Schulmberger Asia Services ltd. Vs Commissioner (CESTAT Delhi)
CESTAT Delhi held that service of wireline logging, perforation and other mechanical job is covered under mining service only with effect from 01.06.2007. Accordingly, such services cannot be classified under ‘technical testing and analysis’ and taxed prior to 01.06.2007.
Facts- M/s. Schulmberger Asia Services Ltd. has sought the quashing of the order passed by the Commissioner (Adjudication), Service Tax, Commissionerate confirming the demand of service tax with interest and penalty.
The issue that arises for consideration in this appeal relates to the classification of activities of wireline logging and perforation during the relevant period from 14.05.2003 to 31.03.2008 under the category of ‘technical testing and analysis’ services defined u/s. 65(106) of the Finance Act, 1994 and made taxable u/s. 65(105)(zzh) of the Finance Act.
Conclusion- In the instant case, the definition of TTA did not undergo any change when a new service ‘in relation to mining’ was introduced w.e.f. 01.06.2007. The department admits that w.e.f. 01.06.2007, the activity carried out by the appellant is covered under the category of service in relation to mining. This activity could not, therefore, have been categorized under TTA service prior to 01.06.2007.
As it has been found that the activity undertaken by the appellant w.e.f. 01.06.2007 pertains to mining services as made taxable under section 65(105)(zzzy) of the Finance Act, service tax under TTA services cannot be charged from the appellant prior to 01.06.2007.
FULL TEXT OF THE CESTAT DELHI ORDER
M/s. Schulmberger Aisa Services Ltd.1 has sought the quashing of the order dated 28.08.2012 passed by the Commissioner (Adjudication), Service Tax, Commissionerate, New Delhi2 confirming the demand of service tax with interest and penalty.
2. The issue that arises for consideration in this appeal relates to classification of activities of wireline logging and perforation during the relevant period from 14.05.2003 to 31.03.2008 under the category of „technical testing and analysis‟3 services defined under section 65(106) of the Finance Act, 19944 and made taxable under section 65(105)(zzh) of the Finance Act. It needs to be noted that the term „technical testing and analysis agency‟ has been defined under section 65(107) of the Finance Act.
3. The appellant was providing services in the exploration and production sector to M/s. Oil and Natural Gas Corporation 5 . These services included the following activities:
(a) Wireline logging services
(b) Perforation services and other mechanical jobs
(c) “Logging While Drilling‟ 6 services and „Measurement While Drilling‟7
4. These services were provided by the appellant in the mineral oil wells of ONGC at the onshore and offshore locations in the western, eastern and southern regions of India. The appellant contends that for performing these activities below the ground, it has to deploy sophisticated electronic tools which can work in hostile environment with extreme pressures and temperatures. These tools are called logging tools.
5. The activity of wireline logging involves systematic gathering of measurements of characteristics of the underground rock formations and strata traversed by the cased and open holes drilled by the customers. This activity is performed by deployment of logging tools on wires in the holes. The measurements are transmitted uphole via an electro-mechanical cable. The data is recorded on digital mechanical tapes by the computer on surface, which gives the output known as „logs‟. These logs are then provided by the appellant to the customers.
6. The activity of perforation involves creation of holes in the casing at desired depths by controlled use of explosives. The appellant contends that as it deploys electro-mechanical cables underground, these mechanical activities are also performed by the appellant for proper creation of holes, through which the oil/hydrocarbon can flow to the well.
7. After the introduction of the taxable category of TTA services, the appellant believed that it would be liable to service tax, so it registered itself under the said category and started paying service tax on the consideration received by it under for the contracts. However, in June 2004 and thereafter the appellant was informed by ONGC that wireline logging services would not be covered under TTA services and so not leviable to service tax. The appellant, therefore, stopped depositing/recovering service tax for wireline logging, perforation and other mechanical jobs provided by it to ONGC w.e.f. September, 2004 and the appellant also informed this fact to the department. The appellant also filed three refund applications dated 23.12.2004, 24.02.2005 and 20.07.2005 for refund of Rs. 4,15,65,474/- paid as service tax during the period December, 2003 to November, 2004. A show cause notice dated 16.10.2006 was issued to the appellant by the department challenging the claims for refund. The refunds were rejected by orders dated 08.10.2007 and 05.11.2009. These orders have been challenged by the appellant before the Tribunal in Service Tax Appeal No. 172 of 2010.
8. The appellant also examined the service tax applicability and concluded that the newly introduced „mining service‟ w.e.f. 01.06.2007 was comprehensive enough to cover wireline logging, perforation and other mechanical jobs provided by the appellant to ONGC and the service tax on these services paid by the appellant earlier to 01.06.2007 was not payable under category of TTA services. The appellant registered itself under the taxable category of „mining service‟ and started discharging service tax on the invoices raised on ONGC w.e.f. 01.06.2007. The appellant disclosed this fact to the department and declared the service under the category of „mining services‟ in the ST-3 returns.
9. On 23.10.2008, a show cause notice was issued to the appellant alleging that the appellant was providing TTA services and had not discharged service tax liability on such services provided by the appellant to ONGC. The details mentioned in the show cause notice are as follows:
