2010 (2) TMI 1083 - HC - VAT and Sales Tax

Whether charter parties voyage charter parties and bare boat charter parties result in transfer of right to use the ships? Whether the charter hire charges realised in the case of time charter parties and freight earnings realised in respect of voyage and bare boat charter parties are taxable under section 3A of the Tamil Nadu General Sales Tax Act 1959 (for brevity the Act ) when the charter party agreements provide for inter-State coastal movement or continuous movement outside the country in the course of international trade? Held that - We do not propose to go into the factual aspect of every case in this batch suffice to state that the respondent/Department should await the result of the tax case (revisions) pending before this court in respect of the same issue and not to proceed either with the pre-assessment notices or the assessment order. In the result on the ground of judicial discipline and binding nature of judicial hierarchy these writ petitions are disposed directing the respondent/Department not to proceed with the impugned assessment order or the pre-assessment notices as the case may be till the tax case (revisions) filed by the State against the order of the Tamil Nadu Sales Tax Appellate Tribunal in S.T.A. Nos. 772 to 774 of 2001 are disposed by this court.

Issues Involved:
1. Taxability of charter hire charges and freight earnings under Section 3A of the Tamil Nadu General Sales Tax Act, 1959.
2. Jurisdictional error by the respondent/Department in taxing previously non-taxable charter transactions.
3. Binding nature of judicial precedents and orders from higher authorities on lower authorities.

Issue-wise Detailed Analysis:

1. Taxability of Charter Hire Charges and Freight Earnings:
The central issue is whether charter parties, voyage charter parties, and bare boat charter parties lead to a transfer of the right to use ships, making the charter hire charges and freight earnings taxable under Section 3A of the Tamil Nadu General Sales Tax Act, 1959, especially when the agreements involve inter-State or international movement. The petitioners argued that such agreements do not transfer the right to use the ships due to conditions like the captain and crew being appointed by the petitioners, and the charterer having no control over the ship. The Supreme Court in *20th Century Finance Corpn. Ltd. v. State of Maharashtra* held that states cannot levy sales tax on the transfer of right to use goods if the sale occurs outside the state or in the course of inter-State trade or commerce. The Tamil Nadu Sales Tax Appellate Tribunal had previously ruled in favor of the petitioners, stating that the transactions did not result in a transfer of the right to use the ships.

2. Jurisdictional Error by the Respondent/Department:
The petitioners contended that the respondent/Department committed a jurisdictional error by taxing charter transactions for the years 1992-93 to 1994-95, which had been previously held non-taxable by the Tamil Nadu Sales Tax Appellate Tribunal. Despite the Tribunal's decisions, the Department issued assessment orders for subsequent years, leading to further appeals and litigation. The Tribunal's decisions, based on the Supreme Court judgment, were binding, yet the Department continued to issue tax demands, which the petitioners argued was a violation of judicial discipline.

3. Binding Nature of Judicial Precedents and Orders:
The petitioners emphasized that the respondent/Department should follow the decisions of higher authorities, such as the Tamil Nadu Sales Tax Appellate Tribunal, which had ruled in favor of the petitioners. The Supreme Court in *Union of India v. Kamalakshi Finance Corporation Ltd.* and other cases underscored the importance of judicial discipline, stating that lower authorities must follow the orders of higher authorities even if they have reservations. The Madras High Court reiterated this principle, stating that the Appellate Assistant Commissioner must follow the Tribunal's orders unless they are set aside by a higher court.

Conclusion:
The court concluded that the respondent/Department should await the outcome of the tax case (revisions) pending before the High Court regarding the same issue before proceeding with pre-assessment notices or assessment orders. The court emphasized the importance of judicial discipline and the binding nature of higher authorities' decisions on lower authorities. The writ petitions were disposed of with a direction to the respondent/Department to not proceed with the impugned assessment order or pre-assessment notices until the tax case (revisions) are resolved.

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