Summary
The Court held that the particular tug charter transferred the exclusive right to use the vessel and was a deemed sale taxable in Karnataka. Retention of crew, maintenance, insurance and indemnity obligations by the owner did not overcome the charterer’s comprehensive control under the contract. The agreement’s execution in Mangalore fixed the taxable situs despite use in territorial waters. Territorial sovereignty and service-tax questions were left open, and the request for remand was rejected.
Issues
- Whether the tug charter constituted transfer of the right to use goods or merely services.
- Whether Karnataka could tax the transaction despite operation in territorial waters.
- Whether territorial-water rights or service-tax liability required determination.
Provisions considered
- Section 5C and Section 2(t)(iv), Karnataka Sales Tax Act, 1957The charter’s transfer of the exclusive right to use the vessel constituted a taxable deemed sale. (¶¶ 19, 20, 21, 33, 34, 54, 68)
- Article 366(29A)(d), Constitution of IndiaThe right-to-use transfer, rather than transfer of ownership or mere physical use, supplied the deemed-sale basis. (¶¶ 21, 22, 34, 35, 36, 37, 54, 57, 58, 59, 66, 68)
Held
- The contractual documents, read together, gave the port exclusive use and effective control of the available and delivered vessel for six months. The owner could not confer the same right on another during that period. Its staffing, maintenance, insurance and indemnity obligations did not negate the transfer. (¶¶ 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37)
- Charters were not invariably service contracts. Their particular stipulations and substance governed; terminology such as hire or delivery, or provision of crew alone, did not decide the issue. This charter met the right-to-use test. (¶¶ 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55)
- For the written transfer concerning available goods, the agreement’s execution in Mangalore fixed the situs of the deemed sale under the governing Constitution Bench authority. Subsequent use in territorial waters did not defeat Karnataka’s tax power over this transaction. (¶¶ 56, 57, 58, 59, 60, 61, 66)
- The Court did not decide the service-tax clarification’s effect or competing Union and State rights over territorial waters. It left the territorial question open and diluted the High Court’s finding on it. (¶¶ 62, 63, 64, 65)
- Remand to assessing authorities was rejected because the appellant had sought and argued a merits determination through its writ proceedings and appeal. The adverse determination did not justify another round on the same issue. (¶ 67)
Result
Appeal dismissed with no costs. Charter held a deemed sale taxable by Karnataka authorities. Rights over territorial waters and service-tax questions left open; High Court’s territorial-water finding diluted. Remand refused.