Tribunal Rules in Favor of Western Geco International Ltd.; Service Tax Liability on ONGC and RIL

CESTAT Principal Bench New Delhi exonerates Western Geco Gurugram from service tax demands, placing the liability on service recipients under the reverse charge mechanism.

In a significant ruling, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Principal Bench in New Delhi has decided in favor of M/s Western Geco International Ltd., absolving its Gurugram project office from a hefty service tax demand of over Rs. 346 crore. The case, which revolved around the chargeability of service tax on services rendered partly outside and partly within India, has been a pivotal matter of interpretation under the Finance Act, 1994.

The dispute arose from contracts entered by Western Geco BV Islands, a company incorporated in the British Virgin Islands, with Oil and Natural Gas Corporation (ONGC) and Reliance Industries Ltd. (RIL) for seismic surveys beyond 12 nautical miles from the Indian landmass. The contention was whether services performed outside Indian territorial waters attracted service tax.

The tribunal, led by Dr. Ms. Rachna Gupta, Member (Judicial), and Shri P.V. Subba Rao, Member (Technical), determined that the service provider, Western Geco BV Islands, operated from outside India, implicating the reverse charge mechanism as per Section 66A of the Finance Act. This section stipulates that the service recipient, in this case, ONGC and RIL, is liable for the service tax when services are provided by an entity outside India.

The tribunal emphasized that the contracts were single comprehensive agreements, encompassing both data acquisition beyond territorial waters and data processing within India. Hence, the entire value of the service should be considered for tax purposes, but the tax burden rightly falls on the service recipients, not on Western Geco's Indian project offices.

The tribunal also highlighted that any contractual clauses suggesting Western Geco BV Islands would pay service tax, with ONGC and RIL reimbursing it, were irrelevant to the legal charge of tax. The judgment clarifies that tax liabilities arise from statutory provisions, not from contractual terms.

This ruling is expected to set a precedent in interpreting service tax liabilities involving cross-border services and the application of the reverse charge mechanism.

Bottom Line:

Service Tax - Chargeability of service tax under section 66A of the Finance Act, 1994 on services provided partly outside India and partly in India - Held, service provider located outside India; charge of service tax lies on the service recipient within India under reverse charge mechanism, not on the project office of the service provider located in India.

Statutory provision(s): Finance Act, 1994 Sections 66, 66A, 68; Taxation of Services (Provided from Outside India and Received in India) Rules, 2006; Rule 3.

M/s. Western Geco International Ltd. v. Commissioner, Service Tax Commissionerate, (CESTAT)(New Delhi)(Principal Bench) : Law Finder Doc Id # 2807657