TMI Blog2004 (1) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... along with the master and other personnel of the appellant to the NMPT for a period of six months from the date of commencement of service. A copy of the said agreement was produced as annexure A to the writ petition. The 2nd respondent, Assistant Commissioner of Commercial Taxes, by means of his notice dated June 8, 1998 directed the appellant to register itself as a dealer under the provisions of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as "the KST Act") on the ground that the service charges payable by the NMPT to the appellant under the agreement, attracted tax under section 5-C of the Act. However, the appellant, by means of its reply dated June 26, 1998 negatived the claim made by the 2nd respondent on the ground that there was no transfer of right to use the goods by the appellant to the NMPT as the possession and custody of the tug in question, even after the agreement was entered into, continued with the appellant. However, the 2nd respondent, in spite of the reply dated June 26, 1998 given by the appellant, issued notice dated December 28, 1998 to the appellant, a copy of which was produced as annexure D to the writ petition, informing the appellant that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent and also by the learned single Judge, made two submissions. Firstly, he submitted that the conclusion reached by the learned single Judge that the territorial waters abutting the landmass of the State of Karnataka forms part of the State, is erroneous in law. Elaborating this submission, he pointed out that section 3 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (hereinafter referred to as "the Territorial Waters Act") makes it clear that the territorial waters vest with the Union of India and as such it will not form part of the State of Karnataka. He also referred to us article 297 of the Constitution of India and submitted that since all lands, minerals and other things of value underlying the ocean within the territorial waters, the continental shelf, and also the exclusive economic zone, of India is made to vest in the Union of India under article 297 of the Constitution, the tug located on the territorial waters also must be held as being located outside the State of Karnataka. It is his submission that the reading of sub-sections (3) and (4) of section 3 of the Territorial Waters Act makes it clear that on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d recorded a finding, after examining the agreement, annexure A, entered into between the appellant and NMPT that there is transfer of right to use goods by the appellant to the NMPT, the appellant cannot expect the 2nd respondent who is subordinate to the Joint Commissioner for Commercial Taxes, to take the view different from the one taken by the Joint Commissioner for Commercial Taxes. He also submitted that whether there is any transfer of right to use the goods or not, is mainly depended upon the understanding of the terms of agreement, annexure A, dated January 8, 1998, and since there being no investigation of facts is required to be made, the learned single Judge should have examined the said contention on merits. In support of this submission he relied upon the decision of the Supreme Court in the case of State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. reported in [2002] 126 STC 114. It is his submission that if the agreement, annexure A, is examined in proper perspective, it will be clear that there is no transfer of right to use the goods by the appellant to the NMPT as the possession of the tug continued with the appellant. According to the learned counsel this is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State. It is his submission that for the purpose of taxation, the territorial waters abutting the landmass of a State must be treated as a part of the State. In other words, it is his submission that the territorial waters vesting with the Union of India would not take away the jurisdiction of the State of Karnataka to enforce its fiscal and penal loss in that zone which may involve the exercise of intercepting vessels involved in activities attributable to violation of the laws of the State. In this connection, he also referred to us the Constituent Assembly debates from pages 890 of Volume VIII onwards. He also relied upon the decision of the Madras High Court in the case of A.M.S.S.V.M. Company v. State of Madras reported in AIR 1954 Mad. 291 wherein the Madras High Court had taken the view that although article 297 vested sea-bed in the Union, it did not have the effect of vesting territorial waters in the Union. It is also his submission that when the State Legislature is competent to make the law levying the tax, it follows that the jurisdiction of the State in respect of territorial waters is not denuded by virtue of article 297 of the Constitution of India. He also pointe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation of a new State by separation of territory from any State or by uniting two or more States or parts of States; by uniting any territory to a part of any State; increase the area of any State; diminish the area of any State; alter the boundaries of any State, etc. Therefore, from the reading of the provisions contained in articles 1 to 3 of the Constitution of India, it is clear that the Parliament is empowered by law to establish any State, reconstitute or modify any State. The entire country comprising of comity of States falls within the territory of India, each State is an entity separated by geographical boundaries, unless it is specifically excluded by provisions contained in the Constitution or a law made on that behalf, including the territorial waters. It is necessary to point out that while construing article 3 of the Constitution, it may be assumed that the said provision contemplated change of the territorial limits of the constituent States and there was no guarantee of their territorial integrity. Broadly speaking, that article deals with territorial adjustment inter se of the Constituent States of India, and not merely their re-organisation on linguistic or ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r things of value underlying the ocean within the territorial waters or the continental shelf or the exclusive economic zone of India shall vest in the Union and be held for the purpose of Union. Clause (3) of the said article confers power on the Parliament, from time to time, to prescribe the limits of territorial waters, the continental shelf, exclusive economic zone and other maritime zones. At this stage itself we may point out, merely because, clause (3) of article 297 confers power on the Parliament to make law providing for limits of territorial waters, cannot be understood to mean that the territorial water is excluded out of the boundary limits of the State. We do not find any merit in the argument advanced by Sri Narasimha Murthy that since the power is conferred on the Parliament to prescribe the limits of territorial waters, it should be held that the territorial waters vest with the Union of India as otherwise the Parliament could not be conferred with a power to alter the limits of territorial waters. It is necessary to point out that the power conferred by means of a constitutional provision on the Union to prescribe the limits of the territorial waters cannot be un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... States or Union Territories by means of geographical boundaries. So far as the State which is surrounded by the water, in our view, the boundary of that State, in the absence of a law made by the Parliament excluding the territorial waters as being part of that State, the same should be included as part of that State. The power conferred on the Union of India in entries 25 to 27 and 30 of List I of the Seventh Schedule to the Constitution to legislate those subjects, in our view, cannot be understood to mean that the territorial waters vest with the Union of India. The power to legislate on several matters referred to in entries 25 to 27 and 30 of List I and entry 32 of List III of the Seventh Schedule to the Constitution has been conferred on the Union keeping in mind the larger interest of the country and with a view to maintain integrity and unity of the country. Therefore, we do not find any merit in the submission of the learned counsel for the appellant that in view of entries 25 to 27 and 30 of List I of the Seventh Schedule, on which reference has been made, it should be held that the territorial waters is a part of the Union of India. It is necessary to point out that if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers Act, which casts a right of innocent passage of foreign ships through the territorial waters, also supports our view. Section 5 of the said Act only provides as to what is contiguous zone of India and it states that it has an area beyond and adjacent to the territorial waters and limit of the contiguous zone is the line every point of which is at a distance of twenty-four nautical miles from the nearest point of the baseline of territorial waters. Similar is the position so far as continental shelf and exclusive economic zone is concerned. Merely because the power is conferred on the Parliament to limit or modify the territorial waters, contiguous zone, continental shelf and exclusive economic zone under section 3 of the Territorial Waters Act, it is not possible to understand that such a power is conferred on the Parliament because the territorial waters vest with the Union of India. What we have said while considering the exercise of the power conferred on the Parliament under clause (3) of article 297 of the Constitution would apply with equal force for vesting of power with the Union of India to limit the territorial waters, etc. It is necessary to point out that the powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This argument does not take into account the well-established distinction between territorial waters and the open sea beyond territorial waters and would posit that all legislation relating to fisheries whether within or without the territorial waters would be void. Mr. K.S. Sankara Aiyar, the learned advocate who appeared for the second respondent, however, did not dispute the validity of the legislation insofar as it related to the territorial waters; his contention was the legislation extends to waters far beyond what is recognised as the limits of territorial waters and that, therefore, it was void. Now the entire foundation for the argument on behalf of the petitioners is that the territory of a State is co-extensive with its land and that where the land geographically ends, there the jurisdiction of the Legislature ends. But that, however, is contrary to the well-accepted doctrines on the subject. Thus, it is observed in Oppenheim's International Law, 7th Edn. Vol. I at page 415: 'The territory of a State consists in the first place of the land within its boundaries. To this must be added, in the case of a State with a sea coast, certain waters which are within or adjace ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the theory of ownership. Oppenheim, however, favours the contrary opinion and observes: 'that the universally recognised fact of the exclusive right of the littoral State to appropriate the natural products of the sea in the coast waters, especially the use of the fishery therein, is consistent only with the territorial character of the maritime belt. The argument . that, if the belt is to be considered a part of State territory, every littoral State must have the right to cede and exchange its coast waters, can properly be met by the statement that territorial waters of all kinds are inalienable appurtenances of the littoral and riparian States'. 12.. Mr. M.R.M. Abdul Karim relied strongly on the decision in the Queen v. Keyn (1877) 2 Ex. D. 63 (R) in support of his contention that the territorial limits of a State do not take in the marginal sea. In that case the accused was a German in command of a German vessel called the "Franconia" and it ran into a British steamer called the "Strathelyde" within territorial waters and as a result, a passenger called Young was drowned. The accused was charged with manslaughter at the Central Criminal Court. The point for decision wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an extreme conflict of judicial opinion, and the judgment of the majority of the court was rested on the ground of there having been no jurisdiction in former times in the Admiral to try offences by foreigners on board foreign ships whether within or without the limit of three miles from the shore.' With reference to the nature of the right possessed by the State over territorial waters he observed: 'It should be added, with reference to the suggestion that the territory of the Crown ceases at low-water mark, and that the right over what extends seawards beyond that is merely of the nature of jurisdiction or the like, that there are manifest difficulties in seeing what are the grounds for this in principle.' Whatever theory might ultimately find acceptance with the family of nations as to the true basis of the right which a State possess over territorial waters, there cannot be any doubt that with reference to the rights of fishery, the marginal belt must be regarded as part of the territory of the littoral State. The contention of the petitioners that the limits of a State extend only to its lands and that the rights of fishery over the sea, even if they be within territo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1), (5), (7), (13) and (14) it becomes clear that the transaction did not involve transfer of right to use the machinery in favour of contractors. The High Court was right in arriving at such a conclusion. In the impugned order, it is stated and rightly so in our opinion, that the effective control of the machinery even while the machinery was in use of the contractor was that of the respondent-company, the contractor was not free to make use of the machinery for the works other than the project work of the respondent or move it out during the period the machinery was in his use; the condition that the contractor would be responsible for the custody of the machinery while it was on the site did not militate against respondent's possession and control of the machinery. It may also be noticed that even the Appellate Deputy Commissioner, Kakinada, in the order dated November 15, 1999 in regard to assessment years 1986-87 and 1987-88 held that under the terms and conditions of the agreement there was no transfer of right to use the machinery in favour of the contractor. Although it cannot be said that the appellant was estopped from contending otherwise in regard to assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2.-................. Explanation 3(a).-The sale or purchase of goods (other than in the course of inter-State trade or commerce or in the course of import or export) shall be deemed, for the purposes of this Act, to have taken place in the State wherever the contract of sale or purchase might have been made, if the goods are within the State,- (i) in the case of specific or ascertained goods, at the time the contract of sale or purchase is made; and (ii) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation. 3(b) .. 3(c) 3(d) " 14.. The reading of the definition of "sale" set out above would make it clear that "sale" means every transfer of property in goods (other than by way of mortgage, hypothecation, charge or pledge) by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration and includes transfer of right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the operations no hire to be paid by the charterer to the contractor and clause (16) of the charter party agreement shall apply. (4)................. (5) Charterers to provide whilst the vessel is on hire fuel, lubricants, water, electricity, port charges and antipollutants. In case of actual fire fighting as ordered by the charterer, the cost of foam/ chemicals consumed for the fire fighting will be reimbursed by the charterer at actuals. (6) The charterers at Port of delivery and the contractors at the Port of redelivery to take over and pay for all fuel and lubricants remaining in the vessel at Mangalore. (7) Maintenance and operation: (a) The vessel shall during the charter period be for all purposes at the disposal of the charterer and under their control in every respect. The contractor shall maintain the vessel, machinery, appurtenances and spare parts in a good state of repair, in efficient 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. (7)(b) . (8) to (11) .. (12) The whole reach an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter to be under the control of charterers as regards employment, agency and other arrangements. It further provides that the contractor should indemnify the charterer against the consequences or liabilities arising from the master, officers or agents for their lawful actions as well as from any irregularity in the vessel's papers. From the reading of various stipulations referred to above in the agreement, the only conclusion that could be reached is that there has been transfer of tug for use by the appellant to the NMPT. Merely because, the appellant is required to undertake to maintain the vessel during the period of charter, would not, in any manner, support the contention of the appellant that there has not been a transfer of right to use the tug by the appellant to the NMPT. Therefore, the division Bench decision of the Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer, Company Circle, Visakhapatnam reported in [1990] 77 STC 182 which is affirmed by the Supreme Court in the case of State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. [2002] 126 STC 114 relied upon by the counsel for the appellant, in our view, is of no assistance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which 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 effected by the delivery of the goods. 28.. .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 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." 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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