Mangala oil and gas block. In order to enhance the liquid handling capacity of the block, Vedanta decided to add more customized facilities and develop bigger infrastructure to accommodate the increased production fluid capability which is part of its overall Mangala Upgradation project. In this regard, it has contracted with the Applicant under the EPC contract for the purpose of development of those customized facilities and infrastructure. These new installations would increase the overall production of the oil field by removing bottlenecks from liquid handling constraints.

1.45 The Applicant submits that under its Production Sharing contract, Vedanta is responsible for the review, monitoring and management of all the activities relating to the petroleum operations at the Mangala block including its upgradation from time to time leading to the increased capacity. However, it has outsourced the same to the Applicant vide separate agreements covering within its scope the upgradation of those facilities. As per these separate agreements, all such operational, administrative, consulting and management services, related to the project are carried out by the Applicant.

1.46 The Applicant submits that as part of the contract, it is required to construct the following substantial facilities (details of which are exhaustively provided in Annexure I), all customized as per the contract, at the Mangala Oil field to enhance its overall liquid handling capacity:-

(a) Augmentation of produced water treatment and injection water facility

(b) Installation of new backwash system, LP Steam & condensate system

(c) Augmentation of Instrument Air & Nitrogen capacity

(d) Augmenting other aspects of liquid handling capacity

(e) Installation of new chemical injection skid, flare system and drainage and potable water system

(f) Modification of well pads

1.47 From the above, it is evident that the construction and installation of these customized facilities will help Vedanta in enhancing its overall liquid handling capacity and hence directly result in the increased production from its mining activities. It is also evident from the above that without upgrading its infrastructure facilities, it would not be possible for Vedanta to enhance its production capacity. Therefore, the installation of aforesaid facilities forms an inextricable link to the petroleum operations and hence are sine quo none.

1.48 Further, for the purpose of carrying out the above customized enhancements in the facilities and infrastructure, the scope of work for the Applicant including the following:-

a. Supervising, reviewing and monitoring the designs, drawings and other relevant documents for the effective completion of the project.

b. Ensuring that the project is completed within established timelines and timelines as per the contract are adhered to.

c. Reviewing and approving the procurement of materials in accordance with the standards and technical specifications of the contract for completion of the project.

d. Overall supervising, and technically reviewing the construction activity carried on along with conducting quality assurance tests.

e. Reviewing and approving the vendors/sub-contractors with the approval of Vedanta, for the effective completion of the project.

f. Determining the risk factors involved in the project and identities risk mitigation techniques.

g. Ensuring that the upgradation project has maintained proper HSE standards.

h. Taking timely legal, environmental approvals and clearances for timely completion of the project.

i. Ensuring that quality is maintained by conducting quality inspection al sub-contractors/ vendors factories/ premises

j. Ensuring that that the project is completed within the prescribed timelines and handed over to Vedanta thereafter.

1.49 Given the aforesaid functions and activities which are required to be performed by the Applicant under the EPC contract, its responsibility extends to the designing and planning of the whole project till its final test run, commissioning and handing over to Vedanta. Therefore, the Applicant’s scope of work and responsibilities forms an integral part of the petroleum operations that are conducted by Vedanta and clearly proves incidental and substantial thereto.

Classification of Subject services

1.50 In the light of the aforesaid analyses of the nature of Subject services and its criticality in the overall petroleum operations, it is now relevant to determine its classification under Heading 9986 [Sr. No. 24(ii)]. For the sake of ready reference, the relevant extract of Heading 9986 [Sr. No. 24(ii)] is reproduced below.

S. N.	Heading	Description of services	Rate
24	Heading 9986 (Support services to agriculture, hunting, forestry, fishing, mining and utilities)	(ii) Support services to exploration, mining or drilling of petroleum crude or natural gas or both.	12%

1.51 Further, the Scheme of Classification provides the following interpretation of the Heading 9986 relating to ‘Support services to agriculture, hunting, forestry, fishing, mining and utilities.

Sr. No.	Chapter, Section Heading, or Group	Service Code (Tariff)	Service Description
(1)	(2)	(3)	(4)
454	Heading 9986		Support services to agriculture, hunting, forestry’, fishing, mining and utilities.
462	Group 99862		Support Services to Mining
463		998621	Support services to oil and natural gas extraction
		998622	Support services to other mining nowhere else classified

1.52 The Applicant submits that a reading of the aforesaid entry suggests that it covers ‘Support Services to Mining’. Therefore, it is relevant to understand the meaning of the terms “support services”, “to” and “mining” used in that expression.

Term “support services’ has a wide meaning

1.53 Heading 9986 relates to support services and inter alia covers mining. The term “support services’ has not been defined under the Central Goods and Services Tax Act, 2017 (‘CGST Act’). The principle of nomen juris suggests that where definition of a term is not provided in a particular Act, the definition of the same can be borrowed from any other Act or statute. 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).

1.54 In this regard, the term ‘support services’ had been defined under Section 65(49) under the erstwhile Finance Act, 1994 (inserted w.e.f. 1.6.2012), which is as follows: –

(49) ‘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 hut 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; ‘

1.55 In the absence of any definition of the term ‘support’ under the CGST Act, it is necessary to refer to the dictionary meaning of the term ‘support’. Meanings from few legal dictionaries are set out below for ready reference;

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

1.56 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. Further, as per the definition of ‘support services’ as prescribed under the erstwhile Finance Act, it is evident that the said activity would include all such operational, administrative, consulting and management services, or any other such support services, which the entities or recipients would carry out themselves, hut have outsourced the same to the supplier of such services.

Meaning of the term ‘to’

> While (here is no specific definition of the term ‘to’ in the Rate 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

From the above, it can be seen that the term ‘to’ indicates contact or proximity to the subject or, more specifically, means ‘towards’.

1.58 Applying this to the present contract, the Applicant submits that the ‘Support Services to 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.

Ambit of the term ‘mining. ‘

1.59 As submitted above, it is evident that the services provided by the Applicant are in the nature of support services. In order to classify the said activity within the ambit of the Heading 9986, it is imperative that such services are required to be provided inter alia in support to ‘mining’, it is pertinent to note that the term ‘mining’ has not been 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:

Source	Meaning
The Law Lexicon Dictionary, 3rd Edition	Mining: the process or business of making or working of mines; the process of extracting from the Earth the rough ore, would seem to be the first step in the process; milling or reducing, the second step, to writ, the further separation of the materials found together, the one from ‘ other, and extracting from the mass the particular natural product desired.
Mines and Minerals (Development and Regulation) Act, 1957	(d) ‘mining operations’ means any operations undertaken for the purpose of winning any mineral
The Oilfields (Development and Regulation) Act, 1948	(b) ‘mines’ means any excavation for the purpose of searching for or obtaining mineral oils and includes an oil well

1.60 On the basis of the definitions above, it is submitted that mining is the process of extracting of minerals/petroleum/natural gas, as the case maybe. The said term also includes within its ambit the ancillary and incidental activities such as extraction, purification, development of existing mining facilities, all of which is in relation to the activity of mining of minerals/petroleum/natural gas from the earth. Thus, it is submitted that not only, the activity of extraction would qualify as mining, but also, it would include development of existing mining facilities, in order to bolster the quantum of mined goods or increase in production or efficiency of the oil mine.

1.61 The Applicant submits that the customized services provided under the EPC contract would be of no material significance/relevance, if there is per se no activity of mining operations. Further, the Subject services would be insignificant when performed in isolation without mining operations being undertaken. It is submitted that until and unless the services provided by the Applicant are integrally connected with that of mining operations undertaken by the Applicant on behalf of Vedanta, the objective of achieving the desired augmentation/development of the oil and gas facilities would not be fulfilled

1.62 Further, the innate nature of the Subject services as outlined in the agreements is to facilitate, review, monitor, manage and control all aspects of the execution of the project involving mining operations undertaken by the Applicant on behalf of Vedanta, to complete it with quality, on time and within the approved cost. The Applicant is also required to ensure that the project is professional managed right from detail design to commissioning & project closeout and holding complete responsibility for delivery in agreed schedule, cost, and quality.

1.63 In addition to the above, on perusal of the agreements, it is to be noted that the project is essentially for development /augmentation of existing oil and gas fields by way of enhancement of its existing infrastructure facilities. Accordingly, it is submitted that the services provided by the Applicant are integrally connected with the mining operations, such that the holistic objective of augmentation of oil and gas facilities are fulfilled as per the prescribed schedules.

1.64 In light of the aforesaid scope of work and nature of services rendered by the Applicant in relation to the contract and the meaning of the terms ‘support services , ‘to and ‘mining’ as analysed above, it is evident that the Applicant has been outsourced the entire activity of administration and management of the upgradation project. The Applicant is required to ensure proper management of the project, along with the day-to-day administration and logistics, such as, procurement, performance, HSE, quality and schedule management, among others, on behalf of Vedanta.

1.65 Vedanta was required to conduct such activities on its own account as an operator under the Production sharing contract, however, it has outsourced the same to the Applicant. The Applicant supports Vedanta to efficiently complete the project so as to assist in increasing the mining activity and production of oil at the field. In view of this, it is submitted that the said activity carried out by the Applicant squarely falls within the ambit of support services.

1.66 Further, on a bare perusal of service description as provided under Heading 9986, it is evident that the said heading includes all kinds of support services which are co-related inter alia to the activity of mining or exploration The said entry envisages a wide spectrum of activities covered within its ambit. This can be gathered from the amendment made vide Notification No. 20/2019 – Central Tax (Rate) dated 30.09.2019, wherein ‘support services of exploration, mining or drilling of petroleum crude or natural gas or both1 was substituted to read as ‘support services to exploration, mining or drilling of petroleum crude or natural gas or both In this regard, it is submitted that the aforesaid 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.

1.67 In the present case, as mentioned above, the Applicant provides support services to Vedanta. In light of above, it is submitted that the support services provided by the Applicant are integrally connected to the activity of mining and therefore, the supply of services provided by the Applicant is squarely covered within the ambit Sr. No. 24(ii) of Heading 9986 of the Rate Notification. As a result, it is submitted that the said services would attract GST @ 12% in light of Sr. No. 24 (ii) of the Rate Notification as ‘support services to exploration, mining or drilling of petroleum crude or natural gas or both ‘.

Circular clarifies scope of support serves

1.68 The Applicant submits that on a reference to the Heading 9986 [SI. No. 24(ii)], 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 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

1.69 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) fest 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

1.70 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.

1.71 The occurrence of the expression “includes” in the above Explanatory Notes suggests that it is not an exhaustive list but is merely indicative. In this regard, it is submitted that the said phrase has a very wide connotation, thereby giving the Chapter Heading an extensive scope. The said phrase used in the Explanatory Note clearly shows that the Chapter Heading is to be construed in the exhaustive sense and not per se in a restrictive sense. Reference in this regard is made to Tetragon Chemie Private Limited and Ors Vs CCE and Ors [2001 (138) ELT 0414 Tri-LB], wherein in the context of interpretation of an inclusive Chapter Note, the Delhi Tribunal inter alia held that the Chapter Heading is to be given a wide connotation and is not to be restricted to the illustrations provided in the Chapter Note.

1.72 Reference is also made to the decision of Stove Kraft Pvt. Ltd. Vs State of Karnataka [2006(2) TMI 603] wherein on the aspect of classification of goods, Karnataka High Court inter alia held that the word ‘includes’ is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute When it is so used, these words and phrases must be construed as comprehending not only such things as they signify according to their nature and import, but also things which the interpretation clause declares that they shall include. The words used in an inclusive definition denote extension and cannot be treated as restricted in any sense.

1.73 The Apex Court in the case of Bharat Coop. Bank (Mumbai) Ltd Vs Coop Bank Employees Union [2007(4) SCC 685] observed that the term includes’ used in a legislature is enumerative but not exhaustive, to extend the scope so as to bring within it matters, which in its ordinary meaning may or may not comprise. Similarly, the Apex Court in the case of Regional Director Employee’s State Insurance Corporation Vs High Land Coffee Works of Pfx. Saldanha & Sons (1991(7) TMI 367] had inter aha held that the word ‘include’ in the statutory definition is generally used to enlarge the meaning of the preceding words and it is by way of extension, and not with restriction.

1.74 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 inter-dependent activities which are indelibly linked to each other and helps forming a coherent value chain.

1.75 The Applicant reiterates that under the EPC contract, it is providing support services for the upgradation of infrastructure and facilities at the Mangala Oil field which would directly result in increased liquid handling capability and hence increased oil production. Therefore, construction of such facilities 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.

1.76 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 cover all such activities which are essential to the petroleum operations and in support of it

1.77 The Applicant submits that it has been classifying the Subject services provided to Vedanta under Heading 9954 – “General construction services’ and is paying GST @ 18% under Sr. No. 3 of the Rate Notification. Given the scope of work involved in the project and further by virtue of the amendment made in the Rate Notification effective October 1, 2019 wherein a specific amendment was made in Sr No. 24 (ii) of the Rate Notification which attracts GST @ 12%, the Applicant is of the firm belief that the Subject services would merit classification under Sr. No. 24 (ii) as ‘support services to exploration, mining or drilling of petroleum crude or natural gas or both ‘.

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 QR BOTH’ UNDER HEADING 9983 OF Sr. No. 21 (ia) OJ THE RATE NOTIFICATION

1.78 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.

1.79 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 hereinbelow:

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. 80 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

1.81 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.’

1.82 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.3 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.

1.83 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 classify particular services such as management and consultancy services relating inter alia mining, and which do not merit classification as support services to mining under Heading 9986.

1.84 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. UOJ, [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.

1.85 In the present case, the Applicant provides services by way of proper management of the project right from the detail design and planning of the project till its final test run, commission and hand over in fully functional form. 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, on behalf of 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 relation to the mining activities under the project merits classification under 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%.

1.86 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 Jail 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. 20/20/9- 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’

1.87 The aforesaid Circular clearly states that technical and consulting services relating to exploration also fall under Heading 9983 and would also 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%.

1.88 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.

1.89 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

a Whether the services provided by the Applicant are classified under Sr. No. 24(H) of Heading 9986 of Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 as ‘Support services to exploration, mining or drilling of petroleum crude or natural gas or both’ and attracts GST @ 12%.

b Whether, the services provided by the Applicant are classified under ‘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 Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 and attracts GST a 12%.

c. 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 Deputy Commissioner. SGST, Circle-N, Jaipur vide letter dated 17.09.2020 are as under:-

> The applicant L&T HYDROCARBON ENGINEERING ltd is a subsidiary of L&T Ltd. and is engaged in activities such as construction of refineries petrochemicals, chemical projects, gas gathering station, crude oil and gas terminals etc.

> The applicant has entered into an engineering procurement and construction contract (EPC contract) with Vedanta ltd for augmenting facilities and infrastructure for enhancing the liquid handling capacity to 1300 KBLPD at MPT based on the projected production scenario.

> The applicant has sought the clarification regarding heading 9986 of Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 as support services to exploration, mining, or drilling of petroleum of petroleum products attract GST at 12% and whether the services provided by applicants are classified under other professional, technical, and business services relating to exploration, mining or drilling of petroleum goods under heading 9983 of notification of 11-02-2017 dated 28-06-2017 the applicants further seeks classification of the above entries if not covered under heading 9983 and 9986.

> The details email to the jurisdictional officer were analyzed as per details, the applicants is engaged in primary activities of mining of petroleum products together with VEDANTA LTD. and does not seem to be support services.

> However, the EPC contract enforced into with VEDANTA LTD can be covered under support services is a matter of analysis at higher level but as per detail provided the applicants seems to he associated with primary activity of mining of petroleum goods together with VEDANTA LTD

> In this regard CBIC has clarified vide notification no. 114/33/2019 GST dated 11/10/2019 on scope of support services to exploration, mining, or drilling of petroleum crude or natural gas or both. The comments are forwarded for further action.

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 customised additional infrastructure facilities at Mangla upgradation project Stage-2-EPC-2 (MUPS-2-EPC-2) project at Mangla wells. “The scope of work under the contract is that the applicant is required to undertake various activities comprising of design and detail engineering, Feed verification. Detail Engineering, Procurement & supply, Fabrication, Manufacturing, Assembly, Inspection & Testing, Packing & loading, Shipping, Site establishment, Delivery and unloading at site, Storage and preservation, erection and Installation, Facilities construction. Insulation, Painting, Dismantling, Hook-ups, Acceptance Testing, Pre commissioning & commissioning RFSU, performance guarantee test Run, Training of Company’s commissioning & operations personnel, Project management, Construction Management, Logistic Management, Site Management, Stakeholder Management, Site Restoration as applicable and satisfactory hand over to Vedanta of the facilities all customised as per contract and forming internal part of MDPS-2-EPC-2 project.

2. The applicant has contended that under the EPC contract they are providing Engineering, Procurement and construction (EPC) services in relation to the upgradation of certain facilities of the Mangla oil field which is operated by Vedanta for carrying out petroleum operations. 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 28.06.2017 (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 28.06.2017 (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.

6. As per EPC contract the applicant has to complete the task, of setting up of MUPS2-EPC-2 project broadly ranging from designing, engineering, procurement, fabrication, manufacturing, assembly, erection and installation, facilities construction, Testing, Pre commissioning & Commissioning, Training etc & satisfactory hand over of complete various infrastructure facilities, all customised as per contract. The applicant has to start from the scratch and bring into existence a fully operational various infrastructure facilities at MUPS-2-EPC-2 project. 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 MLJPS2-EPC-2 project including various infrastructure facilities, all commissioned. What would be transferred is the project including the civil work and land involved in project. Various civil structure would be created and various equipment would be installed.

The said project cannot be shifted anywhere; it is essentially of the nature of immovable property. The project 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-11

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.

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 he determined in accordance with the Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017, 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 28.06.2017(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 project broadly ranging from designing, engineering, procurement, fabrication, manufacturing assembly, erection & installation, facilities construction, insulation, dismantling, Pre commissioning & Commissioning training etc. and satisfactory hand over of complete various infrastructure facilities all customised 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.

Based on the above discussion & finding we rule as under

Ruling

Question 1 Whether the Services provided by the applicant are classified under S. No. 24(ii) of Heading 9986 of the Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 as ‘Support Services to exploration, mining or drilling of petroleum crude or natural gas or both’ and attract GST @ 12%.

Answer – No.

Question 2 Whether the Services provided by the applicant are classified under other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both’ under S. No. 21 (ia) of Heading 9983 of the Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 (as amended) and attract GST @ 12%.

Answer- No.

Question 3 Further, if the subject services are not classifiable under 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 28.06.2017.