Case Law Details
Oil and Natural Gas Corporation Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
In a significant judgment dated 09-01-24, the Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) addressed the contentious issue of whether the royalty paid by ONGC under a petroleum license is subject to service tax. The Tribunal rendered a comprehensive decision with key findings. Firstly, it categorically held that royalty is a regulatory fee and not a consideration, emphasizing its non-compensatory nature. Secondly, the Tribunal clarified that there is no assignment of mineral rights for the creation of a tax charge; instead, the arrangement with ONGC is deemed a leasing arrangement. Thirdly, the judgment underscored that the failure to meet the criteria of an exemption notification does not automatically imply the subject’s liability to tax. Lastly, the Tribunal opined that royalty is akin to a tax, dismissing doubts raised by a previous five-judge bench of the Supreme Court in the Kesoram case. It asserted that such doubts would not affect its view unless a larger bench of the Supreme Court endorses the five-judge bench’s perspective. This landmark decision provides clarity on the taxation implications of royalty under petroleum licenses.
FULL TEXT OF THE ORDER OF CESTAT JUDGMENT
Brief facts are that the appellant viz., M/s. Oil and Natural Gas Corporation, Karaikal, is engaged in activities of exploration and production of crude oil and natural gas from various oil fields located in different areas of Nagapattinam, Cuddalur, Tiruvarur, Tanjore and Ramnad Districts of Tamil Nadu. The appellant holds service tax registration for discharging service tax on various taxable services.
1.1 On gathering intelligence that the appellant has not paid the appropriate service tax on the amount of consideration, in the form of Royalty paid to Government of Tamil Nadu, for assignment of right to use for exploration and production of crude oil/natural gas, the officers of the Directorate General of Goods and Service Tax, Zonal Unit, Bangalore initiated investigation. Summons was issued to furnish documents and statements were recorded.
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