Case Note & Summary
The appellant, M/s. Greatship (India) Ltd., entered into contracts with ONGC in February and May 2009 to provide offshore drilling services using hired cantilever jack-up rigs. The services were performed in the Continental Shelf and Exclusive Economic Zone of India. The appellant discharged service tax liability on services rendered to installations, structures, and vessels in these zones for the period from 7 July 2009 to 27 February 2010, but did not pay tax on services consumed by the sea bed of the Continental Shelf and Exclusiv e Economic Zone. ONGC, the recipient, had informed the appellant of the non-applicability of service tax on drilling work undertaken in open locations except for services provided to installations, structures, and vessels. In October 2010, the Commissioner of Service Tax issued a show cause notice demanding Rs.27,24,52,804 plus interest and penalties, contending that the appellant should have paid service tax on all services consumed in those maritime zones. The appellant replied, arguing that Notification No.1/2002-ST as amended on 7 July 2009 extended service tax only to installations, structures, and vessels, not to services consumed by the sea bed itself, and that it was only by Notification No.14/2010-ST dated 27 February 2010 that service tax was for the first time extended to such consumption. The adjudicating authority rejected this contention by order dated 19 June 2004 (sic) and confirmed the demand. The CESTAT dismissed the appellant's appeal on 29 September 2004 (sic). The appellant then filed the present appeal before the Bombay High Court, which admitted it on three substantial questions of law: (a) whether the transactions fell under Notification No.21/2009-ST; (b) whether the vessels were used entirely in India; and (c) whether activity under contracts prior to 7 July 2009 was taxable. Before the High Court, the appellant argued that plain reading of the 2009 amendment limited tax to services rendered to installations, structures, and vessels; that their services were consumed by the sea bed; and that liability arose only from 27 February 2010, from which date they had been paying tax. The Revenue countered that rigs were 'vessels' and thus covered by the 2009 amendment, and that the 2010 notification was merely clarificatory and had retrospective effect. The court reserved judgment on 18 April 2015 and pronounced it on 28 April 2015. The provided excerpt does not include the final decision or reasoning of the court beyond the framing of questions and arguments.
Headnote
A) Service Tax - Applicability to Continental Shelf/Exclusive Economic Zone - Notification No. 14/2010-ST dated 27.2.2010 - Finance Act, 1994, Sections 65(105)(zzzzj), 66; Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976, Sections 6(6)(a), 7(7)(a) - The appellant provided offshore drilling services using jack-up rigs hired on bareboat basis. Revenue demanded service tax on services consumed by the sea bed, contending that the Notification No. 1/2002-ST as amended on 7.7.2009 covered all vessels operating in designated areas. The appellant argued that the 2009 amendment only taxed services provided to installations, structures and vessels, not services consumed by the sea bed itself, and that Notification 14/2010 first extended tax to such consumption. The appeal was admitted on the question whether Notification 14/2010 is clarificatory or substantive (Paras 1-2) B) Service Tax - Scope of 'Vessel' in Notification No. 21/2009-ST - Finance Act, 1994 - Revenue contended that drilling rigs are vessels and therefore taxable under the 2009 amendment. The appellant did not dispute classification under 'Supply of Tangible Goods for use' but argued that territorial nexus to installations was required, which was absent for services consumed by the sea bed. The court was to examine the definition and scope of 'vessel' in the notification (Paras 3-4) C) Service Tax - Retrospective Application of Clarificatory Notifications - Finance Act, 1994 - The Revenue submitted that Notification 14/2010 is declaratory and therefore has retrospective effect, bringing earlier services within the tax net. The appellant argued it was prospective and created a new charge. The court was required to determine the character of the notification (Paras 4)
Issue of Consideration
Whether Notification No. 14/2010-ST dated 27.2.2010 is clarificatory/declaratory or whether it brings about a substantive change in law; Whether the transactions fall under Notification No. 21/2009-ST dated 7.7.2009; Whether the vessels in question were used entirely in India; Whether activity undertaken under contracts entered into prior to 7.7.2009 is taxable.
Final Decision
The High Court admitted the appeal on the three substantial questions of law. The judgment was reserved on 18th April 2015 and pronounced on 28th April 2015. The final decision is not included in the provided text excerpt.
Law Points
- Interpretation of service tax notifications
- territorial applicability of service tax
- clarificatory versus substantive notification
- levy on supply of tangible goods
- service tax on offshore drilling services
- meaning of 'vessel' in tax context
