On Facts, a single contract for offshore supply and onshore
services was to be treated as composite and indivisible contract – if goods
were delivered in India with the seller bearing the risk, insurance and customs
duty till the point of completion of project work in India, supply was
to be regarded
as completed in India.
Facts
The
taxpayer was a resident of Singapore and was engaged in
the business of
executing contracts in relation to structural glazing and wall
cladding works. The Taxpayer had set up project offices (PO) in India for the
purpose of executing the work subcontracted to it by one of the Indian
contractor.
In
terms of sub-contract, taxpayer was required to design the curtain wall and
façade, supply materials and carry out installation and other works in India.
Taxpayer was also responsible for delivering goods at construction site in India.
The
taxpayer contended that the supply of goods outside India was to be considered
as a separate contract from the installation work contract. Further as title to
the goods passed outside India and the payment for offshore supply was also
received outside India, income from offshore supply of goods did not accrue or
arise in India. Even if the PO created a business connection or Permanent
establishment (PE) in India, income from offshore supply was not directly or
indirectly attributable to the PO in India. Hence, such income was not taxable
in India.
The
issues before the AAR were: (i) whether the amount received by the taxpayer for
offshore supply of goods was taxable in India; and (ii) if yes, what was the
extent of profit that could be attributed to the business connection and/or PE
in India.
AAR Ruling
Held 1: on the issue of whether contract was divisible
a.
A single contract was entered into by the taxpayer for all the activities of
designing, supply and installation work. the
contract did not provide any bifurcation between supply
of goods and
erection/installation in the contract
either in the
context of taxpayer’s work and responsibilities or with
respect to the payment schedule.
b. Further, payment schedule of the contract
was linked to different milestones of the work, viz., designing, drawing,
supply and commissioning
of the entire work. Major milestones were not linked
to supply/sale of plant and materials.
c.
Merely picking up one portion of contract, selectively to show that it
represents independent scope of work is incorrect. Hence, in the present
situation, division is imaginary and artificial.
d.
Even though the invoices
showed that sale
of materials was in Singapore, taxpayer was responsible for delivering
and steering materials at site and was responsible for the risk and insurance
until completion of the project in India. The customs duty for clearance of
goods at Indian port was also paid by the taxpayer. All these factors indicate
that the offshore supply was completed in India and not in Singapore.
e.
The Sale of Goods act makes it clear that property in goods passes when the
parties intend it to pass. in the present case, having regard to the conduct of
the parties as narrated above, the
intention of the parties was that the property in goods was to pass only when
the installation and erection of entire works was completed in India.
Held 2: On role of PO in offshore supply of Goods and profit
attribution
a.
PO had come into existence much before the design of material and offshore
supply. PO had its own designing team and was working on the contract much
before supply of goods and material started.
b.
PO was also actively involved in designing, selecting and procuring supplies. The
PO cleared the goods from customs in India and
paid customs duty.
In these circumstances, taxpayer’s contention that the PO had no role in
supply of goods and materials or that no profit was attributable to the PO in India
was incorrect.
Held 3: Attribution of profits
Since the contract was a composite
one, entire amount was taxable in India.
