AAR Ruling: The demarcated space made available in the warehouse by the logistics service provider constitutes fixed place of business [Sea gate Singapore International Headquarters Pvt. Ltd. (AAR No. 831 of 2009) (2010-TIOL-08-ARA-IT)].
Facts:
Seagate Singapore International Headquarters Pvt. Ltd. (applicant) was engaged in the business of manufacture and sale of Hard Disk Drives (disks). It has been supplying disks to Original Equipment Manufacturers (OEMs) in India. In order to minimise the delays in the procurement of inputs from the applicant, the OEM proposed to put in place a Vendor Managed Inventory (VMI) model. Under the VMI model, the applicant would enter into agreements with ‘Independent Service Providers’ (ISPs) in India who would stock disks in India on behalf of the applicant and deliver the same to the OEM on a ‘Just-in Time’ basis. The typical steps involved in this arrangement were 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 and controlled by them) and would raise their invoices on the applicant for services performed in India;
- The ISPs would also obtain registration with the Value Added Tax authorities in their names in the relevant State in India, pay applicable taxes and would file related returns in connection with delivery of goods to the OEM. The ISPs would be remunerated on an arm’s length basis by the applicant.
A similar arrangement is proposed to be put in place by entering into an agreement with YCH Logistics (India) Pvt. Ltd. (YCH), a private Company incorporated in India. The said company would stock goods in India on behalf of the applicant and deliveries will be effected to Dell India (Pvt.) Ltd. (Dell). The modus operandi of the proposed arrangement with YCH and Dell is broadly similar, that of with the ISPs and OEMs, as mentioned above. As per the agreement with YCH, YCH will act as a logistics service provider and it shall be responsible for warehousing the Sea gate products and to deliver the same to Dell in India.
Issues raised before the Authority for Advance Rulings (AAR):
(a) Whether the applicant would have a Permanent Establishment (PE) in India under Article 5(1) or 5(8) of the India- Singapore Double Taxation Avoidance Agreement (DTAA) in relation to the activity of delivering goods through a customs bonded warehouse owned and operated by an ISP 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 basis, would any further income be attributable to the PE of the applicant in India in terms of Article 7 of the DTAA?
(c) Whether the applicant would have a PE in India under Article 5(1) or 5(8) of the DTAA, in relation to the activity of delivering goods through a customs bonded warehouse owned and operated by YCH in India.
(d) In case the answer to Question (c) is in the affirmative, considering that YCH would be remunerated on an arm’s length basis, would any further income be attributable to the PE of the applicant in India in terms of article 7 of the DTAA.”
Contention of the Applicant:
