TaxTMI 
TaxTMI 
2019 (12) TMI 225
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.... Hemantika Wahi, AOR Mr. Nishant Ramakantrao Katneshwarkar, AOR Mr. Anoop Kandari, Adv. Mr. P. Venkat Reddy, Adv. Mr. Prashant Tyagi, Adv. Mr. P. Srinivas Reddy, Adv. for M/s. Venkat Palwai Law Associates, AOR Mr. Shibashish Misra, AOR Mr. Merusagar Samantaray, AOR Mrs. Shally Bhasin, AOR 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 (29A) (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....
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....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 (c) 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 employment of the owner, and complete control, ownership, and possession of the vessel remain only with the owner through the master and crew. The delivery to the Port Trust is only a symbolic one, and the legal and physical possession of Tug continues to be with the company. Thus, the arrangement is a service, not a lease. Learned senior counsel has made reference to Scrutton on charter parties, Halsbury's Laws of England, and have also relied upon various decisions....
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....oat charters are subject to sales tax, which indicates that time charters are contracts of service. If they involved a transfer of right to use, Parliament would never have subjected them to service tax. 9. Mr. Datar, learned senior counsel has also submitted that usually, only the Parliament can make laws relating to territorial waters. Under Article 246(4), read with Article 286, Parliament can make fiscal laws relating to imposition of tax on either supply of goods or services or both, where such supply takes place outside the State. Thus, even if the situs of agreement fell in the territory of State, it would be of no relevance as the vessel has to ply in territorial waters. An agreement cannot be signed in the high seas. 10. It was submitted that the High Court has erred in treating the territorial water as part of the territory of Karnataka, in contravention to Article 297 as well as the provisions of the Territorial Waters, Continental Shelf, Exclusive Economic Zone, and other Maritime Zones Act, 1976 (Act of 1976). None of the maritime States have been given the territorial waters as part of their territory. He has also referred to Dr. Ambedkar's speech in the Constit....
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....as concerned with the controversy as to which State could levy sales tax, where signing of the contract, delivery of the goods or use of the rights were in different States. The majority held that the State where a contract is signed would have the power to levy a sales tax. Thus, the place where the goods were delivered or used could not be a ground for levy of sales tax. Merely signing of the contract in Mangalore conferred no jurisdiction to levy salestax on the State of Karnataka. The decision has no application to the transaction, the effect of which takes place in territorial waters or the high seas, even if the agreement is signed within a particular State. 12. Mr. Mohan Parasaran, learned senior counsel has taken us in detail to various clauses of the agreement. The agreement is in the nature of a time charter as approved by the New York Produce Exchange (NYPE), which is the standard form for time charters. It is neither a bareboat cum demise charter nor a voyage charter and is, therefore, only a time charter because of terms and conditions. He has relied upon BSNL v. Union of India, (2006) 3 SCC 1 wherein this Court has laid down essential attributes of a transaction to....
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....ax cannot be exacted by the State Government. The territorial waters are within the exclusive jurisdiction of the Union of India. In view of Article 297 of the Constitution, the State of Karnataka has no jurisdiction to impose a sales tax. The territorial waters are deemed Union territory. The sovereignty of India extends and has always extended to the territorial waters and the seabed and subsoil underlying and air space over, such waters and it is the Central Government which has the power to alter the limits of the territorial waters. 14. Mr. Devadatt Kamat, learned senior counsel submitted on behalf of the State of Karnataka that the transfer of right to use occurs when the agreement has been entered into and not when the delivery of the goods takes place. He has referred to various clauses of the agreement to take home the aforesaid submission and has relied upon 20th Century Finance Corporation Ltd. v. State of Maharashtra (supra), a decision of the Constitution Bench of this Court which has been approved in BSNL (supra). He has further urged that a coastal State has jurisdiction to levy salestax in the territorial waters abutting the coast. He has also referred to Article....
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....l waters, such as the States of Goa, Maharashtra, Kerala, Tamil Nadu, Andhra Pradesh, and West Bengal, etc. In Re: Section 5C of KST Act: 18. The State of Karnataka has sought to levy tax under section 5C of the KST Act on charter-party on the ground that it is a transfer of right to use vessel. 19. Section 5C of the KST Act reads: "Section 5C - Levy of tax on the transfer of the right to use any goods- Notwithstanding anything contained in sub-section (1) or subsection (3) of section 5, but subject to sub-sections (4), (5) and (6) of the said section, every dealer shall pay for each year a tax under this Act on his taxable turnover in respect of the transfer of the right to use any goods mentioned in column (2) of the Seventh Schedule for any purpose (whether or not for a specified period) at the rates specified in the corresponding entries in column (3) of the said Schedule." 20. Section 2(t) of the KST Act defines "sale" and reads as under: "Section 2(t) "sale" with all its grammatical variations and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge)] by one p....
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.... (c) a tax on the delivery of goods on hire purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;" (emphasis supplied) 22. A tax on the sale or purchase of goods includes a tax for transfer of right to use goods as that is deemed to be a sale. The question that arises for....
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....iable to pay such an increase in tax, levy, duty, etc. under existing law or which may be leviable as a result of introduction of any laws, increase in taxes, levy, duty etc. or imposition of new taxes levy, duty etc. 6. INDEMNITY: Notwithstanding that all reasonable and proper precautions may have been taken by the Contractor at all times during the currency of the agreement, the Contractor shall nevertheless be wholly responsible for all damages to the property of Charterers during the currency of the agreement." "13. NOTIFICATION OF AWARD: (a) x x x (b) The Letter of Acceptance will be issued in the name of the company which has purchased/submitted the tender. (c) The time to count for delivery of tug shall commence from the date of issue of the Letter of Acceptance." "15. PERFORMANCE GUARANTEE: The successful tenderer shall furnish a bank guarantee from a nationalized bank having its branch at Panambur/Mangalore, along with the Charter Party Agreement, for compliance with the contract terms and conditions, for an amount equivalent to 10% of average annual contract value. This guarantee shall be valid for a ....
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....n NMPT. 10. The Contractor has to pay the revised minimum wages to the crew engaged by them. If the crew is engaged for more than 8 hours, they should be compensated for the extra work. The contractor has to take the insurance policy covering all types of risks of all employees engaged by them. 11. The Contractor shall carry out the works strictly in accordance with the contract to the satisfaction of the Deputy Conservator and shall comply with and adhere strictly to his instructions and direction on any matter (whether mentioned in the contract or not). 12. The tug shall be delivered within 30 days from the date of issue of the Letter of Acceptance, in seaworthy and efficient condition, and should be in possession of all necessary certificates. 13. If the contractor fails to deliver the tug in all respects within 30 days, from the date of issue of Letter of Acceptance, liquidated damages at the rate of Rs. 30,000/- per day will be levied on the Contractor, and if the Tug is not delivered for operation within 60 days from the date of issue of Letter of Acceptance, the contract shall be canceled and EMD forfeited. 14. The Contractor shal....
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....ng for the contractor,: Purpose, and all expenses associated therewith, (b) provisions, wages (as per minimum wages act)etc., shipping and discharging fee; and all other expenses of the Master, Officers and Crew (c)Deck , cabin and ongoing room stores (d) Adequate No. of Towing ropes tested and certified (o) galley fuel, (f) Marine and war risk insurance of the vessel (g) fumigation and deratisation exemption certificate (h) all customs, or import duties arising in connection with any of the foregoing (1) all taxes, duties, and levies including but not limited to the taxes, duties, and levies imposed on the income of the contractor, its employees or any levies, etc. on any purchase made by the contractors and/or any penalties imposed by any authorities from time to time. 5. Charterers to provide whilst the vessel is on hire fuel, lubricants, water, electricity, port charges, and anti-pollutants. In case of actual fire fighting as ordered by Charterer, the cost of foam/chemicals consumed for the fire fighting will be reimbursed by the Charterer at actuals. 6. The Charterers at port of delivery and the Contractors at port of redelivery to take over and pay for all f....
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....ctors fail to arrange and keep any of the insurances provided for under the provisions of sub-clause (b) in the manner described therein, the Charterers shall notify Contractors whereupon the contractors shall rectify the position within seven running days. (c) In the event of any act or negligence on the part of the contractors which may vitiate any claim under the insurance herein provided, the contractor shall indemnify the Charterers against all claims and demands which would otherwise have been covered by such insurance. 12. The whole reach and burthen of the vessel, including lawful deck capacity to be at the Charterers' disposal, reserving proper and sufficient space for the vessel's master, Officers, Crew, tackles, apparel, furniture, provisions and stores. 13. The vessel should have a set of competent and qualified Tug Master and Crew, as required by statutory regulation. 14. (a) The Master to execute the Charterer's instructions with the utmost dispatch and to render customary assistance with the vessel's crew. The Master to be under the order of the Charterers as regards employment, agency, or other arrangements. The Co....
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....ion damage and the cost of clean up which has occurred due to the Contractor's and/ or the Contractor's personnel by willful, wanton, intentional acts or omissions or gross negligence which cause or allow the discharge, spills or leaks of any pollutants from any source whatsoever. 22. PERFORMANCE GUARANTEE: The Contractors shall furnish to the Charterers, within 30 days from the date of issue of the Letter of Acceptance, for chartering the vessel, an irrevocable and unconditional Bank Guarantee from a Nationalized Bank for a sum equivalent to 10% of the average annual contract value computed for a period of one year charter. This irrevocable Bank Guarantee shall be valid for a total period of 30 months from the date of commencement of service. In the event of the Contractors failing to honor any of the commitments entered 'into under this agreement, the Charterers shall have an unconditional option under guarantee to invoke the said Bank Guarantee and to claim the amount from the Bank. The Bank shall be obliged to make payment to the Charterer upon demand." 27. As per the Charter Party Agreement, Annexure I, the vessel has been taken by the Port Tru....
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....essary surveys and be in possession of all valid certificates. A joint survey to be carried out at the Port Trust before the tug is accepted for service in the Port to assess the condition. Capability and performance of the vessel and the quantity of fuel, lubricants, etc. Onhire and offhire survey charges shall be borne equally by the charterer and the contractors as provided in condition 5. The charterer will not be responsible for any damage suffered by the tug is provided in condition 6. 31. The contract would be for six months and extendable for one year at the discretion and option of the Port Trust. The tug shall be made available for port operations round the clock throughout the contract period as per condition No.8. The contractor has to comply with the provisions of the Indian Merchant Shipping Act and the law as to licenses/permissions to operate tug. It is the liability of the contractor to pay revised minimum wages to its staff. The contractor shall carry out the work strictly to the satisfaction of the Deputy Conservator, and the tug shall be delivered within 30 days from the date of issue of the letter of acceptance. 32. The charter agreement also provides rou....
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.... specified in the tender documents and charter-party clauses, there is a transfer of right to use the vessel for the purposes specified in the agreement. 34. To constitute a transaction for the transfer of right to use of goods, essential is, goods must be available for delivery. In the instant case, the vessel was available for delivery and in fact, had been delivered. There is no dispute as to the vessel and the charterer has a legal right to use the goods, and the permission/licence has been made available to the charterer to the exclusion of the contractor. Thus, there is complete transfer of the right to use. It cannot be said that the agreement and the conditions subject to which it has been made, is not a transfer of right to use the goods, during the period of six months, the contractor has no right to give the vessel for use to anyone else. Thus in view of the provisions inserted in Article 366(29A) (d), section 5C, and definition of 'sale' in section 2 of the KST Act, there is no room for doubt that there is a transfer of right to use the vessel. 35. What constitutes the transfer of right to use tangible property has been dealt with in various decisions. In Bharat S....
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....wo distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test, therefore, for composite contracts other than those mentioned in Article 366(29-A) continues to be: Did the parties have in mind or intend separate rights arising out of the sale of goods? If there was no such intention, there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is "the substance of the contract." We will, for want of a better phrase, call this the dominant nature test." 50. What are the "goods" in a sales transaction, therefore, remains primarily a matter of contract and intention. The seller and such purchaser would have to be ad idem as to the subject-matter of sale or purchase. The court would have to arrive at a conclusion as to what the parties had intended when they entered into a particular transaction of sale, as being the subject-matter of sale or purchase. In arriving at a conclusion, the court would have to approach the matter from the point ....
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....the transfer of the right to use. The emphasized portions in the quoted passage evidences that the goods must be available when the transfer of the right to use the goods takes place. The Court also recognized that for oral contracts, the situs of the transfer might be where the goods are delivered (see para 26 of the judgment). 75. In our opinion, the essence of the right under Article 366(29-A)(d) is that it relates to user of goods. It may be that the actual delivery of the goods is not necessary for effecting the transfer of the right to use the goods, but the goods must be available at the time of transfer, must be deliverable and delivered at some stage. It is assumed, at the time of execution of any agreement to transfer the right to use, that the goods are available and deliverable. If the goods, or what is claimed to be goods by the respondents, are not deliverable at all by the service providers to the subscribers, the question of the right to use those goods, would not arise." 36. In a concurring opinion, Dr. A R Lakshmanan, J. in BSNL (supra) observed: "97. To constitute a transaction for the transfer of the right to use the goods, the transaction m....
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....nterpretation of contract 13. It is a settled principle in law that a contract is interpreted according to its purpose. The purpose of a contract is the interests, objectives, values, policy that the contract is designed to actualize. It comprises the joint intent of the parties. Every such contract expresses the autonomy of the contractual parties' private will. It creates reasonable, legally protected expectations between the parties and reliance on its results. Consistent with the character of purposive interpretation, the court is required to determine the ultimate purpose of a contract primarily by the joint intent of the parties at the time the contract so formed. It is not the intent of a single party; it is the joint intent of both the parties and the joint intent of the parties is to be discovered from the entirety of the contract and the circumstances surrounding its formation. 14. As is stated in Anson's Law of Contract: "a basic principle of the common law of contract is that the parties are free to determine for themselves what primary obligations they will accept.... Today, the position is seen in a different light. Freedom of contract i....
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....a careful reading and analysis of the various clauses contained in the agreement and, in particular, looking to clauses 1, 5, 7, 13, and 14, it becomes clear that the transaction did not involve a transfer of right to use the machinery in favor of contractors. The High Court was right in arriving at such a conclusion. In the impugned order, it is stated, and rightly so in our opinion, that the effective control of the machinery even while the machinery was in use of the contractor was that of the respondent Company; the contractor was not free to make use of the machinery for the works other than the project work of the respondent or move it out during the period the machinery was in his use; the condition that the contractor would be responsible for the custody of the machinery while it was on the site did not militate against the respondent's possession and control of the machinery. It may also be noticed that even the Appellate Deputy Commissioner, Kakinada, in the order dated 15-11-1999 in regard to Assessment Years 1986-87 and 1987-88, held that under the terms and conditions of the agreement, there was no transfer of right to use the machinery in favor of the contractor. ....
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....lations of the charter-party are expressly incorporated, they become terms of the contract contained in the bill of lading, and they can be enforced by or against the shipper, consignee or endorsee. The effect of a bill of lading depends upon the circumstances of the particular case, of which the most important is the position of the shipper and of the holder. Where there is a bill of lading relating to the goods, the terms of the contract on which the goods are carried are prima facie to be ascertained from the bill of lading. However, if a shipper chose to receive a bill of lading in a specific form without protest, he should ordinarily be bound by it. Thus, it cannot be said that the bill of lading is not conclusive evidence of its terms and the persons executing it is not necessarily bound by all its stipulations, unless he repudiates them on the grounds that, as he did not know, and could not reasonably be expected to know, of their existence, his assent to them is not to be inferred from his acceptance of the bill of lading without objection. Where there is a charter-party, the bill of lading is prima facie, as between the shipowner and an endorsee, the contract on which the ....
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.... the charter-party has to be decided based on the stipulations. 41. In the Union of India v. Gosalia Shipping (Pvt.) Ltd., (1978) 3 SCC 23 question of charter-party arose, the terms of which indicated that the charterers agreed to pay the owners for use and hire of the ship and not on account of carriage of goods. It was held that it was not governed by section 172 of the Income Tax Act, 1961, because the section creates a tax liability in respect of occasional shipping. However, what is important is that this Court has considered the charter-party and observed that all charter parties are not contracts of carriage. Sometimes ship itself and control over her working and navigation are transferred, for the time being to persons who use her. In such a case, the contract is very much of letting the ship. This Court has observed thus: "10. The weakness of the argument advanced by the appellant's Counsel consists in its assumption that the charter-party has to be an agreement for the carriage of something like goods, passengers, livestock, or mail. A contract by charter-party, says B.C. Mitra in his Law of Carriage by Sea, Tagore Law Lectures 1972, "is a contract by whic....
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....owners on a time charter-party, that the owners were entitled to payment for the use and hire of the ship, that the amount was payable irrespective of what use the ship was put to by the time charterers or indeed, whether it was put to any use at all and that no part of the payment can be said to have been made on account of the carriage of goods. Similes can be misleading, but if a hall is hired for a marriage, the charges payable to the owner of the place are for the use and hire of the place, not on account of marriage." 42. The decision of the High Court of Madras in State of Tamil Nadu & Ors. v. Tvl. Essar Shipping Ltd. & Ors., (2012) 47 VST 209 (Mad.) has been referred to on behalf of the appellants. The High Court of Madras has observed that whether the charter-party is a voyage charter-party or time charter-party or charter by demise or not, depends upon the intention of the parties. It has been observed that certain words in the charter-party are used in the standard forms of the time charter, such as 'let,' 'hire,' 'delivery,' and 'redelivery,' there is no hiring in the real sense. The High Court observed: "55. In the light of the v....
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....e quantity of cargo carried.' Thus the consistent view of the Courts in India and elsewhere is that under the time charter, the owners provide services for the charterer with their ship, their officers, and the crew for an agreed period of time. In the decision reported in 2001 (1) LR 147 @ page 156 in the case of The Hill Harmony, Lord Hobhouse said, the owner who time charters his ship, transfers to the time charterer in return for payment of hire, 'the right to exploit the earning capacity of the vessel.' It was pointed out that despite the fact that certain keywords are used in most standard forms of the time charter such as 'let', 'hire,' 'delivery' and 'redelivery,' there is no hiring in the true sense' (Refer: The London Explorer 1971 (1) LR 523). Keeping in line with the well established and well-understood characteristic features on time charter, in the decision reported in 99 L.W. 517 Transworld Shipping Services (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 no....
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....instant case, full control of the vessel had been given to the charterer to use exclusively for six months, and delivery had also been made. The use by charterer exclusively for six months makes it out that it is definitely a contract of transfer of right to use the vessel with which we are concerned in the instant matter, and that is a deemed sale as specified in Article 366(29A)(d). On the basis of the abovementioned decision, it was urged that all Charter Party Agreements are service agreements. The submission cannot be accepted, as there is no general/invariable rule/law in this regard. It depends upon the terms and conditions of the charter-party when it is to be treated as only for service and when it is the transfer of right to use. 44. A decision by the Court of Appeal In re: An Arbitration between sea and land securities Ltd. and William Dickinson & Co. Ltd. The Alresford, (1942) 2 KB 65, has been relied upon in which the question arose of certain cesser of hire for the period occupied in fitting the degaussing apparatus. Since the employment of the ship did not come within the terms of clause 12 of the charter-party, nor did it constitute a breach of contract by the ow....
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....the services of the vessel from the charterer if the latter fails to pay an installment of hire in precise compliance with the provisions of the charter. So the shipowner commits no breach of contract if he does so, and the charterer has no remedy in damages against him." Preceding discussion renders no help as it was not relating to the charter by demise. In the instant case control, excusive use is given to the charterer for six months. 46. Reliance has also been placed on Port Line, Ltd. v. Ben Line Steamers, Ltd. (1958) 1 AER 787 in which the court has observed: "The plaintiffs' charter-party with Silver Line was a gross time charter, not one by demise. It gave the plaintiffs no right of property in or to possession of the vessel. It was one by which Silver Line agreed with the plaintiffs that for thirty months from Mar. 9, 1955, they would render services by their servants and crew to carry the goods which were put on the vessel by the plaintiffs." Again, the decision is based on the terms and conditions. Merely by employing the crew to render the service by the owner, is not decisive of the nature of charter. 47. In Torvald Klaveness A/S v. Arni Marit....
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....owing observations have been relied upon: "The immediate legal background to the dispute is not now controversial. A time charter-party such as this is a contract by which the shipowner agrees with the time charterer that during a certain named period he will render services by his servants and crew to carry the goods which are put on board his ship by the time charterer (Sea and Land Securities Ltd. v. William Dickinson and Co. Ltd., (1942) 72 I.I.L. Rep. 159 at p. 162, col. 2; [1942] 2 K.B. 65 at p. 69). It is for the time charterer to decide, within the terms of the charter-party, what use he will make of the vessel. References to delivery and redelivery are strictly inaccurate since the vessel never leaves the possession of the shipowner, but the expressions are conventionally used to describe the time when the period of the charter begins and ends (The Berge Tasta)". The decision lends no support in view of the terms and conditions of the charter-party in question and the general discussion. Otherwise, also, it does not espouse cause concerning whether there is a right to transfer the use of the vessel. 50. In Scrutton on Charter-parties and Bills of Lading, 20t....
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....has also been referred to in which the following discussion has been made: "402. Meaning of "contract by charter-party." A contract by a charter-party is a contract by which an entire ship or some principal part of her is let to a merchant, called "the charterer," for the conveyance of goods on a determined voyage to one or more places, or until the expiration of a specified period. In the first case, it is called a "voyage charter-party," and in the second a "time charter-party." Such a contract may operate as a demise of the ship herself, to which the services of the master and crew may or may not be added, or it may confer on the charterer nothing more than the right to have his goods conveyed by a particular ship, and, as subsidiary to it, to have the use of the ship and the services of the master and crew. 403. Charter-party by demise. Charter-parties by way of demise are of two kinds: (1) charter without master or crew, or "bareboat charter", where the hull is the subject matter of the charter-party, and (2) charter with master and crew, under which the ship passes to the charterer in a state fit for the purposes of mercantile adventure. In both cases the ch....
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....in this case, full control has been given, and use is exclusively for the charterer. He has the right to use the space and burden. The discussion in Halsbury's also makes it clear that each and every charter-party need not be a service contract to provide services only. 53. The argument based upon the foreign courts decisions as to the charter agreements are only for service purpose, is not correct. As already discussed, even in the abovementioned foreign court's decisions, it depends upon the charter-party, and there is no supercheck formula to find out the nature of the contract. It depends upon the terms and conditions of each contract. Merely use of specific words, as mentioned above, is not determinative, but the real crux is to be seen as per relevant conditions as agreed to between the parties. 54. When we consider the charter-party in question in the context of applicable law, particularly in view of the constitutional provisions of Article 366(29A)(d), we find that there is transfer of right to use tangible goods, which is determinative of deemed sale as per the Constitution of India and provisions of section 5C reflecting the said intendment. We are of the consi....
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....the goods are passed, but the situs of the agreement is determinative for the realization of tax. In this regard decision of Constitution Bench of this Court in 20th Century (supra) is relevant, in which this Court has discussed the concept of deemed sale by a legal fiction created as per Article 366(29A) (e to f) and observed: "21. It may be noted that the transactions contemplated under subclauses (a) to (f) of clause (29-A) of Article 366 are not actual sales within the meaning of "sale" but are deemed sales by a legal fiction created therein. The situs of sale can only be fixed either by the appropriate legislature or by judge-made law, and there are no settled principles for determining the situs of sale. There are conflicting views on this question. One of the principles providing a situs of sale was engrafted in the explanation to clause (1)(a) of Article 286, as it existed prior to the Constitution (Sixth Amendment) Act, which provided that the situs of sale would be where the goods are delivered for consumption. The second view is, the situs of sale would be the place where the contract is concluded. The third view is that the place where the goods are sold or del....
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....lhi, for consumption in the State of Delhi. Pursuant to this contract made in Gurgaon in the State of Punjab, the buyer pays the full price of the goods at Gurgaon and the seller hands over to the buyer also at Gurgaon a delivery order addressed to the seller's godown-keeper in Delhi to deliver the goods to the buyer's retail shop. As a direct result of this sale, the seller's godown-keeper, on the presentation of this delivery order, actually delivers the goods to the buyer's retail shop at Connaught Circus for consumption in the State of Delhi. On one view of the law, the 'situs' of such a sale would be Gurgaon. We need not decide that it is, because that type of case is not before us and there may be other views to consider, but it is certainly a possible view. It is also possible to hold that this is not inter-State trade or commerce, because there is no movement of goods across a State boundary. Again, we need not decide that because that also may be controversial. But given these two postulates, the transaction would fall squarely within the explanation, and yet it would not come within clause (2), for there is no movement of the goods across the border ....
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.... the contract has been entered into. 58. This Court in the 20th Century (supra) has considered for Article 366(29A)(d), the taxable event is the transfer of the right to use the goods regardless of when or whether the goods are delivered for use. The deemed sale takes place at the site where the right to use the goods is transferred. It is of no relevance where the goods are delivered under the right to transfer to use them. In the present case, the agreement has been admittedly signed in Mangalore, and the vessel is used in the territorial waters, which is as per the submission of the company, fully in territory of the Union of India. It makes no difference as the situs of the deemed sale is in Mangalore. Thus, the liability to pay tax under the Act cannot be countenanced. This Court in the 20th Century (supra) has observed: "26. The next question that arises for consideration is, where is the taxable event on the transfer of the right to use any goods. Article 366(29-A)(d) empowers the State Legislature to enact a law imposing sales tax on the transfer of the right to use goods. The various subclauses of clause (29-A) of Article 366 permit the imposition of tax thus: ....
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.... 27. Article 366(29-A)(d) further shows that the levy of tax is not on the use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. In other words, the right to use arises only on the transfer of such a right, and unless there is a transfer of the right, the right to use does not arise. Therefore, it is the transfer, which is a sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of a taxable event of such a tax would be the transfer that legally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where the goods are located, and a written contract is entered into between the parties, the taxable event on such a deemed sale would be the execution of the contract for the transfer of right to use goods. But in case of an oral or implied transfer of the right to use goods, it may be affected by the delivery of the goods. 28. No authority of this ....
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....of the territory of India; and (iii) an inter-State sale." 59. This Court also dealt with proposition whether the State can create a deemed fiction that in case the goods are for use within the State irrespective of the place where the contract of transfer of right to use the goods is made. That is not the question involved in the present matter. The situs of the agreement is relevant, which is admittedly within the territory of Karnataka. The situs of the deemed sale is in Mangalore, and the decision of a Constitution Bench of this Court in the 20th Century (supra) is binding on us and effectively repels the submission to the contrary. 60. In Aggarwal Brothers v. State of Haryana & Anr., (1999) 9 SCC 182, the submission was raised that to make a deemed sale there must be a legal transfer of goods or that the transaction must be like a lease, was not accepted by this Court. It has distinguished the transfer of the right to use the goods for consideration. Following observations have been made: "3. The argument of learned counsel for the assessees goes thus: Entry 54 of Part II of Schedule VII of the Constitution enables the State to levy "taxes on the sale or purchas....
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....a lease. 6. Where there is a transfer of a right to use goods for a consideration, the requirement of the above-mentioned provision of the said Act is satisfied, and there is deemed to be a sale. In the instant case, the assessees owned shuttering. They transferred the shuttering for consideration to builders and building contractors for use in the construction of buildings. There can, therefore, be no doubt that the requirements of a deemed sale within the meaning of the abovementioned provision of the said Act are satisfied." 61. A reference has also been made to the decision in the State of Orissa & Anr. v. Asiatic Gases Ltd., (2007) 5 SCC 766 in which what is the nature of, transfer of right to use the goods, has been discussed and Aggarwal Brothers (supra) has been relied upon, thus: "8. Lastly, it is important to bear in mind that Section 2(g)(iv) was placed on the statute in terms of Article 366(29-A)(d) of the Constitution. In Aggarwal Bros. v. State of Haryana, (1999) 9 SCC 182 a Division Bench of this Court has held that the provision under Section 2(l)(iv) of the Haryana General Sales Tax Act, 1973 [which was similar to Section 2(g)(iv) of this Act] ....
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....Constitution. Entries 25 to 27 and 30 of List I, Entry 32 of List III, i.e., Concurrent List have been referred. 64. Learned senior counsel appearing for the parties have also referred to various decisions and the debates in the Constituent Assembly and answers given by Dr. B.R. Ambedkar as to scope of Article 293 of the Constitution. The High Court has also relied upon the definition of State as provided in section 2(j) of the Marine & Fishing Act, 1986, Entries 13 and 21 of State List II of the 7th Schedule and in respect of fisheries Entry 21 of List II. 65. We need not go into the aforesaid questions. However, as the High Court has given a finding, and on being impleaded, coastal States have filed their response as notices were issued to them. We need not go into the question in respect of the right of the States and the Central Government as to territorial waters at all because of our finding concerning exaction of tax under the KST Act owing to situs where the transfer right to use the vessel, which is a deemed sale, had taken place. As such, we leave the question open and dilute the finding recorded by the High Court in this regard. 66. Charter party has been entere....