TaxTMI 
TaxTMI 
2013 (12) TMI 443
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....ns of law raised in the Revision cases are as follows: T.C.(R)No.184 of 2006: (i) Whether the Sales Tax Appellate Tribunal is right in holding that both the execution of contract as well as the act of passing of the control/domain of the goods should take place for the transfer to be completed and for levy of tax under Section 3A of the Tamil Nadu General Sales Tax Act, 1959? (ii) Whether the Sales Tax Appellate Tribunal is right in holding that the impugned transactions are eligible for deduction in Section 3-A(2a) of the Tamil Nadu General Sales Tax Act, 1959? T.C.(R) Nos.1563, 1589 and 1590 of 2006: (i) Whether the Tribunal has erred in treating the leasing of ship as not falling under Section 3A of the Tamil Nadu General Sales Tax Act, 1959? (ii) Whether the Tribunal, after accepting all the contentions put forth by the Revenue that the leasing transactions involved would attract tax under Section 3-A, is right in holding that the transactions would fall under Section 3(A)(2)(a) of the Act when there are no findings in regard to inter-State trade, commerce, etc. (iii) Whether the Tribunal is correct in arriving at such a conclusion that the transactions would fall under ....
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.... 1992-93, the assessee had entered into time charter agreement during the subsequent relevant assessment year too. The terms of the time charter agreement are one and the same. 5. It is seen that the assessee was not originally registered as a dealer under the provisions of the Tamil Nadu General Sales Tax Act (hereinafter referred to as "the Act"). It is stated that on 8.8.1996, the place of business of the assessee was inspected and the accounts were called for and checked. Based on this, the Revenue viewed that the transaction under the charterparty agreement was lease of the ships for valuable consideration, attracting charge under Section 3A of the Act. The Assessing Officer viewed that as per the agreement, there was a transfer of possession of the Vessels to the charterers. Thus, going by the terms of lease, the receipt of lease rentals were held as assessable to tax under Section 3A of the Act. 6. The petitioner objected to the proposal, contending that the essential control of the Vessel remained with the owner/assessee. Considering the nature and characteristics of the time charter agreement, in contradistinction to bareboat charter and voyage charter, the actual posses....
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....reement did not involve transfer of right to use the goods. Thus the assessment under Section 3A of the Act was set aside. As regards the sale of ships, when the contract of sale in respect of specific Vessels was entered into, they were outside the State of Tamil Nadu. In the above circumstances, sale being one of ascertained goods, the assessment made on the sale of ships was set aside. However, on other aspects regarding sale of bunders, the Appellate Assistant Commissioner remanded the same for fresh consideration. On the penalty levied under Section 12(3)(a), for the assessment year 1992-93, the same was reduced; similarly for the other assessment years, penalty stood modified. 8. Aggrieved by this, the Revenue went on appeal before the Tamil Nadu Sales Tax Appellate Tribunal. Agreeing with the Revenue that the lessee had the control over the economic benefit of the Vessel hired, the Tribunal referred to the decision reported in [1999] 113 STC 403 (Upasana Finance Ltd. Vs. State of Tamil Nadu) and held that the transaction attracted the charge under Section 3A of the Act. The assessee took an alternate plea that at the time of entering into the charterparty agreement, the Ves....
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....sel was outside the State of Tamil Nadu for movement to other State, he submitted that it is clear that the cause of action had arisen in Chennai and hence, the same was liable to be taxed under Section 3A of the Act. He further pointed out that even though the Tribunal had accepted that the transaction is exigible to tax under Section 3(a) of the Central Sales Tax Act, it committed a serious error in granting the relief under Section 3A(2)(a) of the Tamil Nadu General Sales Tax Act when that was not the case of the assessee too. On the question as to whether the inter-State trade and commerce would qualify for deduction, on the facts thus fitting in with Section 3A of the Act, no exception could be taken to the order of the Assessing Officer in bringing them to tax under the provisions of the Tamil Nadu General Sales Tax Act. 10. In this connection, he placed reliance on the decision reported in [2000] 119 STC 182 (20th Century Finance Corporation Ltd. Vs. State of Maharashtra), particularly to paragraph 27, that on the admitted fact that there was a written contract between the parties, the place of execution shall be the place where transaction took place. Hence, the provisions....
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....s open to the assessee to place his objections as to the fallacy in the reasoning of the Tribunal that the time charter amounted to transfer of right to use goods and hence, deemed sale assessable under Section 3A of the Tamil Nadu General Sales Tax Act. He submitted that it is no doubt true that the State's appeal was dismissed by the Tribunal holding that the assessee was entitled to claim deduction under Section 3A(2)(a) of the Act. The contention of the assessee throughout had been that the provisions of Section 3A of the Act never stood attracted to the assessee's case. He stated that the fact of mere handing over of possession, by itself, did not attract the chargeability under Section 3A of the Act. Taking us through the nature of the different charterparty agreements and the distinction that time charterparty agreement has over voyage charter and bare boat charter, he placed reliance on the decisions of the Supreme Court reported in (1990) 3 SCC 481 (British India Steam Navigation Co. Ltd. Vs. Shanmughavilas Cashew Industries and Ors.) and that of this Court in the decision reported in 99 L.W. 517 (Transworld Shipping Services (I) (P) Ltd. Vs. Owners & Other) and submitted ....
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....he transaction under the time charter was more in the nature of service rather than in the nature of deemed sale, to fit in to the concept of "transfer of right to use the property in goods", a phrase as has been judicially interpreted. He pointed out to the decision reported in [1984] 145 ITR 124 (Ker) (Commissioner of Gift-Tax vs H.H. Sethu Parvathi Bai) that in a contract of transfer of right to use, the contracting party must have the possession of the articles or goods to attract the charge Section 3A of the Act. Referring to various Clauses in the agreement and to the provisions under [The Indian] Carriage of Goods by Sea Act, 1925, he submitted that the Bill of Lading in respect of the goods transported rested only with the Master of the Ship, who happens to be the employee of the owner of the Vessel. Thus going by the definition of "owner" in Section 3(23) of Merchant Shipping Act and the decisions reported in [2004] 136 STC 519 (Great Eastern Shipping Company Vs. State of Karnataka and others), [2008] 16 VST 381 (Commissioner, Trade Tax, U.P., Lucknow Vs. Nand Transport Co.) and [2004] 135 STC 107 (Ker.) (Alpha Clays Vs. State of Kerala), possession given under the agreeme....
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....he service tax provisions and the well recognized distinct characteristics of the time charter agreement, learned senior counsel submitted that possession given under the time charter was never treated as an effective possession transferred to the charterer so as to result in transfer of right to use goods, to attract the charge under Section 3A of the Act. The consistent view taken by Courts on the nature of possession given under the charterparty agreements, thus assumes significance, that on facts, the possession given to the charterer has to be understood in the context of the services rendered by the assessee to enable the contracting party to transport the coal from one place to another. He also took us through the provisions of the [The Indian] Carriage of Goods by Sea Act, 1925 with reference to the responsibilities of the owner of the goods and the definition of "owner" under the Merchant Shipping Act. In the light of the above provisions, he contended that considering the peculiarity of the transactions under the time charterparty agreement, the term "possession", hence, has to be understood in the background of the well settled propositions of law in India and elsewhere.....
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....ng the assessment, the Revenue contended therein that on the date when the Tribunal passed the orders on the "explanation sales", no doubt, the assessee had the benefit of the decision rendered in the case of Bengal Immunity Co. Vs. State of Bihar reported in (1955) 6 S.T.C. 446. However, subsequent ordnance and enactment had the effect of validating the assessment and hence, the Revenue took the plea that the Tribunal's order was to be set aside. 23. The assessee objected to the Court applying the provisions of the Act to set aside the order of the Tribunal, since the powers of the Court in revision would be limited to considering the question of correctness of the order of the Tribunal made in the light of the law existing when the Tribunal passed the order. Repelling such a contention, this Court considered the ambit of revisional jurisdiction under Section 12B(4) of the Madras General Sales Tax Act. 24. This Court pointed out that the authority of the Court "to take note of the change in law subsequent to the original Court's decision and mould the relief in accordance therewith does not rest merely on the provisions like Order 41 Rule 33, C.P.C." Such power is inherent in th....
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....ome Tax Vs. Damodaran (V) (SC)), the Apex Court pointed out that on a reference application filed by an aggrieved party, it was open to a non-applicant to ask for a reference of those questions of law also which arise on its submissions but negatived in the appeal by the Appellate Tribunal. The Apex Court pointed out that even though the non-applicant might have succeeded before the Tribunal on some other ground, but rejecting one of the grounds taken therein, nevertheless, it was open to the non-applicant to seek a reference on a point which went against the assessee. The Apex Court pointed out that "it is as if recognising a right in the winning party to support the order of the Appellate Tribunal also on grounds raised before the Appellate Tribunal but negatived by it. " 28. This Court reiterated the above principles in the decision reported in [1998] 109 STC 205 (Sree Ayyanar Spg. & Wvg. Mills Ltd. Vs. State of Tamil Nadu (Mad.)) and pointed out that as a revisional authority, this Court is certainly possessed of the jurisdiction to intervene with the order of the Tribunal, if travesty of justice results in to the parties by wrong construction or interpretation of the provisio....
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....ons fall within the four corners of the charging provision, the same cannot be brought to tax under the Act. In this, the State is bound to prove that the transaction in question attracts the charge under the provisions of the Act. Thus this Court is bound to consider the claim of the assessee that the time charter would not attract the charge under Section 3A of the Act. Hence, we overrule the Revenue's objection. 30. Before going into the various contentions of the parties herein, we need to note what a charterparty is, the types of charterparty and how Courts have judicially interpreted certain phrases used therein - in particular, phrases like "delivery", "redelivery" and "possession". The decisions on the various clauses therein, in particular, on "delivery", "redelivery" and "possession", have relevance in understanding the contentions of the Revenue, treating the time charterparty agreement between the assessee and the contracting party as assessable under Section 3A of the Tamil Nadu General Sales Tax Act, resulting in transfer of right to use and hence a deemed sale. The first of the agreements herein between the parties relates to a time charterparty agreement between th....
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....hose, whose goods are carried on in the vessel. Time charter, whether it is for a period or for a trip, are those wherein, for the payment of hire charges, the vessel's employment is put under the order of the charterer, while possession remains with the owner who provides the crew and pays the running costs, excluding the voyage costs such as fuel and cargo. Voyage charters are those by which the owner agrees to perform one or more of the designated voyages in return for the payment of freight. Whether the charterparty is a voyage charterparty or time charterparty or charter by demise or not, depends upon the intention of the parties. 34. According to Black's law Dictionary, a time charterparty is distinct from a charter by demise. Time charterparty is a charter for a specified period rather than for a specific task or for a voyage where the ship owner agrees to the charterer to render services through his Master and crew to carry the goods that are put on board the ship by the charterer. The ship owner continues to manage and control the vessel and the charterer merely designates the ports of call and the cargo carried and each party bears the expenses related to its function an....
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....es (I) (P) Ltd. Vs. Owners & Other), this Court held that in respect of an interim prayer made for arrest of the ship, for the alleged amount due and payable by the charterer to his agent, neither the legal ownership nor the beneficial ownership or equitable ownership was in the hands of the charterer in the case of time charter agreement. Thus this Court viewed that for the amount due and payable by the charterer, unless the relationship of agency had been established between the owner and the charterer, the question of arrest of the ship did not arise. Time charterparty not being the demise of the ship but a contract for hire of services, thus viewed as not resulting in giving possession to the charterer to result in delivery or redelivery as is normally understood or to be literally construed as though on the delivery of the Vessel, the owner lost control to resume the same on the expiry of the period of time charter. Courts have also viewed that "delivery" and "redelivery" are not apt words to express the obligations of either party to the other under the contract. So long as the contract does not go as a charter by demise, when the owner gives the services through the ship alo....
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....to the older form of demise charter-party. those phrases are, as in the present case, "the owners agree to let the steamer," and "the charterers agreed to hire the steamer". There is no "letting" or "hiring" of the steamer, or anything of the sort here. Then at the end of the period, it was solemnly provided that the vessel should be redelivered by the time-charterers to the ship-owners. "Redelivery" is only a pertinent expression if there has been a delivery or handing over by the ship-owners to the charterers. there never has been anything of that sort here. The ship has at all times been in the possession of the ship-owners, and they simply undertook to do service with their crew in carrying the goods of the charterers. "As I ventured to suggest in the course of the argument, in the two forms of contract there is all the difference between hiring a boat in which to row yourself about in which case the boat is handed over to you, and contracting with a man on the beach that he shall take you for a row, in which case he merely renders the services to you in rowing you about. Now, having that in mind the essential nature of this contract is that the shipowners, during a certain per....
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.... 2008, with reference to the charterparty agreement to grant charterparty to the charterer who acquired the right to use the vessel for transportation of merchandise, his own or of another person, or passenger, without having the right of possession and effective control of the vessel, it was pointed out that considering the object being chartering of vessel, the nature of services attracted service tax under Section 65(105)(zzzzj). 41. Chapter XII-G of the Income Tax Act contains special Provisions relating to Income of Shipping Companies. The method of calculating the income in respect of the vessels operated on tonnage basis was sought to be considered in the light of certain definitions therein. Section 115V, containing definitions, reads as follows: Definitions. "115V. In this Chapter, unless the context otherwise requires, (a) "Bareboat charter" means hiring of a ship for a stipulated period on terms which give the charterer possession and control of the ship, including the right to appoint the master and crew; (b) "bareboat charter-cum-demise" means a bareboat charter where the ownership of the ship is intended to be transferred after a specified period to the company t....
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....ssion from an English decision, "the ship trades on time charterers' account". The key to the bargain for the time charterer is the right to give orders as to employment. 43. In the context of the above, the various clauses in the time charter agreement need to be seen. As already pointed out, the various clauses in the agreements are one and the same. 44. In Line 13 of the charter, it was specifically agreed that the owners of the Vessel had agreed to let and the charterers agreed to hire the said Vessel from the time of delivery. The place of delivery is given under Line 18 as "Vessel to be placed at the disposal of the Charterers, at on passing the latitude of Madras in ballast North Bound on passage to Charterers nominated loadport any time day or night sundays and holidays included." Line 36 provides for the obligation of the owners, namely, the assessee herein and the obligation of the contracting party. It further stated that whilst on hire, the owners shall provide and pay for all provisions, wages and consular shipping and discharging fees of the crew, shall pay for the insurance of the vessel, also for all the cabin, deck, engine room and other necessary stores, includi....
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.... relating to deemed sale on transfer of right to use for any purpose, the chargeability to Section 3A of the Tamil Nadu General Sales Tax Act does not arise. Learned senior counsel submitted that what is true and applicable to the characteristics of a normal sale in the matter of handing over possession and control is equally applicable to a case of deemed sale. Thus when there is no handing over of possession in the true sense of the term, the question of assuming effective control does not arise. 46. Section 3A of the Tamil Nadu General Sales Tax Act is the relevant charging provision to levy tax on the deemed sale relating to transfer of right to use any goods for any purpose. Upholding the constitutional validity of the said provision under the Tamil Nadu General Sales Tax Act along with similarly worded provisions of other State enactments, in the decision reported in [2000] 119 STC 182 (20th Century Finance Corporation Ltd. Vs. State of Maharashtra), the Apex Court held that the State cannot levy tax on the transfer of right to use goods on the basis that one of the events in the chain of events had taken place within the State. On the construction of sub clause (d) of Claus....
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.... 182 (Rashtriya Ispat Nigam Ltd. Vs. Commercial Tax Officer, Company Circle, Visakhapatnam), in the appeal preferred by the State, in the decision reported in [2002] 126 STC 114 (State of A.P. Vs. Rashtriya Ispat Nigam Ltd. (S.C.), the Apex Court held that so long as the effective control of machinery was with the owner, even while it was in use of the contract done and the contractor was not free to make use of the machinery for work other than the project work or move it out during the period the machinery was in its use, the requirements for attracting the charge did not stand satisfied. The fact that the contractor would be responsible for the safe custody while it was on the site, did not militate against the owner's possession and control of the machinery. Thus the Apex Court held that passing of an effective control of the machinery to the contractor was a sine qua non for the purpose of attracting the levy under the concept of deemed sale relating to transfer of right to use goods. Thus the emphasis in the case of transfer of right to use goods, as laid down by the Apex Court in the decision reported in [1999] 113 STC 317 (SC) (Aggarwal Brothers Vs. State of Haryana and Ano....
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....ions or licenses required therefore should be available to the transferee; d. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor -this is the necessary concomitant of the plain language of the statute - viz. a "transfer of the right to use" and not merely a licence to use the goods; e. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others." 51. The Apex Court further pointed out that unlike in the case of composite contracts, namely, a works contract, hire purchase contract catering contract, where, by a legal fiction, a divisibility is brought in to the contract to isolate the sale element and subject it to sales tax, as far as the transfer of right to use is concerned, there is no such divisibility to be read into the contract as one of transfer of right to use goods and rendering of service. Referring to the contract between telecom service provider and subscriber, the Apex Court pointed out as follows: "119. It is not possible to interpret the contract between the service provider and the subscriber that the consen....
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....mi Audio Visual Inc. and Anr. Vs. Assistant Commissioner of Commercial Taxes and Anr.), particularly to paragraph 9 of the judgment, on the aspect of possession. Referring to the decision reported in [1990] 77 STC 182 (Rashtriya Ispat Nigam Ltd. Vs. Commercial Tax Officer, Company Circle, Visakhapatnam), the Karnataka High Court pointed out that where a customer entrusted to the assessee the work of achieving a certain desired result and that involved the use of goods belonging to the assessee and rendering of several other services, the goods used by the assessee to achieve the desired result would mean that the same is in the effective and general control of the assessee, in which event, the transaction would not be a transfer of the right to use goods, falling within the extended definition of "sale". The High Court pointed out that if the transaction is one of leasing/ hiring/letting simpliciter under which the possession of goods, namely, effective and general control of the goods, is to be given to the customer and the customer has the freedom and choice of selecting the manner, time and nature of use and enjoyment, though within the framework of the agreement, then it would ....
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....s only to be responsible for delay in delivery of vessel or for delay during the currency of the charter and for loss or damage to goods on board, if such delay or loss has been caused by want of due diligence on the part of the Owners or their Manager in making the vessel seaworthy and fitted for the voyage or any other personal act or omission or default of the Owners or their Manager. In the event of stoppages/strikes/ restraints by the Ship's personnel, time thus lost to be for owners account. Owners not to be responsible in any other case. Owners not to be liable for loss or damage arising out of or resulting from shore labour strikes, lockouts or stoppages or restraints." 58. Clauses 63 and 67 touch on the owners' right to substitute the chartered Vessel with a sister Vessel. The various Clauses of the charterparty explicitly deal with the nature of relationship between the Master and the crew of the ship, the restriction on the use and weight of the cargo and the movement on the coast, that any deviation thereon would be subject to the approval and prior consultation with the owners. The contract further stipulates that port charges, pilotages, agencies, commission, except....
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....ties imposed by the International Safety Management Code;" 63. Section 37 of the Merchant Shipping Act enjoins on an endorsement as to a certificate of change of Master. Where there is a transfer of ownership on ships, Sections 42, 43 and 44 deal with the procedure on transfer of ships and shares. In the background of the special enactment provisions, we hold that the assessee is justified in its contention that the transactions do not attract the charging provisions of the Act. 64. It is no doubt true that the Apex Court, in the decision reported in [2000] 119 STC 182 (20th Century Finance Corporation Ltd. Vs. State of Maharashtra) and the subsequent decision reported in [2006] 145 STC 91 (Bharat Sanchar Nigam Ltd. Vs. Union of India (S.C.), spoke about the delivery as an aspect to be taken note of in deciding the issue under Section 3A of the Act. Yet a reading of the decisions of the Apex Court clearly shows that what is contemplated therein to attract the charge on transfer of right to use goods had also been well explained therein. Thus when possession given is unaccompanied by transfer of right to use in the sense of there being no effective control, the charge falls under ....
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....ght to use. 70. It must also be noted herein that the amendment to the Central Sales Tax Act in including the transfer of right to use any goods as deemed sale was brought in under the definition of "sale" in Section 2(g) under the Finance Act (No.20 of) 2002, effective from 11th May 2002. In any event, even otherwise, the enlarged definition of "sale", available on and from 11th May 2002, can have no relevance to the transaction of time charter for considering the same even by way of a deduction under Section 3A(2)(a) of the Tamil Nadu General Sales Tax Act. In the decision reported in [2000] 119 STC 182 (20th Century Finance Corporation Ltd. Vs. State of Maharashtra), the Apex Court pointed out in paragraph 58 that with the definition of "sale" in the Central Sales Tax Act remaining unamended so as to include the deemed sale on the transaction of transfer of right to use any goods, the provisions of Section 4 of the Central Sales Tax Act could not be applied to such transactions of deemed sale. It further pointed out in paragraph 83 that after the insertion of Clause 29A in Article 366 of the Constitution, the definition of "sale" in Section 2(g) of the Central Sales Tax Act was....
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....se for consideration. So too the question of a deduction as a deemed sale under the Central Sales Tax Act. This is quite apart from the fact that there is no provision to consider the same under the Central Sales Tax Act at all for want of authority to deal with a deemed sale under the definition of sale in the Central Sales Tax Act. As already pointed out, going by the terms of the time charter and the nature of the agreement, particularly with reference to possession, we have no hesitation in setting aside the order of the Tribunal in toto, thereby holding that the transaction would not attract the provisions of Section 3A of the Tamil Nadu General Sales Tax Act. 72. As far as the question raised on the taxability of the turnover relating to sale of ships is concerned, Section 2(h) of the Tamil Nadu General Sales Tax Act defines when a sale takes place inside the State. Explanation (3)(a) to Section 2(n) of the Tamil Nadu General Sales Tax Act, reads as follows: "Explanation (2) - (a) the sale or purchase of goods shall be deemed, for the purposes of this Act, to have taken place in the State, wherever the contract of sale or purchase might have been made, if the goods are with....
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.... it is seen from the documents filed before this Court that at the time of entering into the sale of the named ships, it was found that the ships were not within the State of Tamil Nadu. 75. Except for contending that the sale of ships is assessable under the Tamil Nadu General Sales Tax Act, no material is placed before us to challenge the findings of the Tribunal on the sale of specifically named ships. In the circumstances, we agree with the assessee that having regard to the fact that the agreement is with reference to the sale of specific Vessel by name, we have no hesitation in holding that all these being specific goods located outside the State of Tamil Nadu, the transactions are not chargeable to tax. In the result, we reject the Tax Case Revisions. In the light of the above, cancelling the assessment, the question of levy of penalty does not arise. 76. We are constrained to note herein that except on the above two issues, namely, the transfer of right to use in relation to the time charter and the sale of ships, no arguments are made on other turnover in dispute and considered by the Tribunal in favour of the assessee. In the circumstances, we have considered the above ....