Offshore supply taxation turned on separate contracts and foreign performance; Indian tax applied only to income attributable in India.

Offshore supply receipts under separately structured project contracts were held not taxable in India where manufacture and delivery occurred outside India, title and risk passed abroad, and the Indian project office had no role in those offshore activities; only income attributable to Indian activities could be taxed. The customs duty claim was remanded because the Tribunal found possible crystallisation in the relevant years and directed factual verification. The challenge to the assessments for want of a draft assessment order failed because draft orders had been issued and the DRP procedure was followed. The brought forward loss claim was restored for fresh verification.

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Issues: (i) Whether the offshore supply receipts arising from the project contracts were taxable in India and attributable to the Indian project office; (ii) whether the customs duty expenditure was disallowable as a prior period item; (iii) whether the assessments were invalid for want of a draft assessment order under section 144C; and (iv) whether the claim relating to brought forward losses required fresh verification.

Issue (i): Whether the offshore supply receipts arising from the project contracts were taxable in India and attributable to the Indian project office.

Analysis: The contracts were held to be separate and distinct, not one composite and indivisible contract. The supply contract was found to involve manufacture and delivery outside India, with risk and title passing at the foreign port, and the project office had no role in those offshore supply activities. Even where a permanent establishment existed for the onshore project-related work, only income attributable to activities carried out in India could be taxed in India. The Tribunal therefore accepted the assessee's substantive challenge to the taxability of offshore supplies.

Conclusion: The offshore supply receipts were not taxable in India to the extent they were not attributable to activities carried out by the Indian project office, and this issue was decided in favour of the assessee.

Issue (ii): Whether the customs duty expenditure was disallowable as a prior period item.

Analysis: The Tribunal found prima facie force in the assessee's plea that the liability had crystallized in the relevant assessment years and not earlier. It directed the Assessing Officer to verify the factual position and allow the claim in accordance with law in the consequential proceedings.

Conclusion: The disallowance was set aside for verification, and the issue was accepted for statistical purposes in favour of the assessee.

Issue (iii): Whether the assessments were invalid for want of a draft assessment order under section 144C.

Analysis: The Tribunal held that draft assessment orders had in fact been issued, the statutory objections had been considered by the Dispute Resolution Panel, and the final assessments were thereafter completed. On that basis, the assessee's objection to the validity of the assessments was rejected.

Conclusion: The challenge based on absence of a draft assessment order failed and was decided against the assessee.

Issue (iv): Whether the claim relating to brought forward losses required fresh verification.

Analysis: The Tribunal restored the matter to the Assessing Officer for factual verification and fresh adjudication within a limited opportunity framework.

Conclusion: The issue was remanded for fresh verification and was not finally adjudicated on merits.

Final Conclusion: The assessee succeeded on the principal taxability issue relating to offshore supplies, failed on the section 144C challenge, obtained remand on the customs duty claim, and secured restoration of the brought forward loss claim for fresh examination, resulting in a mixed outcome overall.

Ratio Decidendi: Where contracts are separately structured and the offshore supply obligations are performed outside India without a role for the Indian project office, only income attributable to activities in India can be brought to tax; a section 144C challenge fails where draft assessment orders were in fact issued and the statutory DRP procedure was followed.

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