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2012(1) ECS (101) (Tri-Ahd

)
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
West Zonal Bench, Ahmedabad
COURT
M/s. Atwood oceanics Pacific limited
Versus
Commissioner of Service Tax, Ahrnedabad

Appeal No.

ST/363 & 344 of 2009, ST/CO/73 of 2010

Arising out of

OIO No. 09/Commissioner/2009 dated 28.05.2009

Passed by

Commissioner of Central Excise, Ahmedabad

Appellant(s)

:

M/s. Atwood oceanics Pacific limited

Represented by

:

ShriSanjeevSachdeva Consultant &ShriNeeraj

Sharma,chartered Accountant

Respondent(s)

:

Commissioner of Service Tax, Ahrnedabad

Repeesented by

:

Shri S.K Mall,AR

CORAM:

Hon’bleMr.M.VRavindran, Member(Judicial)
Hon’bleMr.B.S.V.Murthy, Member (Technical)

Date of Hearing :01.08.2012
Date of Decision :30/08/2012

ORDER NO.A/1296-1298 WZB/AHD/2012
Per: Mr.B.S.V.Murthy;

i.

Atwood oceanics pacific limited (M/s Atwood for short) entered into an agreement on
03.09.2005 with M/s Gujarat State petroleum corporation ltd (GSPC for short). As
per the terms of the agreement the following salient covenants were agreed upon

(i)

M/s Atwood shall drill, complete or abandon the wells identified by
GSPC for drilling program in accordance with all the requirements
specified in the contract. GSPC shall pay M/s Atwood for such
performance of drilling, completion or abandonment in accordance with
the financial provisions of the contract.

(ii)

M/s Atwood shall use their own equipment, personal and obtain all the
necessary permits/ authorization required for the operation of the
equipments and for the performance of the job specified. GSPC has to
give concurrence to the equipments and personal. M/s Atwood shall
also be responsible for the safety of the personal and equipments.

(iii)

M/s Atwood shall prepare a “Daily drilling report” for all the work in the
well and shall furnish a copy of the report to GSPC.

(iv)

At GSPC‟s request M/s Atwood shall (a) complete the well as producer
in the manner and by methods specified by GSPC, or (b) cease

operations and plug or abandon the well, at any depth, in the manner
GSPC directs.
(v)

All survey notes, drawings, invoices for the material permits, permit
applications, specifications, blueprints, reports, circulation and all other
material prepared by M/s Atwood in connection with the work the shall
be transferred to GSPC upon completion of the each well and/or upon
completion of work/termination or the contract.

(vi)

GSPC shall pay M/s Atwood as par agreed rates. The invoicing shall
be at the end of each month accompanied by the drilling reports.

(vii)

M/s Atwood has indemnified GSPC from all damages pertaining to M/s
Atwood equipment and personal. Similarly GSPC indemnified M/s
Atwood from any claims arising out of its own personnel.

2.

M/s Atwood on 02.02.2009 had take registration in the category of “Supply of
Tangible Goods service‟ as defined under section 65 of the finance Act, 1994.
There were two appropriate taxable services prior to the registration taken by M/s
Atwood on 02.02.2009 namely “Survey and Exploration of Mineral, oil and Gas
service” with effect from 10.09.2004 and “Mining of Mineral, oil or Gas service”
with effect from 01.06.2007 which could cover the service rendered. However,
revenue entertained a view that the activities of M/s Atwood would fall under
“Survey and Exploration of Mineral, oil and Gas service” form November 2006 to
31.05.2007 and „Mining of Mineral‟ oil or Gas service‟ for the period from
01.02.2007 onward. Hence, demand of service tax fir the two periods totally
amounting to Rs. 31,22,79,982/- was raised against M/s Atwood invoking the
larger period of limitation. Interests as well as penalties under Section 75A, 76,
77 and Section 78 were also proposed.

3.

The Show cause notice was decided by the Commissioner of Central Excise,
Ahmedabad-111 vides OIO No. 09/commr/2009 dated 28.05.2009. He held that
the services rendered by M/s Atwood would fall under „Mining of Mineral, falling
under-Section 65(105)(zzzy) of the finance Act,1994 and accordingly, he
confirmed the demand of Rs. 19,86,31,386/- along with interest for the parried
from 01.06.2007 on words and dropped the demand of service tax amounting to
Rs. 11,36,48,596/- under the category „Survey and Exploration of Mineral ,oil and
gas service‟ for the period from November 2006 to may 2007. penalties under
section 75 and section 77 of the fiancé Act, 1994 were imposed but penalties
under section 75A and section 78 of the Finance Act, 1994 were dropped.

M/s Atwood has appealed against the impugned order on the following grounds : i.48. The main reason for rejecting the classification under the said service is that the appellant did not transfer .596/. The adjudicating authority has misconstrued the scope of the taxable services „supply of tangible goods for use”. service provide in relation to both exploration and exploitation of mineral. (iv) The adjudicating authority is thus not justified in not considering the classification of service rendered by M/s Atwood in the category of .F No.06. That the services provided by them falls under „Supply of tangible goods for use‟ and not under „Mining of.O. site preparation and not exploitation. outsourced services provided for mining which were individually classified under the appropriate taxable service were comprehensively brought under „service provided in relation to mining of mineral. 11.survey and exploration of mineral. 5. 334/1/2007-TRU dated 28. Department has appealed against the impugned oia on the following grounds :- 6. mineral. oil or gas will be comprehensively brought under the service tax net. oil or gas services. (iii) Activity carried out by M/s Atwood is for exploration. . sub-contract a service such as deploying workers and machinery for extraction/breaking of rocks in to stones. oil and Gas service‟.2007 it would fall under „Survey and exploration of Mineral.demanded under the said service. As the contract is basically about exploratory drilling and not actual exploitation the activity would be covered under the services in relation to survey and exploration of minerals. Prior to 01. sieving grading etc. oil or Gas service‟.2007 clearly states that with the notification of the service „Mining of Mineral. oil or gasses were brought under service tax from 01. which was the legislative intent. Both Revenue and the assessee are in appeal. (ii) Service such as site formation and clearance and excavation and earth moving drilling wells for production/exploitation of hydrocarbons (developmental drilling).2007. oil or Gas.36.4. oil and Gas service‟ for the period from November 2006 to May 2007 and the subsequent dropping of the demand amounting to Rs.02.‟ Thus exploration and exploitation of mineral. (i) The Board‟s latter D. well testing anc analysis service.06.

such equipment remained under the possession and effective control of the appellant at all times.” supply of tangible goods for” and not under section 65(105) (zzzy) which pertains to „mineral.F. providing vessels on time charter basis to various oil and gas producers was held to be falling under section 65(105)(zzzzj) i. which is supply of the equipment. Reliance is also placed on various other decisions viz. Reliance is placed on the decision of the Bombay high court in the case of Indian national ship owners association Us UOI [2009(14)STR 289 (Bom)] wherein the services provided by the petitioner i. No.e.02. RashtriyaIspat Nigam Ltd. vi. v. It has been contended that tangible goods used for exploration were always under their possession and control.2008 that the services provided by them fall under the category of „ supply of tangible goods for use‟. The persons operating the equipments were. That the contract is for supply of tangible goods i.e. Equipment is given by the contractor for use during the term specified in the contract and not for drilling pre – defined number of wells. ii. 334/1/2008-TRU dated 29.O. the drilling rig and other equipments.possession and effective control.oil and gas‟. Trade tax vschabra tourist bus service [MANU/UP/1355/2006] to contend that there is no transfer of . is further established by the following facts : (1) (2) (3) (4) (5) Contractor is charging a specific amount from company in respect of equipments supplied by it. 1994 read with Ministry of Finance letter D.e. Contractor‟s personnel are being provided since they are experienced and qualified to use the equipment and this part of the activity is incidental to the main activity. at all times employees of the appellant and since the equipments provided by the appellant were operated by the employees/sub-contractors of the appellant. It is clear from the definition of the taxable services in section 65(105)(zzzzj) of the FA. iv. Amount is being charged on per day basis and not based on usage. iii. Vs state of AP [(1990)77 STC 182 (AP)] affirmed by the Hon‟bleSc as well as commissioner. Separate rates are provided even for standby.

namely (i) (ii) (iii) Survey and exploration of mineral. geophysical or other prospecting. any other person in relation to mining of mineral.surface surveying or nap making. The show cause notice in para 4 has in detail discussed the meaning of . oil or gas. equipment and appliances. geophysical or other prospecting surface or sub. Section 65(105)”taxable service” means any service provided or to be provided * * * (zzzy) to any person. 8.2 The adjudicating authority has sought to deny classification of the service under the category of survey and exploration of mineral. 8. surface or sub. Both sides made very extensive oral submissions and also submitted written submissions we reproduce the written submissions.possession and effective control where the supplier‟s employees are operating the equipment 7. The whole issue revolves around three contending entries.surface surveying or mapmaking services. geophysical or other prospecting surface or sub-surface surveying or map making service . by any other person in relation to supply of tangible goods including machinery. oil or gas. without transferring right of possession and effective control of such machinery. Submissions by revenue are as under. oil and gas Supply of tangible good for use The definitions of these three entries are as under: “Survey and exploration of mineral” means geological. oil or gas. Oil and gas service Mining of mineral . oil and gas service on the ground that there is nothing in the SCN to show that the services provided by M/S atwood fall under geological.3 The essential ingredients of this service are geological.1. 8. 8. in relation to location or exploration of deposits of mineral . equipment and appliances for use. Such services must be in relation to location or exploration of deposits of mineral. * * * (zzzzj) to anyperson.

The activity which is to be done by the contractor is to drill the exploratory wells for exploration of oil. M/s Atwood have contended in their cross objection that servicesb rendered to GSPC is not in relation to exploration as perusal of the terms of the contract would show that they were not engaged in locating the areas where deposits of mineral . The definition of survey and exploration of mineral.09. test and complete an exploratory well the activity conducted by m/s Atwood is in relation to exploration the web definition of exploratory well is as under . and GSPC.No b2/8/2004-TRU dated 10. contractor is engaged in the business of drilling. complete. test and complete the exploratory wells.2004 issued at the time of introduction of the service and which. and contractor represent that it has adequate resources and equipment in good working condition and fully trained personal compliment of efficiently operating such equipment and is ready. collection/ processing/ interpretation of date and drilling and testing in relation to surveys and exploration would. Activities such as seismic survey. however. Oil and gases fall under this service. as contemporaneous expositor. willing and able to drill the said well and carry out auxiliary operation and services necessary to carry out the work for company…. rather the said act of locating such places has been done by GSPC it is pertinent to mention here that as stated above the preamble of the contract states that GSPC desires to drill test and complete exploratory wells and that the contractor is ready willing and able to drill the said wells and carry auxiliary operations and services necessary to carry out the work b the question here is not who is identifying the place where the drilling is to be done what is to be seen is the activity that is being conducted there is no doubt that m/s Atwood has been entrusted to drill . oil and gas service also makes it clear that activities involved in the exploration of minerals.” A perusal of the above part of the contract makes it that the contract entered into between M/s Atwood the contractor. company desires tov drill. testing and completing. exploratory wells as specified by company in the east coast off Andhra Pradesh.various terms contained in the definition of the service the SCN has also discussed threadbare the contract entered into by M/s atwood with GSPC the preamble portion of the contract states that – “Whereas. and abandoning of offshore wells. ministry‟s letter F. The adjudication authority has also contended that the SCN proceeds on the basis of legislative intent. oil or gas are available. the company is to drill. test . However. fall within the ambit of taxable service. India as set for hereinafter. explains that the service tax under this service would be limited to services rendered in relation to survey and exploration only and not on the activity of actual extraction after the survey and exploration is complete . and whereas.

No.06. The activity of exploration includes the drilling of exploratory well as such a well is drilled to ascertain whether there is sufficient oil/gas for commercial exploration.“An Exploratory well a well drilled for the purpose of discovering new reserves in unproven areas. They are used to extract geological or geophysical information about an area with a view to exploiting untapped reveres Exploratory wells are sometimes knows as Wildcat Wells.2007 the department has sought to classify the activities undertaken by them under mining of mineral oil or gas service however there has been no change in the definition of the service survey and exploration of mineral oil and gas service after 01.” (c) As per termwiki. Thus. in this regard it.2009 of the drilling engineer of GSPC shri visual D. the activities would not fall under „Survey and Exploration of Mineral.“A well drilled either in search of a new and as yet undiscovered accumulation of all or gas. 334/1/2008-TRU. or in an attempt to significantly extend the limits of a known reservoir.Rathod. may be mentioned that Finance ministry in Para 3.” (b) As per offshoretechnology. from the above it can be seen that an exploratory well is drilled for the purpose of discovering new reserves in unproven areas. 8.02. in view of the above.(a) As per businessdicitionary. This shows that the activity conducted by M/s Atwood is exploitation of minerals. There is a catena of case laws where in it has been held that when an activity comes under the service tax net with effect from certain date the same activity cannot be subjected to tax under a per-existing category unless the scope of the per-existing categories of services is simultaneously modified.com. oil and Gas service‟. dated 29-2-2008 has category stated that “Specifying a service separately as a taxable service does not necessarily mean or suggest that services falling within the scope of newly specified service were not earlier classifiable under any one of the existing taxable services.com. The scope and coverage of a taxable service are to be determined strictly in accordance with the language of the relevant statutory provision existing during the material period.4 of its letter Do f. wherein he stated that to the best of his knowledge GSPC has not yet started commercial production of hydrocarbon from the aforementioned block .This view has been . Grouping of the services under a specific taxable service may change. However. Thus. This is also supported by the statement dated 13.4 M/s Atwood has contended that from 01.06.com “test hole drilled on land or in sea to ascertain the extent of recoverable gas and/or oil in a probable but yetunproved location.2007.

Services of same category are group together and defined. therefore.O. it should be ensured that is no double taxable and a service is taxed only once under the appropriate category. classifiable under two or more sub-coleuses of closure (105) of section 65. No. 1. B2/8/2004-TRU. May of the services covered under fresh levies may include activities that were taxable earlier under different category of taxable services.. This view . No. 8. 1994. (2) When for any reason a taxable service is.5.F. dated 28/2/2007 Pars 5. which is as under:“Section 65A. 1994. Letter D. 2. While the classification of a taxable service would be in terms of Section 65A of the Finance Act. prima focie. classification of taxable services shall be determined according of the terms of the sub-clauses of clause (105) of section 65. (b) composite service consisting of combination of different services which cannot be classified in the manner specified in clause (a). as a separate taxable service. The scope and coverage of taxable service should. Letter F. dated 10-9-2004 Para 27. classification shall be effected as follows:(a) The sub-clause which provides the most specific description shall be preferred to sub-clauses providing a move general description. it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration. it is clear that the legislature recognized and envisaged the possibility of an overlap between two service and thus provided a remedy in the from of section 65a to resolve such a overlap.(1) For the purpose of this chapter.] On plain reading of the above section.334/1/2007-TRU. Newly specified services may contain part or whole of exiting individually specified taxable services. in so for this criterion is applicable. shall be classified as if they consisted of a service which gives them their essential character.further substantiated in the following two letters issued during the budgets of 2004 and 2007. be interpreted for classification purposes strictly in accordance with the statutory provisions exiting during the material point of time. Classification of taxable services. (c) when a service cannot be classified in the manner specified in clause (a) or clause (b). Thus classification of any service has to be determined by taking recourse to the provision of Section 65A of the Finance Act.

it dose not mean that service would not be covered under any other category earlier even if it was covered under the definition of new service.Services such as. oil or gas service‟ induced during the 2007 Budget. grading. As per the classification rule.2 Mining service [65(105)(zzzy)] : Presently. Raigad[2(09(16) STR 279 (Tri-Mum)]wherein it was held that – “As per Rule 65 A of the service tax Rules. field formations may undertake necessary action. services provided in relation to both exploration and exploitation of mineral. drilling wells for production/ exploitation of hydrocarbons (developmental drilling) Well testing and analysis services Sub-contracted services such as deploying workers and machinery for extraction/breaking of rocks into stones. sieving. Site formation and clearance.2. geological. dated 28/2/2007 has explained as under : “Para 6. 1994. which is more specific falling which under the category which comes first thus. Outsourced service Providing for mining are individually classified under the appropriate taxable service. Ministry‟s Letter D. oil or gas are comprehensively brought under the service tax.1 The trend is to outsource part or whole of the mining activities. No. 6.O. With this. etc. since exploration and mining of mineral. oil or gas will be comprehensively brought under the service tax net.334/1/2007-TRU. and excavation and earth moving. Service provide in relation to mining of mineral. geophysical or other prospecting surface or sub-surface surveying or mopmaking service relating to lactation or exploration of deposits of mineral oil or gas are leviable to service tax under „surey and exploitation of mineral service'” [section 65(105)(zzzy)]. oil and gas comprehensively covered under this proposed.F. it is possible for a service to be classifiable under two different categories. Thus even thought the service regarding transfer of intellectual property was introduced with effect from 10-9-2004. the classification would be done under the head.has also been supported by the Tribunal case of Kopran Ltd Vs CCE. introduction of a new services by carving out from on earlier service will not mean that the new service was not taxable under any other category earlier.6 Further while clarifying the scope of mining of mineral.” 8. .

Latter received from DC (prev) stating that tax was payable under category “mining service” with effect from 16. Total amount paid was approximately Rs. is a good guide of contemporaneous exposition of the position of law. (b) Commissioner of Trade tax.2008. For this proposition. there are letters clarifying that the services which are now covered under „mining of minerals. which was hitherto individually classified under the appropriate taxable service. 11 Crore .GSPC-JET-GGR/KG=OS2001/13 date September 2005 9. Ahmedabad –III commissionerate. the following case are relied upon(a) Ajay Gandhi vs B. 9. .e. However in order to avoid litigation service Tax agreed to be paid under “mining services”. It is well settled that the meaning ascribe by the authority issuing the notification. departmental circulars are entitled to respect.1 Issue : classification of services provide by Atwood to GSPC in terms of contract NO.5. Submissions by Atwood are as under.5.7 In the following cases.2 KeyDates/Milestones 3rd September 2005 : singing of contract December 2006 : Commencement of services in terms of the contract 9th Feb 2009 : registration obtained & service tax paid under category “SOTG” from 16.The above clarification shows that the intention of the legislature was to bring all the activities related to mining. oil or gas service‟ could have been earlier covered under “survey and exploration of mineral services”. 16th February 2009 : meeting with Commissioner and other senior officials of. under one head comprehensively i. 8. UP VsKajaria Ceramic Ltd 2005(191) ELT 20(sc) – para 28. Hence. 19th February 2009 : reply to latter of DC (preo) starting that appropriate classification is „SOTG”.Singh-2004(167)ELT257(sc)-paras 16 and 17. I this case.2008 till Jan 2009 along with interest. „ mining of mineral. Thus in view of Board‟s letters cited above it is clear that drilling wells for production/ exploitation of hydrocarbons (development drilling) was earlier classifiable under “ survey and exploration of mineral service” 9. hon‟ble supreme court has held that official statements of the meaning of statutes are of particular importance since every statute is originally promoted by government which is assumed ton know the legislative intent behind a legislation. oil or gas service‟.

5. 2006 to 31. (iii) Commissioner held services to be classified under “mining” and confirmed demand from 01.2009 towards tax and interest under “mining service” with effect from 16.tax and to determine service tax payable accordingly. Service provide by Atwood to GSPC Appropriately Classifiable as “supply of Tangible Goods for Use” in terms of the provisions of sub-clause (zzzj) of clause (105) of section 65 of the Finance Act. 29th April 2009 : SCN Issued(i) (ii) 28th May2009 Demand of services tax from Dec. 29 corer.5. He dropped penalty under section 78.6. (iv) (v) Commissioner held that the assessee had shown that there was reasonable cause for nonpayment of service tax. therefore approximately Rs. (vi) Commissioner rejected submission of assessee to consider the payment received from GSPC as being cus. However he imposed penalty under section 76 and section 77.2008 Total amount paid.2008 (ii) Commissioner dropped demand under “survey & exploration” for the period from dec. Commissioner confirmed payment of interest. 9.3.2007 under the category of “survey and Exploration Services” Demand of service tax from 1.2007 . 17 crore (approx) pursuant to letter dated 16.2007 onward.2.5.28th February 2009 : paid Rs. 1994 . that there was no mollified and further that the non-payment was on account of technical/ legal reasons.2007 onwards under “mining services” : (i) Commissioner rejected submissions made by Atwood for classification under SOTG with effect from under from 16.6. 2006 to 31.5.

of the tangible goods was transferred to GSPC. whether to cap the well . Atwood was paid a specific amount by GSPC in respect of the equipment supplied for the drilling operations. obligations and rights of the assessee were related to ensuring availability of the Oil rig for use by GSPC. In order to determine the nature of the services it is pertinent to examine the contract in tis entirely so as to understand its pith and substance. who alone could decide now to use the equipment for the duration of the contract. This is clear from Para 35 of the SCN (page 306 & 312 of paper book) and from order of Commissioner (page 173 of paper book) The use. Atwood was responsible for ensuring the availability of rig. but usage for actual drilling was entirely as per the requirements of GSPC. In the instant case there is no dispute that Atwood did not transfer possession or effective control in the equipment that was supplied to GSPC.2. Examination of the contract establishes that the duties. The performance was not measured in terms of drilling activity but by availability of the rig. The remuneration was not related to drilling activity but to the period for which the rig remained is use by GSPC The relevant provisions of thecontract between Atwood and GSPC in this regard are as follows – Atwood was engaged to provide an offshore oil rig. at page 245 of the paper book refers in this regard) The contract specifies that the total duration for which oil rig and associated equipment and personnel were to be made available to GSPC. (Schedule F of the Contract. However.CBCE has clarified vied JS (TRU)‟s DO letter dated 29. It is abundantly clear that the activity is squarely covered by section 65(105)(zzzzj) as read with the clarification issued by CBEC.2008 (excerpt at p 372 of paper book) that supply of tangible goods for use may involve transfer of possession and effective control of the goods. and not on the basis of the extent of drilling done.CBSE has further clarified that where tangible goods are supplied for use without transfer of possession and effective control. In such a case transaction attracts VAT. It was GSPC who determined where to drill. along with its compliment of crew and support staff. Atwood was paid on a per day basis. services tax would be applicable under section 65(105) (zzzj). how much to drill. The contract did not specify the number of wells to be dug or the extent of drilling.

6 Cum-Tax If at all any tax is payable by Atwood then the amount recovered by Atwood from GSPC has to be regarded as cum-tax and the service tax . 11. Commissioner should not have levied penalty under section 76 and 77 also. the classification of service provided by Atwood to GSPC is arguable. then this category of service tax would become in-operational as such transactions where transfer of use is accompanied by transfer of possession and effective control would attract VAT. Atwood was not concerned with the purpose or object of the drilling beyond assuring availability of rig/ associated equipment/ personnel. In such circumstance the extended period of limitation could not have been invoked.11. together comprising Part III of Contract. It is evident that at best.1. Commissioner has concluded in his order that the reasons for non-payment of service tax by Atwood were technical/ legal.4 Limitation Extended period of limitation is not applicable. Articles 6. as Section 80 begins with a non obstante clause that gives Section 80 overriding precedence over section 76. in its appeal.1. It is pertinent to mention that the Department. has not challenged the invocation of Section 80 by the Commissioner in his order. further make it clear that all aspects related to the drilling perse are controlled entirely by GSPC. 33.15. 7.2.4. 9.1. 9.5 Penalty Commissioner held that this was a fit case for invoking the provisions of Section 80. Accordingly. that Service Tax would be attracted only if the tangible goods are supplied for use along with transfer of possession and effective control. 9. as the department has sought to in the SCN. he dropped the proposal for levy of penalty under section 78. 40. 9. Article 16 to 27. 29. Commissioner held that this was a fit case for invoking the provisions of Section 80 of the Finance Act 1994/ Further. 10. 41. 10. and that this is a case of technical interpretation (Para 162 of o-in –o at page 182-183 refers). Commissioner has also concluded that the assessee had cooperated at all time with the department. If it is argued.or to abandon it. However. 8. 41. 77 and 78. there is no allegation in SCN to show any action on part of the assesses tc willfully suppress any fact with intent to evade tax.

geophysical or other prospecting. and is further clear from the speech of the FM while presenting the Budget for FY 200708 to Parliament and the DO letter issued by JS (TRU) at that time to senior departmental functionaries.9 Prayer The relief sought in the appeal may be allowed. Prospecting means to explore an area or inspect region or search a district for minerals. has contended that the service provided by them does not fall under „Mining of Mineral. clause (zzy) of section 65 (105).liability ought to be worked out accordingly. surface or sub-surface surveying or map making. 10. The SCN is based on an erroneous contention of the department that taxable service category of “Mining of Mineral. 9.1 M/s Atwood. Oil or Gas” was introduced by the Finance Act.8 Insertion of new category without change in existing one It is submitted that the taxable service category of “Mining of Mineral. therefore. no change was made to the then existing taxable service category of “Survey and Exploration of Mineral. and not to specific locations. 1994 The department has erred in resorting to dictionary/ common meanings of “Exploration” when “Survey and Exploration” has been assigned a specific meaning in 65(1C4a). A. Oil or Gas service‟ but falls under „Supply of Tangible Goods service‟. 9. The main reason being canvassed for such a view is . Oil or Gas” was carved out of existing taxable service category of “Survey and Exploration of Mineral. Oil and Gas Services” in terms of the provisions of sub clause (zzv) of section 65(105) of the Finance Act.e. 2007 with effect from 1st June 2007 by way of insertion of clauses (zzzy) to section 65 (105). The submissions made by the appellants were opposed by Ld. Section 65(1042) defines “Survey and Exploration of Minerals” to mean geological. Prospecting. It may be pointed out that at the time of insertion of this clause. 9. 10. refers to a general assessment regarding a possibility of locating mineral deposits. R. Oil and Gas Services” i. as under. Oil and Gas Services”.7 Service no within meaning of “Survey and Exploration of Mineral. This is clear from the fact that there was no amendment made in the meaning of “Survey and Exploration of Mineral service”. in their appeal. This is because till data GSPC has not reimbursed a single rupee towards Service Tax to Atwood.

3 As per Clause 1. Clause 7. specified by M/s GSPC. The clauses 21 to 23 of the contract provide that the appellant shall perform the work of coring.4 The appellant did not simply supply drilling Rigs to M/s GSPC. which reads as under:“Section 65 (105) (zzzzj) :.2009 stated that the object of the contract was to drill. 1994. equipment and appliances for use. As per Schedule H to the contract.4 provides that company is interested only in the results of contractor‟s performance. The appellant has relied upon the definition of „Supply of Tangible Goods service‟ as contained in Section 65(105) (zzzzj) of the Finance Act. by any other person in relation to supply of tangible goods including machinery. 10. Had they simply supplied the Drilling Rigs for use there was no need of supplying personnel. „work‟ shall mean all drilling operations.that there is no transfer of possession and effective control of the equipment and the same remained under their possession and control at all times. The appellant did not simply supply the drilling rigs to M/s GSPC but also engaged its own drilling crew to drill and complete the wells. that on an average 52 persons were required at board the vessel as per Schedule C. Thus. complete or abandon the well(s) and company shall pay for such performance of drilling. The object of the contract is given in clause 3 which says that the contractor shall drill. the said contract is not for supply of Drilling Rigs but for drilling of wells. Article 20 of the contract stipulates that the appellant shall drill the well and land casing of the size and at depths. completion or abandonment services. services and activities to be performed by contractor. The said Schedule H further provides that the contractor shall ensure that a document is posted in a doghouse showing „maximum back pressure to be held on casing‟ vs „various mud densities‟.2 The service tax on „supply of tangible goods service‟ is livable if the service provider supplies only Tangible Goods to its client but does not do any activity beyond supply of tangible goods. the appellant was required to provide inventory details of critical material (including mud material) and consumption of such critical material should be part of contractor‟s Daily Drilling Report.taxable service” means any service provided or to be provided : to any person. These clauses of the contract make it abundantly clear that the contract was not for supply of Drilling Rigs but was actually for drilling of the wells. that they provided required equipment and personnel . without transferring right of possession and effective control of such machinery. . equipment and appliances. complete or abandon the wells. The casing shall be set and cemented at the depths and tested. 10. 10. Operations Manager of the appellant in his statement dated 09. testing and formation cutting. The clause 26 stipulates that the appellant shall complete the well as a producer or cease the operation and plug or abandon the well.02. Clause 9 and Schedule C of the contract clearly provide that the appellant shall engage its own personnel for drilling of wells.14 of the contract. ShriNigeRichardsom.

Thus the contract is for composite services. same will amount to sale and hence no service tax can be levied because tax on sale is subject matter of State Government. The operating rates are highest while standby without crew rate and equipment breakdown rate are the lowest. It is thus evident that the appellant is charging fixed amount of US $ 1. it shall be classified under the sub-clause which occurs first among the sub-clauses which equality merit consideration. move rate and stack rate. complete or abandon the well(s) identified by the Company‟s drilling program (hereinafter referred to as the „well‟) in accordance with all the requirements specified in this contract and Company shall pay Contractor for such performance of drilling.7 “(a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description. formation cutting and maintain data because a person supplying the tangible goods for use is not required to do such activities. It is evident from the above definition that Service Tax under „Supply of Tangible Goods‟ service is livable if the service provider supplies tangible goods to its clients without transfer of possession and control of such goods. operating rate. The appellant actually provided service of drilling the wells by their own equipments and personnel and hence the service is classifiable under “Mining of mineral.5 It has been contended that they are charging fixed amounts in respect of equipments on per day basils and not based on usage of drills. completion or abandon. in so far as this criterion is applicable. Schedule F to the contract reveals that there are 6 different rates viz. oil or gas”.” The object of the contract entered into between M/s Atwood and GSPC is: “Contractor shall drill. standby without crew rate. (b) Composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a).undertake services of casing.per day for supply of drilling rigs and US $ 8. 1994 provides for classification of services as under:- 10. coring.(1.” .ent services in accordance with the financial provisions of this Contract. shall be classified as if they consisted of a service which gives them their essential character. 10. Therefore. equipment breakdown rate. testing. 05.000) per day for the crew and other related services as discussed ire Para 6 supra.13000 – 1. The condition “without transferring possession and effective control” is prescribed only because if goods are transferred.000/. said contract is not simply for supply of drilling rigs but also for service of „Mining of mineral. 10.6 Section 65A of finance Act. the contention that service tax is livable under said service only because appellant did not transfer the possession and control of drilling rigs to M/s GSPC does not appear to be correct. oil or gas‟. Therefore. (c) When a service cannot be classified in the manner specified in clause (a) or clause (b). 000/.05.

[2007 (212) ELT 452 (SC)] has held that Vim Dish wash 3ar. The essential character of the service provided by the appellant is „Mining of mineral. Hon‟ble Supreme Court in the case of CCE vs. 1985 for classification of excisable goods are almost the same as in Section 65A of the Finance Act. Therefore. the service provided by the appellant is classifiable as „Mining of mineral. Clause 26 further provides that the appellant shall complete the well as producer.9 In the case of N. 10. Rajashekar& Co. as per clause (b) of Section 65A of Finance Act. testing and formation cuttings. service provided by them has been correctly classified as „Mining of mineral. applying the ratio of aforesaid judgment. Thus. the appellant was to provide services as mentioned in schedule H. Therefore. 10. There are several case laws for classification of composite articles made of two or more constituents and it has been held that the composite articles shall be classified on the basis of essentiality test as per rule 3(b) Hon‟ble Supreme Court in the case of Kemrock Industries & Exports Ltd. 10. Vs CCE. BBSR-[2009(13) STR 138 (Tri-Kol)]. maintain. Similarly. 1994. oil or gases by applying essentiality test as per clause (b) of Section 65A of the Finance Act. wherein the appellant was involve in transporting limestone boulders from outside the mine site to yard. oil or gas‟ on the basis of essentiality test. coring.40 as abrasive powder because essential character of the product is scouring. The aforesaid judgments of Hon‟ble Supreme Court are applicable in the present case for classification of the service provided by the appellant. In the present case. the appellant is required to repair. the essential character of the services provided by the appellant is „Mining of minerals. The Tribunal took a view that Loading and unloading of boulders and jelly are only incidental to mining activity and the main purpose of the contract was that of breaking and crushing of limestone boulders into jelly. oil or „gas‟ and not „Supply of tangible goods‟. Naga Ltd. oil or gas‟ and not „Supply of tangible goods‟. Mysore-[2008(12) STR760 (TriBang)]. the service provided by the appellant is classifiable under „Mining of mineral. main purpose of contract is „Mining of mineral. As per Clause 19. deepen. the Hon‟ble Tribunal was examining whether activity of providing pay loader for . breaking/crushing of limestone boulders into jelly of size 10mm to 50 mm and then loading. oil or gas‟ and supply of Drilling Rig is only incidental to activity of „Mining of mineral. Moreover.10 In the case of GajanandAgarwalVs CCE. oil or gases and not „Supply of tangible goods‟. rework and perform remedial or other operations to the wells. 1994 for classification of taxable services. Vs CCE [2007(210) ELT 497 (SC)] held that fiber glass reinforced plastic (FRP) sheets are classifiable under Chapter 39 and not Chapter 70 because stiffness of such sheets gives them essential character. oil or gas‟. Therefore. the appellant is required to undertake the service of casing. a mixture of OSAA and abrasive powder is classifiable under heading 3405. 1994.As per clauses 20 to 23 of the contract. transporting of limestone jelly from crushing yard and unloading at BF yard. the Department: took a view that such transportation would fall under the category of „Cargo Handling Service‟.8 The Rules of interpretation of Central Excise Tariff Act.

The Hon‟ble Tribunal held that – “letting out of the pay loader was not the primary object of the contract but the pay loader was an aid to perform the service of loading of cargo with certain contractual obligation defined by the contract executed by them. Para 37 of the order is reproduced below:“Entry (zzzzj) is entirely a new entry ( zzzzy) covers services provided to any person in relation to mineral. services covered by entry (zzzzj) can be identified by the presence of two characteristics namely (a) supply of tangible goods including machinery. Thus. supply to rig or platform. there was an agreement between the appellants and Mahanadi Coalfields Ltd. we are of the view that the plea of the appellant that the contract was for hiring of tangible goods is baseless. For loading of coal through the pay loader into the Railway wagons at the respective side. the service provided by M/s Atwood would not fall under “Supply of tangible goods for use” service. coal into Railway wagons. such an activity is clearly covered by the category “cargo handling service”. fire fightingetc.e. Once the activity carried out is found to be loading of cargo.e. 65(105)(zr) of the Act is made. oil or gas‟. providing vessels on time charter basis to various oil and gas producers was held to be falling under section 65(105) (zzzzj) i.11 M/s Atwood has also placed reliance on the decision of the Bombay High Court in the case of Indian National Ship Owners Association Vs UOI [2009(14)STR 289 (Bom. oil or gas‟.their marine construction barges support offshore constraction.(b) there is no transfer of right of possession and effective control of such machinery. oil and gas‟. provide accommodation crane support and stoppage area on main deck or equipment. In this case also. they supply offshore support vessels t o carry out jobs like anchor handing. 2. Accordingly.)] wherein the services provided by the petitioner i. 10.e supply of tangible goods for use‟ and nit under section 65(105) (zzzzy) which pertains to „mining of mineral. towing of vessels. Their harbor tugs are deployed for piloting big vessels in and out of the harbor and for husbanding main fleet. They give vessels on time . but will fall under „Mining of Mineral. equipment and appliances for use. wherein the obligation of the appellants and Mahanadi Coalfields Ltd did not end with letting out of the pay loader. The appellants reliance on the format of agreement and work order giving a different nomenclature shall not help the appellant denying its liability stating that the activity carried out by Appellant was not „cargo handing service‟ when a combined reading of Section 65(23). diving support . oil or gas . The appellants were required to carry out the loading of the quantity required by the work order within the time frame and the rates were fixed for loading of the goods i.” The aforesaid judgment is applicable in the instant case because the equipments used by M/s Atwood were an aid to perform the service of „Mining of minerals. equipment and appliances. they would not be liable to Service tax under the cargo handing service. The appellants were to the pay loader and payment of Rs. According to the members of the 1st petitioner. The appellant pleaded that since they were letting out the pay loader for loading the coal.loading of coal to wagons would fall under “cargo handing service”.47 person was to be made by Mahanadi Coal Fields Ltd.

oil or gas and as per records not even remotely connected and included within expression found in Section 65(105) (zzzy) of finance Act. barges .Therefore.Theywere. provide accommodation.charter basic to oil and gas producers to carry out offshore exploration and production activities. M/s Atwood has challenged the oio on the ground of limitation as they had not committed fraud. It is not possible to invent a remote connection of the service renderd by the members of the 1st petitioner to mining activities and hold that they fall in the entry (zzzy)…” 10. suppression for invoking the extended period. collusion. They have further contended that the Commissioner has also . the facts in the case of Indian National Ship Owners Association are entirely different as the activities in that case were premining or post-mining operations unlike in the instant case where the activity is primarily mining. This has also been accepted by the Hon’ble High Court in Para 48 of the order. offshore support vessels. Entry (zzzy) was not inserted into the Finance Act by amending entery (zzzy).1994.” This judgment was also affirmed by the Supreme Court [2011(21)STR3(SC)] and the hon‟ble SC held that thr nature of the work in terms of contract with ONGC indicates that none of the work can be strictly said to be service in the relaction to mineral. Thus. fire lighting etc. However. willfullmis-statement. 10. The services rendered by the members of the 1st petitioner are covered by entery (zzzzj) because they inter alia supply vessels. those activities clerly fall in entry (zzzzj) and the services rendered by the members of the 1st petitioner have been specifically brought to the levy of service Tax only upon the insertion of this new entry. crane support and stoppage area on main deck or equipment. tugs etc. Entry (zzzzj) is not a carve out of entry (zzzy). in the case of M\s Atwood. All these activities are not related to mining. diving support.therefore.rightly not brought to tax till entry(zzzzj) was introduced to cover transport of tangible goods by sea without transferring right of possession and effective control therof. They have no direct relation to mining. It can be seen from the above judgment that the appellants were carrying out jobs like anchor handing. Thair harbor tugs are deployed for piloting big vessels in and out of the harbor and for husbanding main fleet. equipmentand appliances is not parted with. towing of vessels supply of rig or platform. the activities undertaken by then have direct nexus with mining as the activity which they are undertaking is drilling of wells for explorating of minerals.which is reproduced below“Applying the above conclusions to the instant case. The right ofpossession in and effective control of such machinery.12. their marine construction barges support offshore constructior. we hold that the services rendered by the members of the 1st petioner are either premining or post-mining activities. without transferring right of possession and effective control over them in contrast entry (zzzy) was introduced to comprehensively bring under the service tax net activities having a direct nexus to mining activities. Both entries are independed.13.

06.2009. Therfore.2007 i.05.2007.e. the contention of the appellant that they had bonafide belief that their service is chargeable to service tax under „supply of tangible goods service‟ is totally wrong.02. Thus. M/s Atwood had not approached the Department on their own will. oil or gas „ service was brought under the service tax net. they did not pay service tax by way of suppression of facts and willfullmisdeclaration with intent to evade service tax. 1994 with intent to evade service tax. This fact clearly shows that they had bonafide belief that their service is chargeable to service tax under „Mining of mineral . oil or gas‟ was brought under service tax net.2007 on their invoces clearly shows that the appellant was fully aware that he was required to pay service tax with effect from 01. there .2008 under the category of „Supply of tangible goods service‟. willfullmis-statement and contravention of provisions of Finance Act. the date on the which „Mining of minerals.Ltd for drilling the exploratory wells in the same exploration block. None of the contentions are correct due to following reasons:(i) M/s Atwood have started theiractivies way back in 2006 but had obtained registration under „Supply of Tangible Goods Service‟ only in 2009.05.2008 under „supply of tangible goods service „ and obtained registration under said service only sfterintiaction of inquiry by the department.oil or gas service‟ with effect from 01.f.06. M/s GSPC had engaged another contractor viz M/s Deep Drilling India Pvt.held they have showed their bonafide.05. (ii) M/s Atwood have contended that they were under the bona fide belief that their activities were taxable w. M/s Deep Drilling had obtained the necessary Service Tax registration and were discharging their Service Tax Liability. In view of this factual position. It is thus evident that in spite of bonafide belief that their service is classifiable under „Supply of tangible goods‟. they did not pay service tax on said service with effect from 16. Thus. In spite of such bonafide belief. the date on which service of „mining of minerals. but they had approached the Department only in February. It was only when the Department intiated an enquiry and called for the records that the appellant to avoid penal provisions sought to cooperate with the Department. The charging of service tax with effect from 01. 16. they did not pay service tax by way of suppression of facts.2009 after initiation of inquiry by the Department.2008 and obtained registration on 09. (iii) M/s Atwood in their invoices charged service tax with effect from 01. Therefore. This fact clearly shows that M/s Atwood had no intention of payment of service tax even with effect from 16.the extended period of limitation is invokable for demand of service tax. Further.e.2007. They have also showed their bonafide by approaching the Department to assess their duty liability.06. extended period of limitation has been correctly invoked for demand of service tax .06. (iv) Further.

Once a case is covered by situation mention in section 11AC ibid. Chandigarh Vs. (v) Another point canvassed by M/s.P)] and CCE. Chandigarh Vs Him Chemical and Fertilizers Ltd. Ruchira Papers Ltd. If the interpretation as canvassed by the appellants is taken . This contention is devoid of any merit. Commissioner‟s observations regarding bonafide of the appellant have to be interpreted in the light of provision of section 80 which allows waiver of penalty under section 78. there will not be any confirmation of demand invoking extended period and consequently on penalty under section 78.it will mean that section 80 can only be invoked in cases where there is no suppress on etc. The Himachal Pradesh High Court in the case of CCE. is not permitted to be taken.even in case where demand is confirmed by invoking extended period in the cases of suppression etc.{2010{256}ELT 363 (H. extended period is invokable as held by the Gujarat High Court in the case of Neminath Fabrics {2010{256} ELT 369 (GUJ)}. Therefore proviso of Section 11A(1)of the Act would get attracted to the fact and circumstance of the present case-show cause notice issued within five years from the data of knowledge of the Department is valid “. but. mere deposit prior to issuance of show cause notice under section 11 A ibid will not necessarily negate the situation mentioned in the said section”. Thus when the bonafide of M/s. Such an interpretation which makes certain provisions of statute redundant. 1944 not excluded merely on deposit of amount after having been caught but before the issuance of show cause notice.1994 would mean that extended period under section78 cannot be invoked. the following decisions hold that blind bellef‟ cannct be cited as excuse for bonafide belief:- . Benefit of section 80 is extended for waiving off penalties under sections 76. though having extended the benefit of section 80.Further .the Supreme Court in the case of M/s.was no doubt that the activity of drilling exploratory wells was liable for service tax during the relevant time.(2011-TIOL-17-SC-CX)held that ”though the respondent has pleaded that it was done out of ignorance but there appears to be an intention to evade excise duty and contravention of the provisions of the Act.if this is the case. That is way commissioner. [2010 (251) ELT 502 (H. (vi) M/s Atwood‟s other contention that extending he benefit of section 80 of the act. Atwood for establishing their bonafide is that they have paid the service tax and interest voluntarily before issue of SCN. (vii) Further. This will clearly render the provisions of Section 80of the finance act otiose. Atwood is in doubt. confirmed the demand under extended period.77and 78 if there are sufficient reasons for the same.P) has held that “applicability of Section 11 AC of Central Excise Act.Mehta and co.

(iv) We also require to decide whether extended period is invokable and whether penalty is leviable on M/s.Geological. cannot be classified under this service. testing . (ii) Whether the services provided by M/s. Vs CCE. completion of exploratory wells as specified by the Company i.e. Rajkot – 2000(118)ELT 182(Tri) (c) CCE. Atwood. Pune – 2005(191) ELT 1051(Tri. Atwood has claimed that they have not undertaken any Geological. Ltd Vs CCE. . Atwood can be classified under the category of “Survey and Exploration of Mineral . surface or sub-surface surveying or map making service in relation to location or exploration of deposits of Mineral.) (c) InterscapeVs CCE.Atwood that the services provided by them is to be classified as “‟Supply of Tangible Goods‟‟[SOTG for short ]and is liable to service tax only from 16 May 2008 or not. Mumbai-IV-2009(239)ELT 346(Tri.2006(196)ELT209(Tri. the services provided by them which is limted to drilling .(a) Winner System Vs CCE.) (b) Tanzeem Screen Arts VS CCE.) (viii) Similarly. Mumbai.it has been consistently held by various judicial for a that ignorance of law is no excuse in this regard. (iii) Whether the claim of M/s.oil and Gas Service‟‟ for the period from November 2006 to May 2007. GSPC.Nagori&Sons Vs CCE-1989(39)ELT303(Tri) (b) Sindhu Resettlement Corpn. 11. Geophysical other prospecting . the services provided by M/s. Atwood can be classified as „‟Mining of oil or Gas Service‟‟ from 01 june 2007 onwards and levied to service tax.1 Issue (i) – Revenue‟s appeal claiming classification of the services under „‟Survey and Exploration of Mineral .2 M/s. oil and Gas means. surface or sub –surface surveying or map Making service and therefor. 11. Survey and exploration of Mineral. the following decisions are cited:(a) R.) (d) Camlin Ltd. oil and Gas Service‟‟ According to definition.G.RohtakVsBindalCotex (P) Limited – 2004 (165)ELT 298 (TriDel) 11. The issuesto be decided are as under:(i) Whether as claimed by the revenue in their appeal. Geophysical or other prospecting . oil or Gas . Mumbai-I-2006(198)ELT 275(Tri.

While doing so. Further it was also submitted that the clarification issud by the Board in letter F.11. exploration and expiotion of mineral .09. it was observed that . With this. complete exploratory wells. the service provided is covered by the definition.2007 clarifying the scope of Mining of Mineral oil or Gas Service. as specified by the Company in the east coast off shore of Andhra Pradesh . presently geological .drilling Engineer of GSPC.6. test and complete exploratory well. Several decisions as well as references of the ministry were cited to submit that subsequent to introduction of mining service and SOTG service would not take the service provided by the M/s. who agreed that commercial production not yet started .6 above.Rathore . oil or gas are leviable to service tax under –„‟Survery and Exploration of Mineral Service‟‟. Oil and Gas Sevice‟‟prior to 01. testing and completion of exploratory wells . Atwood out of purview of the sevice of „‟Survey and Exploration of Mineral.3 Revenue has relied upon the preamble portion of contract between GSPC and M/s. in our opinion goes against the Revenue‟s contention . in relation to location or exploration of deposits of mineral. We are unable to accept the submissions made on behalf of Revenenue. The fact that drilling of wells for production/ exploitation Hydrocarbon (developmental drilling) is put along with site formation and clearance and excavation and earth moving .NO. Further. Subsequent clarification issued by the Ministry and reproduced in Para 8. oil and gas are comprehensively covered under appropriate taxable service. Further the letter also observed that activties such as seismic survey . Theletter goes on to observe that site format on . It was submitted that this was the intention of the Government and therefore this clarification has to be treated as contemporanea exposito and therefor . The letter goes on to say that service provided in relation to mining of mineral.2007. oil and gas are comprehensively covered under this proposed service. 12. geopysical or other prospecting. explained the service at the time of introduction in 2004 as „‟Service rendered in relation to survey and exploration only and not on the activity of actual extraction”. drilling wells for production /exploration of Hydrocarbon(developmental drilling )provided for mining are individually classified under approvided in relation to mining of mineral . which are not part of Survey and excavation of mineral service. test. keeping in view the preamble of the contract and the observation of the Ministry in the letter . Since m/s.B-II/8/2004-TRU dated10. Revenue has also relied upon the statement of Shri Vishai D. Revenue has also relied upon the deflnition of exploratory wells given in certain websites . however . Ministry has issued a letter on 28.2. oil or gas will he comprehensively brought under the service tax net. collection / process/ Interpretation of date and drilling and testing in relation ton survey and exploration would. surfaceor sub-surface surveying or map making service. service provided to relation to both . testing of exploratory wells is classifiable under this service . Atwood which start with the words-„‟Company desires to drill .2004 . would show that the contemporanceexposito and intention of . clearance and excavation and earth moving . fall within the ambit of taxable service . Atwood has been entrusted to drill.‟‟ This would show that the contract was for drilling . Atwood in providing the service of drilling. it becomes quite clear that the action of the M/s. India as set for hereinfter .

structural and seismic investigation must first be completed to redefine the potential hydrocarbon drill location from a lead to a prospect. Anticline. the hydrocarbons are lighter medium. 12. it is settled law that object and content of the contracts cannot be determined and decided by looking at one paragraph or one clause but the whole contract has been to be seen as a whole and considered.‟ These are the five elements which are required to be complied with to identify source of potential petroleum hydrocarbon drill location. 12. are contained in a reservoir rock. drilling is done to . this is what is covered by the definition of survey and exploration as far as oil/gas is concerned.When organic-rich rock such as cill shale or coal is subjected to high pressure and temperature over an extended period of time. there are five elements or a petroleum prospects: “A prospect is a potential trap which geologists believe may contain hydrocarbons. It is well known that in a geological survey. A source rock. The reservoir must also be Permeable so that the hydrocarbons will flow to surface during production. A significant amount of geological. The oil collects in the pores within the rock. which causes overpressure. In our opinion. Migration. Five geological factors have to be present for a prospect to work and if any of them fail neither oil nor gas will be present.g. 12. fault block) or stratigraphic trap.The hydrocarbons are buoyant and have to be trapped within a structural (e. This is a porous sandstone or limestone.The hydrocarbon trap has to be covered by an impermeable rock known as a seal or cap-rock in order to prevent hydrocarbons escaping to the surface Reservoir. Most hydrocarbons migrate to the surface as oil seeps.1 According to Wikipedia. and the fluids expand as further burial causes increased heating. and so migrate upwards due to buoyancy. Seal or cap rock.2 Further. hydrocarbons form. but some will get trapped.the „Government that can be derived from the letter in 2004. Trap. does not appear to be correct in our view.3 The next arises what is the drilling and testing by the letter issued by the ministry issued in 2004.The hydrocarbons are expelled from source rock by three density-related mechanisms: the newly-matured hydrocarbons are less dense than their precursors.The hydrocarbon.

the analysis made by is can be questioned and we are aware of limitations since we are not experts in the field not oil exploration. any service provided by any person to any person in relation to mining of mineral.1 Issue (ii): whether service provided is covered by the definition of mining of oil or gas service – According to definition. We have already seen the . the demanded for service tax treating the services provided as service of survey/ exploration of minerals cannot be sustained.3 First of all. oil or gas would be covered under this service. As per the definition. the taxable service means any service provided or to be provided to any person. In this case. offshore drilling refers to a mechanical process and it is typically carried out in order to explore for and subsequently produce hydrocarbons which lie in rock formation beneath the seabed. but the analysis made above with the help of Wikipedia. equipments and appliances for use and therefore a specific service has to be preferred to a general srivce and the tehrefore.2 According to M/s. as mentioned in Wikipedia.5. oil or gas service. letters issued by the ministry and definitions of service would show that it is possible to entertain an opinion that the activity of the M/s. the service provided by them cannot be classified under „mining of mineral. Atwood cannot be considered as a service covered by definition of service „ Exploration of mineral. even if our finding on classification aspect turns out to be incorrect extended period of limitation could not have been invoked.2008. 13.‟ 13. the wells drilled as per the GSPC‟s specification in the location identified after ensuring that the five element of prospect are existing in the activity subsequent to survey and cannot be said to be a part of the service which is preliminary to mining or drilling activity. suppression/ miss-declaration cannot be attributed and therefore. it is not necessary that the activity has to be „mining of mineral. when there was no service of „supply of tangible goods‟ in the statute books can be covered by the mining service. 13.4 No doubt.confirm the other theoretical calculations. Therefore.6. 13. extended period of limitation for demanding duty/ tax cannot be invoked. Therefore. intention to evade duty . the period is prior to 01.2007 and the show cause notice was issued in April 2009.4 The question that arises therefore is whether supply of drilling rigs prior to 16. 12.‟ It is also settled law that if two views are possible and if an assesses entertains a belief that he is not liable to pay duty or tax. drilling pr survey etc. oil or gases‟. when we see the definition. to be classified under this service. Atwood. their service is specially covered by of tangible goods including machinery. Therefore . by any other in relation to mining. oil and gas service. In the case of oil. oil or gas.

The question of mining oil or gas does not arise while drilling the wells by using rigs.in Para27. Prior to 16.9. Atwood and GSPC speaks of completion of a well or abandoning a well.5 of this order has considerable force. Raigad (supra) is appropriate .2008 (Para 3. the well is not abandoned but the same well is used for exploitation successfully.any excavation where any operation for the purpose of searching for or obtaining minerals has been or is being carried on includes(i) (ii) All boring .4) supports the stand taken by the revenue. gas or oil.7 As per the mines Act 1952. All shafts. This is why the contract between two parties namely M/s. In this regard we find reliance of the Revenue on the decision of the Tribunal in the case of Kopran Limited Vs. Further. The explanation provided for offshore well in Wikipedia as reproduce above would also support this view.2004.5. in or adjacent to and belonging to a mine of being sunk or not.preamble to the contract. Atwood was clearly covered by the Mining Service since the service provided them was in relation to Mining. No. including the pipe conveying mineral oil within the oil fields.2008. the letter dated 10. the service provided by M/s. 1994 reproduced para 8. it can be said that the service provided by M/s. we limited the scope to the five elements of exploration and did not consider the drilling of exploratory wells as part of that service.5 Further.6 Further we also find that the contention of the Revenue that classification of any service has to be determined by taking recourse to the provisions of section 65(A) of the finance Act. it was observed that meaning of the service covered under tax net may include the activities that were taxable earlier under different category of taxable service s. it has to be treated as part of mining service since any service in relation to mining would come in this category. 13. 13. This shows that the wells which are drilled are not only exploratory but can be used for mining if successful. This also supports the view canvassed before us.2. 1994 since the SOTG service most provides specific description that will have to be adopted. Here we agree that the letter issued by the finance ministry F. Otherwise there is no question of a abandoning some wells and during other wells and complete. . oil and gas service. drilling activity starts and if the well is found to be successful and if there is sufficient quantity of hydrocarbon. The fact that service tax was introduce on supply of Tangible Goods in 2008. Therefore. In the case of oil or gas. 334/1/2008-TRU dated 29. while considering the scope of survey and exploration of mineral. CCE. 13.does not means that this service was not covered by any other service earlier . after the survey and exploration. oil wells and accessory crude conditioning plants. However with the introduction of SOTG service. the word ‟mines‟ is defined as „mine‟ means . in our view the fact that SOTG service was introduced in 2008 does not mean that the same service was not covered by any service earlier. Atwood can be covered under the Mining Service as well as SOTG service and as per the section 65A of Finance Act. bore holes.

converter stations. Therefore. Any premises in or adjacent to and belonging of a mine or which any process ancillary to the getting. transformer sub-station. However. Any premises for the time being used for depositing sand or other material for use in mine or for depositing refuse from a mine or in which any operations in connection with such and refuse or other material is being carried on.5. 1994. Atwood. dressing or operation for a sale of minerals or of coke is being carried on. All workshop and store situated within the precincts of a mine and the same management and used primarily for the purpose connected with the mine or a number of mines under the same management. All opencast workings. service tax cannot be levied under mining service. UOI [2009 (14) STR 289 (BOM. gas or oil from the underneath the surface of the earth. All protective works being carried out in or adjacent to a mine.(iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) All level and incline planes in the course of being driven.2008. 105 (zzzy) of finance Act. railways. oil or gas. Atwood. tramways and siding in or adjacent to and belonging to a mine. an activities undertaken has direct nexus with mining as the activity undertaken is drilling of wells for exploration of minerals. the word „mining‟ must be understood as the process of talking minerals. rectifier stations and accumulator storage stations for supplying electricity solely or mainly for the purpose of working the mine or a number of mines under the same management. planes . the decision in the case of Indian national ship owners association does not help the M/s. machinery works.)] which is affirmed by the hon‟ble supreme court to submit That if the service provided is classifiable as SOTG service. it will be seen that the word “mine” has been very extensively defined to include infrastructure created for mining of minerals. hon‟ble supreme court in that case held the work in term of contract with ONGC indicates that none of the works strictly said to be service in relation to mining oil or gas and per records not even remotely connected within explanation found in section 65. In short. All power stations. being premises exclusively occupied by the owner of the mine. as observed by us in the case of M/s. All adits.8 M/s Atwood relied upon the decision of the hon‟ble high court of Bombay in the case of Indian national ship owners association vs.However. Thus. All conveyors or aerial ropeways provided for the bringing into or removal from a mine or minerals or the other articles or for the removal of refuse there form. prior to 16.” 13. . as contended by the Revenue. levels.

14 the next issue to be decided is whether the service provided by M/s.2008 that supply of tangible goods for use may involve transfer of possessions and effective control of the goods. (ix) The contract also provides that all aspects regarding location of the wells. (i) Persons operating the equipments at all time were the employees of M/s. According to contract. depth of drilling etc were required to be decided by GSPC and the role of M/s. Atwood can be classified as SOTG service with effect from 16. In the case. (viii) From Para 35 of the show case notice itself fact emerges that it is necessary to examine the contract in its entirety so as to understand the peculiar fact and circumstances. Atwood at all times. It was further clarified that where tangible goods are supplied for use without transfer of possession and effective control. (vii) CBEC has clarified vide JS (TRU)‟s Do letter dated 29.2008. (v) M/s Atwood also relied upon the decision of Hon‟ble High Court of Bombay in the case of Indian National Ship Owners Association. extent of drilling.2. (vi) They also relied upon the decision in the case of RashtriyaIspat Nigam Limited (Supra) to contend that there is no transfer of possession and effective control where the supplier‟s employees are operating the equipment. Atwood was to provide rigs only. wherein it was held that providing vessels on time charter basis to various Oil and Gas producers were held to be supply of Tangible Goods and not under „Mining of Mineral. In such a case the transaction attracts VAT and in such case. (iii) The contract is for supply of driling rigs and other equipments as is seen from the fact that contractor charges specific amount on per day basis and not based on usage and separate rates are provided even for standby. Stand by time etc.5. (ii) The equipments always remained in possession of m/s. M/s Atwood‟s role was limited to providing offshore annual rate along with completion of report and support supply for payment on specific amount based on the contract which was in turn based on use of rig. Atwood and all equipments operated by M/s. Atwood. service tax would be applicable. service tax would not be applicable. Oil and Gas. . we find that in terms of contract. (iv) Equipments were given by the contractor for use during the term specified in contract and not drilling predefined number of wells.

2008. Taking note of the fact that M/s Atwood started their operation from November 2006.2007.02. In any case. Gujarat State Petroleum Corporation Limited had engaged yet another contractor viz M/s. 16.20007. GSPC. I find that the said assesses has show its bonafide by rendering full cooperation to the department in the investigation and also making goods the liability immediately on being pointed out.payment of tax prior to 16.6. Deep Drilling (l)Pvt. However. It was submitted by the learned counsel for M/s. it is pertinent to mention here that M/s. it was submitted by the learned departmental representative that according to records for same period after -01. We find substantial force in all these submission. The fact that they have already paid the service tax along with interest much before the issuance of show cause notice and they have borne the incidence of tax on their shoulders. when the department started verification of the records.2008.06.06. Further. we also find that the clarification issued by the ministry at the time of introduction of this service are also applicable to the facts of this case. to hold that after 16. to avoid litigation they had paid the entire amount of service tax due with interest. M/s. Atwood that even though they believed that they had a case for non.15. learned counsel for M/s Atwood Stated that no Service tax was collected. Probably GSPC did not agree and hence they have not paid. Under these circumstances. sought a meeting with Commissioner which was held on 16. As regard limitation for the period subsequent to 01. the service provided by M/s. being state Government owned organization . Atwood had charged service tax but for reasons best known to them the same was not paid to the Government. we have. At this juncture. However. the appellant on their own came forward. given orally.5. Apparently the fact that they had changed would show that even Atwood had felt that they were liable to pay service tax on the ground that service provided by them was in relation to mining. The law in this regard was not very clear which is evident from the fact that the legislature had to issue new categories of services in the same circumferences.2009 and on the advice of Commissioner.2007. Limited for drilling of expreratory wells in the same Exploration Block and had obtained necessary service tax Registration Certificate and has been discharge their tax liabilities accordingly. they discharged the liability treating the services provided by hem mining Services from 01. allowing another person to use the rigs without giving legai right of possession are fulfilled in the case. The main contention of SOTG i. the approach adopted by them would show that they wee not interested in entering into litigation and believed in paying the taxes.05.e. sufficient evidence to show that the reasons for not paying the service tax by the assesses were the technique legal reasons rather than willful suppression with an intent to evade payment of service tax. Atwood has to be classified under SOTG service only. The observation of Commissioner in Para 162 are relevant and are reproduced below:“162.

In view of the above discussions. 1994 or M/s.where any service tax has not been levied or paid has been short levied or short paid erroneously refund. The recent decision of CESTAT. It is also clear from the provision of Section 78.the question that will remain is penalty under Section76 or 77. Vadodara-2009-TIOL672-CESTAT-AHM.1994. Atwood are set aside.As a regards penalty under Section 76.in which case no penalty would be impasble under Section 78. chargeable or erroneously refunded on the basis of his own ascertainment there of or on the basis of the tax ascertained by a Central Excise officer before service of notice on him under sub section (1)in respect of such service tax.should have been little more contious to ensure that their contractor particularly from foreign based companies are discharging required Service Tax and following other statutory procedure . officer of such payment in writing. Krunal catering Service vs.5. Chennai2006(3) STR 429 (LB). support the view that provisions of Sections 80 are required to be invoked for waiving penalty imposed under Section 78 of the Finance Act.03. CCE. it is a fit case to invoke the provision of Section 80.2007onward under Mining Service up to 16. we confirm demand for service tax with interest for the period 01. Thus. under SOTG service as applicable with interest. on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid. 1994. may pay the amount of such service tax.2009 in the case of M/s. or the person to whom such tax refund has erroneously been made.” From the above. in which it was held that where the assessee is under a bonfire doubt regarding their activity being covered by service tax. the assessee contested penalty imosed under Section 78 on the ground that they were under a genuine belief that they were not covered under the taxable service. wherein reply of the notice has been reproduced. CCE. Atwood.2008 and thereafter. 1994 . In Paras 97 and 130 of this order. Penalties imposed on M/s. 1. One such case is the decision of the Larger Bench of the Tribunal in the case of ETA Engineering Limited vs. In this case. Atwood get protection from section 73(3) of Finance Act. who.6. Once the penalty is waived under Section 78 of Finance Act. we find that besides our own observations finding of the commissioner with which we agree. and inform the central Excise.“sec.73(3 ) provides that. . as also the case law on technical interpretation of the statute hence. the person chargeable with the service tax.M/s.” We find that provisions of this section are applicable to the present case. relevant case law has been referred where it has been held that no penalty is impassable where duty is not paid due to the banafide belief of the assessee. I find that this is a fit case to invoke the provisions of Section 80. The Tribune held that where all the factors point to the banafide belief of the assessee. is also relevant. no penalty is imposable in term of Section 80 of the Finance Act. Ahmadabad delivered on 27. penalty under Section78 can not imposed. which is reproduced as under.

Cross objection also get and disposed of. (Pronounced in the court on 30.8.Appeals filed by the department are rejected.2012 ) .