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TMI Blog2010 (2) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... o the OEM on a 'Just-in Time' basis. The typical steps involved in this arrangement are narrated by the applicant as follows: * The OEM would raise a purchase order on the Applicant pursuant to which the Applicant would ship the goods to the ISPs in India; * The ISPs would clear the goods from the customs port as the Importer on Record and would, thereafter store the same in a bonded warehouse. The ISPs would also furnish the bond with the customs authorities of India for clearing the goods without payment of customs duty. The ownership of the goods would remain with the Applicant; * Whenever the OEM places a 'pull request' for the goods on any ISP, it would immediately deliver the goods to the OEM and inform the Applicant of such delivery having been made; * After receiving a pull request from the OEM, such ISP would clear the goods from the bonded warehouse by following the required procedures and deliver the same at the OEM's premises. The Applicant would, at this point, raise its invoice for the goods delivered by ISP to the OEM; * The OEM would, in turn, make the payment directly to the Applicant outside India; * The ISPs would operate from bonded warehouses (operated an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a registration with the Value Added Tax authorities in Tamil Nadu in India, pay applicable taxes and file the related returns in connection with delivery of goods to Dell. * * YCH, being an independent third party, would be remunerated on an arm's length basis by the Applicant. 4.A copy of the proposed Agreement between the applicant and the YCH is annexed to the application. 5. The questions raised in the application broadly relate to the existence or otherwise of a Permanent Establishment (PE) within the meaning of Art.5(1) and 5(8) of the India-Singapore Double Taxation Avoidance Agreement (hereafter referred to as DTAA or Treaty). The questions as recast are as follows: (a) Whether the applicant in the stated facts and circumstances, would have a Permanent Establishment ("PE") in India under Article 5(1) or 5(8) of the India-Singapore Double Taxation Avoidance Agreement ("India-Singapore DTAA" or "Treaty") in relation to the activity of delivering goods through a customs bonded warehouse owned and operated by an independent service provider in India. (b) In case the answer to Question (a) is in the affirmative, but the service provider is remunerated on an arm's length ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of goods or merchandise for the enterprise; (b) he has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise; or (c) he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that enterprise. 7. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise itself or on behalf of that enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that enterprise, he will not be considered an agent of an independent status within the meaning of this paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate's 'importer of record' for all Seagate products imported into India through the facilities of YCH listed in Ext.A. 8. Some of the provisions in Ext.B - 'Scope of warehousing services' are also relevant. They are : YCH will make adequate space available including the provision of racks to store Seagate products and YCH will bear the capital expenditure to improve the capacity of the facilities (para 1.3). Right to enter the warehouse is dealt with in para 1.4. It says that Seagate's designated agent or contractor may enter into YCH facility for physical inventory, inspection and audit and for other auxiliary or preparatory activities. The obligations in regard to receiving incoming product are provided for in para 2. Para 3 deals with inventory control. YCH will receive all Seagate products and send an electronic receipt signal to Seagate before YCH will allow Seagate products to be pulled from the warehouse. YCH will establish the necessary operating systems to support electronic data interchange and furnish receipt, sale advice and inventory report. YCH will segregate each Seagate account in its warehouse management system, undertake inventory tracking and conduct physical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise of which it is a permanent establishment." 11. Now, we shall discuss whether para (1) of Art.5 is attracted in the instant case. A 'fixed place of business' through which the business is wholly or partly carried on is the criterion laid down in Art.5.1. A distinct situs or an earmarked place with certain degree of permanence from where any business activity is carried on is what is envisaged by Art.5.1. It is not necessary that the fixed place should be owned or hired by the foreign enterprise. The applicant has referred to the Commentary of OECD Committee on Fiscal Affairs [Model Tax Convention (Condensed version, 2008)] according to which the definition in paragraph 1 of Art.5 contains the following conditions: * the existence of a "place of business", i.e. a facility such as premises or, in certain instances, machinery or equipment; * this place of business must be "fixed", i.e. it must be established at a distinct place with a certain degree of permanence; * the carrying on of the business of the enterprise through this fixed place of business. This means usually [emphasis supplied] that persons who, in one way or another, are dependent on this enterprise (personnel) co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e required to be provided at the place. The fact that a service provider instead of the applicant's employee carries on various operations leading to the delivery of products to the customers does not, in our view, rule out the application of para (1) of Art.5. Both the applicant and the warehouse/service provider act in cohesion to ensure the product delivery to the customers promptly. By merely outsourcing the operations leading to supplies of products, it cannot be said that the applicant does not carry on any business in India from a fixed place. The ground realities cannot be disregarded. The question whether the person carrying on business operations on behalf of or pursuant to the instructions of the applicant is a dependent or independent agent is not very material in considering the applicability of Art.5.1. The business of the applicant at a fixed place is being carried on through the media of the warehouse provider who can also be characterized as service provider. Having regard to these facts and features, we have to accept the contention of the Revenue that the demarcated space in the warehouse of ISP constitutes the fixed place of business within the meaning of Art.5. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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