WP/13380/2007 of M/s. Saipem (Portugal) Commercio Martitimo SU Lda., Vs The Commercial Tax Officer, Kakinada Circle, on 31 December 2007

THE HON’BLE THE ACTING CHIEFJUSTICE BILAL NAZKIAND

THE HON’BLE SRI JUSTICE RAMESH RANGANATHANW.P.Nos.13380 and 16040 of 2007

DATE: 31-12-2007

W.P.No.13380 of 2007

Between:

M/s.Saipem (Portugal) Commercio Martitimo SU Ltd. , MathuradasVasanji Raod, Andheri (East) Mumbai rep. By is Manager.

…..

Petitioner

and

The Commercial Tax Officer, Kakinada Circle, Kakinada andanother.

..

Respondents

W.P.No. 16040 of 2007

Between:

M/s.Saipem (Portugal) Commercio Martitimo SU Ltd. , MathuradasVasanji Raod, Andheri (East) Mumbai rep. By is Manager.

…..

Petitioner

and

The Commercial Tax Officer, Kakinada Circle, Kakinada andanother.

..

THE HON'BLE THE ACTING CHIEFJUSTICE BILAL NAZKIANDTHE HON'BLE SRI JUSTICE RAMESH RANGANATHANW.P.Nos.13380 and 16040 of 2007

ORDER: (The Hon'ble Sri Justice Ramesh Ranganathan)

W.P.No.13380 of 2007 is filed by M/s.Saipem (Portugal)Commercio Martitimo, SU Lda., to declare the action of theCommercial Tax Officer, Kakinada, in passing the order inproceedings dated 20-06-2007 treating the transaction of the rigoperations as deemed sale, as illegal, arbitrary and withoutauthority of law and to declare that the work executed by thepetitioner for the Gujarat State Petroleum Corporation does notinvolve any transfer of property exigible to tax under theprovisions of the Andhra Pradesh General Sales Tax Act, 1957(for short ‘APGST Act’).

W.P.No.16040 of 2007 is filed by the very same Companyto declare the action of the Commercial Tax Officer, Kakinada, inpassing the assessment order in Form VAT-305 dated 19-07-2007treating the transaction of the rig operations as deemed sale, asillegal, arbitrary and in violation of the law declared by theSupreme Court in 20[th] Century Finance Corporation Ltd. v.State of Maharashtra[[1]]and the binding judgment of the SalesTax Appellate Tribunal in M/s.D.S.T. Site Office & M/s.SAIPEMIndia Project Office v. State of Andhra Pradesh[[2]], to set asidethe same and to declare that the work executed by the petitioner for the Gujarat State Petroleum Corporation does not involve anytransfer of property exigible to tax under the provisions of theAndhra Pradesh Value Added Tax Act, 2005 ( for short ‘APVATAct’).

The petitioner is a Portugese Company having its projectoffice at Bombay. It is a registered dealer under the APGST Act,1957, APVAT Act, 2005 and the Central Sales Tax Act, 1956 (forshort ‘the Act’) and an assessee on the rolls of the AssistantCommercial Tax Officer, Kakinada. It is engaged in the businessof drilling, testing and abandoning of off shore wells. The GujaratState Petroleum Corporation (hereinafter referred to as ‘GSPC’),an undertaking of the Gujarat Government, along with its two jointventure partners, had entered into a production sharing contractwith the Government of India on 04-02-2003 in respect of thecontract area identified as KG-OSN-2001/3 exploration blockunder NELP/III off shore Andhra Pradesh Coast. Thereafter, theGSPC entered into a contract with the petitioner on 01-04-2004 at Gandhinagar, Gujarat for drilling, completing andabandoning the wells identified by it. Petitioner applied forregistration with the Assistant Commercial Tax Officer, Kakinadain the month of October, 2004 under the APGST and CST Acts andwas granted registration with effect from 09-03-2005. On the pleathat it was not doing any business in purchase and sale of goods,and that the entire purchases were only for self-consumption, thepetitioner reported its taxable turnover as ‘Nil’.

Against the order of the Commercial Tax Officer, Kakinadadated 20-06-2007, which is the subject matter of challenge inW.P.No.13380 of 2007, the petitioner has a statutory remedy of appeal under Section 19 of the APGST Act. Similarly, against the assessment order, in Form VAT-305 dated 19-07-2007, which is under challenge inW.P.No.16040 of 2007, Section 31 of the APVAT Act provides aremedy of appeal.

Under Article 226 of the Constitution, the High Court, havingregard to the facts of the case, has a discretion to entertain or notto entertain a writ petition. The High Court has, however, imposedupon itself certain restrictions one of which is that if an effectiveand efficacious remedy is available the High Court would notnormally exercise its jurisdiction. But the alternative remedy hasbeen held as not to operate as a bar in at least threecontingencies, namely, where the writ petition has been filed forthe enforcement of the Fundamental Rights or where there hasbeen violation of the principle of natural justice or where the orderor proceedings are wholly without jurisdiction or the vires of an Actis challenged.(Whirlpool Corporation v. Registrar of trademarks[3])

In these writ petitions, the petitioner does not seekenforcement of fundamental rights nor does it allege violation ofprinciples of natural justice. The vires of a statutory provision isalso not under challenge. On a query as to why this Court shouldexamine the validity of the impugned order on merits since theseare all matters effectively adjudicated in statutory appeals, SriS.R.Ashok, learned Senior Counsel appearing on behalf of thepetitioner, would submit that he would confine his submissionsonly to the question of jurisdiction, as the remedy under Article 226 of the Constitution of India is not barred in such cases.

Sri S.R.Ashok, learned Senior Counsel, would contend thatsince the agreement was entered into in the State of Gujarat, thepetitioner was not liable to be taxed under Section 5-E of theAPGST Act within the State of Andhra Pradesh. Learned SeniorCounsel would also contend that, since the subject matter of thesewrit petitions are covered by the judgment of the Supreme Court in20[th] Century Finance Corporation Ltd.[1]and the order of theS.T.A.T. in M/s.D.S.T. Site Office[2]to which the petitioner was aparty, relegating the petitioner to the remedy of an appeal whereinthey are required to deposit 12.5% of the tax due was notefficacious. Since, admittedly, the petitioner has an alternativeremedy of an appeal under the statute, it is only on the limitedquestion whether the impugned orders as passed were withoutjurisdiction that these writ petitions need be examined.

It is useful, in this context, to extract Section 5-E of the APGST Act and Section 4(8) of the APVAT Act.

Section 5-E of the APGST Act reads thus:

5-E Tax on the amount realized in respect of any right to use goods:

Notwithstanding anything contained in this Act:

(a) Every dealer who transfers the right to use any goods for anypurpose, whatsoever, whether or not for a specified period, to anylessee or licencee for cash, deferred payment or other valuableconsideration, in the course of his business shall, on the total amountrealized or realizable by him by way of payment in cash or otherwiseon such transfer or transfers of the right to use such goods from thelessee or licencee, pay a tax at the rate of eight paise on every rupeeof the aggregate of such amount realized or realizable by him duringthe year;purpose, whatsoever, whether or not for a specified period, to anylessee or licencee for cash, deferred payment or other valuableconsideration, in the course of his business shall, on the total amountrealized or realizable by him by way of payment in cash or otherwiseon such transfer or transfers of the right to use such goods from thelessee or licencee, pay a tax at the rate of eight paise on every rupeeof the aggregate of such amount realized or realizable by him duringthe year;

(b) the transfer of right to use any such goods entered into by anydealer, shall be deemed to have taken place in t his State wheneverthe goods are used within the State, irrespective of the place wherethe agreement whether written or oral for such transfer of right ismade.

Provided that no such tax shall be levied if the total turnover of thedealer including such aggregate is less than Rs.two lakhs.”

Section 4(8) of the APVAT Act reads thus:

“Every VAT dealer who transfers the right to use goodstaxable under the Act for any purpose, whatsoever, whether or not fora specified period, to any lessee or licensee for cash, deferredpayment or other valuable consideration, in the course of hisbusiness shall, on the total amount realized or realizable by him byway of payment in cash or otherwise on such transfer of right to usesuch goods from the lessee or licensee pay a tax for such goods atthe rates specified inn the Schedules.”

Sri S.R.Ashok, learned Senior Counsel appearing on behalfof the petitioner, would draw our attention to that portion of theimpugned order wherein the first respondent, while referring to theorder of the Tribunal in M/s.D.S.T. Site Office[2], had held that, inthat case, the appellant had entered into a contract with ONGC forimporting the oil drilling rig and other equipment with the conditionthat the entire equipment would be re-exported after it was overand, in the case before him, there was no mention of deliveryconditions as was in the case before the Tribunal. The firstrespondent had held that, in the case before the Tribunal, the rigand equipment were delivered and handed over along with thecrew by the petitioner and, according to the clause in theagreement, the Company was responsible for damage or loss ofcontractor’s equipment and, therefore, the terms and conditions ofthe contract were different.

Learned Senior Counsel would refer to the main componentsof the terms and conditions of the contract entered into betweenM/s.GSPC and the petitioner where, under clause 3, on completionof services it is the responsibility of the contractor to take back the unused material with intimation to the Company. LearnedSenior Counsel would also refer to clause 4 of the contract dated 01-04-2004, whereunder it has been held thus:

“The mobilization shall be effective only when the rig has physicallymoved on to the location, preloaded, jacked up to required height, picked upthe drive pipe and ready to lower the first pipe through the rotary. The moverate shall be admissible when the rig has been released from one locationafter the conclusion of all operations at the location and shall extend till it isjacked up on the next location and ready to lower the first drive pipe and startoperations. Demobilization shall be effected when the rig has secured thewell and has been released by the Company representative to Jack downthe hull at the last location, having offloaded any Company’s and otherCompany contractors’ equipment and materials. As a part of the PSCformalities the contractor is then expected to move/low the rig out of the PSCarea at the earliest after duly re-exporting it.”

He would also refer to the Bill of Entry for homeconsumption dated 21-04-2004, which relates to importation for thepurpose of petroleum operations for the production sharingcontract between the Government of India and M/s.GSPC.Learned Senior Counsel would also refer to the minutes of themeeting held between officials of M/s.GSPC and the petitionerduring 3[rd] to 6[th] March, 2004 at Sharjah whereunder M/s.GSPChad confirmed its intention of hiring PN3 rig subject to its beingtechnically qualified by third party inspection, it was recorded thata joint inspection of the Jack Up Rig PN3 was carried out on 03-03-2006 and the inspection of various other equipments werecarried out on 04-03-2004, that during their visit to Ajman Port,Sharjah, the ongoing work on Perro Negro 3 Rig was noted and itwas recorded that the petitioner had provided a copy of theInspection Report recently carried out by the agency.

Learned Senior Counsel would also refer to the letteraddressed to the petitioner by the M/s.GSPC on 10-03-2004 of their intent to contract the “Perro Negro 3” jack up drilling rig forwork off shore east coast of India to commence on or before 15-05-2004 based upon the mutually agreed contract which includedthe terms and conditions. Reference is made to the contractagreement dated 01-04-2004 which refers to the schedulesattached to the contract and to schedule-B which is the equipmentlist and the specifications required to be provided by thecontractor. Learned Senior Counsel would refer to the bill of ladingof the petitioner which records that there was no transfer ofownership of the consignment vessel under any jurisdictionanywhere whatsoever. According to the learned counsel theconclusions of the first respondent, that the rig was originallydescribed to M/s.GSPC by appropriate charts, drawings andwritten description and then was delivered off the coast ofKakinada in the State of Andhra Pradesh, that it was a case ofsale by description wherein the goods were treated asunascertained goods, that ascertainment and confirmation of thegoods as per the required norms of the parties happened afterfitment of the necessary equipment at Kakinada in the State ofAndhra Pradesh, India, and, therefore, the transaction was taxableas local sales, were perverse conclusions contrary to theoverwhelming evidence on record. Learned Senior Counsel wouldsubmit that the minutes aforementioned would clearly show thatthe rig was, in fact, inspected and was not sold by description. Learned Senior Counsel would place reliance on 20[th] CenturyFinance Corporation Ltd.[1]and M/s.D.S.T. Site Office[2].

Learned Special Standing Counsel for Commercial Taxes, on the other hand, would submit that the rig was not ascertainableon the date of the contract, that it was a sale by description andinvolved delivery of the rig within the State, that parts of the rigwere brought into India and it is only at Kakinada was the rigassembled and, as such, Section 5E of the APGST Act wasclearly attracted. Learned Special Standing Counsel would refer tothe portion of the order of the first respondent where theequipment, services and facilities furnished by the contractor andpaid by the contractor on the items as per the applicable rates wasreferred to. Learned Special Standing Counsel would submit thatthese were all components of the rig and that it is only after thesegoods had entered India were they assembled as a rig atKakinada. Learned Special Standing Counsel would refer to theportion of the order wherein the first respondent has made adetailed analysis of the agreement and had observed thus:

“The main question involved in this case exigibility of sales tax on thehire charges received by SAIPEM from hiring of rig and supply of rig materialand equipment to the customer i.e., GUJARAT STATE PETROLEUMCORPORATION in AP under the Act. It is enough to discuss the issue onthe basis of the agreement and orders placed by the GUJARAT STATEPETROLEUM CORPORATION.

The agreement contained two parts one is location of Rig andequipment as per the instructions of the customer and then leasing/hiring outof such rig and equipment on the basis of monthly charges, in the 2[nd] part. Itis a running contract for using the Rig and equipment on rental basis by thecustomer and therefore the levy of tax on the amount received as hirecharges for using the rig and equipment /rig, by the customer is clearlysustainable under the Act. The assessee is the owner of the goods and theuse of the Rig by the GUJARAT STATE PETROLEUM CORPORATION onhire charges comes into operation only after reaching the rig to designatedlocations of the customer i.e., GUJARAT STATE PETROLEUMCORPORATION in Andhra Pradesh. The question of levying tax relating tothe hire charges received by the SAIPEM from GUJARAT STATEPETROLEUM CORPORATION starts with leasing/hiring of rig andequipment.”

Conclusion

Learned Special Standing counsel would submit that the rigwas too big an equipment to be brought as it is into India. Hewould emphasize that it is not even the case of the petitioner, inthe affidavits filed in support of the writ petitions, that the rig in itsentirety was brought and put to use offshore at Kakinada. LearnedSpecial Standing Counsel would submit that it is only parts andother sub-components of the rig which were brought into India andwere assembled at the nearest port and, since the rig wasassembled at Kakinada, Section 5E was attracted Since both the counsel relied on the judgment of theSupreme Court in 20[th] Century Finance Corporation Ltd.[1], it isnecessary to note the conclusions wherein the Supreme Court hadobserved thus:

“As a result of the aforesaid discussion our conclusions are these :

(a) The State in exercise of power under Entry 54 of List II read withArticle 366 (29a) (d) are not competent to levy sales tax on thetransfer of right to use goods, which is a deemed sale, if such saletakes place outside the State or is a sale in the course of inter-Statetrade or commerce or is a sale in the course of import or export.Article 366 (29a) (d) are not competent to levy sales tax on thetransfer of right to use goods, which is a deemed sale, if such saletakes place outside the State or is a sale in the course of inter-Statetrade or commerce or is a sale in the course of import or export.

(b) (b) The appropriate legislature by creating legal fiction can fix situsof sale. In the absence of any such legal fiction the situs of sale incase of the transaction of transfer of right to use any goods would bethe place where the property in goods passes, i. e. where the writtenagreement transferring the right to use is executed.of sale. In the absence of any such legal fiction the situs of sale incase of the transaction of transfer of right to use any goods would bethe place where the property in goods passes, i. e. where the writtenagreement transferring the right to use is executed.

(c) Where the goods are available for the transfer of right to use thetaxable event on the transfer of right to use any goods is on thetransfer which results in right to use and the situs of sale would bethe place where the contract is executed and not where the goodsare located for use.taxable event on the transfer of right to use any goods is on thetransfer which results in right to use and the situs of sale would bethe place where the contract is executed and not where the goodsare located for use.

(d) In cases where goods are not in existence or where there is an oralor implied transfer of the right to use goods, such transactions maybe effected by the delivery of the goods. In such cases the taxableevent would be on the delivery of goods.or implied transfer of the right to use goods, such transactions maybe effected by the delivery of the goods. In such cases the taxableevent would be on the delivery of goods.

(e) The transaction of transfer of right to use goods cannot be termedas contract of bailment as it is deemed sale within the meaning oflegal fiction engrafted in clause (29a) (d) of Article 366 of theConstitution wherein the location or delivery of goods to put to use isas contract of bailment as it is deemed sale within the meaning oflegal fiction engrafted in clause (29a) (d) of Article 366 of theConstitution wherein the location or delivery of goods to put to use is immaterial.”

The transfer of the right to use goods, in certain situations,is taxable under Section 5-E of the APGST Act and under Section4(8) of the APVAT Act.

While Sri S.R.Ashok, learned Senior Counsel appearing onbehalf of the petitioner, would rely on the agreement dated 01-04-2004 between GSPC and the petitioner, the contract conditionsand other documents, to contend that the sale took place outsidethe State of Andhra Pradesh and since the situs of the transaction,whereby the right to use the rig was transferred, had taken placewhere the property in goods had passed which was outside theState of Andhra Pradesh, and as the written agreementtransferring the right to use the rig was executed in the State ofGujarat, no tax could be levied on the petitioner within the State ofAndhra Pradesh either under the APGST Act or the APVAT Act. Reliance is placed by the learned Senior counsel on sub-para (a)and (b) of paragraph 35 of the judgment in 20[th] Century FinanceCorporation Ltd.[1], in support of these submissions.

Learned Special Standing Counsel for Commercial Taxes,on the other hand, would contend that since the rig was not inexistence when the agreement was entered into on 01-04-2004,and its parts and sub-assemblies were imported and assembled atKakinada, transfer of the right to use the rig was effected bydelivery of goods at Kakinada, the taxable event was on thedelivery of goods at Kakinada and as such the first respondentwas justified in levying tax under Section 5-E of the APGST Actand Section 4(8) of the APVAT Act. He would rely on sub-para (d)of para 35 of the judgment of Supreme Court in 20[th] Century Finance Corporation Ltd.[1], While Sri S.R.Ashok, learned counsel for the petitioner,would place reliance on the order of the Tribunal in M/s.D.S.T. SiteOffice[2], whereunder the Tribunal had held that the amountsreceived by the petitioner from ONGC for drilling operations, forand on behalf of ONGC, were not taxable, and submit that theorder of the Tribunal, to which the petitioner was a party, hadattained finality and was binding on the respondents, learnedSpecial Standing Counsel for Commercial Taxes would refer to theimpugned order, wherein the first respondent had relied on ajudgment of this Court in Onway Engineering Private Ltd. v.State of Andhra Pradesh[4], to hold that, in view of the judgment ofthis Court, the order of the Tribunal in M/s.D.S.T. Site Office[2],was no longer good law.

While this Court would exercise its discretion, to entertain awrit petition, where the orders impugned are without jurisdiction, itcannot be lost sight of that the question of jurisdiction can as wellbe raised by the petitioner in appellate proceedings. The factsreferred to hereinabove would show that even the basis facts,necessary to examine whether or not the requirements of Section5-E of the APGST Act, and Section 4(8) of the APVAT Act, aresatisfied, is itself in dispute. Both parties are not ad idem. It iswell settled that this Court would refrain from exercising itsdiscretion to adjudicate disputed questions of fact when theseaspects can as well be adjudicated in appellate proceedings underthe provisions of the APGST and the APVAT Acts. The mere factthat the petitioner is required to deposit 12.5% of the tax, which isa statutory requirement for preferring an appeal, would not, by

itself, render the remedy of an appeal onerous nor can a party bepermitted to circumvent this statutory requirement, and avoid theappellate remedy under the Act, by invoking the extra-ordinaryjurisdiction of this Court under Article 226 of the Constitution ofIndia.

Leaving it open to the petitioner, to avail the remedy of anappeal under the APGST and APVAT Acts, the Writ Petitions aredismissed. It is made clear that we have not expressed anyopinion on merits and facts have been briefly referred to only toshow that they are in dispute and that this Court would notadjudicate disputed questions of fact. It is also made clear that thewrit petition has been dismissed not on merits but on the groundthat the petitioner has an alternative remedy of a statutory appealagainst the orders impugned herein. No costs.

________________

BILAL NAZKI, J

Date: 31.12.2007

usd

_____________________________

RAMESH RANGANATHAN, J

[1](2000) 119 STC 182[2]12(1991) APSTJ 187[2]12(1991) APSTJ 18731998(8) SCC 1

439 APSTJ 173