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SUPREME COURT OF INDIA
ARUN MISHRA, M.R. SHAH, B.R. GAVAI, JJ.
The Great Eastern Shipping Co. Ltd. – Appellant
Versus
State of Karnataka & Ors – Respondents
Civil Appeal No.3383 of 2004
Decided On : 04-12-2019
(a) Karnataka Sales Tax Act, 1957 - Section 5C r/w section 2(t) - Under section 2(t) ‘sale’ includes transfer of right to use any goods for any purpose - Section 5C provides levy of tax on the transfer of the right to use any goods - Article 366(29-A)(d), Constitution of India - Tax on income includes a tax on the transfer of the right to use any goods for any purpose. (Para 21)
(b) Interpretation - Contract - Tender document, general and special; conditions of contract and the contract/agreement itself have to be read together. (Para 23)
(c) Karnataka Sales Tax Act, 1957 - Section 5C r/w section 2(t) - Instantly the contractors “letting” and the charterer “hire” the goods vessel for six months - Effective control for the entire period of six months given to the charterers - Vessel delivered - Use of license and permission at disposal of the charterer and to exclusion of the contractor/transferor - Contractor could not permit use of the vessel by any other person for any other purpose - Its is deemed sale. (Para 23, 34, 37, 40, 43, 54)
Charter party - Voyage charter-party or time charter-party or charter by demise - All charter party are not contracts of carriage - It depends upon content of the document. (Para 42, 51, 53)
(d) Karnataka Sales Tax Act, 1957 - Section 5C r/w Article 366(29-A)(d), Constitution of India - Imposition of tax - Situs of the agreement is determinative - Location of the delivery of goods cannot be made the basis for the levy of tax on the sale of goods. [Para 57, 58]
(e) Karnataka Sales Tax Act, 1957 - Section 5C r/w Article 366(29-A)(d), Constitution of India - Charter party entered into in Mangalore - Ship being used at New Mangalore Port by New Mangalore Port Trust - The deemed sale is exigible to sales-tax under the Act - Use of vessel in the territorial waters makes no difference. (Para 66)
(f) Administration of justice - Equity - Appellants questioning notice by Sales tax authorities - Losing in Writ and Writ appeal - Now they cannot submit that the matter may be remitted to the authorities. (Para 67)
Facts of the case:
The appellant-Company owns a tug (towing vessel, namely "Kumari Tarini"). The company entered into a Charter Party Agreement with New Mangalore Port Trust on 8.1.1998. It agreed to make available the services of tug, for the purposes provided in the agreement along with the master and other personnel of the company to the Port Trust for six months.
The Assistant Commissioner of Income Tax directed the company to register itself as a dealer under the provisions of the KST Act on the ground that the agreement attracted tax under section 5C thereof. The Assistant Commissioner sent another communication informing that last chance was given to the company to get itself registered under the KST Act within 15 days failing which he would be compelled to file charge-sheet against the company for the offence under section 29(2)(aaaa) of the KST Act. The Joint Commissioner of Income Tax (Commercial Taxes) on a query being made by the company wrote that he was not the competent authority to issue a clarification regarding liability or otherwise to pay tax under section 5C of the KST Act.
The company filed a writ petition on the ground that the KST Act does not extend to territorial waters of India situated adjacent to the landmass of the State of Karnataka. Thus, the State is not authorised to exact any tax on the hire charges received from the Port Trust. The learned Single Judge dismissed the writ petition. Aggrieved thereby the company preferred a writ appeal. The same has also been dismissed.
Finding of the Court:
The Charter Party Agreement tantamount to a deemed sale as there was a transfer of right to use the vessel as provided in Article 366(29A)(d) read with section 5C or section 2(j) of the Karnataka Sales Tax Act. Thus, the transaction is liable to be taxed by the concerned authorities in the State of Karnataka.
Result: Appeal dismissed.
JUDGMENT :
ARUN MISHRA, J.
1. The question involved in the appeal is whether it is open to the State of Karnataka to levy Sales Tax in view of the Time Charter Agreement dated 8.1.1998 and whether it amounts to transfer of the right to use goods within the meaning of section 5C of the Karnataka Sales Tax Act, 1957 (for short, “the KST Act”) read with Article 366 (29-A) (d) of the Constitution of India.
2. The appellant – The Great Eastern Shipping Co. Ltd. filed a writ petition questioning the competence of the State Government to impose a sales tax in respect of the goods which are used within the territorial waters of India. The appellant owns a tug (towing vessel, namely "Kumari Tarini"). The company entered into a Charter Party Agreement with New Mangalore Port Trust on 8.1.1998. It agreed to make available the services of tug, for the purposes provided in the agreement along with the master and other personnel of the company to the Port Trust for six months.
3. The Assistant Commissioner of Income Tax vide notification dated 8.6.1998 directed the company to register itself as a dealer under the provisions of the KST Act on the ground that the agreement attracted tax under section 5C thereof. The company in the reply dated 26.6.1998 repudiated the claim on the ground that there was no transfer of right to use the goods given by the company to the Port Trust as the possession and custody of the tug continued with it. The Assistant Commissioner sent another communication dated 28.12.1998 informing that last chance was given to the company to get itself registered under the KST Act within 15 days failing which he would be compelled to file charge-sheet against the company for the offence under section 29(2)(aaaa) of the KST Act. The Joint Commissioner of Income Tax (Commercial Taxes) on a query being made by the company wrote that he was not the competent authority to issue a clarification regarding liability or otherwise to pay tax under section 5C of the KST Act.
4. The company filed a writ petition on the ground that the KST Act does not extend to territorial waters of India situated adjacent to the landmass of the State of Karnataka. Thus, the State is not authorised to exact any tax on the hire charges received from the Port Trust. The learned Single Judge dismissed the writ petition, aggrieved thereby the company preferred a writ appeal. The same has also been dismissed; hence, the appeal has been filed. A Division Bench of the High Court of Karnataka has rejected the submission raised by the appellant that over the territorial waters State of Karnataka has no power. The learned Single Judge was not justified in refusing to consider the question, whether there was a transfer of right to use the tug. It held that there was a transfer of right to use the tug by the company to the Port Trust.
5. Shri Arvind Datar, learned senior counsel appearing on behalf of the company submitted that the Time Charter Agreement dated 8.1.1998 does not amount to transfer of right to use goods within the meaning of section 5C of the KST Act. It was only a contract of service. The contract is for the hire of a tug on payment of Rs.1.5 lakh per day. The expression used in the agreement is 'service.' Time Charters world over are considered a contract of service. There is a difference between the ‘right to use goods’ and ‘the transfer of the right to use goods.’ In case of a lease, there is a transfer of an interest in the property, whereas, in a licence, there is a mere right to use the property. The Time Charter is recognised as an agreement in the nature of pure service. They are entirely distinct from Bareboat Charter Agreement or charter by demise. The charters are of three kinds viz. (a) Time Charter, (b) Bareboat Charter or Charter by Demise, and © Voyage Charter. Time charter and voyage charter are contracts of service, whereas bareboat charter amounts to transfer of right to use the ship itself. In a time charter, master and crew are in the
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