HALLIBURTON OFFSHORE SERVICES INC VS UNION OF INDIA

GST update /2026-27/0013

Petition No. & Citation: 14517/2023

Hon’ble Judge(s)	JUSTICE R RAGHUNANDAN RAO & JUSTICE T.C.D.SEKHAR
Date of Order	11.02.2026
Outcome	In favour of Petitioner

Brief Facts of the Case

The petitioner, Halliburton Offshore Services Inc., is engaged in providing specialized oil field related services including mud engineering services, drilling waste management and fluid management services. The petitioner entered into a contract with M/s Oil India Limited for providing complete mud engineering services in relation to drilling of oil wells in the Krishna-Godavari basin project. As per Clause 10 of the contract, the petitioner was required not only to provide mud engineering expertise, laboratory facilities, equipment and technical personnel, but also to supply drilling mud chemicals, additives and consumables necessary for safe and efficient drilling operations. The chemicals supplied were consumed during execution of the services and were formulated according to drilling requirements at site.
Since ambiguity arose regarding the GST treatment of such transaction, the petitioner approached the Authority for Advance Ruling seeking clarification on whether the supply of mud engineering services along with supply of imported mud chemicals and additives constituted a “composite supply” under Section 2(30) of the CGST Act. The Authority for Advance Ruling held that though the contract involved both service and supply of goods, the same would not qualify as a composite supply because the chemicals and additives were not supplied “in conjunction with” mud engineering services. Aggrieved by the said order, the petitioner approached the appellate authority for advance ruling.,
The Appellate Authority for Advance Ruling affirmed the above view and observed that:

separate billing was done for goods and services,
the consideration was not a single consolidated price, and
both supplies were capable of separate availability.

Accordingly, both authorities held that GST was payable separately on goods and services as distinct taxable supplies. Aggrieved by such orders, the appellant approached the High Court by way of writ petition.

Relevant Section

Section 2(30) of the GST Act

Question before Hon’ble Court

Whether the supply of mud engineering services together with supply of imported mud chemicals and additives on a consumption basis under the contract qualify as a "composite supply" within the meaning of Section 2(30) of the GST Act ?
Whether the tax authorities were justified in treating supply of services and supply of chemicals as two independent taxable supplies merely because separate invoices were raised?

Brief Arguments by Petitioner

Contract must be read as a whole and not by picking isolated parts

The Petitioner contended that both the authorities have not read the agreement as a whole and had picked and chosen separate parts of the contract which is impermissible in view of the Judgment of the erstwhile High Court of Andhra Pradesh, in the case of RastriyaIspat Nigam Limited Vs. Commercial Tax Officer¹ which came to be affirmed by the Hon'ble Supreme Court of India, in the case of RINL (2002) 126 STC 114 (SC). The true object of the contract was to provide a complete mud management solution for drilling activities. Further, mud engineering service cannot be effectively rendered without simultaneous use and consumption of specially designed chemicals and additives.
AAR & AAAR passed the order without considering the submissions made by the appellant

The appellate authority for advance ruling had not considered the submissions of the petitioner raised in the appeal memorandum, during the course of the hearing and in the written submissions filed before the appellate authority for advance ruling. The petitioner would also rely upon the Judgment of the Hon'ble Kerala High Court in the case of Abbott Healthcare Pvt. Ltd Vs. the Commissioner of Commercial Tax, Thrissur², to contend that the supply of services and goods by the petitioner, would amount to a composite supply

Findings and Judgement

The Hon’ble High Court examined the definition of “composite supply” under Section 2(30), which provides that where two or more taxable supplies are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one being the principal supply, the same would constitute a composite supply.
The Court observed that the crucial test is not whether separate invoices are raised, but whether both supplies are:

contractually intertwined,
commercially inseparable, and
essential for achieving the intended contractual objective.

Upon a comprehensive reading of the contract, the Court found that:
(i) Single Objective of the Contract
The contract was not for mere sale of chemicals nor for mere consultancy. Its dominant object was to ensure safe and efficient drilling of oil wells. This objective could be achieved only when:

mud engineering experts continuously monitored drilling parameters, and
required mud chemicals/additives were simultaneously supplied and injected as per technical requirement.

Thus, both elements were functionally inseparable.
(ii) Chemicals Were Not Independent Off-the-Shelf Goods
The chemicals supplied were not ordinary marketable goods sold independently. They were compounds formulated and consumed according to the peculiar drilling requirements determined by the petitioner’s technical team. Hence, the supply of such chemicals was only incidental and ancillary to rendering the principal mud engineering service.
(iii) Separate Billing Is Not Determinative
The Court categorically held that mere issuance of separate invoices for consumables cannot change the nature of the transaction when the supplies are intrinsically linked under one performance contract. Taxability must be determined from the real substance of the agreement and not from the accounting methodology adopted by parties.
(iv) Error by AAR and AAAR
The AAR and AAAR erred by narrowly focusing on separate pricing mechanism, ignoring the integrated contractual responsibility, and failed to appreciate the operational dependence of chemical supply on mud engineering supervision. The Court held that the authorities had adopted a fragmented and artificial approach contrary to the commercial reality of the transaction.
Accordingly, the Court held that the supply of mud engineering services and supply of mud chemicals/additives under the contract are naturally bundled, supplied in conjunction with each other, and therefore constitute a composite supply under Section 2(30) of the GST Act and AAR & AAAR Orders were set aside.

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GST update /2026-27/0013

Brief Facts of the Case

Relevant Section

Question before Hon’ble Court

Brief Arguments by Petitioner

Findings and Judgement

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