Facts of the Case:
The petitioner operating through a Project Office in Mumbai and an operational setup in Andhra Pradesh, entered into a contract dated 08.09.2014 with Oil India Limited for providing mud engineering and allied services in the Krishna-Godavari Basin. The scope of work under the contract included Mud engineering services, Supply of drilling fluids, chemicals and additives, Operation of mud plants, Deployment of centrifuges, filtration systems and laboratory equipment, Designing and supervising mud programs for high-temperature high-pressure wells.
Under the GST regime, the petitioner sought an advance ruling on whether the supply of mud engineering services along with drilling chemicals supplied on a consumption basis constituted a “composite supply” under Section 2(30) of the CGST Act.
The Authority for Advance Ruling (AAR) held that the goods (chemicals) and services were independently taxable supplies and did not qualify as composite supply. The Appellate Authority for Advance Ruling (AAAR) upheld the AAR’s view, stating that the supplies were not “naturally bundled” and could be provided separately. Aggrieved by the findings, the petitioner approached the High Court.
Issue:
Whether the supply of mud engineering services along with drilling fluids and chemicals on a consumption basis under a single contract amounts to a composite supply under Section 2(30) of the CGST Act.
Held That:
The Court held that the contract must be examined holistically and not artificially split into separate supplies. It observed that mud engineering services inherently require drilling fluids and chemicals for execution. The chemicals are specially formulated, consumed during drilling operations, and have no independent commercial identity in the absence of the service component.
The Court further held that the goods and services were naturally bundled and supplied in conjunction with each other in the ordinary course of business. The dominant objective of the contract was to ensure effective and safe drilling operations, and the supply of chemicals was integral to the performance of mud engineering services.
The Court clarified that separate invoicing does not alter the intrinsic nature of the transaction. Accordingly, it held that the supplies constituted a composite supply under the CGST Act. However, the determination of the applicable GST rate was left open for adjudication by the competent authority.
The High Court allowed the writ petition and set aside the rulings of the AAR and AAAR.
Case Name: Halliburton Offshore Services Inc. Versus Union of India, The Pr. Commissioner of CGST, Vishakhapatnam. dated 11.02.2026
