In re Halliburton Offshore Services Inc. (Oil India) (GST AAR Andhra Pradesh)
(a). Whether the supply of mud engineering services along with supply of imported mud chemicals and additives provided on consumption basis by the Applicant under the Contract qualify as composite supply.
it is observed that there are independent qualitative, quantitative and logistic (mobilization, deliver}7, replacement of deficient or substandard materials, demobilization thereof etc.) compulsions with reference to procurement by the applicant, clauses for sub-contracting of petty services, subsequent delivery’ (or supply) to M/s OIL and usage (or consumption) of additives / chemicals in mud engineering activity and drilling waste management services. It is also observed that there are similar conditions prevailed independently to Technical Personnel and technical equipment (including laboratory equipment) separately. Thus, it is clear and evident that the different components namely, technical personnel, technical equipment and additives/chemicals/consumables are separately available for procurement and supply by the applicant, it Is therefore, understandable that supply of mud additives and chemicals cannot be said to be supplied in conjunction with supply of services (technical assistance by way of supply of technical personnel) and supply of other goods namely technical equipment.
As the essential second criteria of ‘supplied in conjunction with’ had not been complied, the supply of mud engineering services along with supply of imported mud chemicals and additives provided on consumption basis by the Applicant’ under the contract do not qualify and classifiable as ‘composite supply’.
And therefore, the supply of imported mud- chemicals and mud additives provided on consumption basis shall be classifiable as supply of goods under respective HSNs of goods as specified under CGST Act, 2017. Similarly, it is found that the other events supply of goods (on rental basis) and supply of services (supply of technical personnel) shall be accordingly classifiable independently under respective HSNs of Services/Goods as the case may be.
(b). If answer to Para (a) is yes, then whether the supplies made under the Contract merits classification under Entry 9986 (ii) – Service of exploration, mining or drilling of petroleum crude or natural gas or both and subject to GST at the rate of 12%/18% as the case may be.
As the Answer to Question-(a) is No, the necessity of classification of supplies as ought under Question or Point-B to ARA does not arise. As it is found that the scope of the work under the subject contract is not a ‘composite supply’ and each of the events/activity found to be classifiable independently (as goods or as services as the ease may be), the said events/activities will be chargeable or leviable to applicable and prevailing respective GST rates.
(c). If the answer to Para (a) is no, then whether such supply of mud chemicals and additives on consumption basis at OIL India’s location in India provided under the Contract qualify for concessional GST rate of 5% against an Essentiality Certificate (‘EC’) under Notification No. 50/2017-Customs dated 30 June 2017.
The last Question or Point C viz’ is “whether supply of mud chemicals and additives on consumption basis at OIL India’s location in India provided under the Contract qualify for concessional GST Rate of 5% against an Essentially Certificate under Notification No. 50/2017-Customs dated 30.06.2017.” In this regard, a reference is invited to the finding herein above with regard to holding that “supply of mud chemicals and addtives as supply of goods.” Accordingly, the benefits under referred Customs Notification is available to supply of such goods at the time of their importation subject to fulfilment of description, tariff item, lists and conditions specified therein and subject to the satisfaction of the Proper Officer.
Read AAAR Order : Supply of Mud Engineering Services, chemicals and additives are neither composite & nor Bundled Supply
FULL TEXT OF ORDER OF THE AUTHORITY OF ADVANCE RULING, ANDHRA PRADESH
ORDER
(Under sub-section (4) of Section 98 of Central Goods and Services Tax Act, 2017 and sub- section (4) of Section 98 of Andhra Pradesh Goods and Services Tax Act, 2017)
1. The present application has been filed u/s 97 of the Central (roods & Services Tax Act, 2017 and AP Goods & Services Tax Act, 2017 (hereinafter referred to CGST Act and APGST Act respectively) by Halliburton Offshore Services Inc. (hereinafter referred to as applicant), registered under the Goods & Service Tax.
2. The provisions of the CGST Act and APGST Act are identical, except for certain provisions. Therefore, unless a specific mention of the dissimilar provision is made, a reference to the CGST Act would also mean a reference to the same provision under the APGST Act. Further, henceforth, for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST or AP GSI Act would be mentioned as being under the GST Act.
3. Brief Facts of the case:
Halliburton Offshore Services Inc. is a global service provider, engaged in providing various oilfield services to Exploration and production companies across the globe. Presently, the Applicant has contracted to provide Mud Engineering and Drilling Waste Management services for drilling three HPHT Exploratory wells in KG basin Andhra Pradesh.
The applicant had filed an application in form GST ARA-oi, Dt. 09.12.2019, by paying required amount of fee for seeking Advance Ruling on the following issues as mentioned below.
4. Questions raised before the Authority:
The applicant filed the present application seeking a ruling from this Authority on the following issues:-
a) Whether the supply of mud engineering services along with supply of imported mud chemicals and additives provided on consumption basis by the Applicant under the Contract qualify as composite supply.
b) [f answer to Para (a) is yes, then whether the supplies made under the Contract merits classification under Entry 9986 (ii) – Service of exploration, mining or drilling of petroleum crude or natural gas or both and subject to GST at the rate of 12%18% as the case may be.
c) If the answer to Para (a) is no, then whether such supply of mud chemicals and additives on consumption basis at OIL India’s location in India provided under the Contract qualify for concessional GST rate of 5% against an Essentiality Certificate (EC) under Notification No. 50/2017-Customs dated 30th June 2017.
On Verification of basic information of the applicant, it is observed that the applicant falls under Central jurisdiction, i.e. Superintendent, Ramanayyapeta Range Kakinada COST Division. Accordingly, the application has been forwarded to the jurisdictional officer and a copy marked to the State Tax authorities to offer their remarks as per the Sec. 98(1) of CGST /APGST Act 2017.
In response, remarks are received from both Central and State jurisdictional officers concerned stating that there are no proceedings lying pending or passed relating to the applicant on the issue, for which the Advance Ruling sought by the applicant.
5. Record of Personal Hearing:
Sri Shyam Sundar Bangaru, the authorized representative appeared for Personal Hearing on 19.12.2019 and they reiterated the submission already made in the application.
6. Applicant’s Interpretation of Law and Facts:
6.1 In the present case, the Applicant has entered into the Contract to provide a wide range of oilfield services viz. mud engineering services, operation and management of mud plant services, drilling waste management services, waste management and fluid management services, etc. As the above listed supplies are made under a single Contract, to determine the rate of GST applicable on each supply (i.e. in this case, supply of mud engineering services, mud chemicals, additives, etc.), it is essential to determine whether such supplies would be classified as composite supply or independent supplies.
6.2 For this purpose, the Applicant is required to design, formulate and perform engineering services using its engineers, operators and technology. Further, the Applicant is also required to supply drilling mud, completion fluids, chemicals and additives to be used for performing services. The mud chemicals and additives are supplied on regular basis by the Applicant to maintain adequate stock of chemicals, additives and other materials. In this regard, Clause 16.2.2 of Schedule II of the Contract provides as under:
“16.2.2 The Contractor shall supply complete line of mud chemicals, barites & additives conforming to relevant API/BIS specifications required for preparation and maintenance of mud and completion fluid. The Contractor shall maintain adequate stock of all chemicals including contingency back-up chemicals and ensure timely supply as per operational requirement of the well for uninterrupted operations. However the payment will be made on actual consumption basis duly certified by the Company Representative and OIL Chemist.”
6.3 In view of the above-mentioned scope of work for supply mud chemicals and additives, it is submitted that such chemicals, additives and materials supplied under the Contract for supply of mud engineering services are essential to perform service under the Contract. In this connection, as per the definition of ‘composite supply provided under Section 2(30) of the CGST Act, composite supply means a supply is comprising of two or more taxable supply of goods or services or both, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.
6.4 In view of the scope of work to be performed under the Contract, it becomes relevant to analyse whether the supply of mud chemicals and additives can be said to be part and parcel of a ‘composite supply. In this regard, an important factor in the definition of ‘composite supply’ is that the various supplies (i.e. services and goods in the present case) are naturally bundled and must be supplied in conjunction with each other*.
6.5 In the present case, as mentioned in Clause 10 – Section IT of the Contract, it can be said that chemicals, additives and other materials are required to be supplied to enable the performance of services, Thus, it can be said that supply of mud engineering and drill waste management services and supply of chemicals, additives and other materials are naturally bundled under this Contract.
6.6 With respect to supply to be made in conjunction with each other as mentioned in the definition of the term ‘composite supply’, they submit that the term ‘conjunction’ is not defined under the statute. Thus, applicant have referred the dictionary meanings as below:
Oxford English Dictionary (Online Version)
The action or an instance of two or more events or things occurring at the same point in time or space
Merriam Webster Dictionary (Online Version)
The state of being conjoined (Conjoined – being, coming, or brought together so as to meet, touch, overlap, or unite)
Occurrence together in time or space
Chambers Dictionary (Online Version)
A joining together; combination
The coinciding of two or more events
Cambridge Dictionary (Online Version)
The situation in which events or conditions combine or happen together
67 As per the aforesaid definitions, supplies in conjunction with each other would imply supplies that are made together or in combination. Here, it is submitted that the chemicals, additives and other materials are required to perform the services under the Contract by the Applicant and such mud chemicals and additives cannot be procured independently. In the present case, the mud chemicals and additives arc not supplied independent of the mud engineering services performed in the offshore location. Thus, it can be said that such mud chemicals and additives are supplied in conjunction with the supply of mud engineering services.
6.8 As discussed above, since supply of mud chemicals and additives are naturally bundled and supplied in conjunction with the supply of mud engineering services, such supply of chemicals and mud engineering services would qualify as ‘composite supply’ as per Section 2 (30) of the CCST Act.
7. In this regard, the second aspect which is raised before the authority is whether such mud engineering services are covered by Entry 9986 covering services of exploration or drilling inserted vide Notification no. 1/2018-Central Tax (Rate) dated 25.01.2018 amending the original notification no. 01/2017-Central Tax (Rate), dated 28.06.2017 and substituted Entry 24(ii) with the following entry:
