Transfer of Right to use Vessel is deemed sales & taxable in concerned State

The Great Eastern Shipping Co. Ltd. Vs State of Karnataka & Ors. (Supreme Court of India)

Transfer of Right to use the Vessel was a deemed sales liable to be taxed in the concerned State

Conclusion: Charter Party Agreement making available the services of vessel by assessee-company to Port trust would 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 Karnataka Sales Tax Act. Thus, the transaction was liable to be taxed by the concerned authorities in the State of Karnataka.

Held: Assessee-company owned a tug (towing vessel). It entered into a Charter Party Agreement with New Mangalore Port Trust.  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 six months. ACIT 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. Assessee-company however 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. ACIT sent another communication 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 charge­sheet against the company for the offence under section 29(2)(aaaa) of the KST Act. The company filed a writ petition on the ground that the KST Act did not extend to territorial waters of India situated adjacent to the landmass of the State of Karnataka. Thus, the State was not authorised to exact any tax on the hire charges received from the Port Trust. Single Judge dismissed the writ petition, aggrieved thereby the company preferred a writ appeal. The same was dismissed; hence, the appeal had been filed. It was held Charter party had been entered into admittedly in Mangalore, and the ship was used at the New Mangalore Port by the New Mangalore Port Trust. Though vessel was used in the territorial waters, made no difference with respect to exigibility of sales­tax under the provisions of the KST Act in view of the decision of this Court in 20^th Century Finance Corporation Ltd. V. State of Maharashtra and Baliram Waman Hiray v. Justice B.Lentin, 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, which had been affirmed in BSNL v. Union of India, (2006) 3 SCC  and had been followed in various other decisions of this Court. 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 Karnataka Sales Tax Act. Thus, the transaction was liable to be taxed by the concerned authorities in the State of Karnataka.

FULL TEXT OF THE SUPREME COURT JUDGEMENT

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