AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (4) TMI 985
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....cts with certain Indian entities for design, manufacture, supply, installation, commissioning etc. of paper machines, the details of which are as under : S.No. Name of Contract Work Performed 1. Security Paper Mill (A unit of SPMCIL)(Project Hoshangabad) Design, supply, installation, commissioning of 6,000 MT per annum capacity CWBN paper Making Machine 2. J.K. Paper Ltd. (Project Rayagada) Manufacturing, engineering, supply of paper Board Machines 3. Bank Note Paper Mill India Pvt. Ltd. (Project Mysore) Design, manufacture, supply, erection, commissioning, performance trial, training etc. of 12000 TPA Bank Note Paper Making Machine 4. Tamil Nadu Newsprint and Papers Ltd.(Project Tamil Nadu) Design, engineering, manufacture and supply of Board Machine (BM#4) 4. Under the aforesaid contracts, the assessee during the year under consideration received Euro 9,99,76,698 equivalent to Rs.668,88,43,003/-. Besides the above receipts, in the year under consideration, the assessee received an amount of Rs. 5,03,68,859/- from various Indian customers, which was offered to tax in India as fee for technical services (FTS). Further, the assessee received an amount of Rs. 2,06,32,....
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.... dissected various activities only for the purpose of tax avoidance. He submitted, unless the plant is commissioned and satisfactory test run happened, the contract is not complete and assessee's obligation does not get discharged. In this context, he referred to various clauses of the contract. Referring to the payment terms under the contract, the Assessing Officer observed that till the time performance guarantee test and takeover certificate is issued, the supply of equipment is not complete. He observed that as per the intention of the parties coming out from the terms of the contract, the assessee was entrusted to design, manufacture, supply, supervise and conduct satisfactory operation of the equipment and assessee's scope of work is not limited to sale of plants and equipments. He observed that the assessee itself has declared his project office in India, through which, onshore activities are carried out. Thus, the Assessing Officer observed that the involvement of the project office in onshore activities related to the Security Paper Mill cannot be ruled out. Referring to India-Germany Double Taxation Avoidance Agreement (DTAA), the Assessing Officer observed that the Trea....
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....nd Mysore projects. He submitted, for Rayagada project, the plants, equipments etc. are sold on CIF basis on Vishakhapatnam port. Whereas in respect of Tamil Nadu project, plants and equipments were sold on CFR basis at Chennai port. He submitted, as per the terms of payment for offshore supply in respect of Hoshangabad project, 30% of the contract value of imported goods/equipments was to be paid to the assessee as advance and 90% after adjustment of the advance payment on presentation of shipping documents on pro-rata shipments. Whereas, the remaining 10% would be paid after final acceptance certificate. He submitted, the payment terms in respect of other contracts are also similar. He submitted, in respect of all these offshore supplies, the consignee of the goods is the customer. All statutory duties, taxes, fees, levies etc. in India on the imported goods shall be born and paid by the customers. He submitted, even the insurance for in-transit goods has to be arranged by the customers. Thus, he submitted that the allegation of the departmental authorities that the contracts are the single indivisible contracts, is contrary to the facts on record. He submitted, when all the acti....
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....e. He submitted, proving the existence of a fixed place PE is entirely on the Revenue. Unless the Revenue brings any material on record to prove existence of PE, the theory of fixed place PE cannot be accepted. 9. Without prejudice, he submitted, the Assessing Officer is wholly unjustified in attributing 25% profits to the PE in India. He submitted, if the assessee is deemed to have any PE in India under Article 5(2)(i) of the Tax Treaty, it was only for the limited purpose for carrying out activities of supervision, erection, commissioning etc. Therefore, it cannot be said that such deemed PE was involved in the manufacturing, designing, fabrication and supplies of plants, equipments and spare parts. He submitted, installation/supervisory PE comes into existence only upon completion of offshore supply of equipments, hence, such PE does not play any role in respect of offshore supply, as, such PE is constituted much later in time. In support, he relied upon the following decisions : (i). CIT vs. Hyundai Heavy Industries Co. Ltd. (2007) 161 Taxman 191 (SC) (ii). Ishikawajma-Harima Heavy Industries Ltd. vs. DIT (2007) 288 ITR 408(SC) (iii). DIT vs. LG Cables (2011) 197 Taxman ....
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....the assessee was given integrated work of design, manufacturing, supply, installation, start-up, commissioning work of the entire 6000 MTs paper mill. He submitted that as per the terms of the contract, the assessee was required to hand over a complete paper mill at deliverable stage. He submitted, what the assessee had supplied from outside India are parts and components of the paper mill, which comes into shape once the installation and erection is complete and start-up and commissioning is done. Thus, he submitted, the contract with the assessee is to set up the paper mill and not supply of certain parts and equipments of the paper mill. He submitted, assessee's liability and obligation in terms of contract does not end on completion of supply of materials, but still remains to be discharged till satisfactory commissioning of the paper plant. He submitted, for erection/installation and other related services, assessee's personnel have visited India and were actively involved not only in the installation/erection process, but also the supervisory work. He submitted, the contract, read as a whole, would demonstrate that the scope of work under the contract is a single integrated a....
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....ter, inspection packaging line, mould cover plant, facilities to incorporate security features like water mark, windowed security thread, security fibres etc. and other allied items. 17. Accordingly, an agreement was executed between the assessee and the General Manager, Security Paper Mill on 24.06.2010. As per the object clause of the agreement, scope of work of the assessee is for design, supply, erection, commissioning and performance run of 6000 MTs per annum capacity of state of art CWBN paper making machine compatible along with slitter, sheet cutter, inspection, packaging line, mould cover plant. The expression 'Mill', as per agreement, is defined as the paper mill at Hoshangabad. The 'project' means the implementation of the project proposed by the seller as contained in the agreement. The term 'supply' means one line CWBN paper making machine which shall be supplied by the seller (assessee) to SPMCIL. The definition of 'plant' as per agreement is - design, supply, installation, commissioning of one CWBN paper machine along with compatible slitter, sheet cutter, inspection, packaging line and mould cover making plant with state of art technology dedicated for production o....
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....lation, starting and commissioning of the new plant. It also provides that the erection of the new plant shall be completed within the project time schedule. The terms of the agreement provide that when the seller is of the opinion that different sections of the new plant, i.e., paper machines, slitter re-winders, cutter, inspection packaging line and mould cover plant are ready for start-up, it shall have to notify purchaser/contractor in writing of its intention to begin the start up and indicate the date, on which it can commence. During the start-up, the seller shall be responsible for technical operators of the processing line and will operate the technical process with its supervisory personnel together with purchaser's personnel. 20. The agreement provides that when the seller is of the opinion that the machinery and equipments are ready for performance testing, it shall notify in writing the purchaser to start the performance testing. If the test reveals that each unit does not meet the guaranteed performance, the seller have to take necessary steps to correct such deviation without any delay. The agreement provides that the new plant shall be regarded as commissioned and ....
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....Thus, the assessee has to complete a single integrated project in terms of the contract. The agreement further reveals that assessee's obligation under the contract does not end with the supply of goods and equipments, but would only end with the satisfactory commissioning and performance run of the paper mill. Only after the satisfactory performance run, the assessee can receive full payment qua the supply of goods and equipments. Thus, supply of goods and equipment from outside India cannot be treated as a standalone activity. On the contrary, as per the scope of work under the agreement, the assessee has to deliver the project of the Security Paper Mill and hand over to the contractee at deliverable stage as a complete package. The contract between the assessee and the contractee is not for purchase of plant and equipments simpliciter, but a complete paper mill to be installed and commissioned at deliverable stage. That being the factual position emerging on record, assessee's contention that the income received from supply of plants and equipments is not chargeable to tax in India, as the supplies were made from outside India, in our view, is not acceptable. Not only the assess....