2025-VIL-490-CESTAT-DEL-ST
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SERVICE TAX CESTAT Cases

Service Tax - Value of taxable service, Service Tax on Lost-in-Hole Equipment Compensation, Extended period of limitation, Suppression of facts – Appellant provided oil field services to various companies using its imported specialized equipment/tools - appellant received Lost-in-Hole compensation for equipments lost in oil wells (LIH equipmen) - Appellant paid service tax on equipment rental and personnel charges but did not include the LIH compensation in the taxable value - Whether compensation received for LIH equipment/tools is includable in the value of taxable service for service tax purposes – HELD – The LIH compensation received for LIH equipment/tools is represents an indemnity contract and not consideration for any service rendered. Once equipment is lost in hole, no further service is provided using that equipment and any compensation received is not towards service but represents damages for loss - The Tribunal rejected the Department's reliance on the term "consumed" used in the Directorate General of Hydrocarbons' certificate, clarifying that "lost" and "consumed" have distinct meanings and implications. The compensation falls under the exclusion provided in Rule 6(2)(vi) of the Service Tax (Determination of Value) Rules, 2006, which excludes "accidental damages due to unforeseen actions not relatable to the provision of service" – Further, CBEC Education Guide's clarification that accidental damages due to unforeseen actions should not be included in taxable value when not related to provision of service – The compensation for LIH equipment is not includable in taxable value for service tax purposes – The impugned order is set aside and the appeal is allowed - Whether the extended period of limitation was correctly invoked in this case – HELD - For invoking extended period, the Department must establish suppression of facts with intent to evade payment of service tax - the appellant held a bona fide belief that LIH compensation was not taxable based on Rule 6(2)(vi) and mere difference of opinion on tax liability does not constitute suppression. The Tribunal also rejected the Department's argument that self-assessment regime automatically justifies extended period, noting that officers have the duty to scrutinize returns, and the appellant's records were audited by CERA for 2010-2014 period.
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