2004 (1) TMI 649 - HC - VAT and Sales Tax

Transfer of right to use the tug or not - use of tug on the territorial waters - use of the tug within the State of Karnataka.

Issues Involved:
1. Whether the use of the tug in territorial waters amounts to use within the State of Karnataka.
2. Whether the learned single Judge was justified in not considering the appellant's contention regarding the transfer of the right to use the tug.
3. Whether there was a transfer of the right to use the tug from the appellant to the NMPT under the agreement.

Issue-wise Detailed Analysis:

1. Use of Tug in Territorial Waters:
The primary question is whether the territorial waters abutting the landmass form part of the State of Karnataka. The court concluded that the territorial waters up to 12 nautical miles from the baseline form part of the State of Karnataka. The Constitution of India and the Territorial Waters Act do not exclude territorial waters from the State's territory. Article 297 of the Constitution and the Territorial Waters Act were examined, and it was determined that these provisions do not support the appellant's contention that territorial waters vest solely with the Union of India. The court emphasized that the sovereignty of India extends to the territorial waters, but this does not exclude these waters from the State's jurisdiction for taxation purposes. The court referenced the Madras High Court decision in A.M.S.S.V.M. Company v. State of Madras, which supported the view that territorial waters form part of the State.

2. Consideration of Transfer of Right to Use:
The learned single Judge refused to consider whether there was a transfer of the right to use the tug, stating it was a matter for the Assistant Commissioner of Commercial Taxes. However, the Supreme Court in State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. held that such questions should be considered by the High Court. The court concluded that the learned single Judge was not justified in refusing to consider this question, and it should have been addressed on its merits.

3. Transfer of Right to Use the Tug:
Section 5-C of the KST Act imposes tax on the transfer of the right to use goods. The court examined the agreement between the appellant and NMPT, focusing on clauses (1), (3), (5), (6), (7)(a), (12), and (14)(a). These clauses indicated that the tug was let and hired for six months, placed at NMPT's disposal, and under its control. The court concluded that there was a transfer of the right to use the tug to NMPT, as the tug was at NMPT's disposal and control during the charter period. The appellant's obligation to maintain the tug did not negate the transfer of the right to use. The court distinguished this case from Rashtriya Ispat Nigam Ltd., where the machinery was under the State's control and only handed to the contractor for specific work. The court also referenced the Supreme Court decision in 20th Century Finance Corpn. Ltd. v. State of Maharashtra, which supported the view that the transfer of the right to use goods can occur without actual delivery of goods.

Conclusion:
The appeal was dismissed, with the court affirming that:
1. The territorial waters abutting Karnataka form part of the State.
2. The learned single Judge should have considered the transfer of the right to use the tug.
3. There was a transfer of the right to use the tug from the appellant to NMPT under the agreement.

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