Services For Drain Hole Drilling In The Existing Oil Wells Qualify As “Mining Services”: CESTAT

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that services for drain hole drilling in existing oil wells qualify as "mining services".

The bench of Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) has observed that the activity of drilling core holes and test wells was held to be taxable only w.e.f. 01.06.2007 as services in relation to mining of minerals, oil, or gas. The activities qualify as "mining services", which came into the taxable list w.e.f. 01.06.2007.

The appellant/assessee, a Public Sector Undertaking, floated a tender in order to invite bids for hiring services for drain hole drilling in the existing oil wells in Assam using ultra-short radius drilling technology. The work was awarded to M/s Well Flow Drilling Services, which has its Principal Office in Bahrain. A contract was executed between the appellant and the contractor.

The department alleged that the assessee has executed work contracts for services. A show-cause notice was issued demanding service tax from the appellant under the reverse charge mechanism under the category of "management, maintenance, and repair" services.

The matter was adjudicated, and it was held that before 01.06.2007, the services received were classifiable under "management, maintenance, and repair" services until May 2007 and w.e.f. 01.06.2007, the services received by the appellant will fall under the specific category of "mining service". It was also held that, as of June 1, 2007, the appellants were liable to pay service tax under the reverse charge mechanism.

Therefore, for the period post-01.06.2007, the proceedings were dropped against the appellant, but for the earlier period, the service tax is demanded under the category of "management, maintenance, and repair" services.

The assessee submitted that the services received by the appellants were classifiable under "mining service" as the same is in relation to the mining of minerals, oil, or gas and is taxable w.e.f. 01.06.2007. Therefore, the appellant is not liable to pay service tax for periods prior to June 1, 2007, under "management, maintenance, and repair" services.

The CESTAT determined that there is no activity in the work order for "management, maintenance, and repair" services of existing wells related to oil exploration by horizontal drilling from existing/dead wells.

Case Title: M/s Oil and Natural Gas Corporation Versus Commissioner of Central Excise & Service Tax, Dibrugarh

Case No.: Service Tax Appeal No.375 of 2012

Date: 03 .08.2023

Counsel For Appellant: Deepro Sen

Counsel For Respondent: J.Chattopadhyay

Click Here To Read The Order