9911796707
TMI Blog2019 (12) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... goods - 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. Whether there is a transfer of the right to use the vessel? - HELD THAT:- It has to be considered in view of the charter agreement entered into between the company and the Port Trust. The tender documents pursuant to which agreement has been entered into contains the conditions and instructions to tenderers. The prequalification criteria provide that the tenderer has to submit the documents regarding ownership or possession of tug on bareboat/committed demise charter hire of tugs. In case he does not own the tug, he has to provide documents to prove that he has entered into a lease for charter hire of tug(s) for deploying them in the Port Trust during the period of the contract. The tenderer should have experience of manning and harbor practice for one year during the last 3 years. Tugs should be deployed at harbors at New Mangalore Port during the contract period. As per the Charter Party Agreement, Annexure I, the vessel has been taken by the Port Trust for various lawful services required by the chartered Port Trust, including towing, docking, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrespective of the place where they are located, the situs of sale where the property or goods passes, would be at the place where the contract has been entered into. This Court in the 20TH CENTURY FINANCE CORPN. LTD. AND ANOTHER VERSUS STATE OF MAHARSHTRA [ 2000 (5) TMI 980 - SUPREME COURT ] 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. The Charter Party Agreement tantamount to a deemed sale as there was a transfer of right to use the vessel as provided in Article 366(29A)(d) read with section 5C or section 2(j) of the Karnatak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income Tax vide notification dated 8.6.1998 directed the company to register itself as a dealer under the provisions of the KST Act on the ground that the agreement attracted tax under section 5C thereof. The company in the reply dated 26.6.1998 repudiated the claim on the ground that there was no transfer of right to use the goods given by the company to the Port Trust as the possession and custody of the tug continued with it. The Assistant Commissioner sent another communication dated 28.12.1998 informing that last chance was given to the company to get itself registered under the KST Act within 15 days failing which he would be compelled to file charge-sheet against the company for the offence under section 29(2)(aaaa) of the KST Act. The Joint Commissioner of Income Tax (Commercial Taxes) on a query being made by the company wrote that he was not the competent authority to issue a clarification regarding liability or otherwise to pay tax under section 5C of the KST Act. 4. The company filed a writ petition on the ground that the KST Act does not extend to territorial waters of India situated adjacent to the landmass of the State of Karnataka. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st cannot use the Tug for any purpose except, as mentioned in clause 3 of the Agreement. The Port Trust cannot take away the Tug outside the harbour limits of the Port Trust. Legal possession and fiscal control had not been transferred to the Port Trust, and only a conditional use of the vessel has been given. The use of the words at the disposal of Port' in clause 7 is a standard term used in all charter agreements, and these do not indicate the transfer of legal possession or transfer of fiscal control. The contract indicates various liabilities and responsibilities of the owner; the insurance has to be provided by the appellants. For the performance of service, the Bank Guarantee also has to be given. The owner is responsible for damage to his Tug, Jetty, port premises, or any other vessel in the port. The company is responsible for providing indemnity to the charterer. Thus, the owner has not lost his control over the vessel. 7. It is further urged that if the vessel is at the disposal of the Port Trust, does not mean that there is a transfer of right to use it. The expression must be understood in a proper context of the agreement itself. It would be absur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assembly to submit that the entire territorial waters would exclusively belong to the Union, and it is only by way of an exception through Entry 21 in List II that fisheries has been kept under the control of a State Government. The State Government is, thus, competent to regulate fishing up to the territorial waters. The same would again be restricted by Entry 57 of List I, which provides that fisheries beyond the territorial waters would be under the control of the Union as per Entry 21, List II. The Karnataka Marine and Fishing (Regulation) Act, 1986 (Act of 1986) was passed by the State legislature, within purview of powers as per Entry 21 of List II. Section 2(j) of the Act of 1986 has defined Karnataka State to include the territorial waters, but that has to be read in the context of Entry 21 in List II. The definition in section 2(j) is confined to the regulation of fisheries, and cannot be interpreted to mean that the territorial waters belong to Karnataka. The State cannot claim 12 nautical miles as part of its territory; otherwise, each maritime State can pass laws with any of the items mentioned in List-I regarding the activities in the territorial waters, which are th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of a transaction to constitute a transfer of the right to use the goods. At no point of time, the vessel should go out of the possession or control of the company, therefore the essential ingredient to constitute it a transfer of the right to use is missing. He has also referred to DLF Universal Ltd. v. Director, Town and Country Planning Department, Haryana, (2010) 14 SCC 1. The very language of the agreement makes it clear to be a contract of service. The expressions like delivery and redelivery are not to be understood in a literal sense. There are certain obligations upon the company, which makes out that effective control over the vessel is with the company. He had also referred to Harbour Craft Rules. The tug is always operated, controlled, run, maintained, and insured by the company. Possession of the Tug remains with it. In the event the tug is disabled from use, the charterer is not required to pay charter10 party charges to the company. The company has to indemnify the charterer. 13. Mr. Mohan Parasaran, learned senior counsel has also submitted that the concept of time charter-party is a charter for a specified period rather than for a specific task. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the coast. He has also referred to Article 297. He has relied upon Dr. Ambedkar s speech in the Constituent Assembly that State laws will prevail over that area, whatever law you make will have its operation over the area of three miles from the physical territory and has also referred to H.M. Seervai s seminal work on the Constitutional Law of India with respect to interpretation of Article 297 of the Constitution of India. Though the Article has been amended on more than one occasion, the Parliament has not altered the basic premise of Article 297. He has relied upon Baliram Waman Hiray v. Justice B. Lentin, (1988) 4 SCC 419; P.T. Rajan v. T.P.M. Sahir (2003) 8 SCC 498. Several States, including the State of Karnataka, have enacted the laws with respect to fisheries. He has referred to section 2(j) of the Karnataka Marine Fishing (Regulation) Act, 1986. There was a transfer of right to use the vessel as apparent from the various clauses of the agreement. He has also relied upon Article 366 and the debates relating to it. Parliament has chosen not to place any restriction on the power of the State Government under Article 366(29A)(d). 15. Mr. Tushar Mehta, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, and includes,- (i) a transfer otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration; (ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (iii) a delivery of goods on hire purchase or any system of payment by installments. (iv) a 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;---- Explanation 1.-x x x Explanation 2.- x x x Explanation 3.- (a) The sale or purchase of goods (other than in the course of inter-State trade or commerce or in the course of import or export) shall be deemed, for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... livery 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 consideration is whether there is a transfer of the right to use the vessel. It has to be considered in view of the charter agreement entered into between the company and the Port Trust. The tender documents pursuant to which agreement has been entered into contains the conditions and instructions to tenderers. The prequalification criteria provide that the tenderer has to submit the documents regarding ownership or possession of tug on bareboat/committed demise charter hire of tugs. In case he does not own the tug, he has to provide documents to prove that he has entered into a lease for charter hire of tug(s) for deploying them in the Port Trust during the period of the contract. The tenderer should have experience of manning and harbor practice for one y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 total period of 9 months from the date of commencement of service. 25. Clauses 1 and 3 to 15 of the Special Conditions which are relevant are extracted hereunder: Special Conditions of Contract : 1. All operational costs, including wages (Minimum Wages Act or any other Act, allowances, victualing, Insurance (Personal), Hull and Machinery, Protection Indemnity) will be borne by the Contractor. Repairs, survey, and other requirements to keep the tug operational will be to the Contractor's account and during any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 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 ₹ 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 shall obtain necessary clearance, as required from D.G.Shipping, Ministry of Surface Transport, etc. for deploying the tug for service in the port before the tug is put into the service. 15. The steady/sustained Bollard pull of the Tug should not be less than 40 tonnes at the time of delivery. Bollard Pull test certificate should be from Classification society and should not be more than 6 months old from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 fuel and lubricants remaining in the vessel at Mangalore. 7. MAINTENANCE AND OPERATION: (a) The vessel shall, during the charter period, be for all purposes at the disposal of the Charterers and under the control in every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Contractors to indemnify the Charterers against all consequences or liabilities arising from the Master, Officers, or Agents for their unlawfu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnel 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 Trust for various lawful services required by the chartered Port Trust, including towin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lid 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 round the clock servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , unless the transaction in truth represents two 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not say that the delivery of the goods was inessential for the purposes of completing 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) obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two willing contracting parties whereunder the terms and conditions are mutually agreed upon. The covenants decide the mutual obligations between the owner of the land and the buyers thereof. Interpretation 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to use the machinery in favour of the contractors and in the absence of satisfying the essential requirement of Section 5-E of the Act, i.e., transfer of right to use machinery, the hire charges collected by the respondent from the contractors were not exigible to sales tax. On 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. A charter-party has to be construed so as to give effect, as far as possible, to the intention of the parties as expressed in the written contract. The stipulations of charter-party may be incorporated in a bill of lading so that they are thereby binding on the parties. It is an accepted principle that when stipulations 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trial. The decision in British India (supra) lays down whether a charter-party should operate as a demise or not, depends on the stipulations of the charter-party. Based on stipulations, we have come to the conclusion that it is a case of 'transfer of right to use,' which is a deemed sale. The decision buttresses our conclusion that 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the use and hire of the vessel at the rate of U.S. 4.50 dollars per ton on vessel's total deadweight carrying capacity, per calendar month, commencing on and from the date of delivery of the ship, hire to continue until the hour of the day of her re-delivery . These clauses of the charter-party shows that the Aluminium Company took the ship from its 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted from 'Law of Carriage by Sea' by B.C. Mitra, that 'a time charter is one in which the ownership and also possession of the ship remain in the original owner, whose remuneration or hire is generally calculated at a monthly rate on the tonnage of the ship, while a voyage charter is a contract to carry specified goods on a defined voyage on a remuneration or freight usually calculated according to the 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 Londo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins and ends (The Berge Tasta, (1975) 1 LR. 422 at p. 424). 43. We are not turning our decision upon the terms used like let , hire , delivery and redelivery but on the other essential terms of the Charter Party Agreement entered in the instant case which clearly makes out that there is a transfer of exclusive right to use the vessel which is a deemed sale and is liable to tax under the KST Act. In the 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1852) 1 Dc G.M. G. 604. In the event of failure to render the promised services, the party to whom they were to be rendered would be left to pursue such remedies in damages for breach of contract as he might have at law. But as an unbroken line of uniform authority in this House, from Tankexpress (ubi sup.) to The Chikuma [1981] 1 Lloyd's Rep. 371; [1981] 1 W.L.R. 314 has held, if the withdrawal clause so provides, the shipowner is entitled to withdraw 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 plai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the vessel and paying the crew s wages, but the cost of fuel and port charges fall on the charterer. At the end of the period covered by the time charter the vessel is said to be redelivered to the shipowner. This is a misleading term for the vessel never leaves the possession of the shipowner. All that is meant is that the time charter then ends in exactly the same way as a voyage charter-party ends when the last cargo is discharged. 49. In Hyundai Merchant Marine Co. Ltd. v. Gesuri Chartering Co. Ltd. (The Peonia ), (1991) 1 LLR 100, the following 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the whole possession and control of the ship. Time charters almost always contain expressions such as letting, hiring, hire, delivery, and redelivery, which are really apt only in charters by demise. These expressions serve to distinguish such charters from voyage charters, but they do not in themselves characterize such charters as charters by demise. 51. It is apparent from the discussion mentioned above that the services of the master and crew may or may not be superadded in the case of demise. Whether or not charter amount to demise would depend upon the particular terms of the charter. 52. Halsbury s Laws of England, 4th Edn., Vol. 43, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovides for the nomination of the master by the charterer, he must be regarded as the owner's employee if the effect of the charter-party is that he is to be paid or dismissed by the owner and that he is to be subject to the owner's orders as to navigation. However, if the charter-party is otherwise to be regarded as a demise, it is immaterial that the owner reserves the right, in certain circumstances, of removing the master and appointing another in his place, or of appointing the chief engineer. In a charter-party by demise, it may be charter without master or crew or bareboat charter, and another may be a charter with master and crew under which ship passes to the charterer for the purposes of mercantile adventure. As held 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 discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in stipulations and to be produced by Tindal on being demanded and change incapacity to be reported to the Deputy Conservator, the provisions are not of any help for interpreting the Charter Party Agreement, and to decide the question whether there is a transfer of right to use the vessel. In Re: Situs of the agreement 56. The next question for consideration is whether the State of Karnataka has power under section 5C of the Act to exact salestax though charter-party has been signed in Mangalore in view of the fact that vessel was to be used in territorial waters, it was open to the State Government to impose and realize the salestax on the basis of situs of agreement. 57. For the realization of tax imposed within the ken of power under Article 366(29A)(d), it is not material where 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no authority to show that mere location or delivery of goods would be the situs of sale. Here, we would like to cite an appropriate illustration given in the decision in the Bengal Immunity case, AIR 1955 SC 661, only to resolve the controversy before us. The illustration given is as under: Take, for instance, a case where both the seller and the buyer reside and carry on business in Gurgaon in the State of Punjab. Let us say that the seller has a godown in the State of Delhi where his goods are stored and that the buyer also has a retail shop at Connaught Circus also in the State of Delhi. The buyer and the seller enter into a contract at Gurgaon for the sale of certain goods and a term of the contract is that the goods contracted to be sold will be actually delivered from the seller's godown to the buyer s retail shop, both in the State of Delhi, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. The State cannot levy a tax on the basis that one of the events in the chain of events has taken place within the State. The delivery of goods may be one of the elements of transfer of right to use, but the same would not be the condition precedent for a contract of transfer of right to use goods. Where a party has entered into a formal contract, and the goods are available for delivery irrespective of the place where they have located the situs of such sale would be where the property in goods passes, namely, where the contract is entered into. This Court has observed that the location of the delivery of goods cannot be made the basis for the levy of tax on the sale of goods. Where a party has entered into a formal contract, and the goods are available for delivery irrespective of the place where they are located, the situs of sale where the property or goods passes, would be at the place where 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 dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transferee. All that is required is that there is a transfer of the right to use the goods. In our view, therefore, on a plain construction of sub-clause (d) of clause (29-A), the taxable event is the transfer of the right to use the goods regardless of when or whether the goods are delivered for use. What is required is that the goods should be in existence so that they may be used. And further contract in respect thereof is also required to be executed. Given that, the locus of the deemed sale is the place where the right to use the goods is transferred. Where the goods are when the right to use them is transferred is of no relevance to the locus of the deemed sale. Also of no relevance to the deemed sale is where the goods are delivered for use pursuant to the transfer of the right to use them, though it may be that in the case of an oral or implied transfer of the right to use goods, it is affected by the delivery of the goods. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted within the State of Karnataka irrespective of the place where the contract or transfer has taken place. This explanation is in excess of legislative power under Entry 54 of List II of the Seventh Schedule. Another important aspect to notice is that the provision of Section 5(3), which provides for single-point taxation, has been omitted in its application to Section 5-C. Therefore, Explanation 3(d) to Section 2(t) of the Act has to be held in excess of the legislative power conferred on the State Legislature under Entry 54 of List II of the Seventh Schedule of the Constitution following the reasoning given while discussing the Maharashtra Act. We, accordingly, direct that Explanation 3(d) to Section 2(t) of the Act shall be read down to this effect that it would not be applicable to the transactions of transfer of right to use any goods if such deemed sale is (i) an outside sale; (ii) sale in course of the import of the goods into or export of the goods out 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 irrespe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle 366(29-A)(d), Section 2(j) dealing with the purchase and Section 2(l) with the sale. The argument before us is, therefore, not an argument on the constitutionality of these provisions of the said Act but of their interpretation and the application thereof to the facts of the present case. 5. The said Act defines sale to mean the transfer of property in goods for cash or deferred payment or other valuable consideration and includes 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. Such transfer of the right to use goods for consideration is deemed to be a sale. The provision expressly speaks of the transfer of the right to use goods and not of the transfer of goods. There is, therefore, no merit in the submission that to be deemed sale within the meaning of the provision as mentioned above of the said Act, there must be a legal transfer of goods or that the transaction must be like a lease. 6. Where there is a transfer of a right to use goods for a consideration, the requirement of the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot is not the question to be examined by this Court. The question germane to the instant matter is not whether service tax can be levied. The question involved in the case is only to the extent whether the State of Karnataka can realize the sales tax on deemed sale under section 5C of the KST Act in view of the provisions contained in Article 366(29A) (d) of the Constitution. Thus, we refrain from going into the effect of the aforesaid notification/clarification as to service tax. That is not the question involved in the matter. In Re: Rights and liabilities in territorial waters 63. With respect to territorial waters, to what extent the coastal State can exercise power has been considered by the High Court, and specific findings have been recorded. The High Court has gone into the question of whether the territorial waters abutting the landmass form part of the State of Karnataka. It was not disputed that the extent of territorial waters is up to 12 nautical miles from the landmass that is the baseline. Article 297 has been considered by the High Court and the Lists in the 7th Schedule of the Constitution. Entries 25 to 27 and 30 of List I, Entr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
