In a recent case,(1) the Tax Tribunal had to determine whether agreements between an assessee engaged in the exploration and production of oil and owners of offshore supply vessels were covered under a proviso to Rule 3(iii) of the Import Rules, which states as follows:

"Provided that where the taxable service referred to in sub-clause (zzzzj) of clause (105) of section 65 of the Act is received by a recipient located in India, then such taxable service shall be treated as taxable service provided from outside India and received in India subject to the condition that the tangible goods supplied for use are located in India during the period of use of such tangible goods by such recipient."

The tribunal also had to consider whether the vessels were located in India during the disputed period, pursuant to the definition of 'India'.


The assessee had entered into agreements with the owners of offshore supply vessels for deployment at its exploration sites on the eastern and western coasts of India. The Indian Revenue Service had demanded service tax from the assessee under the reverse charge mechanism, as it considered the arrangement between the assessee and the owners to be a tangible goods service.

Between May 16 2008 and July 6 2009, 'India' was defined in an inclusive manner to mean designated areas on the continental shelf and exclusive economic zone. Effective July 7 2009, the definition was amended to specify that it related only to installations, structures and vessels on the continental shelf and exclusive economic zone.


The tribunal held that the assessee's contention that the arrangement did not qualify as a tangible goods service was devoid of merit in light of the Mumbai High Court's decision in Indian National Shipowners Association v UoI.(2)

Further, the tribunal observed that in order for the proviso to Rule 3(iii) to apply, goods must be located in India throughout the duration of their use. The tribunal reiterated that between May 16 2008 and July 6 2009, the definition of 'India' excluded non-designated areas on the continental shelf and exclusive economic zone.

The tribunal applied the principle of noscitur a sociis (ie, a principle applied when a word is ambiguous and thus its meaning must be determined by reference to the rest of the statute) to the term 'vessel' within the amended definition of 'India' and held that only vessels which are akin to installations and structures, and stationed at a fixed location on the continental shelf or exclusive economic zone, are covered within the definition of 'India'.

Finally, the tribunal held that the relevant vessels were plying in non-designated areas and were hence outside the purview of the definition of 'India' between May 16 2008 and July 6 2009. Further, because the amended definition excludes vessels that are floating or submersible in nature (ie, vessels that are not stationed at a fixed location), the tribunal held that the service did not take place in India. Accordingly, the tribunal set aside the demand for service tax on the amount paid by the assessee to the owners of offshore supply vessels.

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