Facts
The appellant owned a tug (towing vessel). It entered into a Character 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 6 months.
Issues
Whether the State of Karnataka had jurisdiction to levy sales tax under Section 5C the KST Act in respect of the Charter PartyAgreement dated 8.1.1998?
- Whether the agreement dated 8.1.1998 constitutes “transfer of the right to use”?
- Whether the State of Karnataka has the competence to levy sales tax on the agreement, which is effective within theterritorial waters?
View
The Supreme Court considered the various terms and conditions of the Charter party agreement (Annexure 1), and observed that when the terms were perused, clause 1 provided that the contractors “let” and the charterer “hire” the goods vessel for 6 months. The expression “let” had been used and the vessel, most significantly during the charter period had been placed at the “disposal” of the charterers and under their control in every respect. The charterers had been given the right to use all outfits, equipment and appliances on board the vessel at the time of the delivery, including the whole reach, burthen and deck capacity. Thus, the Court observed that in their considered opinion, effective control for the entire period of 6 months had been given to the charterers. To constitute a transaction of a transfer of right to use, essentially goods must be available for delivery. In the instant case, the vessel was available for delivery and in fact, had been delivered. There was no dispute as to the vessel and the charterer had a legal right to use the goods and the permission/license had been made available to the charterer to the exclusion of the contractor. Thus, there was complete transfer of the right to use.
The Supreme Court followed their judgement in the case of 20th Century Finance Corp. Ltd. v. State of Maharashtra (2000) 6 SCC 12 and held that since the agreement was signed in the State of Karnataka, the situs of the transfer of right to use was within the State of Karnataka and therefore that State was competent to tax it.
The Court did not go into the question of imposition of tax in territorial waters and have kept the question open.
Held
The Charter Party Agreement resulted in a deemed sale as there was a transfer of right to use the vessel. The transaction was liable to be taxed by the concerned authorities in the State of Karnataka. (CA No. 3383 of 2004 dt. 4-12-2019)
Editorial: The statutory framework for under GST has now changed and this decision is not relevant from the levy point of view, but can be used for the purposes of classification.
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