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TMI Blog2017 (4) TMI 578X X X X Extracts X X X X X X X X Extracts X X X X ..... exploration and production company. The petitioner was awarded various contracts by the contractor of the Oil and Natural Gas Corporation Limited (ONGC), for carrying out offshore drilling activities. According to the petitioner, these contracts were entered into at Mumbai on various dates. 4. For the purpose of carrying out the due execution of the contracts, the petitioner imported various drilling rigs. These rigs were mobilised both at the east-coast and west- coast. It is claimed by the petitioner that these rigs were used exclusively in the western coast for drilling operations. 5. However, the petitioner set up a temporary base at Kakinada in Andhra Pradesh, purportedly for logistical purposes, in order to enable them to carry out maintenance of the rigs. This base at Kakinada was also used for temporarily storing the equipment as well as spares. 6. To avoid any dispute with regard to the movement of the rigs along the borders of the State of Andhra Pradesh, the petitioner also registered itself as a dealer under the A.P. VAT Act, 2005 and obtained a TIN number. 7. Pursuant to an authorisation issued on 07-01-2015 by the Joint Commissioner (Enforcement), the 3rd responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner to furnish details of the signatories and witnesses to each and every one of the contracts. Those persons were also summoned by the 3rd respondent and were cross-examined by the 3rd respondent on 08-11-2016. Thereafter, the 3rd respondent passed the order dated 19-11-2016 confirming the proposal and levying value added tax to the tune of Rs. 315,82,26,238/-, on the ground that there was a transfer of the right to use the rigs and that the contracts were entered into within the State of Andhra Pradesh. Therefore, the petitioner is back to square one with the above writ petition challenging the order of assessment. 14. As a matter of rule, we would not interfere with an order of assessment, as against which an effective statutory alternative remedy of appeal is available under the provisions of the A.P. VAT Act, 2005. But there are two exceptions to this rule, namely, (a) complete lack of jurisdiction and (b) violation of the principles of natural justice. Since the petitioner has assailed the impugned order on the ground of complete lack of jurisdiction, we ordered notice to the respondents and the 3rd respondent has also filed a counter affidavit. 15. The impugned or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Andhra Pradesh. Therefore, it is necessary to have a look at the relevant clauses contained in the contract document. 20. A copy of the agreement dated 16-4-2010 entered into by the petitioner shows that the contract was for charter hire of jack up rigs. As seen from the preamble to one of the contracts, the contracts were actually given by ONGC to a company by name Transocean Drilling Services (India) Private Limited, having registered office at Mumbai. The writ petitioner herein, which is a company registered under the laws of Cayman Islands, was named under the agreement as a sub-contractor. The original contract between ONGC and the contractor was for the deployment of jack up drilling rigs along with requisite personnel for operating the drilling unit and for carrying out offshore drilling operations for a term of 3 years on charter hire basis. Since the petitioner herein was the owner of the drilling unit and since the petitioner had adequate and necessary personnel for performing offshore drilling operations, they were entrusted with the sub-contract. One portion in the preamble to the agreement dated 16-4-2010 may be reproduced in order to understand the scope of the work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65, George Town, Grand Cayman, Cayman Islands India Correspondence Address : Attn. : Managing Director IME Transocean House Lake Boulevard Road Hiranandani business Park Powai Mumbai 400 076 23. Article 28 of the agreement contains a clause for arbitration. It reads as follows: 28.0 ARBITRATION 28.1 Except as otherwise provided elsewhere in the Agreement, if any dispute, difference, question or disagreement or matter whatsoever shall, before or after completion or abandonment of work or during extended period, hereafter arises between the parties hereto or respective representative or assignees concerning with the construction, meaning, operation or effect of the Agreement or out of or relating to the Agreement or breach thereof shall be resolved by mutual consultation between the parties. If the parties fail to resolve any dispute, difference etc. by mutual consultation, then the same shall be referred to arbitration. The reference to arbitration shall be to an arbitral consisting of three arbitrators. Each party shall appoint one arbitrator and the two appointed arbitrators shall appoint the third arbitrator, who shall act as the presiding arbitrator. The party desi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss for correspondence only at Mumbai as seen from Article 27.0; (iii) that the non-judicial stamp paper for the agreement was purchased at Mumbai; (iv) that the arbitration clause stipulates the venue of the arbitration to be at Mumbai and (v) that the agreement was made subject to the exclusive jurisdiction of the courts at Mumbai. 26. Therefore, if a civil dispute had arisen between the parties, only the courts in Mumbai would have had jurisdiction, not only because of Articles 27, 28 and 29 of the agreement but also because of the fact that the entire cause of action arose at Mumbai. None of the Articles of the agreement have anything to do with the State of Andhra Pradesh and hence the conclusion reached by the 3rd respondent that the agreement was not executed at Mumbai, appears to be completely perverse. 27. To come to a conclusion that a taxable event has occurred within the State of Andhra Pradesh, the Assessing Officer has followed the following reasonings, namely, (i) that mere purchase of non-judicial stamp paper in Mumbai is not sufficient evidence to prove the execution of the agreement at Mumbai; (ii) that the petitioner is registered as a dealer only in the St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the west-coast. Therefore, if the Assessing Officer has rejected the agreements as inadmissible in evidence for want of registration under the Registration Act, or for want of proper stamp duty under the Stamp Act, 1899, he could have taken only the place of location of the rigs as the criteria for determining whether the transaction is taxable in the State of Andhra Pradesh or not. If he had done that, he could not have proceeded further, in view of the admitted position that the rigs are located beyond the jurisdiction of the taxing authorities under the State of Andhra Pradesh. 30. Therefore, by a very ingenious logic, the Assessing Officer rejected the location of the rigs as having no relevance, but at the same time found fault in paragraph 0.2 of his order that the contracts were neither notarised nor registered under the Registration Act and Stamp Act, 1899. This processing of reasoning shows that there was an element of pre-determination in the mind of the Assessing Officer. 31. The 2nd reasoning given by the Assessing Officer is that the petitioner is registered as a dealer only in the State of Andhra Pradesh and that therefore he had jurisdiction. But this logic is lop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e turnover, cannot rob the legal rights of the State of Andhra Pradesh to recover the revenue legally due to it. 35. The above view is also wholly untenable. A dealer entrusted with the task of carrying out drilling operations in the west-coast on the Arabian Sea, when subjected to service tax liability by the concerned authorities, cannot be said to have wrongfully deprived the State of its revenue under the A.P. VAT Act, 2005. Therefore, all the reasons contained in the impugned order, assuming jurisdiction on the ground that the agreements should be presumed to have been entered into in the State of Andhra Pradesh, are wholly unsustainable in law and are completely perverse. Hence, the issue of jurisdiction has to be answered in favour of the writ petitioner. TRANSFER OF RIGHT TO USE: 36. The 2nd question that arises for consideration is as to whether under the agreements in question, there was a transfer of the right to use in terms of Section 4(8) of the A.P. VAT Act, 2005. 37. An answer to this question would depend upon the nature of the contract and the mutual rights and obligations of the contracting parties. Therefore, it may be necessary again to go back to the agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erintendence of all work hereunder shall be by Sub-contractor. (b) Operator through Contractor shall designate in writing representative or representatives who shall at all times have complete access to the Drilling Unit for the purpose of observing inspection or supervising the work performed by Sub-contractor in order to judge whether in Operators opinion, Drilling Services are being conducted by Sub-contractor in compliance with the provisions of the Contract. Operator through Contractor shall notify Sub-contractor in writing of the name(s) and authority of its representative or representatives. Such representative or representatives shall be empowered to act for Operator in all matters relating to Sub-contractors performance of the work herein undertaken. Sub-contractor agrees at all times to cooperate with and extend assistance to employees of Operator or employees of Operators contractors performing any function under this Agreement. (c) Sub-contractor shall designate an Area Manager in-charge of Sub-contractors Drilling Unit. Sub-contractor shall notify Contractor for further notification to the Operator in writing of the name(s) and authority of its representative or repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there was no transfer of the right to use. 47. As pointed out by the Supreme Court in State of A.P. v. Rashtriya Ispat Nigam Ltd. (2002) 3 SCC 314, hire charges are taxable only when full possession and control is given to the hirer. If the owner retains effective control over the equipment, it is not transfer of the right to use. 48. As pointed out by the Supreme Court in BSNL v. Union of India (2006) 3 SCC 1, the following attributes should be satisfied before a transaction is construed to be one involving transfer of the right to use the goods: (i) the availability of goods for delivery, (ii) consensus ad idem as to the identity of the goods, (iii) a legal right for the transferee not only to use the goods but also to bear all legal consequences of such use, namely, the obtaining of permissions or licences etc., (iv) the availability of the right to the transferee to the exclusion of the transferor and (v) the restriction for the owner to transfer the same rights to others during the period for which the right is so transferred. 49. But the above tests are not exhaustive. As we have mentioned earlier, the equipment and technical personnel provided by the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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