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Case Law Details

Case Name : In re ION Exchange (India) Limited (GST AAAR Rajasthan)
Appeal Number : Advance Ruling Order No. RAJ/AAAR/ 6/2023-24
Date of Judgement/Order : 20/12/2023
Related Assessment Year :

In re ION Exchange (India) Limited (GST AAAR Rajasthan)

(i) Based on the analysis of activities, the Appellant are required to carry out in pursuance of the EPC Contract and keeping in view the true nature of supplies proposed to be undertaken by the Appellant, the proposed supplies are appropriately classifiable under SAC Heading No. 9954 answering to description ‘Construction Services’ which are in the nature of composite supply defined as works contract.

(ii) The proposed supplies are specifically covered by SAC Heading No. 9954 and the claim that ‘Construction Services’ of SAC Heading No. 9954 is a general description of the supplies and ‘support services’ of SAC Heading No. 998621 is more specific to describe the proposed supplies is not supported by the EPC Contract as discussed above.

(iii) The proposed supply is covered by the scope of ‘Construction Services’ of SAC Heading No. 9954 and neither the inclusions given under SAC Heading No. 998621 for Support Services nor the description of Heading 9983 covers the scope of the proposed supply, Hence, the claim for classification under SAC Heading No. 998621 or alternatively under Heading 9983 is not sustainable.

(iv) The proposed supplies, therefore, attract tax at the rate of 9% in terms of item (xii) of entry at SI. No. 3 of Notification No. 11/2017-CT(R), dated 28.06.2017 as amended and 9 % in terms of Notification issued under the RGST Act, 2017.

Read AAR Also: 18% GST payable on setting up of a ‘Sulphate Removal Plant’

FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING, RAJASTHAN

1. M/s ION Exchange (India) Limited, Plot No. 186, 22 Godam, Jaipur (Rajasthan)-302006 (herein after referred as Appellant) submitted that they are engaged in the business of water treatment, waste-water treatment and its recycling. They are registered under the Central Goods & Service tax Act 2017 having registration no. 08AAACI1726L1ZK. The Appellant reportedly offers wide range of customized treatment plants for water, waste liquids and waste-water which are installed in thermal and nuclear power plants, fertilizer factories, refineries, and the petrochemical and other industries. As a part of their business operations, the Appellant enters into Engineering, Procurement and Construction contracts (“EPC Contract”) with their customers.

2. The Appellant have entered into an EPC contract with M/s. Vedanta Limited (“Vedanta”) vide Contract No. 4600008952 dt. 14.08.2018. The Appellant have informed that Cairn (Vedanta’s upstream Oil & Gas vertical) is the operator of Onshore RN-ON-90/1 block which is located in Barmer basin and having 38 oil and gas discoveries, including Mangala, Bhagyam and Aishwariya fields. The relevant extract of the EPC contract outlining the Scope of Work entered between the Appellant and M/s. Vedanta has been provided by the Appellant with the appeal memo.

3. According to the said EPC contract, the Applicant have to undertake the construction of ‘Sulphate Removal Plant’ or SRP with respect to the petroleum operations at Mangala wells (“subject services”). For the purpose of construction of the said plant, the Appellant will have to undertake the activities as per the specification & customization laid down in the EPC contract.

4. As narrated by the Appellant, Sulphate Removal Plant is a water treatment plant which treats the saline water on the basis of Nano filtration & Reverse Osmosis technology. This technology is used to separate sulphate Ions from Water. Since this is an EPC project, there are following steps in construction of the plant:

(a) Engineering: Customized designing of the plant as per specifications provided by Vedanta.

(b) Procurement: Manufacturing key components of this plant specifically suiting and customized to the requirements of Vedanta. Procuring other auxiliary components from various reputed manufactures and supplying them to the customized plant location for construction.

(c) Construction: Engaging various construction teams at plant location which construct the customized plant and install the component manufactured by the Appellant and those supplied by various manufacturers.

5. Reason for undertaking Sulphate Removal

The output from the Sulphate Removal Plant is purified water which is used by Vedanta for drilling operations. While drilling petroleum crude Oil, Mangala wells produces Hydrogen Sulphide (H2S) which is very poisonous, corrosive and flammable It is a safety hazard to the personnel and workers and poses an integrity threat to the oil wells and surface facilities. Therefore, as a mitigating measure, sulphate free water is recommended for controlling the H2S.

6. The scope of the work to be undertaken by the Appellant in terms of the contract is as follows:

SCOPE OF WORK

Design and Engineering, Design and engineering, development of equipment data sheets, preparation of engineering drawings for manufacturing, fabrication and construction.
Project Management & surveys Planning, scheduling, monitoring, progress reporting, quality assurance, quality control and overall project management functions.
Procurement & Supply Vendor management, Procurement and Logistics management; Manufacturing, Fabrication, Inspection and Testing, FAT, packing, shipping, shipment insurance, transportation and delivery to site complete with associated, Loading/Unloading & Shifting of Material;
Construction, erection and installation Execution of the complete construction activity and management of local contractors
Commissioning, RESU, Performance Guarantee Test Site Restoration works & waste management for ready
for Start-up activities and performance guarantee testing
Training and facility Handover Associated Quality, health and safety environment management training

SPECIALIZED & CUSTOMIZED SERVICES

The development of Sulphate Removal Plant covers three major elements, viz., Early Civil works, Inside Battery Limit primarily covering the technology part and Outside Battery Limit—primarily covering the rest of the plant. The Appellant have been given an integrated EPC contract for all the above elements.
The Scope of work includes the technical compliance format, design basis and philosophy, standards specifications, engineers installation standards etc.
The Scope of work also includes technical specification, design and engineering, softwares to be used, health and safety measures specific to the mining operations to be adopted, nature of vendors to make Procurement from etc.

7. A letter dated 24.04.2023 has been received from Additional Director General, DGGI, JZU, Jaipur informing that “during the inspection (search) carried out by them, it has been found that the Appellant i.e. M/s ION Exchange India Limited have an EPC contract with M/s Vedanta Limited for setting up a “Sulphate Removal Plant” broadly ranging from designing, engineering, procurement, fabrication, erection & installation, construction, commissioning; training and handover the said plant to M/s Vedanta. It seems to be a “Works Contract” Service instead of Support Service”. The DGGI, JZU, vide the said letter, also provided a copy of Panchnama dated 14.03.2023 and a copy of Incident Report No. 65/GST/2022-23 dated 03.10.2022.

As per the Incident Report, differential amount of Rs.10.65 crore of GST was adjusted/paid by the Appellant by raising Debit Note in their GSTR-3B. The difference was owing to difference in rate of GST applicable on the services provided by them, as pronounced by the AAR Ruling dated 15.09.2021 and the rate of GST actually paid by them.

8. The Appellant have been providing the subject services in the State of Rajasthan and classifying such services under SAC Heading 9954. However, vide Notification No. 20/2019-Central Tax (Rate) dated 30.09.2019, Entry No. 24(h) of Notification No. 11/2017-CT(R), dated 28.06.2017 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 Appellant decided to re-evaluate their current position to cover the subject services.

9. The Appellant submitted that they are 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 SAC 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 attract 12% GST under the CGST Act. By filing the application under Section 97(1) of the RGST Act/ CGST Act before the AAR, Rajasthan, the Appellant had sought to confirm this classification. The AAR, Rajasthan have answered the questions of the Appellant, vide their Ruling dated 15.09.2021 as under:

Question 1 – With the introduction of Notification No. 20/2019-Central Tax (Rate) dated 30.09.2019, whether the services with respect to EPC contract entered for execution of Sulphate Removal Plant supplied to M/s Vedanta Limited vide contract No. 4600008952 dated 14.08.2018 is covered under Sr. No. 24 (ii) (Support Services to Mining) or Sr. No. 21(ia) (Professional, Technical or Business Service to Mining) of the Rate Notification.

Answer: – No

Question 2 – If the subject services are not classified under any of the aforesaid entry, what would be the appropriate classification for the same and what rate GST would be imposable?

Answer – The activities of supply of survey, designing, installation, Commission of project under EPC contract by the Appellant shall attract GST @1 8% under S.No. 3

(Heading 9954) (ii) of the Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017.

10. Being aggrieved with the Ruling pronounced by the AAR, Rajasthan, the Appellant have filed appeal before this authority and their grounds of appeal are as under.

GROUNDS OF APPEAL

Submission I: The Impugned Ruling has been issued based upon erroneous presumptions as to the facts and law

11.1 The Appellant submitted that the impugned Ruling, at Para 5 states that,

“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 Appellant have to undertake activities from designing, engineering, procurement, construction of customized facility, commissioning of permanent facility, test run and hand over of complete facility so designed, constructed, tested and commissioned. Thus, it cannot he treated as support services to oil & gas extraction.”

11.2 In view of the Appellant, a perusal of the aforesaid basis given by the Authority for Advance Ruling would reveal that the AAR, Rajasthan has made an incorrect presumption of the support services envisaged under SAC Heading No. 9986 in the following manner:

(a) That support services do not include the services provided for creating the infrastructure/ facility for exploration; and

(b) it includes services which are provided once the infrastructure/ facility for exploration is built & complete in all respect and ready to start exploration.

11.3 That the Appellant submitted that the above presumptions by the AAR, Rajasthan are out rightly incorrect, bad in law and without any basis. The findings recorded by the AAR, Rajasthan with respect to the classification of the subject services are wholly misconceived and shows lack of understanding of the activities required to be performed by the Appellant under the EPC Contract. It is a trite law that decisions based on presumption and surmises have no place in the eyes of law. In this regard, reliance has been placed upon by the appellant on the following decisions wherein it has been held that an order based on presumption, surmises and conjectures is liable to be quashed:

  • Commissioner v. Sree Ganesar Textile Mills Ltd, 2015 (321) E.L.T A270 (S. C.);
  • Commissioner v. Bihariji Manufacture Co. Pvt. Ltd., 2015 (323) E.L.T. A23 (S. C.);
  • Commissioner v. Modern Denim Ltd., 2006 (199) E.L.T. A181 (S.C.);
  • Kirloskar Oil Engines Ltd. v. Commissioner of Central Excise, Nashik, 2017 (349) E.L. T 299 (Tri. -Mumbai);
  • Wolters Kluwer India Ltd v. Commissioner of Service Tax, 2014 (36) S.T.R 396 (Tri.-Del.);
  • Industrial Filter & Fabrics Pvt. Ltd. v. Commr. of C. Ex., Indore, 2014 (307) E.L.T. 131 (Tri. – Del.)

11.4 That the Appellant submitted that Vedanta has decided to construct a Sulphate Removal Plant (SRP) with associated facilities adjacent to the Mangala Processing Terminal (MPT) in Banner district of Rajasthan to tackle with the high amount of H2S produced during petroleum operations. For this purpose, the Appellant have entered into contract with Vedanta to undertake the execution of the SRP.

11.5 The Appellant set out the relevant text of the Heading 9986 as figures in the Rate Notification:

“Support services to exploration, mining or drilling of petroleum crude or natural gas or both.”

As per the appellant, a look at the aforesaid provision would reveal that it includes support services which are related to exploration, mining or drilling of petroleum crude or natural gas or both.

11.6 The Appellant also referred to the Rules of Interpretation falling under Chapter III of the United Nations Central Product Classification (“UNCPC”). The UNCPC gains significance for the purpose of classification under the GST law because the Explanatory Notes to the Scheme of Classification of Services (“Scheme”) is itself based on the UNCPC – as stated by the CBIC in Circular No.114/33/2019-GST dated 11.10.2019. The interpretative rules for classification of services under the UNCPC are aligned with the above-mentioned settled principle of classification.

11.7 The Appellant further submitted that the Circular clarified the scope of the aforesaid entry as follows:

“This service code includes derrick erection, repair and dismantling services; well casing, cementing, pumping, plugging and abandoning of wells; test drilling and exploration services in connection with petroleum and gas extraction; specialized fire extinguishing services; operation of 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, cf 998341″

11.8 As per the appellant, a reference to the aforesaid Explanatory Note would show that it provides certain support services which are classifiable under the SAC Heading No. 998621. The explicit list of activities includes:

(a) derrick erection, repair and dismantling services;

(b) well casing, cementing, pumping, plugging and abandoning of wells;

(c) test drilling and exploration services in connection with petroleum and gas extraction;

(d) specialized fire extinguishing services;

(e) operation of oil or gas extraction unit on a fee or contract basis

11.9 The Appellants submitted that a cumulative reading of the detailed nature of activities covered within the scope of Heading 9986 as per the Scheme would reveal that it covers diverse nature of activities ranging from test drilling and exploration, to casing and cementing of wells and derrick erection for the purpose of moving heavy material on the oil fields.

11.10 The Appellant submitted that the impugned Ruling, while denying the benefit of SAC Heading No. 9986 to the Appellant, stated that SAC Heading No. 9986 covers only those activities which are provided once the infrastructure/ facility for exploration is built & complete in all respect and ready to start exploration.

11.12 The Appellant denied such interpretation of the classification entry at SAC Heading No. 9986 adopted by the AAR, Rajasthan, for it not only appears absurd and lacks any credible basis in law, it is also directly in the teeth of the established principle of law that classification entries should be derived from literal meaning and no addition of words or expressions should be made into it. In the case of Oswal Agro Mills Ltd. &Ors. v. Collector of Central Excise &Ors., 1993 (66) E.L.T. 37 (S. C.), the Hon’ble Apex Court held as follows:

“The ordinary rule of construction is the provision of a statute must be construed in accordance with the language used therein unless there are compelling reasons, such as, where a literal construction would reduce the provision to absurdity or prevent manifest intention of the legislature from being carried out”

11.13 They submitted that this view was also supported by the Hon’ble in ITC Ltd. v. Commissioner of Central Excise, New Delhi, 2004 (171) E.L. T. 433 (S. C.).

11.14 The Appellant submitted that derrick erections help move heavy materials across the oil field, whereas well casing and cementing is done to ensure smooth surface around the well wall to ensure optimum extraction and transport of oil. These facilities are primarily implemented before initiating the mining operations at the oil field to prepare the well pads and related infrastructure for extraction.

11.15 The Appellant submitted that a mere reading of the title of SAC Heading No. 998621 in the scheme of classification, which states, “Support services to oil and gas extraction”, would reveal that the scope of the SAC Heading No. 998621 is not limited to exploration, but includes a wider term “extraction”. In fact, test drilling and exploration is just one of the activities covered therein and the heading includes a host of other activities which form part of the oil and gas extraction.

11.16 As stated above by the Appellant, the Heading 9986, inter alia, includes within its ambit, services in the nature of derrick erection and repair, well casing, cementing etc. It also covers “test drilling and exploration services”. If the contention of the AAR, Rajasthan that Heading 9986 would only cover services which are provided after creation of infrastructure and facility of exploration, is to be accepted, it would apparently lead to absurdity since Heading 9986 itself covers test drilling and exploration within its ambit. Therefore, by stressing on its exclusion, the AAR, Rajasthan is clearly going against the established principle of interpretation that one cannot go beyond the words of the statute. In this regard, reliance is placed on the following decisions wherein it has been held that one should adhere as closely as possible to the literal meaning of the words used:

a) Commercial Taxes Officer v. Bombay Machinery Store, 2020 (36) G.S.TL. 161 (S.C.)

b) Union of India v. Ind-Swift Laboratories Ltd., (2011) 4 SCC 635

c) Bansal Wire Industries Ltd. v. State of Uttar Pradesh, (2011) 6 SCC 545

d) CIT v. Calcutta Knitwears, 2014 (6) SCC 444

11.17 In the light of the above, the Appellant submitted that the AAR, Rajasthan has adopted a narrow view while deciding the purview of Heading 9986, in respect of which, even Circular 114 itself states that, “Most of the activities associated with exploration, mining or drilling of petroleum crude or natural gas fall under heading 9986”.

11.18 Without prejudice, the Appellant submitted that if at all the contention of the AAR, Rajasthan, that Heading 9986 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, is to be accepted, still the finding held by the AAR, Rajasthan will not hold good.

11.19 Appellant reiterated that Vedanta wanted to tackle the high amount of H2S produced during petroleum operations therefore they entered into a contract with the Appellant to undertake an execution of a Sulphate Removal Plant. The Appellant have to perform activities which are required for execution of the Sulphate Removal Plant to reduce sulphate ions present in the saline water so it can be used for injection during petroleum operations.

11.20 The Appellant submitted that since in terms of the phases of oil extraction, the exploration has already been completed and the well pads have now been built to extract and mine the oil and natural gas, it is clear that all the performance of its responsibilities by the Appellant under the contract would be having relation to the production and extraction of oil/natural gas and not exploration.

11.21 The Appellant submitted that even if AAR, Rajasthan’s contention, that Heading 9986 covers only post exploration related activities on the field, is to be accepted, even on that count, the activities of the Appellant under the contract squarely falls within the purview of SAC Heading No. 9986.

11.22 The Appellant submitted that in view of the above, the impugned Ruling pronounced by the AAR, Rajasthan is liable to be set aside.

Submission II: The services rendered by the Appellant under the contract are inextricably linked to petroleum operations.

11.23 The Appellant submitted that the impugned Ruling has been pronounced without appreciating the facts of the case and the responsibilities of the Appellant under the EPC Contract.

11.24 The Appellant submitted that their scope of work of involves complete execution of the SRP at the MPT and is essentially part of the overall development by executing Sulphate Removal Plant at the oil field to save oil wells from getting eroded.

11.25 The Appellant submitted that a perusal of the aforesaid activities would reveal that they are essentially part of the overall development of the oil field wherein the execution of the Sulphate Removal Plant for purifying injection water which will save oil wells from getting eroded is squarely in relation to that purpose.

11.26 In view of the above, it can be seen that the activities performed by the Appellant under the EPC contract are directed towards execution of the Sulphate Removal Plant for purifying injection water and accordingly, are indelibly linked to the petroleum operations carried out by Vedanta at the RJ block.

11.27 The Appellant reiterated that the impugned Ruling, at Para 5 states 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 doesn’t include the services to be provided before creating the infrastructure/ facility. Under the EPC contact, the Appellant have to undertake activities from designing, engineering, procurement, construction of customized facility, commissioning of permanent facility, Test run and hand over of complete facility so designed, constructed, tested and commissioned. Thus, it cannot be treated as support services to oil & gas extraction.”

11.28 In this regard, the Appellant submitted that one of the reasons contended by the AAR, Rajasthan for rejecting the classification Heading 9986 for the subject services is that Heading 9986 does not include services provided before creating the infrastructure/ facility for exploration.

11.29 The Appellant submitted that the AAR, Rajasthan further stated that the Appellant are carrying out EPC contract wherein it is required to undertake designing, engineering, procurement, construction of customized facility, commissioning of permanent facility, Test run and hand over of complete facility so designed. They further stated that since these activities involved designing, engineering and construction, those are in the form related to the creation of infrastructure facility, and hence cannot be treated as support services to petroleum extraction.

11.30 The Appellant submitted that the services rendered by them are linked to, and in connection with, the petroleum operations. This fact has never been disputed by the AAR, Rajasthan. They added that the only contention raised by the AAR, Rajasthan to deny the benefit of SAC Heading No. 9986 to the Appellant is that SAC Heading No. 9986 does not cover creation of infrastructure/ facility, which the Appellant vehemently opposed and found without any credible basis in the law.

11.31 The Appellant submitted that the facilities are being developed by them to support the petroleum operations carried out by Vedanta as the sulphate free water from the Sulphate Removal Plant will help in controlling the H2S which is very poisonous, corrosive and flammable, a safety hazard to personnel and an integrity threat to the oil wells and surface facilities. The support services by the Appellant are necessary and aid in the extraction of petroleum operations and therefore should be classified under SAC Heading No. 9986. According to them, the impugned Ruling also clearly missed the fact that the ultimate end use of the activities performed by the Appellant for Vedanta is its use in the increase in production capacity of the oil field.

11.32 In the light of the above, given that the activities performed by the Appellant are inextricably linked to the petroleum operations, the Impugned Ruling pronounced by the AAR, Rajasthan lacks the legal and factual basis, and accordingly is liable to be set aside.

Submission III: Specific description should prevail over general description

11.33 The Appellant submitted that, without prejudice, if at all the activities performed by them appear to fall under SAC Heading No. 9954 as against SAC Heading No. 9986, still, in terms of the Rules of Interpretation, the classification entry giving more specific description to the activities performed by the Appellant shall apply over the entry providing a more general description.

11.34 The Appellant submitted that the reference is made to the Rules of Interpretation falling under the UNCPC which gains significance for the purpose of classification under the GST law because the Explanatory Notes to the Scheme itself is based on the same.

11.35 The relevant extract of the interpretative rules enshrined under the UNCPC provides thus:

“56. In the CPC, the classification of products other than transportable goods, mainly services, shall be determined according to the terms of the categories as described in the divisions, groups, classes or subclasses in Sections 5 to 9 of CPC. When services are, prima facie, classifiable under two or more categories, classification shall be effected as follows, on the understanding that only categories at the same level (Sections, divisions, groups, classes or subclasses) are com parable..

(a) The category that provides the most specific description shall be preferred to categories providing a more general description;

(b) Composite services consisting of a combination of different services which cannot be classified by reference to (a) shall be classified as if they consisted of the service which gives them their essential character, in so far as this criterion is applicable;

(c) When services cannot be classified by reference to (a) or (b), they shall be classified under the category that occurs last in numerical order among those that equally merit consideration”

11.36 The Appellant submitted that in the light of the above, it can be seen that the subject services are customized in nature and considering the above, it is reiterated that the services supplied by them merit classification under SAC Heading 9986 which is a specific entry for services which support the petroleum operations.

11.37 The Appellant submitted that it is the cardinal rule to be applied for classification of any goods or services that in case of two competing headings, the heading which provides the most specific description shall be preferred to headings providing a more general description.

11.38 As per the Appellant, the AAR, Rajasthan proceeded to classify the subject services under the SAC Heading No. 9954 without considering their submissions. The Appellant submitted that SAC Heading No. 9954 is a general entry which is applicable for Works Contract Services. Even if it is to be assumed that the services supplied under the EPC contract is a composite supply in the nature of a works contract, the service will still merit classification under heading 9986 which is a specific entry for services that support the activity of mining of natural gas.

11.39 The Appellant placed reliance on the following decisions wherein the aforesaid cardinal principle on classification of goods/ services has been followed and it has been stated that a specific description overrules a general description:

  • Ascent Meditech Ltd. v. CCE, Vapi [2014 (309) E.L.T. 712 (Tri. – Ahmd.)] [Affirmed in 2015 (320) ELT A281 (Supreme Court)]
  • Pepsico India Holdings Pvt. Ltd. v. Dy. Commercial (A) IV, Commercial Taxes, Jaipur [2018(16) G.S.T.L. 249 (Raj.)]
  • Dabur India Ltd. v. CCGST [2020(34) G.S.T.L. 9(All.)]
  • Sanwar Agarwal v. Commissioner of Customs (Port) [2016 (336) E.L.T. 42 (Cal.)]

11.40 The Appellant submitted that without prejudice to the above submission that heading 9986 provides a more specific description when compared to the general entry under heading 9954 that even in case where the headings merit equal consideration, resort must be taken to clause (c) of the general interpretative rules. They submitted that an application of clause (c) of the interpretative rules quoted above also warrants classification under Heading 9986.

11.41 The Appellant submitted that as per the said rule, when services are classifiable prima facie under two headings, the same should be classified under the heading which occurs last in the numerical order. The Appellant therefore are of the view that as heading 9986 appears later to the SAC Heading No. 9954 in the numerical order, the services are classifiable under heading 9986.

11.42 In this regard, the Appellant have placed reliance on the following decisions:

  • Biomax Life Sciences Ltd. v. Commissioner of Customs, C.Ex. & S.T. [2021(375) E.L.T. 263 (Tri. — Hyd.)]
  • Commissioner of Customs (Port) v. Praman International [2019(365) E.L.T. 846 (Tri.-Kolkata)]
  • Paswara Impex Ltd. v. Commissioner of Customs [2013(292) E.L.T. 562 (Tri.-Ahmd)]
  • Kamal Kachola v. CCE [2004(174) E.L.T. 87 (Tri.-Mumbai)]

11.43 The Appellant submitted that they have been classifying the subject services provided to Vedanta under SAC Heading No. 9954 – ‘General construction services’ and are 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 Notification effective from October 1, 2019 wherein a specific amendment was made in Sr. No. 24 (ii) of the Rate Notification which attracts GST @ 12%, the Appellant stated that the subject services should merit classification under Sr. No. 24 (ii) as ‘support services to exploration, mining or drilling of petroleum crude or natural gas or both’

11.44 The Appellant submitted that in view of the above, the activities performed by the Appellant under the EPC Contract are more directly related to the petroleum operations carried out by Vedanta at the Rajasthan Block and therefore, in terms of the legal principles enunciated above, the impugned Ruling is liable to be rejected.

Submission IV: The Impugned Ruling has been issued based upon a non­existent provision of the law

11.45 The Appellant submitted that the impugned Ruling pronounced by the AAR, Rajasthan is entirely based upon a provision which was not even in existence at the time when the transaction, in respect of which the Ruling has been sought, was undertaken.

11.46 The Appellant submitted that the impugned Ruling, at Para 13, states that,

“… services provided under the EPC contract awarded to the Appellant by M/s Vedanta for setting up of a project broadly ranging from designing, engineering, …… pre- commissioning & commissioning training, etc. and satisfactory hand over of complete various infrastructure facilities all customized 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 & 9% SGST) is payable. “. They submitted that, the AAR, Rajasthan proceeded to rule on the subject services as classifiable under Heading 9954(fi).

11.47 The Appellant also submitted that the AAR, Rajasthan failed to apply the applicable provisions of the Rate Notification and missed the relevant provisions in force for the period in respect of which the present Ruling was sought.

11.48 The Appellant submitted that the AAR, Rajasthan has approached the entire issue with a premeditated mind and with the singular objective of rejecting the benign rate of CST on the services provided by them in as much as the impugned Ruling seeks to classify the services under a classification entry which was not even in force during the period for which the Ruling was sought.

11.49 The Appellant set out the relevant provisions of the SAC Heading No. 9954 (ii) as follows:

“(ii) Composite supply of works contract as defined in clause 119 of Section 2 of Central Goods and Services Tax Act, 2017.”

11.50 The Appellant submitted that the aforesaid provision existed in the statue books since 28.06.2017. Thereafter, vide Notification No. 3/2019-CT (R), dated 29.03.2019 w.e.f. 01-04-2019, the said clause was omitted from the Rate Notification. Therefore, the said provision existed in the statute books during the period from 28.06.2017 to 31.03.2019 and post that date, it was omitted.

11.51 The Appellant submitted that the relevant period for classification of the subject services before the AAR, Rajasthan was 01.10.2019 onwards. Given that the Heading 9954(ii) was non-existent for the relevant period for which the Ruling was sought, there is no basis of law to Rule that the subject services rendered by the Appellant to Vedanta under the EPC contract merits classification under Heading 9954(ii) of the Rate Notification, evidently when such provision of law was not even existent at the relevant time.

11.52 As per the Appellant it is an established principle of law that the provision of law, on the basis of which any action has been taken by an Authority or a decision or Ruling has been pronounced, must be in force at the time of the applicable case. In this regard, reliance has been placed on the following judgments:

(a) Carrier Point v. Commissioner of Central Excise, Jaipur, 2018 (10) G.S.T.L. 213 (Raj.)

(b) Pillar Inductions (I) Ltd. v. Commissioner of Central Excise, Chennai, 2004 (166) E.L.T. 43 (Tri.-Chennai)

(c) Commissioner of Customs, Chennai v. Madras Alumminium Co. Ltd., 2016 (339) E.L.T. 295 (Tri. — Chennai)

11.53 As per the Appellant, the impugned Ruling is liable to be set aside as the AAR, Rajasthan vide the impugned Ruling have proceeded to classify goods under an entry which does not even exist.

Submission V: The scope of the activities covered under Heading 9986 is inclusive in nature and not exhaustive

11.54 The Appellant submitted that the AAR, Rajasthan while pronouncing the impugned Ruling has completely disregarded the provisions of the law, and more specifically, failed to properly analyze the Scheme annexed to the Rate Notification.

11.55 The Appellant further submitted that the AAR, Rajasthan has erred in concluding that services supplied by the Appellant are not covered under the explanatory notes for SAC heading 998621 in as much as the scope of service under the contract nowhere covers the services specified in the explanatory notes.

11.56 The Appellant reiterated that Scheme of classification defines the scope of Heading 9986 as follows:

“998621 Support services to oil and gas extraction

This service code includes derrick erection, repair and dismantling services; well casing, cementing, pumping, plugging and abandoning of wells; test drilling and exploration services in connection with petroleum and gas extraction; specialized fire extinguishing services; operation of 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, cf: 998341 “

11.57 The Appellant submitted that on a reference to the above, it can be seen that the aforesaid services include, “Well casing, cementing, pumping, plugging and abandoning of wells, test drilling and exploration services in connection with petroleum and gas extraction.” According to the Appellant, a look at the nature of services covered in the aforesaid entry reveals that it includes services relating to oil wells which include its cementing, pumping, casing, plugging and abandonment. Further, the entry also includes, inter alia, test drilling in connection with the petroleum and gas.

11.58 The Appellant further stated that the relevant Explanatory Note uses the expression “includes” which means that the activities which are provided in Heading 9986 are merely indicative in nature and it can include more such services which are of similar nature or ilk. In this regard, the Appellant added that the said phrase has a very wide connotation, thereby giving the Chapter Heading an extensive scope.

11.59 The Appellant also submitted that the said phrase used in the Explanatory Note clearly shows that the 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.

11.60 The Appellant also referred 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. According to them, 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. As per the Appellant, words used in an inclusive definition denote extension and cannot be treated as restricted in any sense.

11.61 The Appellant submitted that the Hon’ble 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) TM1 367] had, inter alia, 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.

11.62 The Appellant stated that 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 include a wide range of inter-related and inter-dependent activities which are indelibly linked to each other and help forming a coherent value chain.

11.63 The Appellant submitted that under the terms of the EPC Contract, their scope of work involves complete execution of the SRP at the MPT and is essentially part of the overall development by executing Sulphate Removal Plant at the oil field to save oil wells from getting eroded and helps purify the water used for injection in oil fields. From this, the Appellant find it evident that they are providing support services to Vedanta by carrying out the execution of the Sulphate Removal Plant for purifying injection water used in the oil fields.

11.64 Therefore, according to the Appellant, 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.

11.65 The Appellant also reiterated the following from the Circular 114 issued by CBIC wherein it has been specifically stated as follows:

“Most of the activities associated with the exploration, mining or drilling of petroleum crude or natural gas fall under heading 9986″.

11.66 According to the Appellant it is beyond doubt that their responsibility under the EPC Contract involves a wide range of activities which are clearly associated with the exploration, mining and drilling of petroleum crude.

11.67 The Appellant also submitted that a perusal of various terms of the contract would make it evident that there is a clear nexus between the functions and activities that are required to be performed by the Appellant under the EPC contract and the activities of Vedanta at the Rajasthan Block.

11.68 The Appellant also submitted that it is noteworthy that the explanatory notes referred by the AAR, Rajasthan are an inclusive definition and hence the scope is not exhaustive (but merely indicative) or limited to only the above specified services. An inclusive definition is expansive in nature and would cover all transactions possessing similar features.

11.69 The Appellant are of the view that the above submission finds support from the interpretative rules for the explanatory notes under the UNCPC which explains the non-exhaustive nature of the list of services mentioned therein. The relevant extract of interpretative rules under the UNCPC reads:

“62. It should be noted that the explanatory notes are not intended to present an exhaustive list of all the products under each heading; they should be regarded only as lists of examples to illustrate the subclass content.

11.70 In light of the above, the Appellant submitted that the AAR, Rajasthan has ignored the interpretative rules mentioned in the UNCPC and arrived at erroneous conclusions based on its own assumptions and presumptions

11.71 The Appellant submitted that in view of the ‘inclusive’ nature of the Explanatory 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.

11.72 The Appellant submitted that in view of the above, it is evident that the basis on which the impugned Ruling has been pronounced by the AAR, Rajasthan is incorrect, and without any legal basis. Clearly, the nature of activities performed by the Appellant are covered within the scope of Heading 9986, and therefore, the impugned Ruling is liable to be set aside

Submission VI: The scope of the Heading 9986 does not exclude works contract services.

11.73 The Appellant submitted that the entire basis of the impugned Ruling seems to rest on the fallacious understanding of the kind of services and activities which are covered within the Heading 9986 and the activities performed by the Appellant under the EPC contract.

11.74 As per the Appellant, the impugned Ruling, at Para 7, states that,

“The contract is for the engineering, procurement and commissioning of ‘Sulphate Removal Plant.’ What would be transferred is the plant including the civil work and land involved in plant. Various civil structure would be created and various equipment would be installed. In case of this contract 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 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.”

11.75 The Appellant submitted that the impugned Ruling incorrectly rejects their arguments on the ground that the services supplied by the Appellant under the aegis of an EPC contract, are in the nature of a works contract falling under the SAC Heading No. 9954 of the Rate Notification and therefore taxable at the rate of 18%. As per the Appellant, in coming to this conclusion, the AAR, Rajasthan has failed to apply the settled principles on classification to the present facts of the matter.

11.76 The Appellant submitted that Section 2(119) of the CGST Act, 2017 defines “Works contract” as follows:

“(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 Appellant submitted that a look at the aforesaid definition would reveal that works contract includes within its ambit, inter alia, services relating to construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property.

11.79 The Appellant submitted that by concluding that the services performed by them are outside the purview of Heading 9986 merely because it is a ‘works contract’ service, the impugned Ruling seems to have misread the law and tried to read something which does not exist. It is an established principle of law that one cannot go beyond the words used in a statue. In this regard, the following cases may be noted:

(a) Commercial Taxes Officer v. Bombay Machinery Store, 2020 (36) G.S.T.L. 161 (S.C.)

(b) Union of India v. Ind-Swift Laboratories Ltd., (2011) 4 SCC 635

(c) Bansal Wire Industries Ltd. v. State of Uttar Pradesh, (2011) 6 SCC 545

(d) CIT v. Calcutta Knitwears, 2014 (6) SCC 444.

11.80 The Appellant submitted that it is not in doubt that the activities performed by them under the contract are in relation to the petroleum operations carried out by Vedanta at the Rajasthan Block. Further, vide Circular 114, it is also beyond doubt that most of the support services which are associated with, inter alia, petroleum operations are covered under Heading 9986.

11.81 The Appellant submitted that one of the basis on which the AAR, Rajasthan denied the benefit of Heading 9986 to the activities performed by them is that its activities are in the nature of works contract services which are not covered under Heading 9986. The Appellant reiterated that in terms of Circular 114, which defines the scope of the Heading 9986, the following services are included within its ambit:

(a) derrick erection, repair and dismantling services;

(b) well casing, cementing, pumping, plugging and abandoning of wells;

(c) test drilling and exploration services in connection with petroleum and gas extraction;

(d) specialized fire extinguishing services;

(e) operation of oil or gas extraction unit on a fee or contract basis

11.82 According to the Appellant, a reading of the aforesaid list of indicative services would reveal that many of the aforesaid services are in the nature of works contract. Services like well casing, cementing, pumping and abandoning of wells, derrick erection, etc. are such services which requires labor services as well as supply of relevant material for providing the same. These services involve civil work as well as supply of material as part of performance of such activities and can very well take the shape of works contract.

11.83 The Appellant submitted that to bring such services as above, out of the purview of Heading 9986 is clearly a result of misreading of the law and lack of understanding of the industry in which petroleum operations are carried out.

11.84 As per the Appellant, many of the services which can be considered as work contract are clearly covered within the scope of the Heading 9986, therefore, there is no merit in the argument that the Heading 9986 does not cover activities which are in the nature of works contract.

11.85 Therefore, according to the Appellant, on this ground alone, the impugned Ruling is liable to be set aside.

Submission VII: Alternatively, the subject services should be classified as ‘other professional, technical and business services under heading 9983

11.86 The Appellant submitted that the impugned Ruling, at Para 5 states that,

“…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 the EPC contract which include engineering, procurement & construction. As discussed in Para 5 above, the Appellant have to undertake designing, engineering, procurement, construction of customized facility, commissioning of permanent facility, test run & hand over of complete facility so designed, constructed, tested & commissioned. Thus, it cannot be classified as other professional, technical & business services relating to exploration, mining or drilling of petroleum crude or natural gas or both.”

11.87 Without prejudice to the above submissions, the Appellant submitted that 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.

11.88 The Appellant submitted that Sr. No. 21 of Rate Notification provides the rate of tax leviable on the services that merits classification under the Heading 9983. The relevant portion of the said entry is reproduced herein below:

S. 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%

11.89 The relevant portion of Heading 9983 as prescribed under the Scheme of Classification is as follows:

S. No. Chapter, Section Heading,4, or Group Service Code
(Tariff)
Service Description
(1) (2) (3) (4)
296 Heading 9983 Other professional, technical and business services

11.90 The Appellant submitted that 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 herein below 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 total is at or 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; ‘

11.91 The Appellant submitted that the aforesaid definition of ‘business’ is an inclusive definition. That it is a settled law that the term ‘include’ is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute. The said word is succeeded by the phrase ‘any trade, commerce, manufacture, profession, …… whether or not it is for a pecuniary benefit’. The definition of the word ‘business’ under the CGST Act makes it amply evident that it covers within its ambit, a wide range of activities. The Appellant add that the said definition would also include operational administrative, consulting and management services.

11.92 The Appellant further submitted that 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.

11.93 As per the Appellant, it is noteworthy to note that Entry at Sr. No. 21(ia) of the Rate Notification uses the phrase ‘relating to’, which signify that any professional, technical and/or business services provided relating to mining, would merit classification under the said entry. The phrase ‘relating to’ or ‘in relation to’ is a very broad expression and has a wide ambit. The Hon’ble Supreme Court in Doypack Systems(P) Ltd Vs. UOI, [1988 (36) E.L.T. 201 (SC)] has held that the term ‘in relation to’ is a very broad expression, which pre-supposes another subject matter. The Appellant are of the view that these are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context. They add that term ‘relating to’ has been held to be equivalent to or synonymous with ‘concerning with’ and ‘pertaining to’. Therefore, they submitted that entry (ia) of Sr. No. 21 includes a broad range of services which pertain or concern with the activity of mining.

11.94 The Appellant submitted that the services provided by them are in relation to the mining activity of Vedanta, as stated above in detail. Hence, in the present case, they submitted that the supply of services by the Appellant to Vedanta in relation to the mining activities under the project merits classification under Heading 9983. According to the Appellant, 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%.

11.95 The Appellant submitted that 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, they add that it has clarified that certain services such as technical and consulting services in relation to exploration would merit classification under Heading 9983 of the Rate Notification. The relevant extract of the Circular is reproduced herein below:

‘2. The matter has been examined. Most of the activities associated with exploration, mining or drilling of petroleum crude or natural gas fall under heading 9986. A Jew services particularly technical and consulting services relating to exploration also fall under heading 9983. Therefore, following entry has been inserted under heading 9983 with effect from 1st October 2019 vide Notification No. 20/2019-Central Tax (Rate) dated 30.09.2019; –

‘(ia) Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both’

11.96 The Appellant submitted that the aforesaid Circular clearly states that technical and consulting services relating to exploration also fall under Heading 9983 and would also get classified under Sr. No. 21(ia) of Rate Notification as other professional, technical and business services relating to inter alia mining The Appellant find it 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%.

11.97 The Appellant submitted that 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%. According to the Appellant 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.

11.98 The Appellant submitted that without prejudice to the submissions made above the supply of services made by them 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. Therefore, according to the Appellant, on these grounds as well, the impugned Ruling pronounced by the AAR, Rajasthan is liable to be dismissed.

PERSONAL HEARING

12. A virtual hearing in the matter was held on 11.01.2022. Sh. Rohit Jain, Advocate and Sh. Rahul Khurana, Advocate, Authorized Representatives of the Appellant attended the hearing. They reiterated the submissions already made under grounds of appeal. Further vide letter dated 18.01.2022, the Appellant also submitted following additional grounds in support of their appeal:

12.1 The Appellant submitted that the impugned Order seeks to classify the services provided by the Appellant under Entry no. (ii) of SAC Heading No. 9954 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 (“Rate Notification” )which provided a rate of tax for “composite supply of works contract as defined in clause 119 of Section 2 of Central Goods and Services Tax Act, 2017”. According to them the Entry (ii) stands omitted vide Notification No. 3/2019-CT (R), dated 29.03.2019, effective from 01.04.2019 as under:

“(b) against serial number 3, –

a. item (ii) and the entries relating thereto in columns (3), (4) and (5) shall be omitted; “

12.2 It is settled principle of law that the basis of a Ruling or a decision must be in accordance with the provisions of law as it stood at the relevant time. See Carrier Point v. CCE [2018(10) G.S.T.L. 213 (Raj.)/, Pillar Inductions (I) Ltd. v. CCE [2004(166) E.L.T. 43 (Tri.-Chennai)], CC v. Madras Aluminium Co. Ltd. [2016(339) E.L.T. 295 (Tri.-Chennai). Given that Entry (ii) under SAC Heading No. 9954 did not exist in statute book during the relevant period for which the Ruling is sought, the Ruling is bad in law and hence is liable to be set aside on this ground alone.

12.3 The Appellant submitted that the only contention raised in the impugned Order is that Heading 9986 does not cover creation of infrastructure/facilities which are in nature of works contract. They added that the Appellant are providing services such as execution of Sulphate Removal Plant which removes sulphate from seawater that is injected into a reservoir to maintain pressure & ensure channelization of hydrocarbons to the producing oil well.

12.4 The Appellant submitted that Order has glossed over the fact that such EPC services are ultimately used to increase/aid in the extraction and production of oil and hence should be classified under heading 9986. It is undisputed that the services supplied by the Appellant are linked to or in connection with the petroleum operations.

12.5 The Appellant submitted that the relevant Explanatory Notes for heading 9986 use the expression “includes” which means that the activities listed therein are merely indicative and would include services which are of similar nature or ilk. The Notes read:

“998621 Support services to oil and gas extraction

This service code includes derrick erection, repair and dismantling services; well casing, cementing, pumping, plugging and abandoning of wells; test drilling and exploration services in connection with petroleum and gas extraction; specialized fire extinguishing services; operation of 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, cf 998341 “

As per the Appellant the use of the term “includes” implies an expansion in scope of the term and should be given a wide connotation. See Tetragon Chemie Private Limited and Ors v. CCE and Ors [2001 (138) ELT 0414 Tri-LBJ, Stove Kraft Pvt. Ltd. v. State of Karnataka [2006(2) TMI 603], Bharat Coop. Bank (Mumbai) Ltd v. Coop Bank Employees Union [2007(4) SCC 685], Regional Director Employee’s State Insurance Corporation v. High Land Coffee Works of Pfx. Saldanha & Sons [1991(7) TMI 367]

12.6 The Appellant submitted that the expansive scope of entry 998621 is re-iterated in the CBIC Circular No.114/33/2019-GST dated 11.10.2019 which specifically states that “Most of the activities associated with the exploration, mining or drilling of petroleum crude or natural gas fall under heading 9986”.

12.7 The Appellant submitted that the findings in the impugned Order at Para 5 are that the classification of support services to oil and gas extraction under Heading 9986 is only applicable when the exploration/production had started and the support services do not include services supplied before the creation of the infrastructure for production, suffers from fallacy and complete non-consideration of facts. Without prejudice and even assuming this contention to be valid, the Order has utterly failed to appreciate the fact that the contract was awarded during the year 2018/2019 and the original production of oil and gas in the oil field had in fact started in the year 2010. Being one of the largest onshore oil discoveries in India, the information is readily available in the public domain.

12.8 The Appellant submitted that in terms of the Explanatory Notes, several support services including well casing, test drilling and exploration services, cementing etc. which are undertaken before commencement of production, also fall under the scope of the Heading 998621. Therefore, the findings in the Order that SAC Heading No. 998621 would only cover services which are provided after creation of infrastructure and facility of exploration is without any basis in law and ought to be out rightly rejected. Thus, the Order which is based on presumption, surmises and conjectures is liable to be quashed.

12.9 The Appellant submitted that without prejudice to any of the other submissions that if at all the services performed by the Appellant appear to fall under SAC Heading No. 9954 as against Heading 9986, still, in terms of the cardinal rule of interpretation for purposes of classification of goods and services, the classification entry giving a more specific description to the activities performed by the Appellant shall apply over the entry providing a more general description. In this regard, the Appellant submitted that, the Preface to the Explanatory Notes to the Scheme of Classification of Services issued by the CBIC reads thus:

The explanatory notes indicate the scope and coverage of the heading, groups and service codes of the Scheme of Classification of Services. These may be used by the assessee and the tax administration as a guiding tool for classification of services. However, it may be noted that where a service is capable of differential treatment for any purpose based on its description, the most specific description shall be preferred over a more general description.

12.10 According to the Appellant, the impugned Order has failed to consider the submission that SAC Heading No. 9954 is a general entry which is applicable for works contract services. They added that even if it is to be assumed that the supply of services under the EPC contract is a composite supply in the nature of a works contract, the service will still merit classification under SAC Heading No. 998621 which is a specific entry for services that support the activity of oil and gas extraction. They have placed reliance upon Ascent Meditech Ltd. v. CCE, Vapi [2014 (309) E.L.T. 712 (Tri. – Ahmd.)] [Affirmed in 2015 (320) ELT A281 (Supreme Court)], Pepsico India Holdings Pvt. Ltd v. Dy. Commercial (A) IV, Commercial Taxes, Jaipur [2018(16) G.S.T.L. 249 (Raj.)], Dabur India Ltd. v. CCGST [2020(34) G.S.T.L. 9(A11.)1, Sanwar Agarwal v. Commissioner of Customs (Pont, [2016 (336) E.L.T. 42 (Cal.)].

12.11 The Appellant submitted that even in case where the headings merit equal consideration, resort must be taken to clause (c) of the general interpretative rules which states that when services are classifiable prima facie under two headings, the same should be classified under the heading which occurs last in the numerical order. The Appellant are of the considered view that as Heading 9986 appears later to the SAC Heading No. 9954 in the numerical order, the services are classifiable under Heading 9986. Reliance has been placed on Biomax Lift Sciences Ltd. v. CC. [2021(375) E.L.T. 263 (Di — Hyd.)I, CC (Port) v. Praman International [2019(365) E.L.T. 846 (Tri.-Kolkata)1, Paswara Impex Ltd. v. CC [2013(292) E.L.T. 562 (Tri.-Ahmd)J, Kamal Kachola v. CCE [2004(174) E.L.T. 87 (Tri.-Mumbai].

12.12 The Appellant submitted that by concluding that the services performed by the Appellant are outside the purview of Heading 9986 merely because it is a ‘works contract’ service, the impugned Order seems to have misread the law and tried to read something which does not exist.

12.13 The Appellant submitted that a plain reading of the Explanatory Notes to SAC Heading No. 998621 shows that it includes services such as well casing, cementing, pumping and abandoning of wells, derrick erection, etc. which requires labor services as well as supply of goods for providing the same. They added that these services involve civil work as well as supply of goods as part of performance of such activities and can very well take the shape of works contract. In view of the Appellant, to bring such works contract services out of the purview of Heading 9986 is clearly a result of misreading of the law and lack of understanding of the oil and gas industry.

12.14 The Appellant submitted that alternatively, the services supplied by them would also merit classification as “Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both” under Entry No. 21(ia) of Heading 9983 of the Rate Notification. The use of the term “business services” and a plain reading of the definition of “business” under Section 2(17) of the CGST Act implies a wide connotation given to the Entry.

12.15 The Appellant submitted that they provide 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. As per the Appellant, the CBIC Circular clearly states that any technical and consulting services relating to exploration and extraction of oil and gas which are not specifically covered under the Heading 9986, would fall under Heading 9983 under Sr. No. 21(ia) of Rate Notification and attract 12% GST.

13. Further, the Appellant vide email dated 16.03.2022 have also submitted additional submission which is brief of ground already submitted during appeal and additional submissions already submitted by them on 18.01.2022. Nothing extra has been added.

14. Due to change of Members of AAAR, another personal hearing was held on 13.09.2023, in which Sh. Rohit Jain, Advocate and Sh. Rahul Khurana, Advocate, authorized Representatives of the Appellant appeared & attended the hearing. They reiterated the submissions already made under grounds of appeal and the submissions made by them vide letters dated 18.01.22 & 16.03.2022. During the hearing, Counsels provided executive summary of the submissions dated 13.09.2023, which is a brief of grounds already submitted during appeal and additional submissions already made by them.

15. The Counsel vide letter dated 19.09.2023 (received on mail on 20.09.2023) made additional submissions which are already submitted by them and nothing extra has been added.

DISCUSSION AND FINDINGS

16. We have carefully gone through the entire material available on record, appeal papers filed by the Appellant, Ruling pronounced by the AAR, Rajasthan, additional written submissions dated 18.01.2022, 16.03.2022 & 19.09.2023 made on behalf of the Appellant and oral submissions made by the authorized representatives of the Appellant at the time of personal hearing held on 11.01.2022 as well as on 13.09.2023.

17. Before proceeding to decide the appeal, we need to first decide as to whether the appeal has been filed within stipulated period (i.e. thirty days from the date on which the Ruling sought to be appealed against is communicated to the Appellant) prescribed under Section 100 (2) of CGST Act, 2017 or not. We find that the date of communication of the Order of AAR, Rajasthan to the Appellant was 21.09.2021 and the appeal was filed on the portal on 19.10.2021.

Thus, we find that the Appellant have filed the appeal within statutory period of 30 days of date of communication of the Order of the AAR. Therefore, we may proceed to decide the appeal.

18. We find that the Appellant have sought Advance Ruling in respect of the activities undertaken by them for M/s Vedanta Limited which as per their version involved provision of service including supply of material amounting to transfer of property in goods. The Appellant had sought Advance Ruling to clarify as to whether the activities undertaken by them are/were classifiable either under SAC Heading No. 9986 eligible for rate of tax prescribed vide entry serial number 24(ii) or alternatively under SAC Heading No. 9983 eligible for rate of tax prescribed vide entry serial number 21(ia) of Notification No. 11/2017-CT(R), dated 28.06.2017. The AAR for Rajasthan has pronounced the. Advance Ruling holding that the activity undertaken by the Appellant by way of supply, survey, designing, installation and commissioning of project under EPC contract shall be classifiable under SAC Heading No. 9954 eligible for rate of tax prescribed vide entry serial number 3(ii) of Notification No. 11/2017-CT(R), dated 28.06.2017. The instant appeal seek to challenge the Order of the AAR for Rajasthan with prayer to set aside the Order and declare that the activity undertaken by the Appellant is classifiable under SAC Heading No. 998621 or, alternatively, under SAC Heading No. 9983.

19. After having gone through the submissions made by the Appellant both in the application seeking advance Ruling and in the instant appeal vis-a-vis the Advance Ruling pronounced by the AAR, Rajasthan, we deem it appropriate to examine the matter at length based on the documents submitted by the Appellant in order to arrive at a finding in accordance with the legal provisions governing the subject. To facilitate analysis, the detailed examination and findings based thereon have been divided into the following Sections:-

Section Sub- Section Description
A. Activity in brief as narrated by the Appellant
B. Appellant’s understanding of law on the subject
B.1. Main Contention as to classification of supply
B.2. Alternate classification suggested
C. Appellant’s analysis of the activity for classification
C.1. Classification under support service of business- Heading 9986
C.2. Classification under other professional, technical & business services- Heading 9983
D. Ruling pronounced by the AAR
D.1. Classification suggested under SAC Heading No. 998621 rejected
D.2. Classification suggested under Heading 9983, in the alternate, also rejected
D.3. What is the correct classification
E. Analysis of classification and rate of tax suggested by AAR
F. Appellant’s arguments against Ruling of AAR
F.1. Non-existing entry suggested by AAR
F.2. Nature of activity undertaken not appreciated
F.3. Rules of classification not referred
F.4. Alternates suggested
G. Questions for determination
G.1. Classification under Heading 998621
G.2. Classification under Heading 9983
G.3. Classification under Heading 9954
G.4. AAR’ s ruling- classification vis-a-vis rate of tax
H. Examination of submissions and analysis of evidence
H.1. Nature of activities as per EPC contract
H.2. Ingredients of services classifiable under Heading 998621
H.3. Ingredients of services classifiable under Heading 9983
H.4. Construction services under Heading 9954
I. Some specific arguments
J. Reliance on Ruling of Maharashtra, AAR Order No. MAH/AAAR/DS-RM/14/2022-23 dated 03.01.2023
K. Conclusion and findings

A. Activity in brief as narrated by the Appellant:

As can be seen from the submissions made by the Appellant in the appeal papers, the Appellant are stated to be engaged in providing services to M/s Vedanta Limited, which is stated to be a globally diversified natural resources company engaged in exploration and mining of various natural resources. As stated by the Appellant:-

(i) Cairn, Vedanta’s upstream Oil & Gas Division, is the operator of Onshore RJ-ON-90/1 block, on behalf of themselves and their joint partners, Cairn Energy Hydrocarbons Limited and Oil and Natural Gas Corporation, located in Banner District in the state of Rajasthan;

(ii) The RJ-ON 90/1 Block contains 38 major oil & gas discoveries including Mangala, Bhagyam and Aishwarya fields, with significant gas potential in the southern area;

(iii) Raageshwari Deep Gas (RDG), discovered in 2003, is a tight gas field situated in the southern area and is under production since 2010 with significant infrastructure in place.

(iv) Eighteen well pads are operational in the Mangala Field. A number of wells have been drilled in the aforementioned fields for exploration, development & production of hydrocarbons.

(v) The oil & gas produced from these fields are collected and transported to a central processing facility at Mangala through a network of existing in-field pipelines. The central processing facility is also termed as Mangala Processing Terminal (MPT). The existing pipeline corridor at Mangala Field, between MPT and various well pads, has various exiting pipelines running through it.

M/s Vedanta Limited have awarded EPC contract to the Appellant to have their services rendered at their oil and gas fields in the block. The Appellant entered into an EPC contract with M/s Vedanta Limited in which they have to undertake the construction of ‘Sulphate Removal Plant’ or SRP with respect to the petroleum operations at Mangala wells as per the specification & customization laid down in the EPC contract.

B. Appellant’s understanding of law on the subject:

The Appellant have referred to the rules of interpretation of the United Nations Central Product Classification as also CBIC’s Circular No.114/33/2019-GST dated 11.10.2019. and argued that the services they supply can be defined as support services to oil and gas extraction deserving classification under Heading 998621.

B.1. Main contention of the Appellant is that the activities performed by them in accordance with their contract with M/s Vedanta Limited deserve to be classified under SAC Heading No. 998621 as most of the activities associated with exploration, mining or drilling of petroleum crude or natural gas fall under Heading 9986 as per Circular No. 114.

B.2. In the alternate it has been contended that the subject services can also 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.

C. Appellant’s analysis of the activity for classification:

The Appellant have analysed the activities proposed to be carried out by them in pursuance of the EPC Contract and found that based on the ingredients of the activities as discussed in detail in the contract, the same merit classification under SAC Heading No. 998621 or in the alternate under Heading 9983.

C.1. Classification under support service of business- Heading 9986

The Appellant have submitted that under the terms of the EPC Contract, the scope of work assigned to the Appellant involves construction of Sulphate Removal Plant which helps reduce sulphate ions present in the saline water to acceptable levels water which is used for injection during petroleum operation various facilities and infrastructure at Mangala oil field.

C.2. Classification under other professional, technical and business services-Heading 9983

The Appellant have submitted that the activities carried out by them can in the alternate be classified as other professional, technical and business services under Heading 9983 as the Appellant provide 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 and 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 M/s Vedanta Limited.

D. Ruling pronounced by AAR:

The AAR for Rajasthan has pronounced Rulings vide order dated 15.09.2021 rejecting the classification as sought by the Appellant under SAC Heading No. 998621 or under Heading 9983 and held that the supplies proposed to be undertaken by them are classifiable under Heading 9954.

D.1. Classification sought under SAC Heading No. 998621 was rejected :

The first part of the first question of the Appellant that with the introduction of Notification No. 20/2019-Central Tax (Rate) dated 30.09.2019, whether the services with respect to EPC contract entered for execution of Sulphate Removal Plant supplied to M/s Vedanta Limited vide contract No. 4600008952 dated 14.08.2018 are covered under Sr. No. 24 (ii) (Support Services to Mining) of the Rate Notification has been answered by the AAR in negative

D.2. Classification sought under heading 9983, in the alternate was also rejected:

The second part of the first question of the Appellant that with the introduction of Notification No. 20/2019-Central Tax (Rate) dated 30.09.2019, whether the services with respect to EPC contract entered for execution of Sulphate Removal Plant supplied to M/s Vedanta Limited vide contract No. 4600008952 dated 14.08.2018 are covered under Sr. No. 21(ia) (Professional, Technical or Business Service to Mining) of the Rate Notification has also been answered by the AAR in negative.

D.3. What is the correct classification:

The AAR, Rajasthan pronounced in their Ruling that the activities of supply of survey, designing, installation, commissioning of project under EPC contract by the Appellant shall attract GST @18% under Sl. No. 3 SAC Heading No. 9954 (ii) of Notification No. 11/2017-CT(R), dated 28.06.2017.

E. Analysis of classification and rate of tax pronounced by AAR:

We note that the Ruling as pronounced by the AAR classified the supplies involved in survey, designing, installation and commissioning of project under EPC contract by the Appellant under SAC Heading No. 9954 which relates to construction services. Second part of the Ruling concerns the rate of tax applicable on the said supplies by the Appellant and it has been ruled that the supplies, which are in the nature of works contract, will attract GST @ 18% in terms of SI. No. 3 (ii) of Notification No. 11/2017-CT(R), dated 28.06.2017.

F. Appellant’ arguments against Ruling of AAR:

The Appellant have challenged the Ruling pronounced by AAR mainly on three counts, one of them being classification under a non-existing entry in the rate notification while the other grounds concern nature of activity undertaken by the Appellant not appreciated and also the rules of classification not referred.

F.1. Non-existing entry suggested by AAR:

The Appellant have submitted that the impugned Order seek to classify the services provided by the Appellant under Entry SI. No. 3(ii) of SAC Heading No. 9954 of Notification No. 11/2017-CT(R), dated 28.06.2017 which provided a rate of tax for “composite supply of works contract as defined in clause 119 of Section 2 of Central Goods and Services Tax Act, 2017” but the said entry (ii) stands omitted vide Notification No. 3/2019-CT (R), dated 29.03.2019, effective from 01.04.2019 and, therefore, the Ruling has classified the supplies under a non-existing entry of the rate notification.

F.2. Nature of activity undertaken not appreciated:

The Appellant have also contended that the findings in the impugned Order of AAR to the effect that the classification of support services to oil and gas extraction under Heading 9986 is only applicable when the exploration/production had started and the support services do not include services supplied before the creation of the infrastructure for production, suffers from fallacy and complete non-consideration of facts in as much as the contract was awarded during the year 2018/2019 and the original production of oil and gas in the oil field had in fact started in the year 2010 itself.

F.3. Rules of classification not referred:

We also observe that the Appellant have contended that the rules of classification as per the explanatory notes require that if at all the services performed by the Appellant appear to be falling under SAC Heading No. 9954 as against Heading 9986, still, in terms of the cardinal rule of interpretation for purposes of classification of goods and services, the classification entry giving a more specific description to the activities performed by the Appellant shall apply over the entry providing a more general description. It is their contention that SAC Heading No. 9954 is a general entry which is applicable for works contract services while even if the services supplied under the EPC contract are considered to be a composite supply in the nature of a works contract, the service will still merit classification under SAC Heading No. 998621 which is a specific entry for services that support the activity of oil and gas extraction.

F.4. Alternates suggested

The Appellant have primarily sought classification under SAC Heading No. 998621 which according to them includes services such as well casing, cementing, pumping and abandoning of wells, derrick erection etc. which require labor services as well as supply of goods for providing the same. It has been submitted by the Appellant, that these services, involve civil work as well as supply of goods as part of performance of such activities and can very well take the shape of works contract and bringing such works contract services out of the purview of Heading 9986 is clearly a result of misreading of the law and lack of understanding of the oil and gas industry. Alternatively it has been suggested that the services supplied by the Appellant would also merit classification as “other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both” under Entry No. 21(ia) of Heading 9983 of the Rate Notification.

G. Questions for determination:

In view of the submissions made by the Appellant in the appeal and the Rulings pronounced by the AAR, we observe that the issues for determination before us are as follows:-

G.1. Classification under Heading 998621:

Whether the supplies proposed by the Appellant in pursuance of the EPC contract with M/s Vedanta Limited are classifiable under SAC Heading No. 998621 of the Scheme of classification of services?

G.2. Classification under Heading 9983:

Whether the alternate suggestion of the Appellant seeking classification of the proposed supplies in question under Heading 9983 is acceptable in view of the nature of supplies proposed to be made by them?

G.3. Classification under Heading 9954:

Whether the classification as pronounced by the AAR under SAC Heading No. 9954 is sustainable and what is the effect of AAR’s Ruling pronouncing tax rate as prescribed vide entry Sl. No. 3(ii) of Notification No. 11/2017-CT(R), dated 28.06.2017 which stood deleted at the material point of time ?

G.4. AAR’s Ruling- Classification vis-a-vis rate of tax:

What is the correct classification of the supplies proposed to be made by the Appellant in pursuance of the EPC Contract entered with M/s Vedanta Limited?

H. Examination of submissions and analysis of evidence:

In view of the questions framed by us for determination in these proceedings, we find that the nature of activities carried out by the Appellant in terms of the EPC Contract with M/s Vedanta Limited is required to be analysed and the submissions of the Appellant need to be examined in the light of the EPC Contract in question as the determination of the questions depend upon the true nature of the activities proposed to be carried out by the Appellant.

H.1 Nature of activities as per the EPC Contract:

(i) We observe that in the appeal dated 19.10.2021 praying for setting aside of the Ruling dated 15.09.2021 pronounced by the AAR, the Appellant have stated that with a view to construct a Sulphate Removal Plant with associated facilities adjacent to the Mangala Processing Terminal, Vedanta awarded the Engineering, Procurement and Construction Contract (“EPC Contract”) to the Appellant. It has been stated in the appeal in Para- 1.5 that Appellant will have to undertake the following activities:

(a) Design and Engineering: Project Management.

(b) Surveys (pre-engineering, pre-construction/ pre-installation and post installation

(c) Procurement and supply including vendor management, procurements and logistics management.

(d) Manufacturing, fabrication, inspection and testing, FAT, packing, shipping, shipment insurance, transportation and delivery to site complete with associated loading/unloading and shifting of material.

(e) Construction, erection and installation of facilities including construction management and Local Contractor Management.

(f) Mechanical Completion, Tie-ins with existing facilities, SAT, site testing, pre-commissioning.

(g) Commissioning, RFSU, Performance Guarantee Test Run including site restoration works and waste management

(h) Training and handover of facilities including associated QHSE management.

(ii) We further observe that at Appendix-11 of the appeal is a document titled “Vedanta Limited-Cairn Oil & Gas -Sulphate Removal Project- Overall Project Scope of Work- EPC Execution”. The said document submitted by the Appellant contains 33 pages. Since we have to decide the question of classification of the supplies proposed to be made by the Appellant in terms of the said EPC Contract, we are mainly concerned with the provisions of the said document governing the scope of work assigned to the Appellant.

(iii) With a view to deciding the classification of supplies proposed to be made by the Appellant in the context of their claim of classification under Heading 998621 as ‘support services to exploration, mining or drilling of petroleum crude or natural gas or both’ or the alternate claim of classification under Heading 9983 as ‘other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both’, we deem it appropriate to examine the nature of the activities proposed to be undertaken by the Appellant for effecting the supplies in terms of the EPC Contract. Some of the salient features of the EPC Contract relevant to the issues at hand, as contained at S. No. 7 of document titled ‘Scope of Contractor, referred to by the Appellant as containing the scope of services, are reproduced below:-

a. The scope of Contractor shall include, but is not limited to, Design & Detailed engineering, project Management, HSE , Quality, construction Management, Vendor Management, Procurement and Logistics Management, Waste Management, Local contractor Management, Surveys (pre-engineering, pre-construction pre-installation and post- installation), Procurement, Manufacturing, Fabrication, Inspection and Testing, packing, shipping, shipment insurance, transportation and delivery to site, Loading/ Unloading & Shifting of material, Construction, Fabrication, Dismantling, removal and disposal of existing facilities, restoration, Construction, Complete erection and installation, Mechanical Completion, Tie-ins with existing facilities, SAT, Site Testing, Pre- commissioning, Commissioning, Stability performance, PGTR ( Performance Test Run), Training and Hand over of facilities for SRP project.

b. CONTRACTOR shall provide efficient and adequate Project Management from start of works till completion of all facilities

c. CONTRACTOR shall provide full assistance to COMPANY and PMC’s personnel at all stages of work and at all places during the course of the ‘WORKS, including arranging travel permissions, visas, etc. as applicable.

d. CONTRACTOR shall provide engineering designs in accordance with ITT package, current worldwide best practices, governing codes and in compliance with the Indian statutory regulations in force.

e. Engineering, Procurement and construction of fire-fighting system related to SRP is under the purview of this project and included in the scope of the Contractor along with applicable interfacing, monitoring and control of the fire-fighting system with MPT.

f. CONTRACTOR shall ensure safe working within the site premises without any damage to existing facilities in and around the site.

g. Contractor shall be responsible for progressively achieving Mechanical completion, testing of the facilities installed by them and thereafter, shall perform Pre- commissioning, Commissioning, RFSU, plant operation stabilization for specified duration, and Performance Guarantee Test Run of the equipment / plant installed and shall demonstrate the operability of the plant installed by them.

h. CONTRACTOR shall be responsible for insurance of the facilities until the Ready for Start-Up, Performance Test Run and handover to Company, as required in the ITT package. CONTRACTOR shall also be responsible for insurance of his personnel working at the Site.

i. CONTRACTOR shall carry out all testing and certification activities in conjunction with approved procedures, up to the date of the FINAL ACCEPTANCE. CONTRACTOR shall provide and arrange for training of COMPANY’s personnel for the correct and safe operation and maintenance of the facility

j. Contractor shall obtain all necessary Regulatory and Statutory approvals for the execution of WORKS.

k. CONTRACTOR shall consider the life span of all equipment and materials from the date of first commissioning as minimum 25 years or as specified in Technical Specifications; whichever is more. CONTRACTOR shall interface with other sub-contractors / vendors/ suppliers for the supply, installation, testing, commissioning of those systems which have been defined in the ITT package.

l. CONTRACTOR shall provide all required construction equipment, tools, tackles, instruments duly calibrated, and consumables inclusive of erection and commissioning spare parts to enable all construction, pre-commissioning, commissioning, Operation stabilization & PGTR works.

m. CONTRACTOR shall be responsible for the total disposal of construction waste materials and final site clearance including removal of temporary facilities in compliance with local regulations and as per directions of COMPANY/ PMC. As regards to left over useable material including bulk material, CONTRACTOR shall duly codify the same as per the COMPANY’s guidelines and return to the COMPANY without any extra cost to COMPANY

n. CONTRACTOR shall procure and supply all equipment and materials required to construct the facilities. The procurement functions shall include the securing of proposals from approved suppliers, issuing of purchase orders, expediting deliveries, performing the necessary inspections including arranging third party inspections and tests to ensure quality and quantity, handling the shipping, receiving, unloading, customs clearance, transporting to the SITE and warehousing of equipment and materials. All equipment and materials shall be newly manufactured for the project. In the event to expedite the project and meet the schedule, if any off the shelf material is proposed, then prior approval shall be obtained from the company, subject contractor successfully demonstrating the suitability of item along with complete documentary evidence manufacturing & testing reports.

o. CONTRACTOR shall supply all special tools & tackles required for operation and maintenance. CONTRACTOR shall provide the requirements for all the consumables for operation and maintenance of Sulphate Removal Plant on daily/ weekly/ monthly/yearly basis giving details of suppliers for the same.

p. CONTRACTOR shall make all arrangements and shall be responsible for loading, unloading, transportation from suppliers’ works, shipment, transit insurance, custom clearance, port handling and transportation from sea or air ports / suppliers’ works for all equipment and materials including handling of consignments at site. Contractor shall monitor and report to COMPANY the movement of all consignments dispatched to SITE from various points of dispatch until receipt. Contractor shall also be responsible for safety & storage of material to be supplied by him

q. CONTRACTOR shall maintain all areas required for temporary storage, construction facilities, buildings, medical facilities, toilets with proper hygiene and other construction infrastructures for their use.

r. CONTRACTOR shall verify available information on topographic survey for the Sulphate Removal Plant and Reject well pads including the pipelines site included in the ITT package by carrying out a fresh topographic survey.

s. CONTRACTOR shall verify the soil investigation results included in the ITT package by carrying out fresh soil investigation and make its own interpretations and conclusions to -determine the basis of its own design and construction methods and procedures as stated in the package.

t. As per Para 9 of the contract, COMPANY shall not supply any material of what-so-ever nature. All material required for the execution of the project (temporary as well as permanent) shall be procured and supplied by the contractor as part of firm scope of work. The procurement activities shall be carried out in accordance with agreed Procurement Procedure covered under Tender Package.

Some of the other features of the scope of services as per the EPC Contract which are relevant to the issues at hand may also need reproduction for ease of reference but the same shall be discussed later on at appropriate places where the claimed classifications are examined with reference to the nature of the activities.

H.2 Ingredients of services classifiable under Heading 998621:

(i) The Appellant have mainly contended that the supplies proposed to be made by them deserve classification under SAC Heading No. 998621 as support services to exploration, mining or drilling of petroleum crude or natural gas or both. It has been stated that the contention is based on the Rules of Interpretation falling under Chapter-Ill of the United Nations Central Product Classification (UNCPC) as the Explanatory Note to the Scheme of Classification of Services is itself based on the UNCPC as stated by CBIC in Circular No.114/33/2019-GST dated 11.10.2019.

(ii) In this regard, we observe that the broad Heading 9986 in the Explanatory Notes is titled as ‘support services to agriculture, hunting, forestry, fishing, mining and utilities’ and the sub-heading 99862 is titled as ‘support services to mining’. SAC Heading No. 998621 has been described as follows:-

“998621 Support services to oil and gas extraction

This service code includes derrick erection, repair and dismantling services; well casing, cementing, pumping, plugging and abandoning of wells; test drilling and exploration services in connection with petroleum and gas extraction; specialized fire extinguishing services; operation of 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, cf. 998341″

(iii) As can be seen from the language of the heading of the service, the service in question has to be in the nature of support to the main activity which is that of oil and gas extraction. There is no denying the fact that the activity of oil and gas extraction can be undertaken by using the infrastructure which is already in place. It, therefore, follows that there are three distinct successive stages in the entire gamut of oil and gas extraction which contribute to completion of the work of oil and gas extraction. For the services to be eligible to classification under the instant SAC Heading No. 998621, it is required that the service should support the main activity of oil and gas extraction by the infrastructure put in place for the purpose.

Before we proceed further to examine the scope of services to be supplied by the Appellant, we may make it clear that the narration under the said SAC Heading No. 998621 seeks to enlarge the scope of the service by declaring that some of the activities shall also be included in the scope of the support services. Inclusion clause, therefore, expands the scope of the service which has to be understood by the words employed to describe it. Hence, it is evident that any service that supports the activity of oil and gas extraction comes within the purview of the instant SAC Heading No. 998621 and the activities specified in the inclusion clause will also form part of the support service, whether they seem to be, or not, strictly in the nature of such service.

(iv) We further observe that as claimed by the Appellant, the CBIC has also issued a clarification on the scope of support services to exploration, mining or drilling of petroleum crude or natural gas or both through a Circular No.114/33/2019-GST dated 11.10.2019 with reference to the entry at SI. No. 24(ii) of Heading 9986 in Notification No. 11/2017-CT(R), dated 28.06.2017. It has been specifically mentioned in the Circular that Explanatory Notes to the Scheme of Classification of Services adopted for the purposes of GST, which is based on the United Nations Central Product Classification describe succinctly the activities associated with exploration, mining or drilling of petroleum crude or natural gas under heading 9983 and 9986. Para-4 of the circular relevant to the instant issue reads as follows:-

“4. It is hereby clarified that the scope of the entry at Sr. 24 (ii) under heading 9986 of Notification No. 11/2017-CT(R), dated 28.06.2017 shall be governed by the explanatory notes to service codes 998621 and 998622 of the Scheme of Classification of Services.”

We, therefore, observe that the scope of services provided by the Appellant needs to be examined in terms of the description of services given in the Explanatory Notes which have already been discussed above.

H.2.1 Details of EPC contract w.r.t classification under Heading 998621

(i) We observe that the EPC Contract which has been submitted by the Appellant describes the nature of activities undertaken by the Appellant in detail. Explaining the scope of the said document (EPC Contract), it has been mentioned in the introductory part that cairn is planning to develop the Sulphate Removal Plant which is primarily focused its largest field, Mangla. An area of 184m x 230m has been allocated for proposed plant (including green belt, flood Protection measures etc.). Indicative plan is also developed by Company and included in the tender package. We may usefully refer to some of the provisions as contained in the said contract which are as follows:-

(A) Page -6 to 7

The development of SRP covers three major elements.

1) Early civil works- SRP site has to be graded to level as required for the plant. This mainly includes survey verification, jungle clearance, earth transportation and grading etc. A boundary wall shall be constructed around the SRP plot using hollow core precast as mode of construction. The boundary wall shall have fencing on top of the along with Gates for movements. SRP shall be adequately protected by providing gabion Wall & mattress around the plot

2) ISBL Package- pre- treatment System consisting of Multi-Media filters & Cartridge filters alongwith related Pre and Post Dosing systems. Sulphate removal facility consist Nano Filtration + Reverse Osmosis System. On skid Piping, Interconnecting piping, all E&I equipment and accessories required for sulphate removal package. Clean in Place Systems as required for NF and RO membranes. Electrical, Instrumentation & Control

3) OSBL- EPC works for Balance of plant for Sulphate Removal Project. Following facility among other facility shall be constructed by the contractor.

a) Feed water tank and pumping facility. Permeate water tank and pumping facility. Reject water tank and pumping facility, associated piping network for transportation of Feed and permeate Piping & Reject pipeline Network including manifolds for Reject Wellpads, Integration with Existing MPT Facility.

b) All civil and structural facility like, road network, building, pipe racks, sleepers etc. as applicable within Sulphate Removal Plant as well as Reject facility at well pads.

c) Sub-station comprising of HV Switch board (33 KV GIS & 6.6 kV), Transformer (power & distribution).

d) Fire alarm system & fire fighting system.

e) HVAC System for buildings.

f) Instrumentation & Control related works for balance of Plant.

g) Development of Reject Well pad and interconnecting pipeline.

Development of Reject Well pad includes civil work, Solar based area lighting, Security cabin Toilet block with overhead Water tank.

(ii) From the detailed scope of work as mentioned in the EPC Contract, brief extracts of which have been reproduced above, we observe that M/s Vedanta Limited has awarded instant EPC Contract to the Appellant with mandate to establish Sulphate Removal Plant along with other required infrastructure.

(iii) After analyzing the broad outlines of the contract awarded to the Appellant, we find it appropriate to examine the nature of work assigned to the Appellant under the EPC Contract in question. We observe that the Appellant have not denied the fact that supply of service under the EPC Contract in question also involves transfer of property in goods. The only contention by the Appellant in this regard is that the scope of Heading 9986 does not exclude Works Contract Service. As can be seen from the appeal as also from the EPC Contract submitted by the Appellant, the Appellant have been assigned the work related to establishment of infrastructure for the proposed Sulphate removal plant as well as other facility.

(iv) One of the important aspects of the EPC Contract is that Appellant are responsible for doing civil or structural work which includes jungle clearance, Gabion Wall & mattress around the plot, foundation, structures, buildings like control building, sub-stations, switchyard, fire stations and sheds, roads, paving and drains etc. and the contract contains provisions which prescribe the quality of various types of material such as concrete for foundation and structural steel material. The Appellant shall also obtain all necessary approval.

(v) As per clause ‘r’ (page 14) “Scope of contractor” Contractor shall consider the life span of all equipment and material from the date of first commissioning as minimum 25 years or as specified in technical Specification: whichever is more.

(vi) From perusal of the said scope of work, we observe that the Appellant are obliged by the contract for satisfactory handover of complete Sulphate Removal Plant including Non Process Buildings, road network and drains, racks sleepers Intra-field Pipeline, water pipeline, toilet along with overhead tank, transformer, earthing to the Company M/s Vedanta Limited, complete with applicable hook-up & tie-in with the existing & proposed facilities. This provision of the contract makes it amply clear that the Appellant have been assigned the work of establishment of new facilities for oil extraction and other infrastructure alongside the already existing facilities at MPT

(vii) Coming to the proposed classification under Heading 998621 we observe that the said heading covers ‘support services to oil and gas extraction’ which is self explanatory in as much as the services proposed to be classified under this heading provide support to the main activity of oil and gas extraction and such activity of extraction eventually requires the infrastructure facilities established. These three parts of the entire gamut of oil and gas extraction are clearly distinguished from each other. Support service has to be essentially distinct from the main activity of oil and gas extraction. And establishment of infrastructure facilities in the form of SRP, pipelines, control buildings, sub-stations, switchyards, toilets and fire stations, to illustrate a few, is clearly a distinct feature of the activity of oil and gas extraction. Hence, support services to oil and gas extraction is clearly distinguishable from establishment of infrastructure facilities for oil and gas extraction and the former cannot be confused with the latter.

H.2.2 We observe that the description of the service in the explanatory notes as ‘support services to oil and gas extraction’ has been defined to include some activities specifically which are also to be considered in the nature of support to the main activity of oil and gas extraction. Analysis of the said activities, included in the service code, would reveal that these activities are such as can help the main activity of oil and gas extraction. These activities of repair and dismantling services, well casing, cementing, pumping, plugging and abandoning of wells or fire extinguishing services are, in one way or the other connected to the main activity of oil and gas extraction. But none of these activities can be said to be related to establishment of the infrastructure facilities for oil and gas extraction.

Since, the Appellant have been tasked with establishment of Sulphate Removal Plant, the activities undertaken by the Appellant in pursuance of the EPC Contract cannot, by any stretch of imagination, be said to be support services to oil and gas extraction. The distinction between the activities undertaken by the Appellant in terms of the EPC contract and the activities included in the definition of SAC Heading No. 998621 is strikingly clear. Therefore, we hold that the activities undertaken by the Appellant in pursuance of the EPC Contract cannot be classified under SAC Heading No. 998621 as these are not in the nature of support services to oil and gas extraction.

H.3. Ingredients of services classifiable under Heading 9983:

(i) We also observe that the Appellant have, in the alternate, claimed classification of the supplies proposed to be made by them under Heading 9983 as ‘Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both’ as also covered by entry at SI. No. 2 1(ia) of the Rate Notification. It is their contention that the said entry uses the phrase ‘relating to’ which signifies that any professional, technical and/or business services provided relating to mining, would merit classification under the said entry and the said entry includes a broad range of services which pertain to or concern with the activity of mining.

To buttress their argument, the Appellant have further claimed that they provide services by way of proper management of the project right from the detailed design and planning of the project till its final test run, commission and hand over in fully functional form and 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 M/s Vedanta. The Appellant have also referred to and relied upon the CBIC Circular to claim that 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%.

(ii) On going through the explanatory notes, and as also clarified vide the CBIC Circular dated 11.10.2019 referred to above, we observe that the services relating to exploration, mining or drilling of petroleum crude or natural gas are described under Heading 9983, which are reproduced below:-

“998341: Geological and geophysical consulting services:

This service code includes provision of advice, guidance and operational assistance concerning the location of mineral deposits, oil and gas fields and groundwater by studying the properties of the earth and rock formations and structures; provision of advice with regard to exploration and development of mineral, oil and natural gas properties, including pre feasibility and feasibility studies; project evaluation services; evaluation of geological, geophysical and geochemical anomalies; surface geological mapping or surveying; providing information on subsurface earth formations by different methods such as seismographic, gravimetric, magneto metric methods & other subsurface surveying methods.

This service code does not include- test drilling and boring work, cf 995432.”

“998343: Mineral exploration and evaluation:

This service code includes mineral exploration and evaluation information, obtained on own account basis.

Note: This intellectual property product may be produced with the intent to sell or license the information to others.”

(iii) On analysis of the contents of the explanatory notes above, we observe that so far as SAC Heading No. 998343 is concerned, the same has a very narrow scope/limited coverage of mineral exploration and evaluation information which is certainly not the activity proposed to be undertaken by the Appellant in pursuance of the instant EPC Contract as already discussed at length above. Thus, we find it difficult to agree to the suggestion that the activities undertaken by the Appellant fall under the said SAC Heading No. 998343. However, SAC Heading No. 998341 covers a wide range of activities which include provision of advice, guidance and operational assistance concerning the location of oil and gas fields including feasibility studies. But, we observe that the Appellant have not proposed to undertake any such activity rather the Appellant have proposed to undertake establishment/ creation/ construction of infrastructure facilities for oil and gas extraction(execution of Sulphate Removal Plant) which are quite different and distinct from the advice concerning location of gas fields.

Further, the provision of advice with regard to exploration and development of oil and natural gas properties or feasibility studies is also not the activity that the Appellant are obliged to undertake in pursuance of the EPC Contract. Strictly speaking, as observed earlier, the scope of the current contract for the Appellant covers execution of Sulphate Removal Plant. These aspects of the contract of the Appellant cover such activities which do not answer the description of geological or geophysical consulting services or mineral exploration and evaluation services. This will be more clearly analyzed in the latter part of our analysis when the issue will be examined with reference to construction services.

H.4: Construction Services under Heading 9954:

(i) We observe that in response to the query by the Appellant as to what would be the correct classification of the supplies proposed to be undertaken by them in pursuance of the EPC Contract, the AAR has pronounced the Rulings dated 15.09.2021 declaring that the activities of supply, survey, designing, installation and commissioning of project under the EPC contract to be undertaken by the Appellant shall attract CST @ 18% under SI. No. 3(ii), Heading No. 9954, of Notification No. 11/2017-CT(R), dated 28.06.2017. However, the Appellant have challenged the said classification mainly on the ground that the supplies proposed to be undertaken merit classification under SAC Heading No. 998621 as support services to oil or gas exploration or in the alternate, under Heading 9983 as other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both.

It has also been contended that the Ruling has been issued based upon non­existent provision of law in as much as entry at Si. No. 3(ii) of Notification No. 11/2017-CT(R), dated 28.06.2017 stood deleted with effect from 01.04.2019. The Appellant have also claimed that for deciding classification of a supply, the category that provides the most specific description shall be preferred to categories providing a more general description and therefore, even if it is assumed that the supply of services provided under the EPC Contract is a composite supply in the nature of a Works Contract, the service will still merit classification under Heading 9986 which is a specific entry for services that support the activity of mining of natural gas.

(ii) The Ruling pronounced by the AAR has been contested by the Appellant that it is based on a non-existent provision of law. We deem it appropriate to first examine the Ruling vis-a-vis the contention accordingly. On examination of the Ruling, we observe that the Ruling consists of three different parts. Fist part of the Ruling declares that the supplies proposed to be undertaken by the Appellant answer to the description of works contract service. Second part of the Ruling suggested classification of the supplies under Heading 9954. And according to the third part of the Ruling, the supplies proposed to be undertaken by the Appellant attract GST @ 18% in terms of entry at Sl. No. 3(ii) of Notification No. 11/2017-CT(R), dated 28.06.2017.

(iii) We observe that there is no denying the fact that Notification No. 11/2017-CT(R), dated 28.06.2017 was amended vide Notification No. 3/2019-CT (R), dated 29.03.2019 whereby entry at Sl. No. 3(ii) of Notification No. 11/2017-CT(R), dated 28.06.2017 was omitted with effect from 01.04.2019. Admittedly, entry at SI. No. 3(ii) did not exist in the rate notification when the application seeking Advance Ruling was filed or when the Ruling was pronounced. Hence, the rate as prescribed vide the said entry was not available to the Appellant at the relevant point of time. However, we observe that the omission of the given entry from the rate notification in question by itself does not make the instant supply eligible to lower rate of tax until other aspects of the Ruling concerning the description of the supply based on its nature and classification under the given heading are examined to determine the appropriate rate of tax. Hence, we observe that it is important to examine the other aspects of the Ruling with reference to the true nature of the supplies as given in the EPC Contract.

(iv) We observe that the AAR has pronounced classification of the supply under the SAC Heading No. 9954 relating to construction services with the observation that the supply being composite in nature and covered under the description of work contract as defined under clause (119) of Section 2 of the CGST Act, 2017. The Appellant have opposed the Ruling mainly on the ground that the said category of service i.e. construction service provides only a general description of the supply while support service to exploration, mining or drilling of petroleum crude or natural gas or both is a specific description of the supplies proposed to be undertaken by them. Though there is no denying the fact that transfer of property in goods is involved in the execution of the instant EPC Contract, some of the main provisions of the EPC Contract need to be reproduced, even at the cost of repetition, to examine as to whether the proposed supplies invoke provision of construction services.

(v) On going through the relevant portion of the EPC Contract which has been submitted with the appeal, we observe that the following activities have been assigned to the Appellant which form the core of the entire supply under the contract:-

(A) Construction Management, Vendor Management, Procurement and Logistics Management, Waste Management, Local contractor Management, Surveys (pre-engineering, pre-construction pre-installation and post-installation), Procurement, Manufacturing, Fabrication, Inspection and Testing, packing, shipping, shipment insurance, transportation and delivery to site, Loading/ Unloading & Shifting of material, Construction, Fabrication, Dismantling, removal and disposal of existing facilities, restoration, Construction, Complete erection and installation, Mechanical Completion, Tie-ins with existing facilities, SAT, Site Testing, Pre- commissioning, Commissioning, Stability performance, PGTR ( Performance Test Run), Training and Hand over of facilities for SRP project.

(B) Engineering, Procurement and construction of fire-fighting system related to SRP is under the purview of this project and included in the scope of the Contractor along with applicable interfacing, monitoring and control of the fire-fighting system with MPT.

(C) CONTRACTOR shall ensure safe working within the site premises without any damage to existing facilities in and around the site.

(D) Contractor shall be responsible for progressively achieving Mechanical completion, testing of the facilities installed by them and thereafter, shall perform Pre- commissioning, Commissioning, RFSU, plant operation stabilization for specified duration, and Performance Guarantee Test Run of the equipment/plant installed and shall demonstrate the operability of the plant installed by them.

(E) CONTRACTOR shall be responsible for insurance of the facilities until the Ready for Start-Up, Performance Test Run and handover to Company, as required in the ITT package. CONTRACTOR shall also be responsible for insurance of his personnel working at the Site.

(F) CONTRACTOR shall carry out all testing and certification activities in conjunction with approved procedures, up to the date of the FINAL ACCEPTANCE. CONTRACTOR shall provide and arrange for training of COMPANY’s personnel for the correct and safe operation and maintenance of the facility.

(G) Contractor shall obtain all necessary Regulatory and Statutory approvals for the execution of WORKS.

(H) CONTRACTOR shall consider the life span of all equipment and materials from the date of first commissioning as minimum 25 years or as specified in Technical Specifications; whichever is more. CONTRACTOR shall interface with other sub-contractors / vendors/ suppliers for the supply, installation, testing, commissioning of those systems which have been defined in the ITT package.

(I) CONTRACTOR shall provide all required construction equipment, tools, tackles, instruments duly calibrated, and consumables inclusive of erection and commissioning spare parts to enable all construction, pre-commissioning, commissioning, Operation stabilization & PGTR works.

(J) CONTRACTOR shall be responsible for the total disposal of construction waste materials and final site clearance including removal of temporary facilities in compliance with local regulations and as per directions of COMPANY/ PMC. As regards to left over useable material including bulk material, CONTRACTOR shall duly codify the same as per the COMPANY’s guidelines and return to the COMPANY without any extra cost to COMPANY.

(K) CONTRACTOR shall procure and supply all equipment and materials required to construct the facilities. The procurement functions shall include the securing of proposals from approved suppliers, issuing of purchase orders, expediting deliveries, performing the necessary inspections including arranging third party inspections and tests to ensure quality and quantity, handling the shipping, receiving, unloading, customs clearance, transporting to the SITE and warehousing of equipment and materials. All equipment and materials shall be newly manufactured for the project. In the event to expedite the project and meet the schedule, if any off the shelf material is proposed, then prior approval shall be obtained from the company, subject contractor successfully demonstrating the suitability of item along with complete documentary evidence manufacturing & testing reports.

(L) CONTRACTOR shall supply all special tools & tackles required for operation and maintenance. CONTRACTOR shall provide the requirements for all the consumables for operation and maintenance of Sulphate Removal Plant on daily/ weekly/ monthly/yearly basis giving details of suppliers for the same.

(M) CONTRACTOR shall make all arrangements and shall be responsible for loading, unloading, transportation from suppliers’ works, shipment, transit insurance, custom clearance, port handling and transportation from sea or air ports / suppliers’ works for all equipment and materials including handling of consignments at site. Contractor shall monitor and report to COMPANY the movement of all consignments dispatched to SITE from various points of dispatch until receipt. Contractor shall also be responsible for safety & storage of material to be supplied by them.

(N) CONTRACTOR shall maintain all areas required for temporary storage, construction facilities, buildings, medical facilities, toilets with

proper hygiene and other construction infrastructures for their use.

(0) CONTRACTOR shall verify available information on topographic survey for the Sulphate Removal Plant and Reject well pads including the pipelines site included in the ITT package by carrying out a fresh topographic survey.

(P) CONTRACTOR shall verify the soil investigation results included in the ITT package by carrying out fresh soil investigation and make its own interpretations and conclusions to -determine the basis of its own design and construction methods and procedures as stated in the package.

(Q)COMPANY shall not supply any material of what-so-ever nature. All material required for the execution of the project (temporary as well as permanent) shall be procured and supplied by the contractor as part of firm scope of work. The procurement activities shall be carried out in accordance with agreed Procurement Procedure covered under Tender Package.

From perusal of the provisions of the EPC Contract which have been summarized above, we observe that the Appellant have been assigned the task of construction of various facilities. Sulphate Removal Plant, Buildings, roads etc are some of such constructions which form part of the contract. The contract clearly provides that the Appellant are responsible for satisfactory hand over of complete SRP with buildings, roads and other facilities etc. The entire scope of activities to be carried out by the Appellant relates to construction of all the facilities relating to Sulphate Removal Plant which have been proposed to be created as a mitigating measure, sulphate free water is recommended for controlling the H2S. The Appellant are required to hand over the facility complete in all respects after the design, construction, commissioning etc. are completed.

(vii) In view of what has been observed by us in the preceding paragraphs, it is necessary to examine the issue with reference to the relevant explanatory notes of the scheme of classification of services independent of the issue of composite supply which can be addressed later on. We observe that SAC Heading No. 9954 of the Scheme of Classification covers the overall construction services with SAC Heading No. 995425 the general construction services of mines and industrial plants. The explanatory notes clarify that the said service code includes construction services for mining and related facilities associated with mining operations. Since, oil and gas exploration is also a form of mining; therefore, the construction services proposed to be supplied by the Appellant for execution of Sulphate Removal Plant are appropriately classifiable under the SAC Heading No. 9954.

(viii) We further observe that based on the stipulations of the EPC Contract under consideration, the AAR had also classified the supplies proposed to be undertaken by the Appellant under SAC Heading No. 9954 and therefore, Ruling of the AAR to that extent is legally valid and omission of a specific entry in the rate notification does not have a bearing on such Ruling in so far as classification under SAC Heading No. 9954 is concerned. Since, the nature of supply justifies its classification as construction services of mining, we observe that there is no conflict suggesting preference to specific description under SAC Heading No. 998621 to general description under SAC Heading No. 9954 because the nature of activities clearly indicates that the supply is classifiable under SAC Heading No. 9954.

(ix) We further observe that the instant matter in hand does not simply involve supply of services only, rather as mentioned in the EPC contract and as also admitted by the Appellant in the appeals, supply of goods is also involved in the contract and such goods have been used in the execution of the EPC contract as the Appellant are required to undertake the execution of Sulphate Removal Plant and its handover along with buildings, road, pipelines etc. We are, therefore, in agreement with the AAR in holding that the composite supply of construction services and goods involved in the execution of the contract amount to supply of works contract service. Hence, we may refer to clause (119) of Section 2 of the CGST Act, 2017 which reads thus:-

“(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; “

(x) We observe that the supplies involving both services and goods as proposed to be undertaken by the Appellant are, thus, covered by the definition of works contract which being composite supply, is treated as supply of services in terms of the provisions of Para-6 of Schedule-II of the CGST Act, 2017, which read as under:-

“6. 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; and”

(xi) Thus, we observe that so far as classification of the supplies proposed to be undertaken by the Appellant are concerned, the composite supply in the instant cases shall be treated as supply of service defined as works contract and the pronouncement of the AAR, therefore, needs no interference up to that extent.

(xii) As already observed by us, entry Sl. No. 3(ii) of Notification No. 11/2017-CT(R), dated 28.06.2017 was omitted with effect from 01.04.2019 and, therefore, the supplies proposed to be undertaken by the Appellant could not have been eligible for the rate prescribed therein. However, we observe that up to Notification No. 3/2019-CT (R), dated 29.03.2019, major changes have been made in the said entry under Sl. No. 3 of the basic Notification No. 11/2017-CT(R), dated 28.06.2017 to provide for different rates of tax for supplies under the categories of supply of construction services or supply of works contract services.

On examination of the various items covered by the said entry at SI. No. 3, we observe that different rates of tax have been provided in respect of different types of supplies of construction services or works contract services under items (i), (ia), (ib), (ic), (id), (ie) and (if) or items (iii), (iv), (v), (va), (vi), (vii), (viii), (ix), (x), (xi) and (xii) of the said entry at SI. No. 3. The supplies proposed to be undertaken by the Appellant are not covered by any item other than item at SI. No. (xii) of the said entry at Sl. No. 3 which provides as under:-

“(xii) Construction services other than (i), (ia), (ib), (ic), (id), (ie), (if), (iii),

(iv), (v), (va), (vi), (vii), (viii), (ix), (x) and (xi) above.

Explanation. – For the removal of doubt, it is hereby clarified that, supply by way of services specified at items (i), (ia), (ib), (ic), (id), (ie) and (if) in column (3) shall attract central tax prescribed against them in column (4) subject to conditions specified against them in column (5) and shall not be levied at the rate as specified under this entry.”

(xiii) We observe that the said item (xii) of entry at Sl. No. 3 of Notification No. 11/2017-CT(R), dated 28.06.2017, as amended up to Notification No. 3/2019-CT (R), dated 29.03.2019 prescribes Central Tax @ 9% on the supplies proposed to be undertaken in terms of the EPC Contract and therefore, the supplies proposed to be undertaken by the Appellant attract tax at the rate of 18%. The Ruling pronounced by the AAR, therefore, needs to be modified up to that extent.

I. Some specific arguments

In view of what has been discussed above, we observe that the issues involved stand addressed in the light of legal position which applies to the supplies proposed to be undertaken by the Appellant under the EPC Contract. However, before concluding the matter, we deem it appropriate to discuss some points which have specifically been raised by the Appellant. These points are discussed as follows:-

(i) The Appellant have argued in their written submission dated 18.01.2022 that the instant EPC Contract was awarded during the year 2018-19 whereas the original production of oil and gas in the oil field had started in the year 2010. Thus, the Ruling by the AAR suffers from fallacy in as much as the same has rejected classification under the category ‘support services to oil and gas extraction’ on the ground that support services shall include services to be provided for exploration, once the infrastructure/ facility for exploration is built and complete in all respect and ready to start exploration. In this regard, we observe that according to the EPC Contract, the Appellant have been assigned the work of construction and installation of Sulphate Removal Plant along with other facility to establish new infrastructure. The contract obliges the Appellant to handover the complete SRF’ including Non Process Buildings, receiving end substation at MPT, Intra-field Pipeline, irrigation water pipeline and approach roads after completing the construction, erection, installation and commissioning work. Thus, we observe that the supplies proposed to be undertaken by the Appellant relate to the new facilities being awarded by M/s Vedanta Limited.

(ii) The Appellant have also argued that Ruling to the effect that Heading 9986 covers only those activities which are provided once the infrastructure/ facility for exploration is built and complete in all respect and ready to start exploration, is an interpretation which lacks credible basis in law. It has been argued that classification entries should be derived literal meaning without addition or deletion of words. The Appellant have impressed upon the fact that test drilling and exploration services and derrick erection are some of the activities that are also part of Heading 998621 and these activities are carried out before installation of the infrastructure and facility for exploration. In this regard, we observe that classification of the supplies depends upon the scope of the work assigned to the Appellant which has already been discussed at length in the above Paras.

(iii) As can be seen the contract in the instant case is an Engineering, Procurement and Construction (EPC) Contract awarded by M/s Vedanta Limited for provision of services for New Sulphate Removal Plant along with other new infrastructure. The scope of the work described in details in the contract clearly established that the supplies relate to construction of new facilities/ infrastructure for oil extraction which are quite distinct from the support services to oil and gas extraction. What has been included in the support services under Heading 998621 by way of inclusion clause has to be viewed with reference to support services and cannot be so interpreted to relate it to construction services. In that view of the matter, whether it be derrick erection or repair and dismantling services, well casing, cementing pumping, plugging and abandoning of well, all these activities have to be understood in the nature of support services only and none of them relates to creation of infrastructure or facilities for oil and gas extraction by way of construction, erection and commissioning of the new facility. The Appellant have not been assigned activity of type mentioned in Heading 998621 rather the contract is for creation of new facility and infrastructure for extraction of oil from well pads. Hence, we do not find force in the arguments advanced by the Appellant.

The Appellant have also placed reliance upon various case laws pronounced by the Hon’ble Courts. We observe that each case has different facts. When Appellant’s case has already been discussed in detail as above, in our opinion, there is no need to discuss the cases relied upon by the Appellant separately.

J. Ruling of the Maharashtra Appellate Authority for Advance Ruling Order No. MAH/AAAR/DS-RM/14/2022-23 dated 03-01-2023 is squarely applicable in the instant matter:

(i) The Maharashtra Appellate Authority for Advance Ruling in respect of appeal filed by M/s Worley Services India Pvt Ltd, New energy House Ramkrishna Mandir Road, J B Nagar Kondivita, Andheri East Mumbai on the same issue has held similar view. Vedanta Limited had entered into separate agreements dated 29.05.2018 and 10.01.2019 with Worley Services in relation to two projects for supply of PMC services. The PMC services were customized and tailor made to suit the requirements of Vedanta Limited and further require extensive technical and sound expertise. As per the agreements, Worley Services India Pvt Ltd was required to continuously review, monitor manage and control all aspects of the execution of the Projects on behalf of Vedanta Limited to complete it with quality, on time and within the approved cost. Worley Services was appointed to manage the projects right from details to designing to commissioning and close out of Projects with Vedanta Limited.

Worley Services India Pvt Ltd approached the MAAR seeking Advance Ruling on the following questions:

(1) Whether the services provided by the Appellant are classified under SI No. 24(ii) of heading 9986 of the Rate Notification as Support services to exploration, mining or drilling of petroleum crude or natural gas or both’ under SAC 998621 and attracts GST @ 12% in terms of SI. No. 24(ii) of Rate Notification.

(2) Alternatively, whether the services provided by the Appellant are classified under S. No. 21(ia) of heading 9983 of the Rate Notification as ‘Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both’ and attracts GST @ 12% in terms of Si. No. 21(ia) of Rate Notification.

(3) Further, if the subject services arc not classifiable under the aforesaid entry, what would be the appropriate classification for the same and at what rate GST would be imposable?

(ii) Thereafter, the MAAR passed the Order No. GST-ARA-27/2020-21/B-38 dated 31.03.2022 and held that the services provided by Worley Services are neither covered under SI. No. 24(ii) nor under SI. No. 21(ia) of Rate Notification on the following grounds:

  • The service code 998621 includes services provided to the oil and gas mining sector by way of actual participation in the mining activity and in the subject case, it is actually the EPC contractor who is giving support services to VEDANTA LIMITED by being responsible for all the engineering, procurement and construction activities to deliver the completed Projects. In view of this the impugned services are not covered under S. No. 24(ii) of the Rate Notification
  • The Explanatory Notes to service code 998341 is restricted to geological and geophysical consulting services and the Notes to service code 998343 is restricted to mineral exploration and evaluation and the impugned services cannot be considered as being connected to either geological and geophysical consulting services or mineral exploration and evaluation services. In view of this the impugned services are not covered under SI. No. 21(ia) of the Rate Notification
  • The said professional, technical and business services supplied by the Appellant to Vedanta Limited are clearly covered under the residual entry No. 21(ia) of the Rate Notification, attracting tax at the rate of 18%

(iii) When Worley Services preferred an appeal against the above Order, the MAAAR upheld the MAAR Order No. GST-ARA-2772020-21/B-38 dated 31.03.2022 wherein it was held that the services provided by Worley Services India Pvt Limited are neither covered under Sl. No. 24(ii) nor under SI. No. 21(ia) of the Rate Notification. As regards the classification of the impugned services, it is held that the impugned services of project management consultancy services provided the Appellant would merit classification under the SAC 998349 bearing description “Other technical and scientific services nowhere else classified, attracting GST at the rate of 18% (CGST @9%+SGST @9%).

K. Conclusion and findings:

In view of these observations we hold that:-

(i) Based on the analysis of activities, the Appellant are required to carry out in pursuance of the EPC Contract and keeping in view the true nature of supplies proposed to be undertaken by the Appellant, the proposed supplies are appropriately classifiable under SAC Heading No. 9954 answering to description ‘Construction Services’ which are in the nature of composite supply defined as works contract.

(ii) The proposed supplies are specifically covered by SAC Heading No. 9954 and the claim that ‘Construction Services’ of SAC Heading No. 9954 is a general description of the supplies and ‘support services’ of SAC Heading No. 998621 is more specific to describe the proposed supplies is not supported by the EPC Contract as discussed above.

(iii) The proposed supply is covered by the scope of ‘Construction Services’ of SAC Heading No. 9954 and neither the inclusions given under SAC Heading No. 998621 for Support Services nor the description of Heading 9983 covers the scope of the proposed supply, Hence, the claim for classification under SAC Heading No. 998621 or alternatively under Heading 9983 is not sustainable.

(iv) The proposed supplies, therefore, attract tax at the rate of 9% in terms of item (xii) of entry at SI. No. 3 of Notification No. 11/2017-CT(R), dated 28.06.2017 as amended and 9 % in terms of Notification issued under the RGST Act, 2017.

ORDER

In view of the above discussion and findings, we hold that the Ruling dated 15.09.2021 of the AAR for Rajasthan in respect of the Appellant needs no interference up to the extent mentioned in item (i) to (iii) above \and the same are hereby modified to the extent mentioned in item (iv) above of Para K of this order. The appeal is disposed of accordingly.

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