Transfer of right to use vessel treated as deemed sale; tax levy upheld at place of contract execution.

A written charter party that placed a vessel at the charterer's exclusive disposal and control for a fixed period was treated as a transfer of the right to use goods under Article 366(29A)(d) and section 5C of the Karnataka Sales Tax Act. The owner's retention of title did not prevent the transaction from being a deemed sale. The taxable event was the transfer of the right to use, and the situs of that transfer was the place of execution of the contract when the goods were available and the agreement was in writing. Accordingly, execution at Mangalore sustained Karnataka's levy.

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Issues: (i) Whether the charter party agreement amounted to a transfer of the right to use the vessel within the meaning of Article 366(29A)(d) of the Constitution of India and section 5C of the Karnataka Sales Tax Act, 1957. (ii) Whether sales tax was exigible on the basis that the agreement was executed within Karnataka notwithstanding the vessel's use in territorial waters.

Issue (i): Whether the charter party agreement amounted to a transfer of the right to use the vessel within the meaning of Article 366(29A)(d) of the Constitution of India and section 5C of the Karnataka Sales Tax Act, 1957.

Analysis: The agreement, read as a whole with the tender conditions, general conditions and special conditions, showed that the vessel was let and hired for an identified period, placed at the disposal of the charterer, and made available for exclusive use with control for the charter period. The owner retained title, but that did not negate transfer of the right to use. The Court applied the constitutional concept of deemed sale and the settled test that the substance of the contract and the exclusivity of the transferee's legal right are decisive.

Conclusion: The agreement constituted a transfer of the right to use the vessel and was a deemed sale.

Issue (ii): Whether sales tax was exigible on the basis that the agreement was executed within Karnataka notwithstanding the vessel's use in territorial waters.

Analysis: For a deemed sale under Article 366(29A)(d), the taxable event is the transfer of the right to use goods, and the situs of that transfer is where the contract is executed when the goods are available and the contract is in writing. Since the charter party was executed at Mangalore, the location where the vessel was used in territorial waters did not defeat the State's power to levy tax. The larger controversy regarding the extent of State power in territorial waters was left open.

Conclusion: Sales tax was validly leviable in Karnataka on the basis of the situs of the agreement.

Final Conclusion: The transaction was held exigible to sales tax as a deemed sale under the Karnataka sales tax law, and the challenge to the levy failed.

Ratio Decidendi: A written charter party that places a vessel at the exclusive disposal and control of the charterer for a fixed period effects a transfer of the right to use goods, and the taxable event occurs at the place where that contract is executed.

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