Before the Supreme Court of India
The Great Eastern Shipping Company
State of Karnataka and ors.
Date of Judgement
04 December 2019
Hon’ble Justice Arun Mishra, Hon’ble Justice Mr. Vineet Saran, and Hon’ble Justice Mr. M.R. Shah
Facts of the case
The Petitioners owns a tug (towing vessel), namely “Kumari Tarini”. The Company entered into a Charter Party Agreement with New Mangalore Port Trust on January 8, 1998. It was 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 a period of six months.
The agreement has been entered into contains the conditions and instructions to tenderers. The pre-qualification criterion provides that the tenderer has to submit the documents regarding ownership or possession of tug. 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 Agreement.
The key issues before the Hon’ble SC were:
1. Whether the use of goods amounts to transfer of the right within the meaning of Section 5C of the Karnataka Sales Tax Act, 1957 read with Article 366 (29A) (d) of the Constitution of India.
2. Whether the State of Karnataka is an appropriate authority to levy Sales under Time Charter Agreement dated January 8, 1998?
3. Whether the State of Karnataka is competent to levy sales tax on the Agreement effective within the territorial waters?
1. 5C of the KST Act deals with the levy of tax on the transfer of the right to use any goods. S. 2(t) of the KST Act defines “sale” within the meaning of the act. Art. 366 (29A) of the Constitution deals with tax on sale and purchase of goods.
The counsel on behalf of petitioner contended 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 Agreement only deals in providing service and therefore it did not attract levy of tax u/s 5C of the KST Act and hence not liable to be registered as dealer under the provisions of KST Act.
It was further contended that the KST Act does not extend to territorial waters of India situated adjacent to the landmass of the State of Karnataka. Thus, the State is not authorised to collect any tax on the hire charges received from the Port Trust.
Decision of the SC
The Hon’ble SC held that S. 2(t) of the KST Act makes it clear that every transfer of property in goods by one person to another in the course of trade or business, includes the transfer of right to use any goods for any purpose. Section 5C of the KST Act also provides levy of tax on the transfer of the right to use any goods.
Further, Art. 366 (29A) (d) of the Constitution makes it clear that 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.
As per the terms and conditions of the agreement, the goods were held for six months. Therefore, it is a case of transfer of right to use the vessel for which certain expenses and staff are to be provided by the Contractor. Thus, there is a transfer of right to use the vessel for the purposes specified in the agreement.
To constitute a transaction for the transfer of right to use of goods, essential is, goods must be available for delivery. In the present case, 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.
Edited by Sree Ramya
Approved & Published – Sakshi Raje