AAR recently held that the entire contract revenue arising to
the Singapore company ("the applicant") towards supply of
goods and rendition of services was taxable in India.
The contract under consideration was awarded to L&T, which
in turn awarded the applicant a sub-contract for the entire
external and internal façade, for the glazing and cladding
systems for piers, fixed link bridges and nodes in connection with
development of the airport terminal. The applicant was required to
design the curtain wall and façade, supply all materials,
erect, install, inspect, test and commission the entire subcontract
works. The applicant was of the view that scope of work could be
broadly divided into
Offshore supply of goods, and
Installation and other work to be
executed in the airport
AAR, held that the consideration received for the entire
contract was taxable in India, based on the following
The contract was a composite one and
there was no evident division in the contract whatsoever for supply
and services in terms of scope of work, payment terms,
responsibility, risk, etc.
The offshore supply of goods by the
applicant to the contractor, and then by the contractor to its
ultimate customer (the airport company) on high seas was
contentious as, even though the applicant was not a party to the
goods supplied by the contractor to the airport company, it was
responsible for delivery of materials to the project site in India,
and acted as an agent of the airport company, like paying customs
duty in India
The applicant's PE (i.e., the
project office in India) had come into existence long before the
design of materials and equipment for offshore supply started and
was responsible for custom clearance and payment of custom duty,
hence PE was actively involved in supply of goods in India
Further, insurance in the name of the
applicant instead of the contractor until it reached the site in
India was clear proof that risk did not pass to the customer until
the goods were used for the works as per the contract
Payments under the contract were not
in relation to sale of goods, and were linked to different stages
of work, which further the point that the contract was a composite
This ruling shall impact the foreign companies executing EPC
contract in India. The observation of AAR shall act as a guiding
factor for those planning to enter into an EPC contract in India.
Though an AAR is only binding on the applicant and that too for the
specific case, but persuasive value shall be drawn by the Revenue
Authorities to examine the cases involving offshore supplies,
followed by onshore services.
Source: AAR No. 981 of 2010
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Cummins Inc. is a foreign company, rendering services in respect of desktop/laptop software license and internet mail facilities to its Indian associated enterprises, i.e. CIL and CSSL which were paying IT charges provided by the taxpayer.
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