2013 (12) TMI 443 - HC - VAT and Sales Tax

Court rules time charterparty agreements not taxable under Tamil Nadu GST Act. Sale of ships outside state deemed non-taxable. Penalty invalidated. Writ Appeal allowed for reassessment.

The State of Tamil Nadu represented by the Deputy Commissioner (CT) Versus Essar Shipping Limited

The State of Tamil Nadu represented by the Deputy Commissioner (CT) Versus Essar Shipping Limited - [2012] 47 VST 209 (Mad) Issues Involved:1. Applicability of Section 3A of the Tamil Nadu General Sales Tax Act, 1959 on time charterparty agreements.2. Whether the leasing of ships falls under Section 3A of the Tamil Nadu General Sales Tax Act, 1959.3. Taxability of the sale of ships under the Tamil Nadu General Sales Tax Act, 1959.4. Validity of the penalty levied under Section 12 of the Tamil Nadu General Sales Tax Act, 1959.Issue-wise Detailed Analysis:1. Applicability of Section 3A of the Tamil Nadu General Sales Tax Act, 1959 on time charterparty agreements:The court examined whether the time charterparty agreements between the assessee and M/s. Poompuhar Shipping Corporation constituted a transfer of right to use goods, thereby attracting tax under Section 3A of the Tamil Nadu General Sales Tax Act, 1959. The court noted that under time charterparty agreements, the possession and control of the vessel remain with the owner, and the charterer merely has the right to use the vessel for a specific period. The court referred to various judgments, including the Supreme Court's decision in British India Steam Navigation Co. Ltd. Vs. Shanmughavilas Cashew Industries, which clarified that terms like 'let,' 'hire,' 'delivery,' and 'redelivery' in time charterparty agreements do not imply a transfer of possession or effective control to the charterer. Consequently, the court held that the time charterparty agreements did not attract the provisions of Section 3A of the Tamil Nadu General Sales Tax Act, 1959.2. Whether the leasing of ships falls under Section 3A of the Tamil Nadu General Sales Tax Act, 1959:The court analyzed whether the leasing of ships under time charterparty agreements could be considered a transfer of the right to use goods, thereby falling under Section 3A of the Tamil Nadu General Sales Tax Act, 1959. The court reiterated that for a transaction to be considered a transfer of the right to use goods, there must be a transfer of possession and effective control. Since the time charterparty agreements did not involve such a transfer, the leasing of ships under these agreements did not fall under Section 3A of the Tamil Nadu General Sales Tax Act, 1959.3. Taxability of the sale of ships under the Tamil Nadu General Sales Tax Act, 1959:The court examined the taxability of the sale of ships under the Tamil Nadu General Sales Tax Act, 1959. The court noted that the location of the ships at the time of sale determines the jurisdiction for tax purposes. In this case, the ships were located outside Tamil Nadu at the time of sale. The court referred to Section 2(n) of the Tamil Nadu General Sales Tax Act and concluded that the sales of ships were not taxable under the Tamil Nadu General Sales Tax Act, 1959, as the ships were outside the territorial jurisdiction of Tamil Nadu at the time of sale.4. Validity of the penalty levied under Section 12 of the Tamil Nadu General Sales Tax Act, 1959:Given that the court held that the transactions did not attract the provisions of Section 3A of the Tamil Nadu General Sales Tax Act, 1959, the penalty levied under Section 12 of the Act was also deemed invalid. The court noted that the assessment itself was not sustainable, and consequently, the penalty imposed based on such assessment was also not valid.Conclusion:The court dismissed the Tax Case Revisions filed by the Revenue, holding that the time charterparty agreements did not constitute a transfer of the right to use goods under Section 3A of the Tamil Nadu General Sales Tax Act, 1959. The court also held that the sale of ships was not taxable under the Tamil Nadu General Sales Tax Act, 1959, as the ships were located outside Tamil Nadu at the time of sale. The penalty levied under Section 12 of the Act was also deemed invalid. The Writ Appeal filed by the assessee was allowed, and the assessment order for the assessment year 1997-98 was set aside with a direction to re-do the issue in light of the court's observations.