Service Tax Not Payable On Offshore Seismic Surveys Conducted Beyond Indian Waters: CESTAT

The Delhi Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that service tax is not payable on seismic survey services performed beyond 12 nautical miles from the Indian coastline. The bench of Dr. Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical Member) ruled that the tax liability, if any, rests with the Indian clients—Oil and Natural Gas Corporation (ONGC) and Reliance Industries Ltd. (RIL)—under the reverse charge mechanism. The bench set aside the Commissioner of Service Tax’s earlier order dated March 15, 2013, which had demanded over ₹346 crore in service tax, interest, and penalties from Western Geco. The appellant, Western Geco International Ltd., incorporated in the British Virgin Islands (BVI), had entered into contracts with ONGC and RIL to conduct offshore seismic surveys—a key step in oil and gas exploration. The surveys, executed using advanced “Q-Marine” technology, were carried out beyond India’s territorial waters (outside 12 nautical miles) and involved both offshore data acquisition and onshore data processing at the company’s Mumbai project office. While the company had paid service tax on 4% of the total contract value (attributed to data processing in Mumbai), it disputed the department’s demand for service tax on the remaining 96% of the contract value, arguing that offshore activities were conducted beyond Indian jurisdiction and thus outside the scope of the Finance Act, 1994. The Service Tax Department contended that the data acquisition and data processing constituted a single composite service performed for Indian clients. It argued that the taxable event occurred in India since the deliverables—processed geological data—were handed over to ONGC and RIL in Mumbai. The department maintained that the entire contract value should be taxed, and it raised demands totaling ₹346.15 crore for the period April 2005 to March 2012, invoking the extended limitation period for alleged suppression. The company contended that the seismic surveys were performed entirely outside Indian territorial jurisdiction and thus beyond the scope of the Finance Act, 1994. The Finance Act’s extension to the Exclusive Economic Zone (EEZ) through notifications of 2002, 2009, and 2010 did not cover its offshore survey vessels. Under Section 66A (reverse charge mechanism), since the services were provided by a foreign entity (Western Geco BVI), the tax liability lay with the Indian service recipients (ONGC and RIL), not the project office in Gurugram. The department lacked jurisdiction to issue show cause notices for activities conducted outside India. The extended period of limitation was inapplicable, as there was no intent to evade tax. The Tribunal meticulously examined the statutory framework, the contracts, and constitutional principles on taxation, holding that the seismic survey service, though partly performed in India (data processing), was substantially executed outside Indian territorial waters. CESTAT observed that “services performed outside India are clearly not exigible to service tax.” The tribunal found the contracts between Western Geco and ONGC/RIL to be single, indivisible agreements covering both offshore data acquisition and onshore processing for a consolidated fee. The 4% allocation for data processing was only an accounting convenience, not a separate contract. CESTAT ruled that the foreign company (Western Geco BVI) was the actual service provider, and hence, per Section 66A, the tax obligation lay on ONGC and RIL as recipients under the reverse charge mechanism. Western Geco’s Indian project office, having not provided the service or received consideration, could not be taxed. The tribunal clarified that contractual terms requiring Western Geco to charge and recover service tax from ONGC “cannot alter statutory tax liability,” which is determined solely by the Finance Act. Activities carried out beyond India’s 12-nautical-mile territorial limit fall outside the Service Tax net unless specifically extended by law. The tribunal reaffirmed the territorial limits of taxation authority. Consequently, the tribunal quashed the entire tax demand, interest, and penalties, allowing Western Geco’s appeal in full. Quoting Article 265 of the Constitution—“No tax shall be levied or collected except by authority of law”—the Bench emphasized that all elements of taxation, including the taxable event, person liable, rate, and valuation, must be clearly provided by statute. Since Western Geco’s services were rendered by a foreign entity and received by Indian clients, the tribunal concluded that the service tax could only be levied on ONGC and RIL, not Western Geco. Case Details Case Title: M/s Western Geco International Ltd. Versus The Commissioner Case No.: Service Tax Appeal No. 58089 Of 2013 Date: 12.11.2025 Counsel For Appellant: V. Lakshmikumaran, Shri Kunal Aggarwal and Ms. Shagun Arora Counsel For Respondent: Rajpal Sharma, Special Counsel Click Here To Read Order Read More: Plea Of ‘Confusion’ Regarding Taxability Can’t Justify Non-Payment Of Tax, Service Tax On Work Contract Upheld: CESTAT

Service Tax Not Payable On Offshore Seismic Surveys Conducted Beyond Indian Waters: CESTAT

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