R. 17(1)(g) Of APVAT Rules Can’t Be Invoked Without Examining Records: AP HC Quashes VAT Assessments on Offshore Project

The Andhra Pradesh High Court has set aside VAT assessment orders issued against Helix Energy Solutions Group Inc., holding that the Commercial Tax Department acted prematurely in rejecting the company’s records and invoking best-judgment assessment under Rule 17(1)(g) of the AP VAT Rules. The bench of Justice R. Raghunandan Rao and Justice T.C.D. Sekhar has observed that power to levy tax on sale of goods has been confined to the State Legislature, under Entry-54 of the Second list, in the VII Schedule to the Constitution. Thus, neither the State Legislature nor the Central Legislature would have power, to levy tax on the sale of goods made beyond the territorial waters of India. Helix Energy had undertaken an extensive subsea construction and pipeline-laying contract for Allseas Marine Contractors S.A. in the Krishna-Godavari Basin, a project awarded as part of Reliance Industries’ offshore gas field development. The company argued that nearly 80 percent of its work was executed beyond 12 nautical miles from the Andhra Pradesh coast and therefore outside the taxing jurisdiction of the State. It also maintained that only a very small part of the contract involved transfer of goods, for which it had already been issued a Form 501D certificate fixing taxable turnover at 3.5 percent of contract value for TDS purposes. The dispute arose when the Commercial Tax Officer rejected the project accounts, purchase summaries, agreements and invoices submitted by Helix, insisting instead on full books of account such as profit-and-loss statements and trial balances. Treating the records as incomplete, the officer assessed the company’s turnover at much higher levels and raised demands of ₹19.01 crore for 2007–08 and ₹60.74 crore for 2008–09, applying a 12.5 percent tax rate under Rule 17(1)(g). Garnishee orders were also issued to recover the dues, prompting Helix to approach the High Court. Before the Court, Helix argued that it was not required to maintain regular books under the Income Tax Act because it had opted for presumptive taxation under Section 44BB, which allows non-resident service providers in oil exploration to be taxed on 10 percent of their gross receipts. The Court accepted this position, noting that the assessing officer could not insist on records such as a profit-and-loss account when the company had no statutory duty to maintain them under income-tax provisions. However, the judges clarified that Rule 31 of the AP VAT Rules does require specific documentation relating to works contracts, and these records must be available for verification. The Court held that Rule 17(1)(g) cannot be invoked automatically merely because an assessee does not maintain income-tax books. The Bench noted that Helix claimed to have furnished all project-related records and that the department’s allegation of incompleteness required factual verification. Since the dispute involved contested questions of fact that could not be resolved in writ jurisdiction, the Court remanded the matter back to the Commercial Tax Officer. It directed the officer to give the company a full opportunity to submit all records, to clearly identify any deficiencies, and to use the best-judgment provision only if the company failed to provide the required details. Helix had also contended that transactions occurring beyond 12 nautical miles lie outside the State’s legislative competence under the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976. The Bench did not adjudicate on this issue, stating that the question of where goods were incorporated into the offshore structure is a factual matter to be examined during reassessment. The company’s separate submission that only a 4 percent tax rate applied was also left open for reconsideration by the assessing authority. As the assessment orders were quashed, the garnishee proceedings automatically lapsed, and the related writ petition was closed. The Court did not award costs. The ruling is expected to have wider implications for offshore contractors and oil-and-gas service providers operating in areas beyond territorial waters, especially in cases where tax authorities rely on best-judgment assessments without thoroughly examining available records. Case Details Case Title: M/S.Helix Energy Solutions Group Inc. Versus The Commercial Tax Officer Kakainada Another Case No.: Writ Petition Nos.6319 & 6321 & 5089 Of 2010 Date: 10.12.2025 Counsel For Petitioner: Kadimisetty Sai Sreenadh Counsel For Respondent: GP Click Here To Read Order Read More: Gauhati High Court Allows Taxpayer to Seek Revival of Cancelled GST Registration After Filing All Pending Returns

R. 17(1)(g) Of APVAT Rules Can’t Be Invoked Without Examining Records: AP HC Quashes VAT Assessments on Offshore Project

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