The Great Eastern Shipping Co. Ltd. vs State Of Karnataka

2. The appellant – The Great Eastern Shipping Co. Ltd. filed a writ petition questioning the competence of the State Government to impose a sales tax in respect of the goods which are used within the territorial waters of India. The appellant owns a tug (towing vessel, namely "Kumari Tarini"). The company entered into a Charter Party Agreement with New Mangalore Port Trust on 8.1.1998. It agreed to make available the services of tug, for the purposes provided in the 2 agreement along with the master and other personnel of the company to the Port Trust for six months.

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, the State is not authorised to exact any tax on the hire charges received from the Port Trust. The 3 learned Single Judge dismissed the writ petition, aggrieved thereby the company preferred a writ appeal. The same has also been dismissed; hence, the appeal has been filed. A Division Bench of the High Court of Karnataka has rejected the submission raised by the appellant that over the territorial waters State of Karnataka has no power. The learned Single Judge was not justified in refusing to consider the question, whether there was a transfer of right to use the tug. It held that there was a transfer of right to use the tug by the company to the Port Trust.

11. The Contractor shall carry out the works strictly in accordance with the contract to the satisfaction of the Deputy Conservator and shall comply with and adhere strictly to his instructions and direction on any matter (whether mentioned in the contract or not).

The vessel shall be kept insured by the contractors at their expense against protection and indemnity risks. The whole reach and burthen 24 of the vessel, including the lawful capacity to be kept at the charterer's disposal.

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.

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 Rs. 30,000/- per day will be levied on the Contractor, and if 19 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.

The Contractor shall maintain Vessel, machinery, appurtenances and spare parts in a good state of repair, inefficient operating condition and in accordance with good commercial maintenance practice and they, shall keep the vessel with unexpired classification of the class/MMD and with other required certificates in force at all times.

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 46 case of demise. Whether or not charter amount to demise would depend upon the particular terms of the charter.

(d) of the Constitution. Thus, we refrain from going into the effect of 58 the aforesaid notification/clarification as to service tax. That is not the question involved in the matter.

68. 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.