Dismissed

AAAR/AP/06(GST)/2020 of M/s Halliburton Offshore Services Inc. (Oil India)

GST AAAR9 Nov 2020AAAR/AP/06(GST)/2020

Case brief

AI extract

What is this about?

Appellant challenged an AAR ruling denying composite supply status for oilfield services and imported chemicals. The appellate authority upheld the AAR, finding supplies were not naturally bundled or supplied in conjunction due to separate invoicing and independent procurement options, making them taxable separately.

What did the court decide?

The ruling of the Authority for Advance Ruling issued vide AAR No. 15/API/AST/2020 dated 13.05.2020 was upheld.

AAAR/AP/06(GST)/2020 of M/s Halliburton Offshore Services… — GST and Indirect Tax | GST AAAR (2020)

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t{i"r*.i tx'{Id

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BEFORE THE APPELLATE AUTHORITY FOR ADVANCE^RULING for the State of Andhra Pradesh^(Goods and Service^Tax)

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(Office at O/o Chief Commissioner of State Tax, Govt. of A.P., D NO 5-56, Block-8, R.K.Spring Valley Apartment, Bunder Road, Edupugallu,^Vijayawada,

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Andhra Pradesh - 521151-)

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Present:

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Sri PEEYUSH KUMAR^{(Member) (State Tax)}

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Sri NARESH PENUMAKA^{(Member) (Central Tax)}

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The 9th day of November,2O2O

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order /AAAR/AP/ 06(GST) /2020

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	Nameand appellant	M/s. HalliburtonOffshore Services Inc (Oil India), PlotNo,5A3,Unit-2,ADB Vakalpudi,East Godavari 53 9+A@hre?redeeh,
2		,-3_9,,___ 37AAACH5154MlZC ^---
3	oateoititingornormcSr	-01.oe.2020
	DateofPersonalHearing	20.r0.2020
	Authorized	9'i^{Pteg4PqfQqpS.A,{ugsqlg}
	lurisdictionalAuthority Centre	Superintendent,RamanayyapetaRange, KakinadaCGSTDivision.

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(Under Section 1O1 Pf the Central Goods and Service Tax Act and the Andhra Pradesh Goods Service Tax Act). ]nd

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At the outset, we vtould like to make it clear that the^{provisions of both the} CGST Act and the APGST fct are the same except for certain^provisions. Therefore, unless a mention is specifi4ally made to such dissimilar^{provisions,a referenceto the} CGST Act would also mean a reference to the same^provisions under^{the APGST Act.}

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The present appeal has been filed under Section 100 of the Central^{Goods and} Services Tax Act, 2Ol7 and the Andhra Pradesh^{Goodsand ServicesTax Act, 20L7} [hereinafter^{referred to a]s "the CGST Act and APGST Act"l by M/s. Halliburton} Offshore Services Inc.^(Oil India)^(herein after^{referred to as the "Appellant") against} the Advance Ruling No. AAR No.15/AP|GSTl2O20 dated^{13.05.2020 issuedby} Authority for Advance nuliriO, Andhra^Pradesh.

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1. Background of the Case:

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Halliburton Offshor$ Services Inc. is a^{global service provider, engaged in} providing various oilfield services to Exploration and Production^companies across the globe. fresentlV,^{the applicant has contractedto provideMud} Engineering and DrfllinS Waste Management^{servicesfor drilling three HPHT} Exploratory Wells in KG Basin, Andhra^Pradesh.

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In the cou rse of s!onrvins such services the applicant arso suppries various

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il: ; : :'l :il : :;11 ;:: :: I H: ::J J: :: "T L : ; : H* :;] :

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1. In 2014, fl "^#::",,, o rL / Kc B /. :i i:?,Hj,; il:i; i;:,1::: r :,r il ';,:, "::"i. " l, ^,^{I ., ;}

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India Limited (hereifrafter referred to as *oIL INDIA,,) having its registered office at Duriajan, [$rr. The contract was awarded for providing mud engineering and othfr services as stated in the contract for their .'KrishnaGodavari(KG) aasirfr project" in the state of Andhra pradesh.

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4' Under the above colptract, the applicant has been contracted to provide mud engineering and drilling waste management services for the three (3) High Pressure High Tem{erature (HPHT) exploratory wells situated within 12 Nautical Miles (NM) ut *,e KG Basin so as to enabre smooth extraction of oil.

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5' The appellant approached the Advance Ruling Authority, Andhra pradesh for Ruling on the followin[ queries: a) whether the iupply of mud engineering services along with supply of

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imported mud chemi[ars and additives provided on consumption basis by the applicant under the lontract quarify as composite suppry. b) If answer to PJra (a) is yes, then whether the supplies made under the

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contract merits .rur]iri.ution unaer Entry 99g6 (ii) - service of exploration, mining or drilling of petroleum crude or naturar gas or both and subject to GST at the rate of tZfnltgo/o as the case may be. c) If the answer to para (a) is no, then whether such suppry of mud chemicals and additives on consumption basis at oIL India,s location in India provided under the c[ntract qualif y for concessional GST rate of 5olo against an Essentiality certificate ('EC') under Notification No. 50/2or7-customs dated 30th June 20L7.

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The Author ity for fdvance Ruring, Andhra pradesh in ruring orders in AARNo. 15/AplGSV2q2O dated 13.0s.2020 hetd :

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' The supply or mu]o engineering services along with supply of imported mud chemicals aho additives provided on consumption basis by the appellant under tnf contract does not quarify for composite supply.

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' The concessionat $sr rate of 5olo against an Essentiality certificate (,EC,) under referred cr]toms Notification No. 50/2017-Customs dated 30th June 2ot7 is availabre t! supply of such goods at the time of their importation

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subject to fulfilm!nt of description, tariff item, lists and conditions specified therein tno suo;ect to the satisfaction of the proper officer in order.

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7 ' Being aggrieved uv tnp Impugned order, the appellant has filed the present appeal, inter alia, on tfie following grounds which are urged without prejudice to each other.

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2. Grounds of^APPeal:

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A. At the outset^{it is submiiteA tnat tfre} impugned ruling^{issued by the Ld' Authority} in law and ls^{liable to be set aside, to the} is ex-facie untenable^{and ufsustainable} extent adverse^{to the aPPellant.}

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The services^{provlded to oil under the aforesaidcontract qualifies as "composite} supply,,, with supply^{of mud engineering services being the principal supply'} B. Section⁷ of^{the CGST n{t, Oefines the term "Supply"very broadly which includes} all forms of^{supply of gofas or services or both such as sale, transfer,barter,} exchange,^{license,rental,lease or disposal made or agreed to be made for a} consideration by^{a personlri tne course or furtheranceof business'}

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c. Admittedly, as^{submiftefin the facts above,the abovecontract entered into with} oIL inter-alia entails^{both providing of mud engineeringand drilling servicesand} supply of mud^{chemicalsanp additives requiredfor providing the aforesaidservices.} D. In terms of section^{2(3p) of the CGST Act, "compositesupply" means a supply} made by a taxable^{person tp a reciRient consistingof two or moretaxable supplies of} goods or services or both, or any^{combination thereof,whichare naturally bundled} and supplied in conjunctiol^{witfr eachother in the ordinary course of business,one} of which ls a PrinciPal^suPPlY;

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Illustration - Where^{goodsare packed and transportedwith insurance, the supply of} goods, packing materials, and insurance is a composite^{supply and supply} iransRort of goods is a principal suPPfY;

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E. Upon the^perusal of tht above^{definition,it appears that the key conditions of} supplies to^qualify as^"comfosite supplies"^{are as follows:}

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i) Supplies should bf made by a taxable^{person to a recipienti.e. there is l-} common supplier anfr f recipient^{for both the supplies;}

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ii) The two omorJ taxable supplies are^{naturally bundled and suppliedin} conjunction with eacfr other in the ordinary^{course of business.}

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F. In the present case, w! understand^{that both, the mud engineering service and} the mud chemicals and ad{itives used^{in providingsuch servicesare suppliedby the} appellant to OIL under ln. aforesaid^{Contract.Both the suppliesare taxable} supplies. IT further needf to be evaluated^{whether the services are "naturally} bundled" and^"supplied in with one another". tonjunction Whether the mud engineering services^provided to^{the appellant are naturally} bundled with the supply of^{goods used in the provisionof the said services.}

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G. The term^"naturally bu{ndled"^{is not defined under the CGSTAct or the Rules} framed there under. Referrence^{in this regardis made to CBE&C Flyer No. 4 dated} 01.01.2018 which in turn refers^{to the Service Tax Education Guide dated 20.6.20t2} issued by the CBIC under the^{erstwhileFinanceAct, 1994.}

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H. Upon the^perusal of tl]re^{above, following criteria can be used for determining} whether the supplies are^{n[turallVbundledor not:}

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i) Expectation of^a tf nical^customer

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ii) Industry^practice

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iii) whether the supplies are incidental or inter-dependent to each other. Expectation of the Customer

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r' In the present case' the expectation of a typical customer is to receive both the mud chemicals/additives and the mud engineering and drilling services. The price of both' the aforesaid services and the goods used is composite as agreed in the contract.

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Industry Practice

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J' The above approach is the standard process followed by the other players operating in the same industry who also follow a simirar business model wherein the contractor supplies the goods and consumables which are used at the time of providing the services.

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K' Both the supplies viz] (i) the mud engineering services and (ii) the mud chemicals/ additivet .u:o ttn"t consumables used for providing mud engineering services are essential for fxecutins the scope of services agreed with oIL in the aforesaid contract' Hence, foth the supplies are incidental and inter- dependent with each other.

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L. The Ld. Authority has o served that a comprehensive reading of scope of work (as provided in the contr including the aspects thereof) gives an understanding that the contract is not rely for supply of additives/ chemicals/ consumables or not merely for providing of rvices. In the perspective of the customer or recipient i.e., OIL, the contract is single package comprising of 'supply of services and supply of goods.'

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M. The Ld. Authority has o rved that scope of work to be provide by the Appeilant under the contract is a ination of supply of service and supply of goods which are naturally bundled and t principal supply of service (mud engineering or drilling waste management serv )^{and supply} of goods viz. mud chemicars and additives for incidentals or ancillary s pply to the main supply. N. Accordingly, it is not in pute that the aforesaid suppries made by the appeilant under the contract are^,. rally bundled" in the ordinary course of business, and the supply of mud engine ring or drilling management services is the principar supply. Thus, the supplies ade by the appellant being naturally bundled, is an accepted and unchallenged osition in the impugned order. The appellant does not have any grievance on this of the finding in the impugned order. O. Whether mud engineeri services and mud chemicals and additives are supplied in conjunction with each oth It is submitted that the t "conjunction" or the phrase "in conjunction with" is not defined under the CGST GST Act and the allied Rules. Therefore, reference is made to the definition o the term "conjunction" as defined under various dictionaries. Oxford English Dictionary ( lioe_Verslqn) The action or an instance o two or more events or things occurring at the sortie point in time or space.

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Merriam Webster^Dictiona (online version) The state of being^conjoi (conjoined -being, coming,^{or brought togetherso as to} meet, touch, overlaP,^{or un} :e). Occurrence together^{in tim} or space Chambers DictionarY^(onlin ,v_e-rslql-1) A^joining together;^combin ,ion The coinciding of two^or cvents Cambridge DictionarY^(onli e version) The situation in which^even s or conditions comblne^{or happen together} P. It was specificallY conte ded in the application^{made beforethe Ld' Authoritythat} as per the above definltion ,^{suppliesin conjunctionwith each other would imply the} r or in combination. In the^{present case, the mud} supplies that are made t chemicals and additives^a required to perform the mud^{engineering services under} the contract by the aPPe ant and such mud chemicals^{and additives cannotbe} procured independently.

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Q.^{It was further submi} d before the Ld, Authority that the^{mud chemicals and} additives are not suppliedⁱ ependent of mud engineering services^{performed in the} offshore location and ,^{the mud chemicals and additives are suppliedin} conjunction with the suppl of mud engineering services. R. The Ld. Authority has eferred to the following clauses of the contract^entered into with OIL:

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i) Clause 11.4 - S tlon II of the Contract: The appellant will remove^and replace any person in the Contract if deemed not suitable or^experienced enough to carry ou the work in a reasonable time without effecting OIL's WN operation at their expenses provided OIL requests for the sameⁱⁿ writing. ii) Clause 13.1 on II of the Contract: The Appellant shall ensure sufficient quantity o materials and chemicals are available at the rig site and at the base, and appellant is also under obligation for^providing of actual delivery verification. iii) Clause 16.2 - S tion II of the Contract refers to supply of mud chemicals and additives -whi includes submission of specification of all the offered chemicals, supply of complete line of mud chemicals and additives, maintenance of ade te stocks of these items, furnishing of test reports to OIL, payment on al consumption basis etc. iv) Clause 16.2.5 - ection II of the Contract - The recipient i.e. OIL reserves the right to termina the contract if the chemicals and additives are found to be of substandard^q ality and the contractor is unable to replace those within a reasonable time w thout affecting operations. S. It is submitted that by lying upon the aforesaid clause the Ld. Authority^has inter-alia held as follows: i) All the activiti events viz. procurement, delivery, usage, rejection or replacement, d mobilization and receipt of consideration - relating

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to mud rnu,.ni.Jt, and additives can be done independenry and separately.

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ii) A', the acti',lities or events rerating to goods (chemicars/ additives/ .onrrln.bres) are not necessariry procured, derivered, replaced o' a'-Jbilized simultaneously with those of other services and goods namely 'technical personnel or technical equipment or lab equipment etc.

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iii) Though the items mud chemicals and additives are both essentiat and in{egrat part of work of the appelant under the contracl . n . o n:, n l t: : i" ltr :^'^{^:J} Jf ' : :,"f;, :",'"". i: iil ff :.".:: : ::', I technicar personnft and other goods on rentar basis. iv) It is further obberved that there are independent qualitative, and logistic (mobirizatiln, derivery, reptacement of deficient or substandard materiat$, demobilization there of etc.) compulsions with reference to the procurement by the appeilant, crauses for sub_ contracting of petty services, subsequent derivery (or suppry) to oIL and usage (or .{nrr-otion) of additives/ consumables in mud engineering activi{v ano drilling waste management services. It is also observed tn{t there are similar independent conditions in relation to tecfrnicar personnet and technicar equipment separately.

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v) Thus, it is cldar and evident that the different components namely, technical personnel, technical equipment and additives/ chemicals/ consun].rabtes are separately available for procurement and suppty by tfre hppeltant.

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vi) Accor'dingly, it is crear that mud additives and chemicars cannot be suoplifd in conjunction with supply of services (technical assistan{e by way of suppry of technicar personnet) and supply of other no{d, namely (technicat equipment).

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T' In this regard, it is $ubmitted that the Ld. Authority has failed to appreciate the true purn[.t of the clauses reproduced in paragraph \s,, above, which are referred to and relied upon in the ruling. Admittedly, the said provisions are inserted at the insistence of OIL to protect its interest. The said provisions provide for the obligation of the Appellant to maintain sufficient ilrventory of goods/ personnel to be used in execution of contract. It gives right to oIL to lay down the specifications for the gfods which are required to be used in the execution of the .ont.u{t and the right to seek replacement of the personnel/ goods if the sf me are not as per the satisfaction of oIL.

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U. It is submitted that the interpretation of the Ld. Authority that the supplies can be con$idered to be made in conjunction with each

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other only if the same Qre made simultaneously or at the^{same time} is very narrow and untpnable in law. In case^{the said interpretation} is held to be valid then any continuous supply^{will never qualify as} composite supply.

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V. Reliance in this regard, is^placed on the^{judgement of the Hon'ble} Kerala High Court in tl'le case of Abbott Healthcare^{Pvt. Ltd. vs.} Commr. of Commercial Tax, Thrissur,^{2O2O (34) G.S.T.L. 579(Ker.),} wherein the Hon'ble Hiqh Court^{has held as follows:}

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'1-7. In my view, F finding as regards composite supply must^be take into account stlppties as effected at a^{given point in time on "as} is where is" basis.lln particular instances where the^{same taxable} person effects a colttinuous supply of services coupled with^periodic suppties of goods/^pervices to be^{used in coniunction therewith,one} could possibty viQw the^{periodic supply ofgoods/servicesas} composite supptieg along with the service that^{iscontinuously} supplied over a Period of time."

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W. The aforesaid findihgs of the^{Hon'ble High Court are squarely} applicable to the fact$ of the^{present case, which has not been} considered by the Ld. Authority^{while issuing the impugned Ruling.} Admittedly, in case of continuous supplies^{like those in the present} case, the services are^provided continuously^{during the period for} execution of the contract of service and^{the goods will be supplied} / used as and when required for^{providingthe services.}

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X. It is submitted that once the^{Ld. Authority has observed that the} mud chemicals and mud additives^{are essentialand integral part of the} work undertaken by thd Appellant under^{the contract enteredinto with} OIL, the same has to be treated^{as suppliedin conjunction with the} services provided under the^{said contract.}

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y. The finding that therfe are independent qualitative, quantitative and logistic compulsions f9t supply of^{goods and services underthe} aforesaid contract and therefore^{the same cannot be said to be in} conjunction with each olther^{is untenablein law. The said conditionsare} prescribed in the contFpct for safeguarding^{the rights and interest of} the contracting^parties and^{cannot be used as any criteria for} determining whether the^{supplies are made in conjunction with one} another or not.

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Z. There is no dispute f,bout^{the fact that the supply of mud chemicals} and additives is essential^{and integralto execution of the contract/} providing the services^{prescribed under the contractand the said} supply of mud chemicpls^{and additives is made while providing the} mud engineering servicps^{to OIL'}

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AA' Further, the Ld. Authority in the said impugned ruring has observed that under the contract, the appeilant is obrigated to provide comptete mud engineering and drilring waste management services and for provision of such services it is essentiar to have ail technicar support (equipment/tools), technical personnel and required chemicals/ additives which are crearry incidentar and ancirary to main suppry of services' Absence of any of these components shall direc,y affect the main services and arso defeats the very purpose of the contract.

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BB' Accordingry, the finding of the Ld. Authority that since the essential second criteria of 'supplied in conjunction with, had not been complied, the suppry of mud engineering services arong with the suppry of imported mud chemicars and additives provided on consumption basis by the appellant under the contract do not quarify and are not crassifiabrg as'composite suppty, is untenabre in raw. cc' It appears that the Ld. Authority misdirected itself to reach the above concrusion based on certain observations, which, with due respect, in the opinion of the appeilant are not rerevant to decide whether the supply of services and goods are in conjunction with each other' For example, the Ld' Authority has observed that the services and goods are not suppried as a singre package, but are separatery available or can be procured independenuy. It is submitted that having observed and held that the appeltant is obligated to provide complete services with goods and non-provision of one will affect the other, and in fact contractually the appellant is duty bound to provide both, are sufficient to hord tha[ both goods and services are suppried in conjunction with each other and therefore constitute composite supply. DD' In view of the aforesaid, the suppry of the mud chemicars and additives and the mud engineering and drilling services are ..composite supply" in terms of SectiOn 2(30) of the CGST Act.

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Rate of applicable cST

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EE' section B of the CGST Act inter-alia provides that a composite supply comprising of two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply i.e. the rate of tax applicable will be that of the principal supply.

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FF. section 2(90) of the CGST defines ..principar suppry,, as under:

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"(9o) "principal suppty" means the suppty of goods or services which constitutes the predominant element of a composite supply and to which any other supply is ancillary.,,

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GG' In the present case, undoubtedly, the predominant element of the supply made to oIL under the above contract is the suppry of mud engineering services and the supply of mud chemicals and additives supplied in the execution of the said contract are ancillary to the above supply.

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HH. The Ld.^{Authority oblerved that the scopeof the work to be provided} by the^{Applicant under tl']e contractis a combination of supply of service} and supply of^{goods whicfr are naturallybundledin the ordinarycourse of} business -^whereinthe frincipal^{supply is the supply of serviceviz' mud} engineering^{or drilling w{ste management services) and supplyof goods} viz. mud chemicals^{and iprud additives which forms incidental or ancillary} supply to the PrinciPal^suPPlY'

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II. In view of^{the aforesfid, it is clear that the supplies made under the} aforesaid contract^{to oIL qualifyas compositesupply, wherein the supply} of mud engineering^{or ar{tting waste management services is the principal} supply.

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lJ. Accordingly,^{in terms of sectionB of the GGST Act, the rate of GST} applicable to^{the supply o[ muA engineeringand drilling wastemanagement} services is applicable^{to bQth the supply of the said services and the supply of} mud chemicals and^additiries.

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KK. Undisputedly^{the said mud engineering anddrilling waste} management services^{arle covered under SAC 9986 as prescribed under} Notification No. lt/2OL7-CT^{(Rate) dated 26thlune20L7 and the rate of} applicable GST is^{!2o/o (fCSf 60/o *SGST 60lo) post the amendment vide} Notification No. L/^{2O1g+CT (Rate)dated 25th January 2018. Prior to that,} the rate of applicable GS[^{was 180/o (CGST 9o/o *SGST 9o/o). The relevant} extract of the said^{Notification in relation to the SAC 9986 is reproduced} below:

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N-q-t-rfie-ati.en..!N.p*.1-L/2^O[Z^{C.T- (R.a.t"e), d-ate"d 2-8:6*:29.17-}

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Code- Tariff(SAC-)

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In exercise of the^{powfrsconferred by sub-section(1) ofsection 9, sub-} section (1) of section 1Ll^{sub-section(5) of section L5 and sub-section(1)} of section 16 of the Cehtral^{Goods and Services Tax Act, 2077 (12 of 2017),} the Centrat Governmenti on^{the recommendations of the Council, and or} being satisfied that it {s^{necessary inthe public interest so to do, hereby} notifies that the centlal tax, on^{the intra-Statesupply ofservicesof} description as specifiel in^{column (j)of the Table below, falling under} Chapter, Section or^{Uelpdingofscheme of classification of services as} specified in column⁽² ,^{shall be levied atthe rate as specified in the} corresponding J' entry in cplumn^{(4), subiectto the conditionsas specified in the} corresponding entry^{in cplumn (5) of the said Table:-}

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Sl.No		Descriptionofservice	Rate (perc ent)	Conditio n
(r)- 24	(2)	(3) (ii)Supportservicesto mining,electricity,gasand waterdistribution	(4) 9	?_

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"CGST Rates on infra-State suppry of specific services_ Amendment to Jumbo Notification No. tL/20L7 _ C.T.(Rate)

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In exercise of the qowers conferred by sub-section(1) of section 9, sub section(1) of section 77, sub-section (5) of section 15 and sub-section(1) ot section 16 of the centrat Goods and services Tax Act, 2077 (12 of 2017), the Central Government, on the recommendations of the councir, and on being satisfied that t't is necess ary in the pubtic interest so to do, hereby makes the toltowinf further amendments in the notification of the Government of In(ia, in the Ministry of Finance (Department of Revenue)No. 11/2017 - Central Tax (Rate), dated the 2rth June,2017, pubtished in the Galette of India, Extraordinary, part II, section 3, sub_ section (i), vide numler G.s.R. 690€, dated the 2gth June,20r7, namery:_ In the said notifirutioin,

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(i) in the Table,-

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(h) against serlpt number 24,_

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(B) tor item (ii) in column (3) and the entries relating thereto in columns (3),(4) and (g), the foilowing shail be substituted, namery;-

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(3)	(4)	Gt-"
(ii)Serviceofexploration,miningordrilling	6
petroleumcrudeornaturatgasorboth.
(iii)Supportservicestomining,electricity,gasand	9
distribution otherthan(ii)above.

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LL' It is submitted that the finding of the Ld. Authority that the supply of imported mud-chemicals and mud additives provided on consumption basis shall be classifiable as supply of goods under the respective HSNs of goods as specified under CGST Act, 2Ot7 is untenable in law. Further, the finding that the other events of supply of goods (on rental basis) and supply of services (supply of

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technical personnel) shall be accordingly classifiable independently under respective HSNs of services/ goods as the case may be is also untenable in law. MM. In view of the aforesaid, it is respectfully prayed that:

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(i) The impugned ruling issued by the Ld. Authority be modified to hold that the supplies made under the aforesaid contract to OIL viz. the supply of mud engineering and drilling waste management services and the supply of mud chemicals and other additives are composite supplies. The rate of GST applicable to the supply of mud engineering and drilling waste management services, being the principal supply, should apply to all the above supplies made under the contract with OIL.

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(ii) Grant a personal lrrearing and permit the appellant to produce additional documents and other materials at the time of personal hearing.

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(iii) For such further and other reliefs as this Hon'ble Appellate Authority may deem fit in the facts and circumstances of the case.

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3. Personal Hearing:

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The proceedings of Hearing were conducted through video conference on 20th October 2020, for which the authorized representative, Sri prasad Paranjape, Advocate attended and reiterated submissions already made.

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4) Discussions and Findings:

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We have gone through the entire records of the appeal, facts of the case, and also considered the written and oral submissions made at length by the appellant as well, in light of the ruling pronounced by the AAR.

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The issue at hand for discussion is whether the supply of mud engineering services and supply of imported mud chemicals and additives provided on consumption basis by the applicant under the contract qualify as composite supply or not.

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Before embarking upon the question, it is worthwhile to examine the intricacies of the subject matter with reference to the two taxable supplies involved in the question.

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1. Supply of Mud Enginqering service:

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. Mud Engineering is the service rendered (Drilling Fluids engineering, often referred to as Mud Man service) on a drilling rig to ensure the properties of the Drilling Mud are within the designed Specifications.

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.The Drilling Mud is created using the local as well as imported ingredients and supplied to the service recipient.

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2. Supply of Chemicals and additives:

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. Drilling mud, is used to aid the drilling oil and Natural Gas Wells and on exploration Drilling Rigs. The Drilling Mud will be created in the Mixing Machines/systems with the necessary ingredients, chemicals and additives etc., basing on the survey reports like seismic survey, Soil Testing etc., of a particular well zone.

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'^when .tt:ut]nn^{tl'ie drilling fluids, mud engineersoften} use predetermineci geological data obtained by geologists and driiling engineers. They use a variety of methoJ' to change the mud's viscosity, incruding adjusting the mud's temperaturf, oH barance and chemicar components. discussions, the supply of Mud Engineering services and In view of the 'oo'] supply of chemicals and additives are undoubtedly two specialized and distinct supplies' Now we "'u'int whether both the said supplies of chemicals and additives and rendering the "o .nf ineering services constitute a .composite supply,or not. Sub - section (30) of sectfon-z of the ccsrAct,2017 reads as under: 'Composite supply, means

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" a supply made by a taxable person to a recipient consisting of two or more drtv " taxable supplies of ooods or services or both, or any combination thereo f. which a, re naturaily bundted nt ^: and :^-:'-: suppried -:,:"': :' in conjunction -comDtnarton with each other in the ordinarN course of business, one of which is a principal supply.,,

¶115

In the instant case, the two taxable supplies under discussion are to be examined in light of the dwo orimary conditions i.e., whether they are.naturally bundled' and are 'supplied in conjunction' with each other, In the absence of the clear cut explanation in tl'je Act, regarding the concept of ,naturally bundled, the reliance is placed on Educdtion Guide issued by GBEC (now cBIc) in the year 20L2 as under -

¶116

-g'2'4 Manner or aeterlining if the services are bundled in the ordinary course of business

¶117

whether services are bundttd in the ordinary course of business would depend upon the normal or frequent pru[tir"t fottowed in the area of business to which services relate' such normal ana rrefuent practices adopted in a business can be ascertained from severat indicator, ,o,,f of which are risted berow -

¶118

a) There is a singlelr,r" or the customer pays the same amount, no matter how much of the package they actuary receive or use.

¶119

b) The elements ur" )or.ulty advertised as a package. The different elements are not available ,"rulrr",y. The different elements are integral to one overall suppty - if one o, ,]ror" is removed, the nature of the suppry wourd be affected.

¶120

No straight jacket rorfira can be taid down to determine whether a service is naturally bundted in [n" ordinary course of business, Each case has to be individuatly examined in the backdrop of several factors some of which are outtined above.,,

¶121

In light of the above ois{ussion, with reference to the parameter (a) mentioned above, it is observed that poth the supplies are not supplied or provided as a complete package 'at a single price'. The tax invoices filed by the appellant reveal

¶122

¶123

that different invoices are raised for both the supplies separately and individually. With reference to the parar r (b) mentioned above, the suppries of chemicars and additives and mud engi ing services are two different supplies and separately available. Section 3 of contract no.6205290 projects the schedule of rates distinctly for both the sup ies. Moreover, in the instant case the supply of chemical and additives and mud rgineering services can be procured in a piecemear approach up to the sati on of the service recipient. It is a fact, as admitted by the appellant that it is a cla inserted in the contract to protect the interest of oIL, the right to seek replacem t of the personnel/ goods independently if they are not as per satisfaction of OIL. clearly indicates that both the suppries are not naturaily bundled.

¶124

Finally, it is evident tha by virtue of the facts submitted, the supply of mud engineering services and rpply of chemicars and other additives are neither naturally bundled nor su ied in conjunction with each other and they do not constitute a "Composite Su ply" under the section (2) sub-section (30) of the CGSI Act, 20L7.

¶125

Accordingly the said su plies of the mud engineering services and supply of chemicals and additives different supplies riabre to tax under the GGST/APGST Act. Thus, in view of the a ve discussions the observation made by the Advance Ruling Authority is upheld, r jecting the interpretation of the appellant.

¶126

Order

¶127

The ruling of AAR is upheld.

¶128

Sd/- Naresh^penumaka Tax) Chief Commissioner (Central Tax) Member / /t.c.f^.b.o/ I Wr Deputy Commissioner (ST) DFpuw coMiils sf oitEt (s?) S9 1€hicr^{commissionrror stlte iar,} y uovernment 0t A.p.. Vrjayrwede

¶129

1. M/s. Halliburton Offsho Services Inc.(Oil India), Plot No.5A3, Unit-2, AD Road, Vakalpudi, East Godavari District, Pin,No.533004 (Andhra adesh). (By Registered post)

¶130

1. M/s. Halliburton Services Inc.( Oil india), International Business^p ,^{!7'n Floor,} Commerz II, Oberoi Garden City, Off estern Express Highway, Goregaon ( East), Mumbai-400063 Mahara tra State.(By Registered post)

¶131

Copy to

¶132

The Assistant Commissi er of State Tax, Kakinada Circle, Kakinada Division. (By Registered Post)

¶133

¶134

2, The Superintendent of Central Tax, Ramanayyapeta Range, Kakinada CGST Division.(By Registered^post)

¶135

Copy submitted to

¶136

1' The Chief Commission$r (State Tax), O/o Chief Commissioner of State Tax, Eedupugallu, Vijayawada.

¶137

The Chief Commissioner (Central Tax), O/o Chief Commissioner of Central tax &Customs, Visakhapatnam Zone, GST Bhavan, Port area, Visakhapatnam530035.(By Registered Post)

¶138

%"rt\4e,e DESPATCHED

¶139

,,:* {fl

AAAR/AP/06(GST)/2020 of M/s Halliburton Offshore Services Inc. (Oil India)

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AAAR/AP/06(GST)/2020 of M/s Halliburton Offshore Services Inc. (Oil India)

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