Andhra HC (Pre-Telangana)
M/S.Transocean Offshore, ... vs 1.Union Of India, Rep. By Its Secretary, ... on 6 April, 2017
HONBLE SRI JUSTICE V.RAMASUBRAMANIAN AND HONBLE Ms. JUSTICE J.UMA DEVI
Writ Petition No.44908 of 2016
06-4-2017
M/s.Transocean Offshore, International Ventures Limited, (A Company incorporated in Cayman Islands), Having its Project Office at Transocean House,Hiranandani Business Park, Powai, Mumbai-400 076, Rep. by its Constituted Attorney, Ms. Rajashree Apte, Aged about 35 years, W/o. Sh. Shailesh Ramesh Apte, R/o. 8, Krishna Kuti, Station Road, Govandi E, Mumbai-400 088 Petitioner
1.Union of India, Rep. by its Secretary, Department of Revenue, Ministry ofFinance, New Delhi; and 3 others --Respondents Counsel for the Petitioner: Mr. S.Ravi, Senior Counsel
For Respondents 2 and 3: Advocate General,
State of Andhra Pradesh
For Respondents 1 and 4 : Mr. B.Narayana Reddy,
Assistant Solicitor General
<Gist:
>Head Note:
? Cases referred:
1. (2002) 3 SCC 314
2. (2006) 3 SCC 1
3. [2009] 25 VST 653
4. [2015] 51 GST 582
HONBLE SRI JUSTICE V.RAMASUBRAMANIAN
AND
HONBLE Ms. JUSTICE J.UMA DEVI
Writ Petition No.44908 of 2016
Order: (per V. Ramasubramanian, J.)
The petitioner has come up with the above writ petition
challenging an order of assessment passed by the 3rd
respondent herein under the Andhra Pradesh Value Added
Tax Act, 2005 for various tax periods in the years 2012-13
and 2013-14.
2. Heard Mr. S.Ravi, learned Senior Counsel for the
petitioner, learned Advocate General for the State of Andhra
Pradesh appearing for the respondents 2 and 3, and
Mr. B.Narayana Reddy, learned Assistant Solicitor General of
India for the respondents 1 and 4.
3. The petitioner is engaged in the business of carrying
on offshore drilling operations for petroleum 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 respondent
conducted an audit of the books of accounts of the petitioner
for the period 2012-13 to 2013-14. Thereafter, a show cause
notice dated 09-01-2015 was issued in Form VAT 305A,
proposing to levy tax on operator hire charges on the rigs of
the petitioner at the rate of 14.5% under Section 4(8) of the
A.P. VAT Act, 2005, on the ground that there was a transfer
of the right to use.
8. The show cause notice was challenged by the
petitioner before this Court in W.P.No.1778 of 2015. But by
an order dated 03-02-2015, this Court disposed of the writ
petition with liberty to the petitioner to file objections and
a direction to the 3rd respondent to pass orders after
examining the objections with regard to jurisdiction and
competence of the tax authority of the State of Andhra
Pradesh.
9. Accordingly, the petitioner filed a detailed reply dated
17-3-2015, objecting to the very jurisdiction of the
3rd respondent to levy tax. The petitioner also requested the
3rd respondent to decide the question of jurisdiction in the
light of the law laid down by the Supreme Court in
20th Century Finance Corporation Limited v. State of
Maharashtra [2000] 119 STC 182 (SC).
10. Thereafter, the 3rd respondent issued a revised show
cause notice dated 11-5-2015, enhancing the proposed tax
liability. The petitioner again submitted a reply on
01-12-2015 and on 14-12-2015. The petitioner was then
granted personal hearing. Thereafter, a show cause notice
dated 10-02-2016 was issued proposing to levy tax at 14.5%.
It was followed by an order dated 25-02-2016 confirming the
proposals.
11. As against the said order dated 25-02-2016, the
petitioner filed a writ petition in W.P.No.9058 of 2016.
The main grievance of the petitioner in the writ petition was
that the 3rd respondent failed to deal with the question of lack
of jurisdiction.
12. Finding that the issue of jurisdiction was not dealt
with by the 3rd respondent, this Court allowed the writ
petition W.P.No.9058 of 2016 by an order dated 19-4-2016.
By the said order, this Court set aside the order of
assessment dated 25-02-2016 and remitted the matter back
to the 3rd respondent to consider the question of jurisdiction
and to pass fresh orders.
13. Thereafter, the 3rd respondent issued another show
cause notice dated 02-9-2016, to which the petitioner filed
a reply. Thereafter, the 3rd respondent, by a notice dated
10-10-2016 directed the 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 order is assailed primarily on two
grounds, namely, (a) that the offshore drilling contracts were
neither entered into nor executed within the State of Andhra
Pradesh and hence the authorities under the A.P. VAT Act
have no jurisdiction to assess such a contract to value added
tax under the provisions of the A.P. VAT Act and (b) that in
any case, the finding that there was a transfer of the right to
use the rigs in terms of Section 4(8) of the Act was completely
perverse.
16. The 3rd respondent has filed a counter affidavit
contending, inter alia,
(i) that the petitioner has an effective statutory
alternative remedy;
(ii) that since the contracts in question do not disclose
the place in which they were executed and also since the
petitioner failed to prove that they were not entered into in
the State of Andhra Pradesh, the 3rd respondent had
jurisdiction;
(iii) that merely because the non-judicial stamp papers
on which the contracts were entered into, were purchased in
Mumbai and merely because the witnesses to the agreement
deposed in favour of the petitioner, it cannot be contended
that the agreements were not executed within the State of
Andhra Pradesh;
(iv) that the mere payment of service tax on
an erroneous understanding of the law by the writ petitioner,
cannot be conclusive proof of the fact that the effective control
of the drilling rigs were not transferred to the operators, and
that therefore the writ petition deserved to be dismissed.
17. We have carefully considered the above
submissions.
18. From the rival contentions, it is clear that two core
issues arise for consideration. They are: (i) whether the
contracts entered into by the petitioner with the contractor of
ONGC, could be taken to have been either entered into or
executed/performed within the State of Andhra Pradesh, so
as to confer jurisdiction upon the authorities under the A.P.
VAT Act, 2005, to proceed against the petitioner and (ii)
whether in the facts and circumstances of the case, it could
be deemed that there was a transfer of the right to use the
rigs.
PLACE OF EXECUTION OF CONTRACTS AND
JURISDICTION:
19. Fortunately, there is no dispute on facts with
respect to the terms and conditions of the contract. Accepting
the contract document to be true, the 3rd respondent has
come to the conclusion that the contracts should be taken to
have been entered into within the State of 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
entrusted to the petitioner. Hence, it is extracted as follows:
AND WHEREAS, ONGC has issued a Firm Order to the
Contractor vide No.MR/DS/MAT/CT/RIGS/CH/291
(1139)/2010/P46JC09011 dated 16.04.2010 (the Firm
Order), wherein the Contractor is required to deploy on
charter hire basis, jack-up drilling Rig, namely J T Angel
(hereinafter referred to as Drilling Unit) and requisite
personnel for operating the Drilling Unit and for carrying
out offshore drilling operations, for a term of 3 years;
AND WHEREAS, pursuant to the Firm Order, Contractor
and Operator would further execute and enter into an
agreement with detailed terms and conditions (the
Contract) in terms of the Model Contract in the Tender;
AND WHEREAS, Sub-contractor is the owner of the said
Drilling Unit and also has adequate and necessary
personnel for performing the offshore drilling operations,
which would inter-alia include to deploy the Drilling Unit
and to provide personnel as per Annexure-III on charter
hire basis, on behalf of the Contractor (Drilling Services);
21. It is relevant to note that none of the contracting
parties, namely, Transocean Drilling Services (India) Private
Limited or the petitioner herein have been described in the
agreement dated 16-4-2010 either to have a registered office
or to have a principal office or to have a sub-office within the
State of Andhra Pradesh. The non-judicial stamp paper on
which the agreement was executed was admittedly purchased
in the State of Maharashtra.
22. Article 27.0 of the agreement prescribes that all
notices/correspondences should be delivered only at the
addresses given therein. Article 27.0 reads as follows:
27.0 WRITTEN NOTICES
All notices/correspondences shall be in writing and
may be delivered personally to any Officer or Manager at
the addresses specified below, unless changed by Notice or
may be sent by registered mail to said address, postage
prepaid, or may be sent by telex, telegram or cable, charges
prepaid confirmed by copy of such telex, telegram or cable
sent by registered mail to said address. The addresses
referred to are:
For Contractor : Transocean Drilling Services (India)
Pvt. Ltd.
The Director
Transocean House
Lake Boulevard Road
Hiranandani Business Park
Powai
Mumbai 400 076
For Sub-contractor: Transocean Offshore
International Ventures Limited
Registered Office :
C/o Walkers, Walkers House,
P.O.Box 265, 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 desiring the settlement of dispute shall give
notice of its intention to go in for arbitration clearly stating
all disputes to be decided by arbitral tribunal and appoint
its own arbitrator and call upon the other party to appoint
its own arbitrator within 30 days. If the other party fails to
appoint its arbitrator within stipulated period or the two
arbitrators fail to appoint the third arbitrator, Chief Justice
of High Court of competent jurisdiction or Chief Justice of
India as the case may be or any person or institution
designated by them shall appoint the Second Arbitrator
and/or the Presiding arbitrator as the case may be.
If the arbitrator or arbitrators to whom the matter is/are
originally referred dies or refuse to act or resign/withdraws
from the position of arbitrators for any reasons, a new
arbitrator(s) shall be appointed by the respective parties/
arbitrators in the manner aforesaid. The new arbitral
tribunal shall be entitled to proceed with the reference from
the stage at which it was left by his predecessor if both the
parties consent to this effect, failing which they will be
entitled to proceed de-novo.
It is a term of the Agreement that the cost of arbitration will
be borne by the parties in equal shares. It is also a term of
the Agreement that neither party to this Agreement shall be
entitled for any ante-lite, (pre-reference) or pendent-lite
interest on the amount of award.
The venue of the arbitration shall be Mumbai, India.
Subject as aforesaid, the provisions of Arbitration
and Conciliation Act 1996 and any statutory modifications
or re-enactments thereof and rules made thereunder for the
time being in force shall apply to the arbitration
proceedings under this Article.
24. Article 29.0 of the agreement states that the
agreement and all matters concerned therewith shall be
governed by the laws of India, both substantive and
procedural and that they shall be subject to the exclusive
jurisdiction of the courts at Mumbai.
25. Therefore, it is clear from the relevant clauses
contained in the agreement
(i) that one of the parties to the agreement has its
registered office in Mumbai with no indication about the
existence of either a principal or a sub-office in any other
place in India;
(ii) that the other party to the agreement, who is the
petitioner herein, is clearly indicated to be a company
incorporated outside India with an address 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 State of Andhra Pradesh and not anywhere else in the
country; and
(iii) that the omission to mention the place of execution
of the contract in the agreement, coupled with the fact that
the witnesses to the contract examined before the Assessing
Officer were interested parties, is fatal to the contention of the
petitioner.
28. It is true that by purchasing non-judicial stamp
papers at a particular place, the parties to an agreement
cannot create jurisdiction at that place. But when the
purchase of non-judicial stamp papers at Mumbai is seen in
the context of the location of the registered office of the
Contractor at Mumbai as well as Article 27 of the agreement,
indicating the addresses for correspondence of both parties to
the agreement at Mumbai, the first reasoning given by the
Assessing Officer can be seen to be hollow and perverse. The
case on hand is not like that of two parties having their
registered offices at Karnataka or Kerala, purchasing
a non-judicial stamp paper at Maharashtra for the execution
of an agreement. This is a case where one of the parties to the
contract has its registered office at Mumbai. Both parties
have indicated in Article 27 of the agreement, their addresses
for correspondence only at Mumbai. Both parties have agreed
under Article 28 of the agreement to have Mumbai as the
venue of arbitration to resolve any disputes and both parties
have agreed to submit to the jurisdiction of the courts in
Mumbai. Therefore, the first reasoning given by the Assessing
Officer exhibits a complete perversity of approach.
29. Interestingly, the Assessing Officer has taken
serious objections to the failure of the contracting parties to
get the agreement notarised or to get it registered under the
Registration Act. The Assessing Officer has not gone to the
extent of holding the agreement to be inadmissible in
evidence. If the Assessing Officer had come to the conclusion
that the agreement was inadmissible in evidence for want of
registration under the Registration Act or for want of payment
of proper duty under the Stamp Act, 1899, the Assessing
Officer could not have relied upon the decision of the
Supreme Court in 20th Century Finance Corporation Ltd. v.
State of Maharashtra [2000] 119 STC 182 (SC). The Assessing
Officer has admitted in his order that the rigs operated by the
petitioner are located beyond 12 nautical miles in the Arabian
Sea in 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 lopsided. A person who is a registered dealer
in the State, is liable to pay tax only on the sales made by
him or on the contracts executed by him within the State of
Andhra Pradesh. Merely because a person is registered as
a dealer in the State of Andhra Pradesh, the 3rd respondent
cannot assume jurisdiction to tax all events that happen
beyond the territorial limits of the State. Hence, the
2nd reasoning given by the 3rd respondent is also untenable.
32. The 3rd reasoning mentioned by the Assessing
Officer is that there was a conscious omission on the part of
the contracting parties to mention the place where the
agreement was entered into. But we do not know how the
mere absence of the words executed at Mumbai, will deprive
the petitioner of their right to point out how the contract was
executed at Mumbai. As we have pointed out earlier,
(i) the non-judicial stamp paper was purchased at
Mumbai,
(ii) the address of the registered office of one of the
parties to the contract is at Mumbai, while that of the other
was outside India,
(iii) the addresses for correspondence of both parties are
indicated in Article 27 of the contract to be at Mumbai,
(iv) Article 28 of the agreement indicates Mumbai to be
the venue of arbitration and
(v) Article 29 of the agreement indicates the courts in
Mumbai to have exclusive jurisdiction to decide disputes
arising out of the agreement.
33. In the light of the above facts, the Assessing Officer
was completely in error and perhaps coloured in his vision
when he rejected the oral evidence of the witnesses to the
contract on the ground that they were interested parties.
The Assessing Officer cross-examined these witnesses and
it was not the 3rd respondents finding that these persons
were not witnesses to the agreement. Therefore, the
3rd reasoning given by the 3rd respondent is also completely
perverse.
34. In the course of their submissions during personal
hearing, the petitioner had claimed that they had paid service
tax. But the Assessing Officer claimed that there was
a difference of Rs.167 Crores of service tax turnover for the
year 2012-13. When the petitioner pointed out that this
difference was due to variation in the Dollar exchange rate,
the Assessing Officer admitted the same in point No.6 of his
impugned order. But, nevertheless, the Assessing Officer
concluded that erroneous payment of service tax on the entire
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 agreement between Transocean
Drilling Services (India) Pvt. Ltd., who was the contractor and
the petitioner herein, who was the sub-contractor. As we have
pointed out earlier, the sub-contract was for deploying on
charter hire basis, a jack up drilling rig and the requisite
personnel for operating the drilling unit and for carrying out
offshore drilling operations. The preamble which we have
extracted earlier shows that the petitioner was the owner of
the drilling unit and that they also had adequate and
necessary personnel for performing the offshore drilling
operations that would include the deployment of drilling unit
and personnel as per Annexure-III.
38. The agreement contained 5 Annexures. Annexure-I
gave the Schedule of responsibilities for drilling equipment,
materials, supplies and services. Annexure-II contained the
scope of the work. Annexure-III contained the list of technical
crew and catering crew. It appears from Annexure-III that for
the purpose of operating the rigs, the petitioner has to provide
the services of about 46 technical personnel including Barge
Engineer, Crane Operator, Radio Operator, Chief Mechanic
etc.
39. Article 3.0 of the agreement provides the roles and
responsibilities of the contractor. A careful look at the same
would show that the responsibility of Transocean Drilling
Services (India) Private Limited, which was the contractor,
was only to liaise between the petitioner herein and the
operator, namely, ONGC, to enable the sub-contractor (the
petitioner herein) to carry out the work. In other words,
Article 3.0 of the agreement does not impose any
responsibility upon the contractor to operate the rig or extract
work from the technical or other crew employed by the
sub-contractor (the petitioner herein).
40. In contrast, Article 4.0 contains the roles and
responsibility of the petitioner herein (sub-contractor). Under
Article 4.0, the petitioner is obliged to furnish and maintain
at its cost all material, supplies, equipment and services.
The petitioner is also obliged to provide supervisory, technical
and other personnel to properly perform the work.
41. Article 9.0 of the agreement also vests the entire
responsibility for the performance of the work only upon the
petitioner herein. Article 9.2 of the agreement is of
significance and hence it is extracted as follows:
9.2 REPRESENTATIVES
(a) The actual performance and superintendence 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 representatives.
Such representative or representatives shall be fully
capable and empowered to act for Sub-contractor in
all matters relating to Sub-contractors performance
of the work in accordance with this Agreement and
the Contract.
42. From the above, it is clear that the petitioner was
obliged to provide on charter hire basis (i) drilling rig and
(ii) operating personnel and also take up the responsibility of
carrying out the operations. Therefore, there was never any
transfer of the right to use, either in favour of the contractor
(Transocean Drilling Services (India) Private Limited) or in
favour of the operator (ONGC).
43. It must be pointed out at this juncture that the
expression charter hire has significance in Maritime or
Admiralty Law. A charter is defined as a specific contract by
which the owner of a ship lets the whole or part of the ship to
another person for the conveyance of goods or passengers on
a particular voyage or until the expiration of a specified time.
In simple terms, charter party is the mere hiring of a ship.
44. Under the Maritime Law, charter parties are
standardised and grouped into 3 main classifications,
namely, (i) voyage charters, (ii) time charters and (iii)
demise or bare boat charters.
45. In a voyage charter, the ship is hired to carry a full
cargo on a single voyage. In a time charter, the ship is hired
for a fixed period of time. In a demise or bare boat charter,
the charterer takes over complete control of the ship for
a specific purpose or period of time. The difference between
a voyage charter and time charter on the one hand and
a demise/bare boat charter on the other is that under
the first two categories, the ship remains under the
control of the owner, as to manning and navigation. In
the case of demise or bare boat charter, the control
shifts to the charterer.
46. In the case on hand, the parties to the contract have
used the expression charter hire, only because of the fact
that they were dealing with offshore drilling rigs. Articles 3.0,
4.0 and 9.2 of the agreement make it clear that the agreement
between the parties does not fall under the category of
a charter similar to a demise or bare boat charter. The terms
of the agreement makes it clear that the entire control with
regard to manning, operating and navigating was retained by
the petitioner herein. Once this is clear, it follows as
a corollary 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. , 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 , 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 to the main contractor are on
charter hire, where the complete control was retained by the
petitioner. All responsibilities were placed only upon the
petitioner by the main contractor himself. Therefore, even the
tests adopted by the Delhi High Court in two successive
decisions, one in Commissioner, VAT v. International Travel
House Ltd. and Hari Durga Travels v. Commissioner of
Trade , are satisfied in this case.
50. Hence, the petitioner is entitled to succeed on both
counts, namely, (i) lack of jurisdiction on the part of the
3rd respondent and (ii) the absence of a transfer of the right to
use. Therefore, the writ petition is allowed and the impugned
is set aside. The miscellaneous petitions, if any, pending in
this writ petition shall stand closed. No costs.
___________________________
V.RAMASUBRAMANIAN, J.
________________ J.UMA DEVI, J. 06th April, 2017.