THE GREAT EASTERN SHIPPING CO. LTD. v. STATE OF KARNATAKA & ORS.

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47Copy pinpoint47. In Torvald Klaveness A/S v. Arni Maritime Corporation (The Gregos”), 1993 (2) LLR 335, following observations have been made: “A time charter is a contract under which the owner agrees with the charterer that during a certain specified period he will render services by his servants and crew to carry goods which are put on board his ship by the time charterer. The charterer is free to decide, within the terms of the charter party, what use he will make of the vessel for its duration, e.g., by carrying goods himself or by sub-chartering. The vessel never leaves the possession of the owner, so that references to delivery and redelivery are not strictly accurate, but those expressions are regularly used to identify the time when the charter begins and ends.” Merely rendering service by the servants and crew to carry the goods will not make it a service contract. It depends upon the nature of each contract, and the terms and conditions agreed to. What is of relevance for our purpose is whether there is a transfer of right to use.

48Copy pinpoint48. Reliance has also been placed on Skibsaktieselskapet Snefonn, Skibsaksjeselskapet Bergehus, and Sig. Bergesen D.Y. & Co. v. Kawasaki Kisen Kaisha Ltd. (The “Berge Tasta”), (1975) 1 E LLR 422 in which as to time charter which is not a demise following observations have been made: “Under a time charter-party, not being a charter by way of demise, the shipowner undertakes to make the vessel available to the charterer for the purposes of undertaking ballast and loaded voyages as required by the charterer within a specified area over a stated period. The shipowner’s remuneration known as “time chartered freight” or “hire” is at a fixed rate for a unit of time regardless of how the vessel is used by the charterer. Risk of delay thus falls on the charterer. The shipowner meets the cost of maintaining 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. H All that is meant is that the time charter then ends in exactly the

THE GREAT EASTERN SHIPPING CO. LTD. v. 901 STATE OF KARNATAKA & ORS. [ARUN MISHRA, J.]

same way as a voyage charter-party ends when the last cargo A is discharged.”

49Copy pinpoint49. In Hyundai Merchant Marine Co. Ltd. v. Gesuri Chartering Co. Ltd. (The “Peonia”), (1991) 1 LLR 100, the following observations have been relied upon: B “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, what use he will make of the vessel. References to delivery and redelivery are strictly inaccurate since the vessel never leaves the possession of the shipowner, but the expressions are conventionally used to describe the time when the period of the charter begins and ends (The Berge Tasta)”. The decision lends no support in view of the terms and conditions of the charter-party in question and the general discussion. Otherwise, also, it does not espouse cause concerning whether there is a right to transfer the use of the vessel.

50Copy pinpoint50. In Scrutton on Charterparties and Bills of Lading, 20th Edn., Section IV dealing with the charter parties, following is the relevant discussion: “Article 28 – Charterparties by Demise – Classification CHARTERPARTIES may be categorized according to whether or not they amount to a demise or lease of the ship. G A charter by demise operates as a lease of the ship itself, to which the services of the master and crew may or may not be superadded. The charterer becomes for the time the owner of the vessel; the master and crew become to all intents his servants, and through them the possession of the ship is in him H

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A Under a charter not by demise, on the other hand, the shipowner agrees with the charterer to render services by his master and crew to carry the goods which are put on board his ship by or on behalf of the charterer. In this case, notwithstanding the temporary right of the charterer to have his goods loaded and conveyed in the vessel, the ownership and also the possession of the ship remain in the original owner through the master and crew, who continue to be his servants. … Whether or not the charter amounts to a demise must turn on the particular terms of the charter. “The question depends, where other things are not in the way, upon this: whether the owner has by the charter, where there is a charter, parted with the whole possession and control of the ship, and to this extent, that he has given to the charterer a power and right independent of him, and without reference to him to do what he pleases with regard to the captain, the crew, and the management and employment of the ship. That has been called a letting or demise of the ship. The right expression is that it is a parting with 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.”

51Copy pinpoint51. 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.

52Copy pinpoint52. 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 charterparty.“ A contract by a charterparty 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

THE GREAT EASTERN SHIPPING CO. LTD. v. 903 STATE OF KARNATAKA & ORS. [ARUN MISHRA, J.]

first case, it is called a „voyage charterparty,“ and in the second A a „time charterparty.“ Such a contract may operate as a demise of the ship herself, to which the services of the master and crew may or may not be added, or it may confer on the charterer nothing more than the right to have his goods conveyed by a particular ship, and, as subsidiary to it, to have the use of the ship and the services of the master and crew.

403. Charterparty by demise. Charterparties by way of demise are of two kinds: (1) charter without master or crew, or „bareboat charter“, where the hull is the subject matter of the charterparty, and (2) charter with master and crew, under which the ship passes to the charterer in a state fit for the purposes of mercantile adventure. In both cases the charterer becomes for the time being the owner of the ship; the master and crew are, or become to all intents and purposes, his employees, and through them, the possession of the ship is in him. The owner, on the other hand, has divested himself of all control either over the ship or over the master and crew, his sole right being to receive the stipulated hire and to take back the ship when the charterparty comes to an end. During the currency of the charterparty, therefore, the owner is under no liability to third persons whose goods may have been conveyed upon the demised ship or who may have done work or supplied stores for her, and those persons must look only to the charterer who has taken his place.

404. Charterparty which is not a demise. Although a charterparty which does not operate as a demoise confers on the charterer the temporary right to have his goods loaded and conveyed in the ship, the ownership remains in the original owner, and through the master and crew, who continue to be his employees, the possession of the ship also remains in him. Therefore, the existence of the charterparty does not necessarily divest the owner of liability to third persons whose goods may have been conveyed on the ship, nor does it deprive him of his rights as owner.

405. Test whether charterparty operates as demise. Whether a charterparty operates as a demise or not is a question of construction, to be determined by reference to the language of H

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A the particular charterparty. The principal test to be applied is whether the master is the employee of the owner or of the charterer. Even where the charterparty provides for the nomination of the master by the charterer, he must be regarded as the owner’s employee if the effect of the charterparty is that B 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 charterparty 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.” C 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.

53Copy pinpoint53. The argument based upon the foreign courts decisions as to the charter agreements are only for service purpose, is not correct. As already discussed, even in the abovementioned foreign court’s decisions, it depends upon the charter-party, and there is no super-check formula to find out the nature of the contract. It depends upon the terms and conditions of each contract. Merely use of specific words, as mentioned above, is not determinative, but the real crux is to be seen as per relevant conditions as agreed to between the parties.

54Copy pinpoint54. When we consider the charter-party in question in the context of applicable law, particularly in view of the constitutional provisions of Article 366(29A)(d), we find that there is transfer of right to use tangible goods, which is determinative of deemed sale as per the Constitution of India and provisions of section 5C reflecting the said intendment. We are of the considered opinion that there is transfer of right to use exclusively given to charterer for six months, and the vessel has been kept under the exclusive control. The charterer qualifies the test laid down by this court in BSNL (supra).

THE GREAT EASTERN SHIPPING CO. LTD. v. 905 STATE OF KARNATAKA & ORS. [ARUN MISHRA, J.]

55Copy pinpoint55. Mr. Mohan Parasaran, learned senior counsel has also referred to New Mangalore Port Harbour Craft Rules, 1976. He has drawn our attention to Rule 4 relating to licensing of Harbour Craft according to which an application has to be filed by the owner, furnishing the required information concerning the vessel/harbor craft. A license has to be produced by Tindal, as per Rule 6, whenever called upon by B Deputy Conservator. He has also referred to Rule 8 which provides that in case of change of ownership of licensed harbor craft, the license shall cease to be valid on expiry of six days. Changes in crew or carrying capacity of licensed harbor craft has to be reported to the Deputy Conservator. In case of any alteration in the cabin capacity, C the licence is liable to be cancelled. The submission made by learned senior counsel is that as per the scheme of the Harbour Craft Rules; also, the owner retains the control of the vessel. In our opinion, the submission cannot be accepted. Merely by the provisions mentioned above as to license, its production/change of ownership etc., it cannot be said that the owner has not transferred the right to use the vessel. D The ownership in such a deemed sale is retained by owner. He does not cease to be an owner by transferring right to use the property. Merely by the fact that a license to be obtained with certain 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 E 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

56Copy pinpoint56. The next question for consideration is whether the State of F Karnataka has power under section 5C of the Act to exact sales-tax 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 sales-tax on the basis of situs of agreement. G

57Copy pinpoint57. 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 H

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A concept of deemed sale by a legal fiction created as per Article 366(29A) (e to f) and observed: “21. It may be noted that the transactions contemplated under sub-clauses (a) to (f) of clause (29-A) of Article 366 are not actual sales within the meaning of “sale” but are deemed sales by a legal fiction created therein. The situs of sale can only be fixed either by the appropriate legislature or by judge-made law, and there are no settled principles for determining the situs of sale. There are conflicting views on this question. One of the principles providing a situs of sale was engrafted in the explanation to clause (1)(a) of Article 286, as it existed prior to the Constitution (Sixth Amendment) Act, which provided that the situs of sale would be where the goods are delivered for consumption. The second view is, the situs of sale would be the place where the contract is concluded. The third view is that the place where the goods are sold or delivered would be the situs of sale. The fourth view is that where the essential ingredients, which complete a sale, are found in the majority would be the situs of sale. There would be no difficulty in finding out a situs of sale where it has been provided by legal fiction by the appropriate legislature. In the present case, we do not find that E Parliament has, by creating any fiction, fixed the location of sale in case of the transfer of right to use goods. We, therefore, have to look into the decisional law.

24. The aforesaid decisions unambiguously laid down that where situs of sale has not been fixed or covered by any legal fiction F created by the appropriate legislature, the location of sale would be the place where the property in goods passes. The Constitution Bench held that it was the passing of the property within the State that was intended to be fastened on for the purpose of determining whether the sale was “inside” or G “outside” the State.

25. It was then urged on behalf of the respondents that it is the location of goods where they are put to use, which would furnish the situs of sale. According to them, there would be no completed transfer of right to use goods until the goods are delivered. We H have traced the legislative history of sales tax in this country only

THE GREAT EASTERN SHIPPING CO. LTD. v. 907 STATE OF KARNATAKA & ORS. [ARUN MISHRA, J.]

to show that excepting where the appropriate legislature by A creating legal fiction fixed the situs of sale on location or delivery of goods for consumption like the omitted explanation to Article 286(1)(a), there is 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 B 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 C 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 retail shop. As a direct result of this sale, the seller’s godown-keeper, on the presentation of this delivery order, actually delivers the goods to the buyer’s retail shop at Connaught Circus for consumption in the State of Delhi. On one view of the law, the ‘situs’ of such a F sale would be Gurgaon. We need not decide that it is, because that type of case is not before us and there may be other views to consider, but it is certainly a possible view. It is also possible to hold that this is not inter-State trade or commerce, because there is no movement of goods across a G State boundary. Again, we need not decide that because that also may be controversial. But given these two postulates, the transaction would fall squarely within the explanation, and yet it would not come within clause (2), for there is no movement of the goods across the border of any State and both the seller and H

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A the buyer are in the same place. Surely, the explanation will, ‘in praesenti,’ govern such cases irrespective of whether Parliament has lifted the ban under clause (2). If these postulates are accepted then by virtue of clause (1)(a) read with the explanation the State of Delhi alone will be entitled to impose a tax on such a sale or purchase and the State of Punjab will be precluded from doing so by reason of the fictional ‘situs’ assigned to such a sale or purchase by the explanation, although the contract was made, price was paid, and symbolical or constructive delivery of the goods by the handing over of the delivery order took place in Gurgaon in the State of Punjab.” We, therefore, find that the location or delivery of goods within the State cannot be made a basis for levy of tax on sales of goods. Under general law, merely because the goods are located or delivery of which has been effected for use within the State would not be the situs of deemed sale for levy of tax if the transfer of right to use has taken place in another State. Therefore, if the contention on behalf of the respondents that there would be no completed transfer of right to use goods till the goods are delivered is to prevail, then the respondents are further required to show that the contract of transfer of right to use goods is also entered into in the said State in which the goods are located or delivered for use. 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 F 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.” G 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 H place where the contract has been entered into.

THE GREAT EASTERN SHIPPING CO. LTD. v. 909 STATE OF KARNATAKA & ORS. [ARUN MISHRA, J.]

58Copy pinpoint58. This Court in the 20th Century (supra) has considered for A 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, B 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. This Court in the 20th Century (supra) has observed: C

“26. The next question that arises for consideration is, where is the taxable event on the transfer of the right to use any goods. Article 366(29-A)(d) empowers the State Legislature to enact a law imposing sales tax on the transfer of the right to use goods. The various sub-clauses of clause (29-A) of Article 366 permit the imposition of tax thus: sub-clause (a) on transfer of property in goods; sub-clause (b) on transfer of property in goods; sub- clause (c) on delivery of goods; sub-clause (d) on transfer of the right to use goods; sub-clause (e) on supply of goods; and sub-clause (f) on supply of services. The words “and such transfer, delivery or supply …” in the latter portion of clause (29- A), therefore, refer to the words transfer, delivery, and supply, as applicable, used in the various sub-clauses. Thus, the transfer of goods will be a deemed sale in the cases of sub-clauses (a) and (b), the delivery of goods will be a deemed sale in case of sub-clause (c), the supply of goods and services respectively will be deemed sales in the cases of sub-clauses (e) and (f) and the transfer of the right to use any goods will be a deemed sale in the case of sub-clause (d). Clause (29-A) cannot, in our view, be read as implying that the tax under sub-clause (d) is to be imposed not on the transfer of the right to use goods but on the delivery of the goods for use. Nor, in our view, can a transfer of the right to use goods in sub-clause (d) of clause (29-A) be equated with the third sort of bailment referred to in Bailment by Palmer, 1979 Edn., p. 88. The third sort referred to there is when goods are left with the bailee to be used by him for hire, H

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A which implies the transfer of the goods to the bailee. In the case of sub-clause (d), the goods are not required to be left with the 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 to use arises only on the transfer of such a right, and unless there is a transfer of the right, the right to use does not arise. Therefore, it is the transfer, which is a sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of a taxable event of such a tax would be the transfer that legally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where the goods are located, and a written contract is entered into between the parties, the taxable event on such a deemed sale would be the execution of the contract for the transfer of right to use goods. But in case of an oral or implied transfer of the right to use goods, it may be affected by the delivery of the goods.

28. No authority of this Court has been shown on behalf of the respondents that there would be no completed transfer of right

THE GREAT EASTERN SHIPPING CO. LTD. v. 911 STATE OF KARNATAKA & ORS. [ARUN MISHRA, J.]

to use goods unless the goods are delivered. Thus, the delivery of goods cannot constitute a basis for the levy of tax on the transfer of right to use any goods. We are, therefore, of the view that where the goods are in existence, the taxable event on the transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee and situs of sale of such a deemed sale would be the place where the contract in respect thereof is executed. Thus, where goods to be transferred are available, and a written contract is executed between the parties, it is at that point situs of a taxable event on the transfer of right to use goods would occur, and situs of sale of such a transaction would be the place where the contract is executed.” C

40. A perusal of Explanation 3(d) to Section 2(t) shows that the transfer of right to use any goods would be deemed to have taken place in the State of Karnataka if the goods are for use within the State irrespective of the place where the contract of transfer of right to use the goods is executed. The said Explanation 3(d) to Section 2(t) widens the ambit of the definition of “sale” by including sales outside the State of Karnataka and the sales which occasioned import of goods into India, merely on the premise that goods put to use are located 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 F 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 G 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.” H

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59Copy pinpoint59. 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 irrespective of the place where the contract of transfer of right to use the goods is made. That is not the question involved in the present matter. The situs of the agreement is relevant, which is admittedly B within the territory of Karnataka. The situs of the deemed sale is in Mangalore, and the decision of a Constitution Bench of this Court in the 20th Century (supra) is binding on us and effectively repels the submission to the contrary.

60Copy pinpoint60. In Aggarwal Brothers v. State of Haryana & Anr., (1999) C 9 SCC 182, the submission was raised that to make a deemed sale there must be a legal transfer of goods or that the transaction must be like a lease, was not accepted by this Court. It has distinguished the transfer of the right to use the goods for consideration. Following observations have been made: D “3. The argument of learned counsel for the assessees goes thus: Entry 54 of Part II of Schedule VII of the Constitution enables the State to levy “taxes on the sale or purchase of goods other than newspapers …”. Article 366 sets down definitions for the purposes of the Constitution. Clause (29-A) thereof refers to “tax on the sale or purchase of goods,” and it includes E “(d) a tax on 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”. In the submission of learned counsel, having regard to Entry 54 F of Part II of Schedule VII, the transfer contemplated by sub- clause (d) of clause (29-A) of Article 366 is a legal transfer of the right in the goods. It has to be a transfer of goods. It has to be permanent. It has to be something like a lease. The giving of goods on hire is not such a transfer and, therefore, falls outside the ambit of sub-clause (d) of clause (29-A) of Article 366. Learned counsel referred to para 40 of the judgment of this Court in Builders’ Assn. of India v. Union of India, (1989) 2 SCC 645 which says: (SCC p. 675) “As the Constitution exists today the power of the States to levy taxes on sales and purchases of goods including the ‘deemed’

THE GREAT EASTERN SHIPPING CO. LTD. v. 913 STATE OF KARNATAKA & ORS. [ARUN MISHRA, J.]

sales and purchases of goods under clause (29-A) of Article 366 A is to be found only in Entry 54 and not outside it.”

4. The language used in Section 2(j)(iv) and 2(l)(iv) of the said Act is the language used in Article 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.” D 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 E 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 above-mentioned provision of the said Act is satisfied, and there is deemed to be a sale. In F the instant case, the assessees owned shuttering. They transferred the shuttering for consideration to builders and building contractors for use in the construction of buildings. There can, therefore, be no doubt that the requirements of a deemed sale within the meaning of the above-mentioned provision of the said G Act are satisfied.”

61Copy pinpoint61. A reference has also been made to the decision in the State of Orissa & Anr. v. Asiatic Gases Ltd., (2007) 5 SCC 766 in which what is the nature of, transfer of right to use the goods, has been discussed and Aggarwal Brothers (supra) has been relied upon, thus: H

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A “8. Lastly, it is important to bear in mind that Section 2(g)(iv) was placed on the statute in terms of Article 366(29-A)(d) of the Constitution. In Aggarwal Bros. v. State of Haryana, (1999) 9 SCC 182 a Division Bench of this Court has held that the provision under Section 2(l)(iv) of the Haryana General Sales B Tax Act, 1973 [which was similar to Section 2(g)(iv) of this Act] expressly spoke of “transfer of the right to use goods” and not “transfer of goods”. In that matter, it was argued on behalf of the assessee that in the case of a deemed sale within the meaning of Section 2(l)(iv), there must be a legal transfer of goods. This argument was rejected by this Court, stating that the levy of tax was not on transfer of the goods itself, but the levy was on the transfer of the right to use such goods for consideration. In our view, the judgment of this Court in Aggarwal case would squarely apply to the present case. In the present case, as stated above, the cylinders filled with medical oxygen/industrial gas were loaned to the customers. The loan was free from the payment of charges for 14 days. The over retention charges were levied after 14 days. In the circumstances, the levy was on the transfer of the right to use the goods for consideration.”

62Copy pinpoint62. It was submitted on behalf of appellant that the amendment to Finance Act had been made and a clarification dated 10.5.2008 has been issued that service tax is to be levied on the Charter Party Agreement. Hence it was urged that it cannot be treated as that of deemed sale. The said clarification as to service tax does not advance any cause as the levy of service tax is permissible or not 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

63Copy pinpoint63. With respect to territorial waters, to what extent the coastal H State can exercise power has been considered by the High Court, and

THE GREAT EASTERN SHIPPING CO. LTD. v. 915 STATE OF KARNATAKA & ORS. [ARUN MISHRA, J.]

specific findings have been recorded. The High Court has gone into A 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 B 30 of List I, Entry 32 of List III, i.e., Concurrent List have been referred.

64Copy pinpoint64. Learned senior counsel appearing for the parties have also referred to various decisions and the debates in the Constituent Assembly and answers given by Dr. B.R. Ambedkar as to scope of C Article 293 of the Constitution. The High Court has also relied upon the definition of State as provided in section 2(j) of the Marine & Fishing Act, 1986, Entries 13 and 21 of State List II of the 7th Schedule and in respect of fisheries Entry 21 of List II.

65Copy pinpoint65. We need not go into the aforesaid questions. However, as the High Court has given a finding, and on being impleaded, coastal States have filed their response as notices were issued to them. We need not go into the question in respect of the right of the States and the Central Government as to territorial waters at all because of our finding concerning exaction of tax under the KST Act owing to situs where the transfer right to use the vessel, which is a deemed sale, had taken place. As such, we leave the question open and dilute the finding recorded by the High Court in this regard.

66Copy pinpoint66. Charter party has been entered into admittedly in Mangalore, and the ship is used at the New Mangalore Port by the New Mangalore Port Trust. Though vessel was used in the territorial waters, makes no difference with respect to exigibility of sales-tax under the provisions of the KST Act in view of the decision of this Court in 20th Century (supra), which has been affirmed in BSNL (supra) and has been followed in various other decisions of this Court.

67Copy pinpoint67. Lastly, it was submitted that the High Court ought to have remitted the matter to the concerned assessing authorities to decide the aspect that whether there was deemed sale in view of transfer of right to use vessel. The submission is, untenable as the appellant company filed the writ petition, and a writ appeal too was filed by it. They have submitted on merits not only before the High Court but this Court as H

p. 916 Copy page pinpoint

A well, after having failed to convince on merits they have raised aforesaid submission that too at the fag end as an alternative. They have questioned the notice and invited a decision. Once it has gone against them; they cannot submit that this question should be left to be considered to be taken in another round of litigation for adjudication by the concerned tax authorities making an assessment. The submission is wholly untenable and stands repelled.

68Copy pinpoint68. Resultantly, we hold that 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 Karnataka Sales Tax Act. Thus, the transaction is liable to be taxed by the concerned authorities in the State of Karnataka. However, for the reasons recorded by this Court in the judgment, the appeal is without merits and is dismissed. No costs.

D Kalpana K. Tripathy Appeal dismissed.