The Delhi bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that short payment detected during audit does not indicate tax evasion, but points to the superintendent’s lapse.
The bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) has observed that the alleged short payment came to light only during audit and does not prove the intent to evade payment of service tax by the appellant, but it only proves that the Range Superintendent had not done his job properly.
The appellant/assessee, M/s. Halliburton Offshore Services Inc. has challenged the order passed by the Additional Director General, Directorate General of Central Excise Intelligence (Adjudication Cell), New Delhi by which the demand of service tax not paid on the compensation received by the appellant for “Lost-in-Hole” items during the period 01.10.2010 to 31.03.2016 proposed in the show cause notice has been confirmed with interest and penalty.
The issues that arise for consideration in this appeal are whether the compensation received by the appellant for equipments/tools lost in LIH while providing drilling service to the customers is required to be included in the value of taxable service for the purpose of payment of service tax and whether the extended period of limitation could have been invoked in the facts and circumstances of the case as portion of the demand confirmed falls in the extended period.
The appellant/assessee is engaged in providing various oil field services, including Directional Drilling, Measuring while Drilling and Logging to various companies by using its own equipments. Since the activities are carried out beneath the surface of the earth, the equipments used may get stuck or lost in the oil wells due to uncontrolled situation and it may not be possible for the appellant to retrieve them.
The equipments, which get stuck or lost and are not retrievable, are termed as LIH items. The appellant claims that it pays service tax on the value of service for the use of equipments/tools and personnel, but not on the LIH items as no service is provided by the appellant in such a case.
The appellant contended that the compensation received by the appellant from the customers for LIH equipments/tools is on account of an indemnity contract and not on account of any service and, therefore, this amount cannot be included in the value of taxable service.
The appellant contended that once the equipment/tools are declared as LIH equipment/tools, the appellant would not receive any charges for the same from the customer since such equipments/tools would not be assisting in the drilling. In fact, these equipments/tools are replaced and then the replaced equipments/tools are used for drilling purposes. The appellant did not receive any amount towards the services as what the appellant received was compensation, which is an amount in terms of the contract and not towards any service.
The tribunal held that both the SCNs further state that had the audit not conducted scrutiny of the records, the short paying the service tax would not have come to notice. It is a matter of fact that all the details were available in the records of the appellant. The appellant was required to furnish returns under section 70 with the Superintendent of Central Excise which it did. It is for the Superintendent to scrutinize the returns and ascertain if the service tax had been paid correctly or not.
The tribunal added that if the assessee either does not make the returns under section 70 or having made a return, fails to assess the tax in accordance with the provisions of Chapter or Rules made thereunder, the Superintendent of Central Excise can make the best judgment assessment under section 72. Superintendent may require the assessee to produce such accounts, documents or other evidence, as he may deem necessary.
Case Details
Case Title: M/s Halliburton Offshore Services Inc. Versus Additional Director General (Adjudication)
Case No.: Service Tax Appeal No. 50508 Of 2018
Date: 01.04.2025
Counsel For Appellant: Tarun Gulati, Senior Advocate
Counsel For Respondent: Rohit Issar and Shri S.K. Meena
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