SEPCO III Electric Power Construction Corporation, In re (2012) 342 ITR 313 (AAR)
The applicant was a Chinese company engaged in the business of supplying equipment for electric power projects. An Indian company awarded contract to the applicant for offshore supply. The scope of the work required the applicant to carry out design, engineering, procuring and transportation of the equipment for a thermal power plant to the port of loading.
The applicant claimed that:
- As per the contract, title to the equipment was passed at the port of loading, which was located outside India.
- The shipping documents showed the Indian company as the owner of the equipment.
- The transit insurance was obtained in the name of the Indian company.
- The payment was to be made in foreign currencies.
- The payment was to be received outside India by the applicant by electronic funds transfer.
The applicant also relied on the Supreme Court’s decision in Ishikawajima-Harima Heavy Industries v. DIT, (2007) 288 ITR 408 (SC) and AAR’s ruling in LS Cable Ltd., In re (2011) 337 ITR 35 (AAR).
The tax authority contended that the contract was not merely a supply contract and the applicant had done considerable work in India, such as testing of equipment during project commissioning, coordination with other contractors for precommissioning activities, etc. Further, the applicant was required to provide assistance and support to the other contractors for 90 days after provisional completion of the unit. Also, the contract was indivisible. Therefore, the applicant had PE in India and consequently, the payment was taxable in India.
The question raised is only on offshore supply of equipments and not on other activities. On perusal of the contract, the conduct of the parties which is apparent from the shipping documents and taking of transit insurance in the name of the Indian company, the transaction is that of an offshore sale. In light of the Supreme Court’s decision in Ishikawajima-Harima Heavy Industries v. DIT, (2007) 288 ITR 408 (SC), the transaction cannot be considered as one and indivisible. Hence, the tax authority does not have the jurisdiction to tax payment made outside India for offshore supplies.