CESTAT Delhi Quashes Service Tax Demand On Western Geco International's Project Office For Offshore Data Acquisition In Deep Sea

The Bench comprising of
Mr. P.V. Subba Rao (Technical Member) and Ms. Rachna Gupta (Judicial Member) examined if data acquired offshore and processing at the Mumbai project office would constitute two separate services. The CESTAT thus observed “Data analysis was not a separate service even though the cost of data analysis was indicated in the contract as 4% of the basic price.”

Oil and Natural Gas Commission (ONGC) sought to execute 3D seismic data acquisition and subsequent processing of the same using Q marine technology. The purpose of leasing was to acquire and process the data for a geological survey for oil. Western Geco British Virgin Islands had entered into contracts with ONGC and Reliance Industries Ltd. (RIL) to conduct offshore seismic surveys beyond 12 nautical miles from the Indian coast. The surveys used Q-Marine technology and were conducted from vessels leased at US$ 7.5 million/month. The project office, Western Geco Gurugram issued invoices for the services were to ONGC and RIL (service recipients) which also paid service tax on 4% of the total lease amount being the cost of data processing. The Department sought to levy service tax on the remaining 96% of the basic cost.

Three Show Cause Notices were issued for various periods fastening service tax liability of about Rs. 346.15 crore with interest and penalties under Sections 75, 76, 77, and 78 of the Finance Act, 1994.

From the contract entered into by the project office with ONGC and RIL, the CESTAT inferred that data processing was merely one of the twelve activities included in the basic price for the service. Further, it was held that entire contract was a single contract for the work and not a contract for two different services since data processing in the Mumbai office of Western Geco and the data acquisition in the ship were parts of the same contract.

To comprehend, who had to pay the service tax - the service provider or the service recipient, the CESTAT elaborated on what was a taxable event and essential elements levy and collect tax. The CESTAT referred to Justice GP Singh's Principles of Statutory Interpretation and relevant statutory provisions to hold that Western Geco, BV Islands were receiving 'consideration' from service recipients as per the contracts.

“All remittances were to be made in US$ via telegraphic transfer to the account of Western Geco, BV Islands…. Nothing is brought on record or to our attention by either party that any contracts were entered into by the Gurugram or Mumbai project offices of Western Geco. However, the data analysis part of the work was done in the Mumbai project office of WesternGeco as a part of the work to be done by Western Geco, BV Islands. There was no lis between the ONGC and Western Geco Mumbai. No consideration was payable or paid by ONGC to Western Geco Mumbai.”

In this vein, CESTAT cited Section 66A of the Finance Act, 1994 to explain how project offices, being permanent establishments, will be treated as separate persons although they were not separate legal entities and are part of the Multi-National Company itself.

As regards valuation, the CESTAT clarified that service tax can be charged only 4% data processing charges as opposed to the Department's view that it must be charged on 100% of the value. This was so because “in this case, there were single contracts of Western Geco BV Islands with ONGC and RIL for geological surveys which were partly performed within India and partly outside the territorial waters of India.”

Thus, CESTAT held that charge of service tax was on service recipient for offshore seismic survey activities and not on Wester Geco Gurugram for data analysis, done on behalf of Western Geco BV Islands and were part of the same contract.

In view of the above, the CESTAT allowed appeals by Western Geco International, Gurugram and set aside service tax demand together with interest, penalties.

Case Name: Western Geco International Ltd. vs. The Commissioner, Service Tax Commissionerate

Case No.: Service Tax Appeal NO. 58089 OF 2013

Date of Decision: 12.11.2025

Appearance: Advocates V. Lakshmikumaran, Kunal Aggarwal, Shagun Arora appeared on behalf of the assessee, whereas Revenue was represented by Special Counsel