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(ii) M/s RTA Alesa AG, Switzerland, was awarded a 'EPC' contract by M/s Bharat Aluminium Company Limited ( BALCO) for 55 TPH bath processing plant for carbon plant of BALCO smelter expansion project at Corba, Chattisgarh ( India). Accordingly, it set up a project office (PO) in India for executing EPC project with BALCO on a general permission from the Reserve Bank of India (RBI). This project office constituted permanent establishment (PE) of RTA Alesa, Switzerland India i.e. an entity in India for tax purposes (Assessee) .

4.3.3 Further, we find that single contract agreement with the BALCO for execution of the contract of supply of equipments and rendering of service, though the price of both the components have been computed separately. But merely breaking of the price into components of the contract, cannot make the transaction separable from each other. The execution of the turnkey project require material and service side by side for erection and commissioning and installation of the plant. The DRP in its order has noted features of the EPC contracts as under:

"EPC (also known as "lump-sum-turnkey" (LSTK) contract is a form of contracting arrangement in which the contractor is responsible for designing the project, procuring the necessary materials and constructing the designed project. Contractors perform such tasks either through their own labor or by subcontracting a part of the work to third parties. Additionally, the contractor delivers the complete facility for a guaranteed price by a guaranteed date.

Broadly, EPC Contracts are divided into two or more separate contracts "offshore contracts" and "onshore contracts"

In an offshore contract, the contractor manages the supply of design and engineering services, plants, equipment and materials sourced from outside the host country. However, in an onshore contract, the contractor is responsible for the installation of equipment procured under the offshore contract, construction, commissioning, onshore design and other onsite activities, along with the supply of equipment sourced from within the host country.

As EPC contracts are commonly used within the engineering and construction industry, growth in such contracts is positively correlated to the growth of these two sectors. The salient features of an EPC contract are (i) single point of contact i.e. the contractor for design, engineering, procurement, construction, commissioning and testing of the facility, (ii) fixed contract price under which the risk of costs overruns and the benefit of any cost saving accrue to the contractor and the investment required is pre-decided, (iii) fixed completion date which is decided at the time of commencement of the EPC contract failure to abide by which might result in delayed liquidated damages to the contractor, (iv) performance guarantees regarding output, efficiency and reliability requirements failure to live up to which might cause liquidated damages payable by the contractor and (v) security which is to be given by the contractor to the project company to ensure compliance of obligations prescribed under the EPC contract. The EPC sector performance is primarily interlinked with infrastructure investment. Contractors for EPC projects are selected on the basis of a tender process for large high- tech project which are executed in the public private partnership mode."