The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has directed fresh adjudication of a service tax dispute holding that its claim of providing services beyond designated offshore areas required documentary support.
The bench of Ajay Sharma (Judicial Member) and Hemambika R. Priya (Technical Member) found that the company’s assertion that ONGC had discharged service tax under reverse charge needed verification against tax payment challans.
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The respondent assessee holds centralised service tax registration and provided several taxable services, including commercial training or coaching, technical inspection and certification, commissioning or installation, maintenance or repair, goods transport agency services and mining services.
The company filed its ST-3 returns for April–September 2008 and October 2008–March 2009 on August 13, 2009, followed by revised returns on November 11, 2009.
On scrutinising the returns, the department alleged short-payment or non-payment of service tax amounting to ₹5,82,28,796. It also noticed a payment of ₹1,67,77,259 reported as arrears, but said the company had not clarified the period or liability to which that payment related.
The department sought information through a letter dated August 18, 2010, and a reminder dated September 7, 2010. After receiving no response, it issued a show cause notice on November 4, 2010, proposing recovery of tax with interest, appropriation of the arrears payment and penalties under Sections 76 and 77 of the Finance Act, 1994.
Following adjudication, the Revenue challenged the relief granted to the company on disputed transactions involving ONGC, offshore drilling contractors and Reliance Industries Ltd.
The assessee contended that the show cause notice rested entirely on a reconciliation of figures disclosed in its returns. According to the company, the notice did not specifically question the nature, place, manner or taxability of individual transactions.
It argued that the department had introduced fresh allegations at the appellate stage concerning training conducted in India, services at offshore installations and activities performed for Reliance in Navi Mumbai.
The company maintained that the department could not improve its original case through grounds of appeal without first laying the necessary factual foundation in the show cause notice.
The Tribunal rejected this objection in the circumstances of the case. It noted that the company had failed to provide the information and documents sought by the jurisdictional office before issuance of the notice.
Taking that non-cooperation into account, the Bench declined to accept the challenge based on the absence of specific allegations and held the notice valid.
One issue concerned an “Orientation Program for Acreage Managers” conducted for 75 ONGC managers in three batches over seven weeks.
The Revenue submitted that the first six weeks involved classroom training in India, while the seventh week consisted of an overseas visit to observe practices in data acquisition and processing.
It argued that the adjudicating authority had accepted the company’s explanation concerning overseas training and payment of tax by ONGC without adequately examining the domestic portion of the programme.
The Tribunal found that the service tax liability relating to the initial six weeks required examination. It observed that the adjudication order had not discussed the nature of services provided during that period or the remuneration received for them.
The company’s counsel had submitted that tax of ₹24,65,870 was shown as payable but not paid by assessee because ONGC had discharged it. However, the Bench found that no evidence had been placed before it sufficient to accept the reverse charge payment claim.
It agreed with the Revenue that the adjudicating authority had failed to verify the authenticity of ONGC’s emails by cross-checking them against the relevant tax payment challans.
Another part of the dispute concerned services supplied to SEDCO, Triton and Transocean in connection with offshore drilling operations.
The assessee claimed that the services related to wells in non-designated offshore areas beyond 12 nautical miles and were outside the applicable service tax coverage during the relevant period.
The Revenue disputed this position. It argued that the services were connected with ONGC installations in designated areas of the continental shelf or exclusive economic zone and relied on Notification No. 01/2002-ST dated March 1, 2002.
The Tribunal found that no evidence had been produced before establishing that the services were rendered beyond the designated areas. It also noted the absence of discussion in the adjudication order on the relevant service agreements with the drilling contractors.
The Bench therefore required the offshore location claim to be examined afresh with supporting documents.
The department separately questioned the treatment of services provided under assessee’s contract with Reliance Industries.
According to the department, the contract required the company to operate an Integrated Drilling Optimisation Centre, functioning as a Real Time Operation Centre, at Navi Mumbai. The activities included monitoring, tracking, planning, designing, documentation, management, training and development associated with exploration operations.
The department argued that these activities were performed in India even though they concerned offshore wells.
The Tribunal also noted the department’s reliance on an invoice dated April 13, 2008, under which assessee had charged and collected service tax. This required examination alongside the company’s claim that the services were outside the tax net because the wells were beyond territorial waters.
The Tribunal concluded that all the disputed issues required reconsideration by the adjudicating authority.
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