CESTAT Delhi Remands Schlumberger's ₹5.82 Crore Tax Dispute Over ONGC Training And Offshore Services

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, on 21 October set aside an order dropping service tax demands against Schlumberger Asia Services Ltd. and remanded the matter for fresh adjudication. It held that the taxability of training services provided to the Oil and Natural Gas Corporation (ONGC) and services connected with offshore oil and gas exploration required further examination.

A Bench comprising Judicial Member Ajay Sharma and Technical Member Hemambika R. Priya allowed the Revenue's appeal after finding that the adjudicating authority had not adequately examined whether ONGC had paid service tax under the reverse charge mechanism for training services or whether Schlumberger's offshore services fell within designated areas attracting service tax. It held:

“Hence, the service tax liability for the initial six weeks would have to be examined. Further, we find that the impugned order has failed to discuss the nature of services, the Respondent had rendered in the first six weeks and what was the remuneration received in lieu of the services provided. As regards the submissions that M/s ONGC had paid the required tax on RCM, no evidence has been led before us to accept the submissions.”

The dispute arose from scrutiny of Schlumberger's service tax returns for April 2008 to March 2009. The Department alleged short payment or non-payment of service tax amounting to Rs. 5.82 crore. The adjudicating authority confirmed part of the demand, including Rs. 19.53 lakh for Technical Testing and Analysis Services, but dropped the remaining demands. The Revenue challenged the order before the Tribunal.

The Revenue argued that the adjudicating authority had failed to examine a seven-week training programme Schlumberger conducted for the ONGC's Acreage Managers. The programme comprised six weeks of classroom training in India and a seventh week involving an overseas visit.

It contended that the consideration covered the entire programme and that the authority had not verified whether ONGC had paid service tax under the reverse charge mechanism for the training conducted in India.

The Tribunal found that the adjudicating authority had not determined the nature of the services rendered during the first six weeks or the remuneration attributable to them. It also noted that the authority had not verified the emails relied upon to claim payment under the reverse charge mechanism against the relevant payment challans.

The Revenue had also challenged the dropping of demands for services Schlumberger provided to SEDCO, Triton and Transocean in connection with offshore oil and gas exploration. It argued that Schlumberger performed these services at ONGC installations in designated areas of India's continental shelf and Exclusive Economic Zone, making them liable to service tax.

It also relied on Schlumberger's contract with Reliance Industries Limited to operate an Integrated Drilling Optimisation Centre in Navi Mumbai and invoices on which the company had charged service tax.

The Bench found that the adjudicating authority had not adequately examined the relevant service agreements or determined whether the services were performed in designated areas. Schlumberger had also failed to produce sufficient evidence before the Tribunal to establish that it rendered the services beyond those areas. On this issue, it observed:

“Other than the assertion that the services were provided beyond the designated area, no other evidence has been placed before us to substantiate this claim. Hence, we are of the view that it would be appropriate to give an opportunity to the respondent to submit all the relevant documents before the adjudicating authority in this regard to substantiate their claim that services were provided in areas which were beyond the designated area.”

Schlumberger argued that the Revenue's appeal should fail because the show-cause notice relied on reconciliation of figures in the service tax returns without specifically addressing the nature or location of the disputed services. The Tribunal rejected this contention, noting that Schlumberger had failed to provide documents sought by the Department during the original proceedings, and upheld the validity of the notice.

Accordingly, the CESTAT set aside the order and remanded the matter for fresh adjudication.

Counsel for Appellant: N.K. Singh, Authorised Representative

Counsel for Respondent: B.L. Narasimhan and Kunal Aggarwal, Advocates