Case Title | Halliburton Offshore Services INC |
Court | Andhra Pradesh AAAR |
Honorable Judges | Member Peeyush Kumar & Member Naresh Penumaka |
Citation | 2020 (11) GSTPanacea 15 HC Andhra Pradesh ORDER/AAAR/AP/08(GST)/2020 |
Judgement Date | 28-November-2020 |
Council for Petitioner | Prasad Paranjepe |
Council for Respondent | NA |
Section | Section 2(30), 7 |
In Favour of | In Favour of Revenue |
The Andhra Pradesh Bench of Member Peeyush Kumar & Member Naresh Penumaka has held that reimbursement towards LIH equipment does not find mention under the scope of work at Annexure II to the General Conditions of the Contract, but is a separate clause under the Special Conditions of the Contract contemplating a potential event that may or may not occur during the tenure of the Contract. Thus, the said supplies are not made in conjunction with each other, which implies that they are not meant to be made together or in combination in the normal course of business as a single package of composite supplies.
FACTS OF THE CASE
Halliburton Offshore Services Inc. (LIH) is a global service provider, engaged in providing various oilfield services to Exploration and Production companies across the globe. The appellant has contracted for supply of bundled oilfield services to support the various oil and gas related operations in KG Offshore, East Coast of Indian Offshore waters
During the normal course of its business, the appellant was awarded a Contract bearing letter of award no. 9010024545 dated 5-10-2016 by Oil and Natural Gas Corporation Limited (hereinafter referred to as “ONGC”).
While executing the aforesaid contract and providing the aforesaid bundled services, at certain instances the equipment and tools used by the appellant stuck lost/damaged due to uncontrollable or unforeseen down hole environmental situations in the oil and gas well and might not be retrievable (the equipment/tools lost in hole or damaged beyond repair are herein after referred to as “LIH equipment”).
In such cases, the appellant receives reimbursement from ONGC towards such LIH equipment in terms of clause 31 of the Contract (the reimbursement received towards the LIH equipment is referred to as “LIH reimbursement”). Clause 31 of the Contract entered by the appellant with ONGC is reproduced here under:
The appellant in terms of section 97 of the CGST Act, made an application before the Authority for Advance Ruling, Andhra Pradesh seeking advance ruling on the following questions
a.Whether reimbursement received towards LIH equipment can be considered as a “supply” as per section 7 of the CGST Act and hence liable to GST?
- If reimbursement received towards LIH equipment can be considered as supply and liable to GST, what would be the classification and the rate of GST applicable on such supply? Whether the same would be treated as “agreeing to tolerate an act” as per clause 5(e) of schedule II of the CGST Act, 2017 and subject to GST at the rate of 18% or the same would be treated as a composite supply of works contract’ service (as a part of main service under the Contract) and thus, GST can be charged at the rate of 12% equivalent to the GST rate applicable for supply of composite ‘works contract’ services?
The Authority for Advance Ruling Andhra Pradesh in ruling orders in AAR No.16/AP/GST/2020 dated 13-5-2020 held
- Reimbursement received towards LIH equipment is considered as a supply as per section 7 of the CGST Act, 2017 and is liable to GST.
- The reimbursement received towards LIH equipment is classifiable as ‘Supply of Goods’ in terms of section 7 of the CGST Act, 2017. Depending upon the nature of actual goods involved in the subject activity, their classification is as per HSN notified for the goods and the Classification Rules made in this regard. Accordingly, the provisions relating to chargeability and levy of GST under the CGST Act and the Rules made there under as applicable to the supply of goods will apply
Being aggrieved by the impugned Order, the appellant has filed the present appeal, inter alia, on the following grounds which are urged without prejudice to each other.
The reimbursement of LIH, damaged beyond repair goods/equipment is not a transaction of “supply of goods”.
Reimbursement of LIH Equipment is a Composite Supply
LIH reimbursement is naturally bundled with the supply of goods and bundled services provided under the contract
COURT HELD
Considering the facts as recorded, held that reimbursement towards LIH equipment does not find mention under the scope of work at Annexure II to the General Conditions of the Contract, but is a separate clause under the Special Conditions of the Contract contemplating a potential event that may or may not occur during the tenure of the Contract.
Thus, the said supplies are not made in conjunction with each other, which implies that they are not meant to be made together or in combination in the normal course of business as a single package of composite supplies.
Therefore, the rate of GST applicable to supply of drilling services shall not be applicable to all the supplies made under the contract with ONGC.
Basing on the nature of actual goods involved in the subject activity, and their HSN classification notified for the goods, the provisions relating to chargeability and levy of GST under the CGST Act and the Rules made there under are applicable to the supply of goods.
The Ruling of Authority for Advance Ruling, A.P. vide Ruling NO.16/AP/GST/2020 dated: 13-5-2020, is upheld.
ANALYSIS OF THE JUDGEMENT
The transaction of reimbursement towards lost in hole/damage beyond repair of equipment is a distinct event or rather an occurrence that may or may not happen in the regular course of business.
LIH event is thus entirely contingent and outside the normal stream of supplies under the agreement. As per terms and conditions of the agreement signed between the appellant and ONGC, the appellant raises a separate invoice on ONGC for reimbursement of amount towards LIH equipment as per the calculation provided in the contract.
Even in terms of the clauses under the Contract, reimbursement towards LIH equipment does not find mention under the scope of work at Annexure II to the General Conditions of the Contract, but is a separate clause under the Special Conditions of the Contract contemplating a potential event that may or may not occur during the tenure of the Contract.
Thus, the said supplies are not made in conjunction with each other, which implies that they are not meant to be made together or in combination in the normal course of business as a single package of composite supplies.
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