Mud Engineering And Chemical Supplies Form Composite Supply Under GST: Andhra Pradesh High Court

The Andhra Pradesh High Court has held that the supply of mud engineering services along with drilling chemicals and additives constitutes a composite supply. The bench of Justice R. Raghunandan Rao and Justice T.C.D. Sekhar set aside the orders of the Authority for Advance Ruling (AAR) and the Appellate Authority for Advance Ruling (AAAR), which had earlier treated the supplies as separate taxable supplies. The petitioner/assessee, Halliburton Offshore Services Inc., a company registered outside India with offices in Mumbai and East Godavari, Andhra Pradesh, provides oilfield-related services including mud engineering services, fluid management, drilling waste management, and related operations. The company was awarded a contract by Oil India Limited in 2014 for providing mud engineering services in relation to drilling operations in the Krishna-Godavari (KG) Basin project. The scope of services under the contract included supply of drilling, completion, and wellbore clean-up chemicals, mud engineering services, provision of laboratory and testing equipment, supply of chemicals/additives and consumables and complete mud services for drilling high-temperature high-pressure wells. Due to ambiguity regarding the applicable GST rate and classification of the transaction, Halliburton approached the AAR seeking clarity on whether the combined supply of mud engineering services and chemicals constituted a “composite supply” under Section 2(30) of the GST Act. The AAR ruled that the supply of services and chemicals did not qualify as a composite supply. It held that the goods (chemicals/additives) and services were not supplied “in conjunction with each other” and therefore should be treated separately for GST purposes. The AAAR affirmed this view, observing that the contract did not involve a single consolidated price. Separate invoices were raised for goods and services. The supplies were not “naturally bundled.” There was no statutory guidance in the GST Act on what constitutes “naturally bundled” supplies. The AAAR relied on the 2012 CBEC Education Guide to interpret bundling principles and concluded that the supplies were independent and taxable separately. The High Court undertook a detailed examination of Section 2(30) of the GST Act, which defines “composite supply” as a supply consisting of two or more taxable supplies that are “naturally bundled and supplied in conjunction with each other in the ordinary course of business,” with one being the principal supply. The Court emphasized that the supplies were made to the same recipient (Oil India Limited). The supply of mud engineering services and drilling chemicals was intrinsically linked. The contract had to be read as a whole rather than in a fragmented manner. The Bench observed that oil well drilling is a highly technical and calibrated process requiring continuous monitoring and injection of specially designed drilling fluids. Mud engineers determine the composition and quantity of chemicals to be injected to ensure borehole stability and safe drilling operations. The Court noted that the chemicals were not “off-the-shelf” products but were customized compounds prepared specifically for the drilling site. Therefore, the supply of chemicals was inseparable from the mud engineering services. The Court clarified that the mere issuance of separate invoices does not determine the nature of supply. What matters is whether the supplies are essential and intertwined components of a single contractual objective. The court found that the supply of mud engineering services and drilling chemicals is naturally bundled. Both supplies are provided in conjunction with each other in the ordinary course of business. The transaction qualifies as a “composite supply” under Section 2(30) of the GST Act. The AAR and AAAR erred in treating the supplies as separate taxable supplies. The High Court allowed the writ petition and set aside the AAR order dated May 13, 2020; and the AAAR order dated November 9, 2020. The Court declined to determine the applicable GST rate for the composite supply, leaving it open for the petitioner to approach the appropriate authority for rate fixation. Case Details Case Title: Halliburton Offshore Services Inc. Versus UOI Case No.: Writ Petition No: 14517/2023 Date: 11/02/2026 Counsel For Petitioner: Kadimisetty Sai Sreenadh Counsel For Respondent: Santhi Chandra Click Here To Read Order

Mud Engineering And Chemical Supplies Form Composite Supply Under GST: Andhra Pradesh High Court

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