IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 26.2.2010 CORAM: THE HONOURABLE MR.JUSTICE P.JYOTHIMANI W.P.Nos.11159 and 19375 of 2004 and 6261 of 2005 W.P.No.11159 of 2004 Essar Shipping Ports & Logistics Limited (formerly known as Essar Shipping Ltd.) New No.77/56, C.P.Ramaswamy Road Abhiramapuram, Chennai – 600 018. (formerly at Chennai-House, Chennai-108) .. Petitioner (Amended by order dated 22.12.2009 made in W.P.M.P.No.715 of 2009) Vs. The Commercial Tax Officer (FAC) Rattan Bazaar Assessment Circle First Floor, Kuralagam Annexe Chennai – 600 108. .. Respondent PRAYER: Petition under Article 226 of the Constitution of India for issue of writ of Certiorari to call for the records on the files of the respondent herein in RC.859/2000 97-98, dated 26.3.2004 and to quash the same. W.P.No.19375 of 2004 Chemplast Sanmar Limited Plant No.III Raman Nagar, Mettur Dam .. Petitioner Vs. 1. The Deputy Commercial Tax Officer Sankari. 2. Poompuhar Shipping Corporation Ltd. No.473, Anna Salai Chennai – 600 035. .. Respondents PRAYER: Petition under Article 226 of the Constitution of India for issue of writ of Mandamus to direct the first respondent to forbear https://hcservices.ecourts.gov.in/hcservices/ from proceeding further pursuant to his TNGST.No.3241159/97-98, dated 31.5.2004 to impose a sales tax under Section 3A of the Tamil Nadu General Sales Tax Act, 1959, on the freight received from the second respondent herein under the agreement dated 10.7.1995 and the agreement dated 14.7.1997 by way of freight charges for the Vessel 'Sanmar Pioneer' by the second respondent herein. W.P.No.6261 of 2005 Chemplast Sanmar Limited Plant No.III Raman Nagar, Mettur Dam .. Petitioner Vs. 1. The Commercial Tax Officer (FAC) Omalur. 2. Poompuhar Shipping Corporation Ltd. No.473, Anna Salai Chennai – 600 035. .. Respondents PRAYER: Petition under Article 226 of the Constitution of India for issue of writ of prohibition, prohibiting the first respondent from proceeding to impose a sales tax on freight charges received by the petitioners under Time Charter Party Agreement dated 10.7.1995 and 27.4.1996 as proposed by him in his pre-assessment notice in TNGST.No.3241159/96-97, dated 17.1.2005. For Petitioners : Mr.C.Natarajan, Sr.Counsel for Mr.N.Inbarajan For respondent : Mr.Haja Nazirudeen in WP.No.11159/2004 Spl. Government Pleader (Tax) and 1st respondent in WP.Nos.19375/2004 and 6261/2005 ORDER The pivotal issue involved in all these cases pertains to whether Charter Parties, Voyage Charter Parties and Bare Boat Charter Parties result in transfer of right to use the ships and if so, 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 3-A of the Tamil Nadu General Sales Tax Act (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. https://hcservices.ecourts.gov.in/hcservices/ 2. Incidentally, it has also to be decided in these cases as to whether the respondent/Department has committed jurisdictional error in taxing charter transactions previously held to be not taxable in respect of the petitioners by the Tamil Nadu Sales Tax Appellate Tribunal, Additional Bench, Chennai for the assessment years 1992- 1993 to 1995-1995. 3.1. While all the petitioners are companies incorporated under the Companies Act, 1956, the petitioner in W.P.No.11159 of 2004 is engaged in shipping business, which fundamentally involves entering into that of Time, Voyage and Bare Boat Charter Parties and the petitioner in other writ petitions is involved mainly in the business of manufacture and marketing of PVC resin and chemicals, having manufacturing unit at Mettur. 3.2. During the assessment year 1997-1998, the petitioners entered into Charter Party Agreements with charterers, including M/s.Poompuhar Shipping Corporation Limited, providing their vessels on charter. By virtue of the Charter Party Agreement, the petitioners realised charter hire charges in the case of Time Charter Parties and freight earnings in respect of Voyage and Bare Boat Charter Parties. 3.3. It is the case of the petitioners, especially the petitioner in W.P.No.11159 of 2004, that they have also effected sales of certain ships, apart from having miscellaneous sales involving sale of oil drums, fridge, furniture and sale of paper. It is stated that the petitioner received lease rental earnings consequent to the leasing of a water circulation and treatment plant at Hazira, Gujarat. 3.4. In all these cases, it is stated that their activities did not confer them the status of dealer under Section 2(g) of the Act and the petitioners have not registered under the provisions of the Act and none of the shipping companies which are engaged in the activities as that of the petitioners have registered under the provisions of the Act. 3.5. In respect of the other two writ petitioners, the object of the said Charter Party Agreement was to ensure loading of coal at various ports, viz., Visakhapatnam, Paradeep and Haldia situated in the States of Andhra Pradesh, Orissa and West Bengal respectively and ensure delivery of the coal at Ports inside Tamil Nadu such as Tuticorin and Chennai. On unloading, the vessel would be sent back to ports earlier mentioned situated outside the State of Tamil Nadu for the purpose reloading of the ship with coal and therefore, the vessels of the petitioner, viz., M.V.Sanmar Pioneer clearly moved inter-State from the States such as Andhra Pradesh, Orissa and West Bengal to the State of Tamil Nadu and again sailed to other States. https://hcservices.ecourts.gov.in/hcservices/ 3.6. It is the common case of the petitioners that entering into such Charter Party Agreements will not result in transfer of right to use of the ship due to various conditions under the Charter Party Agreements, viz., that the Captain and crew of the ship are appointed by the petitioners; that in the event of the charterer not satisfied with the conduct of the crew, only a complaint can be made to the petitioners and it was for the petitioners to take action; that the charterer has no control over the ship, since it is under the exclusive control of the Captain; that the obligation to pay salaries to the Captain and wages to the crew is with the petitioners; apart from an obligation to insure the vessel and to ensure that the charter party agreements do not result in the demise of the ship. 3.7. It is stated that for the first time in the year 1997, the Commercial Tax Department has proposed to impose tax on the charter transactions, on the basis that it would result in transfer of rights to use the ship and therefore, the consideration is taxable under Section 3-A of the Act. Accordingly, the petitioner in W.P.No.11159 of 2004 was assessed under Section 3-A of the Act for the assessment years 1992-1993 to 1994-1995 by orders dated 29.1.1998, 26.3.1999 and 30.6.1999 respectively. 3.8. Aggrieved by the said orders of assessment, the petitioner in W.P.No.11159 of 2004 preferred first appeals under Section 31 of the Act before the Appellate Assistant Commissioner (CT) I. During the pendency of the said appeals, the Supreme Court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra, [2000] 119 STC 182 : (2000) 6 SCC 12 has held as follows: "The States, in exercise of power under Entry 54 of List II, read with Article 366(29-A) (d), are not competent to levy sales tax on the transfer of right to use goods which is a deemed sale, if such sale takes place outside the State or is a sale in the course of inter-State trade or commerce or is a sale in the course of import or export." 3.9. Therefore, based on the said judgment, the First Appellate Authority has allowed the appeals of the petitioner, holding that the petitioners are not liable. However, the State of Tamil Nadu preferred second appeals before the Tamil Nadu Sales Tax Appellate Tribunal, Additional Bench, Chennai in S.T.A.Nos.772 to 774 of 2001. These appeals were dismissed by the Tribunal by common order dated 25.6.2001 accepting the stand of non-liability of the petitioners following the decision of the Constitutional Bench of the Supreme Court supra. 3.10. It is stated that in spite of the same, further orders of assessment were passed for the years 1995-1996 and 1996-1997 against which the petitioners filed first appeals before the Appellate Assistant Commissioner (CT) I, which were allowed on 27.7.2001 by a https://hcservices.ecourts.gov.in/hcservices/ common order and the State once again filed second appeals in S.T.A.Nos.1704 and 1705 of 2001 before the Tamil Nadu Sales Tax Appellate Tribunal, Additional Bench, Chennai, which were dismissed on 5.4.2002 by upholding the non liability of the petitioners and holding that the State of Tamil Nadu has no jurisdiction to tax. 3.11. It is stated that as against the orders of the Tribunal, the State Government has preferred Tax Case (Revisions) before the Tamil Nadu Taxation Special Tribunal in T.C.(R) Nos.250 to 252 of 2002 and the same are pending and insofar as the assessment years 1995-1996 and 1996-1997 are concerned, the petitioners are not aware as to whether any such tax cases are filed before the Tribunal. 3.12. The petitioner in W.P.Nos.19375 of 2004 and 6261 of 2005 is a registered assessee under the provisions of the Tamil Nadu General Sales Tax Act and the Central Sales Tax Act. When for the first time the respondent/Department proposed to raise tax demand on inter- State coastal shipping for the assessment year 1997-1998, the same has been challenged in W.P.No.19375 of 2004 and while admitting the writ petition, an order of injunction has been granted which continued till the date of taking up the writ petition for final disposal. 3.13. In W.P.No.6261 of 2005, the same company has prayed for a direction to prohibit the Commercial Tax Department from proceeding with the proposed assessment notice dated 17.1.2005 on the same grounds as raised in W.P.No.11159 of 2004. 3.14. In respect of the petitioner in W.P.No.11159 of 2004, the respondent/Department by notices dated 26.7.2002 and 19.8.2002 has required the petitioner to produce books of accounts for the year 1997-1998 for which suitable reply was given on 17.9.2002 stating that they are not registered dealers under the provisions of the Act and that there was no taxable transaction as confirmed by the Tamil Nadu Sales Tax Appellate Tribunal. In spite of it, voluminous documents were produced before the respondent/Department on 17.9.2002. However, the respondent/ Department has issued a pre- assessment notice dated 10.1.2003 proposing to bring to tax the charter hire charges and freight charges realised during the year 1997-1998, apart from the sale proceeds in respect of one ship and other miscellaneous sales. The respondent/ department also proposed to bring to tax the transactions entered into by the petitioner as well as M/s.South India Shipping Corporation Limited, which were amalgamated with effect from 1.4.1996 consequent to the order of this Court dated 17.4.1998 approving the scheme of amalgamation in C.P.No.293 of 1997. https://hcservices.ecourts.gov.in/hcservices/ 3.15. For the pre-assessment notice dated 10.1.2003, the petitioner has submitted objections on 28.2.2003 stating that the charter party agreement entered did not result in transfer of right attracting Section 3-A of the Act; that in all these cases, it is the inter-State transactions outside the State of Tamil Nadu and therefore, respondent/Department has no jurisdiction; that as per the judgment of the Supreme Court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra, [2000] 119 STC 182: (2000) 6 SCC 12, the petitioner could not be made liable; that the decision of the Tamil Nadu Sales Tax Appellate Tribunal is binding on the respondent/Department as per the principles laid down by the Supreme Court in Union of India v. Kamalakshmi Finance, AIR 1992 SC 711; that on the date of agreement of sale, on the date of the execution of the instrument of sale and on the date of delivery, the ship in question was not in Tamil Nadu, etc. 3.16. However, the respondent/Department has not considered the said objections and passed the impugned order of assessment for the year 1997-1998, dated 26.3.2004, which is assailed on various grounds, including that the same is passed in violation of principles of natural justice; that the order is passed against the decisions of the Tamil Nadu Sales Tax Appellate Tribunal in S.T.A.Nos.772 to 774 of 2001, dated 25.6.2001 and S.T.A.Nos.1704 and 1705 of 2001, dated 5.4.2002 which are binding on the respondent/Department, more so when the said orders of the Tribunal are based on the decision of the Supreme Court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra, supra; that the impugned assessment order is wholly without jurisdiction; that the petitioner is not involved in any transactions of sale under the Charter Party agreements since the possession, custody and control of the Vessels are with the petitioner. 4.1. On the other hand, it is the stand of the respondent/ Department, as it is seen in the counter affidavit filed, that the writ petitioner in W.P.No.11159 of 2004 was found not only leasing ships during the year 1997-1998, but also selling ships and other articles like oil drums, papers, fridge and furniture. It is stated that the petitioner has also leased out the water treatment plant at Gujarat and since the agreements were executed at Chennai, the respondent/Department had assessed the lease receipts for the year 1997-1998 under Section 3-A of the Act. 4.2. While it is admitted that the Tribunal has admitted the verdict in the case of 20th Century Finance Corpn. Ltd. v. State of Maharashtra, supra, as applicable to the facts and circumstances of the case, it is stated that the Supreme Court in the said case has held that when goods are available, irrespective of the place where https://hcservices.ecourts.gov.in/hcservices/ they are located, the State in which the agreement has been entered alone has the power to assess the transactions and therefore, the respondent/Department also relied upon the said judgment of the Supreme Court for making such assessment. 4.3. It is stated that the transaction is not mere transportation of goods and the leasing of ship cannot be termed as incidental or ancillary to the main business, since the petitioner has no other main business. It is also stated that against the orders of the Tribunal, the Tax Case (Revisions) have been filed and the same have been transferred to the High Court. By relying upon the above judgment of the Supreme Court, supra, it is stated by the respondent/Department that the situs of transaction is Tamil Nadu and therefore, it is well within the powers of the respondent/Department. 5.1. Likewise, in respect of W.P.Nos.19375 of 2004 and 6261 of 2005, it is stated that the petitioner in the assessment year 1997- 1998 has received Rs.14,49,00,757/- towards chartering and hiring charges and have not disclosed the same and therefore, the first respondent issued the pre-assessment notice proposing to levy tax at the rate of 11% on the said turnover, apart from penalty. It is stated that to the pre-assessment notice instead of filing the objections, the petitioner has straight-away approached this Court and therefore, these writ petitions are premature. 5.2. It is stated that in these cases the agreements were entered at Chennai and the agreements provide that the charterer has right to sub-lease the vessel; that the charterer should pay for fuel; that the charterer at the port of delivery and the owners at the port of re-delivery shall take over and pay for all fuel remaining on board the vessel; that the charterer should pay for the use and hire of the said vessel at the agreed rate; that the charterer has liberty of flying their own house flag, and according to the respondent/Department, by virtue of the various powers of the charterers under the Charter Party Agreements, there is a transfer of right to use the vessel and as such the hiring charge received from the charterer attracts tax liability under Section 3-A of the Act. 5.3. It is stated that the petitioner having its base in the State of Tamil Nadu entered into contract with Poompuhar Shipping Corporation Limited, which is also in the State and the chattel involved being a ship, simply because it travels outside the State of Tamil Nadu, it does not mean that the transactions are inter-State in nature. https://hcservices.ecourts.gov.in/hcservices/ 5.4. Further, it is stated that the claim of the said petitioners relying upon the order of the Appellate Assistant Commissioner (CT) IV dated 18.1.2002 in A.P.No.162 of 2001 and the order of the Tamil Nadu Sales Tax Appellate Tribunal (Additional Bench), Chennai in S.T.A.No.772 of 2001 etc., dated 25.6.2001 in respect of similar cases is solely based on the evidence adduced by the parties and therefore, it is applicable based on the facts and circumstances of the case and the decision rendered by the Tribunal in that case cannot be automatically applied for arriving at any conclusion in respect of the petitioners. 6.1. Based on the above said pleadings, Mr.C.Natarajan, learned Senior Counsel appearing for the petitioner would submit that applying the principle of precedents laid down in Union of India v. Kamalakshmi Finance, AIR 1992 SC 711 and on the basis of judicial discipline, inasmuch as the higher authorities of the respondent/Department, namely the Tamil Nadu Sales Tax Appellate Tribunal in respect of the petitioner has rejected the claim of the respondent/Department to impose tax under Section 3-A of the Act and when ultimately, the State has preferred Tax Case (Revisions) which are pending before the Court, in all fairness, the respondent should await the decision of the High Court in the Tax Case (Revisions) and as an authority which is a party to the Tamil Nadu Sales Tax Appellate Tribunal, the respondent/Department is bound to follow the said decision of the Tribunal, which is valid as on date. 6.2. Even on the merits of the case, it is his submission that such charter hire charges cannot be taxed under Section 3-A of the Act by relying upon the judgment of the Supreme Court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra, supra, based on which the Tribunal itself has rejected the claim of the respondents. 7.1. Per contra, it is the contention of the learned Special Government Pleader that as against the orders of assessment which are challenged in W.P.No.11159 of 2004, there is an effective right of appeal, while in other cases, viz., W.P.Nos.19375 of 2004 and 6261 of 2005, the challenge is only to pre-assessment notices and in all fairness, the petitioner should have filed its objections. 7.2. It is his submission that individual cases are depending upon individual merits and facts. It is his submission that as far as the binding nature of the order of the Tribunal, it is on the facts of the case the individual cases are decided and the judgment of the Supreme Court relied upon by the learned Senior Counsel for the petitioners reported in Bhopal Sugar Industries Ltd. v. Income Tax https://hcservices.ecourts.gov.in/hcservices/ Officer, AIR 1961 SC 182 is not applicable to the facts of the case. According to him, each of the assessment year forms a separate unit by itself and the decision has to be arrived at on factual matrix and ultimately, the assessing authority has to decide the individual issues. 7.3. He would also distinguish the various judgments relied upon by the learned Senior Counsel for the petitioners, including the judgment of the Bombay High Court in Sunflag Iron and Steel Co. Ltd. v. Additional Collector of Central Excise, Nagpur, 2003 [162] ELT 105 (Bom.). 7.4. It is his submission that the order of the Tribunal is not forming part of a precedent since the set of facts are different and distinguishable. He would also rely upon the judgment of the Supreme Court in Uttaranchal Road Transport Corporation and others v. Mansaram Nainwal, 2007-1-LW-99 (SC) to substantiate his contention that the order of the Tribunal relating to assessment order based on facts and the jurisdictional fact has been determined and decided and therefore, the writ petition is not maintainable. 8. I have heard the learned Senior Counsel for the petitioners and the learned Special Government Pleader (Taxes) for the respondent/ Department and given my anxious thought to the issue involved in these cases. 9. Broadly speaking, the issues covered in these writ petitions are relating to the charges either in the form of hire charges or freight earnings regarding Time Charter Parties or Voyage Charter Parties or Bare Board Charter Parties. Based on the Charter Party Agreements entered by the petitioners, who own various vessels, with others, including M/s.Poompuhar Shipping Corporation Limited, the vessels of the petitioners were hired to those parties for the purpose of transporting of goods, etc., outside the State of Tamil Nadu for which freight charges and hire charges are received by the petitioners. The question which is to be decided of course in the Tax Case (Revisions) pending before this Court is as to whether such charges received by way of transactions could be deemed to be a transfer so as to attract tax under Section 3-A of the Act. 10. Section 3-A of the Act, which is as follows, contemplates levy of tax on the right to use any goods and such levy is imposed provided there is a transfer of right: "Section 3-A. Levy of tax on the right to use any goods.- https://hcservices.ecourts.gov.in/hcservices/ (1) Notwithstanding anything contained in sub-sections (2-A), (2-B), (2-C), (3), (4), (7) or (8) of Section 3, or Section 7-A but subject to the other provisions of this Act including the provisions of sub-section (1) of Section 3, every dealer referred to in item (viii) of clause (g) of Section 2 shall pay, for each year, a tax on his taxable turnover relating to the business of transfer of the right to use any goods for any purpose at the rates mentioned in sub-section (2), (2-A) or (2- C) of Section 3 or, as the case may be, in Section 4. (2) The taxable turnover of the dealer, of the business of transfer of the right to use any goods for any purpose, shall, on and from the 1st day of April 1986, be arrived at after deducting the following amounts from the total turnover of that dealer:- (a) all amounts involved in respect of goods involved in the business of transfer of the right to use any goods for any purpose, in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India or in the course of inter-State trade or commerce; (b) all amounts for which any goods specified in the First Schedule or Second Schedule are purchased from registered dealers liable to pay tax under this Act and used in the same form in the transfer of the right to use such goods for any purpose; and (c) all amounts relating to sale of any goods involved in the business of transfer of the right to use, which are specifically exempted from tax under any of the provisions of the Act." 11. A Full Bench of the Supreme Court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra, [2000] 119 STC 182 : (2000) 6 SCC 12, while construing the situs of deemed sale in the light of the Constitutional provisions, especially with reference to Article 366 (29-A) (d) of the Constitution of India and various Sales Tax Acts, including the Tamil Nadu General Sales Tax Act, has held as follows: "27. Article 366(29-A)(d) further shows that levy of tax is not on 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, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does https://hcservices.ecourts.gov.in/hcservices/ not arise. Therefore, it is the transfer which is 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