Karnataka High Court
Great Eastern Shipping Company Ltd. vs State Of Karnataka And Anr. on 30 June, 1999
ORDER V.K. Singhal, J.
1. Notice issued under Section 10 of the Karnataka Sales Tax Act dated December 28, 1996 has been assailed in this petition. The Assistant Commissioner of Commercial Taxes has found that the petitioner has failed to get himself registered under Section 10 of the KST Act and therefore an opportunity was given before filing the charge sheet for the offences committed under Section 29(2) of the Act. Notice dated June 8, 1998 was issued to the petitioner earlier in response to which the reply dated June 26, 1998 was submitted stating the circumstances by which the petitioner considered themselves not a dealer. By letter dated November 9, 1998, the petitioner was informed that for chartering the tug vessel "Kumari Tarini", the situs of lease undertaken is at NMPT, Mangalore. The responsibility of the lessor was to deliver and place the leased tug under disposal of lessee on daily hire charges. The petitioner was considered to be a lessor liable for registration and payment of tax under Section 5-C of the KST Act, 1957. The contentions raised by the learned counsel for the petitioner in his letter were held not applicable. In the letter dated June 26, 1998, it was stated that the actual possession of the vessel always remained with the owner-company. Although the route of the vessel for transportation of the cargo will be decided under the instruction of the NMPT, the delivery of the vessel would mean the custody of the cargo space which has to be given to the NMPT it does not amount to giving the possession of the vessel. Since there is no transfer of possession, liability of tax was disputed on the basis of the decision given in 20th Century Finance Corporation Limited v. State of Maharashtra [1989] 75 STC 217 (Bom), Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer and Harbans Lal v. State of Haryana . Since there was no transfer of right to use the vessel, it is submitted that petitioner is not liable for registration.
2. In the writ petition filed legislative competence of the State of Karnataka has been assailed on the ground that it does not extend to the territorial waters which was within the territory of India but not a part of State of Karnataka. It is stated that the tug is not used in any area belonging to the State. Reference is made to Section 3(1) of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zone Act, 1976, wherein the limit of territorial waters is stated to be 12 nautical miles appropriate to the baseline which are considered under the sovereignty of India. It is submitted that under Article 297 of the Constitution of India, all lands, minerals and other things of value underlying the ocean within the territorial waters or the continental shelf of India shall vest in the Union of India and thus it is the Central Government which has the jurisdiction. Even for altering the limits of the territorial waters of India a legislative Act is needed. The petitioner has made available the tug to the NMPT but employed its own personnel to man the tug as is evident from the agreement dated January 8, 1998. It is also stated that since the Assistant Commissioner of Commercial Taxes was directed by higher authorities to register the petitioner, therefore the petitioner cannot be directed to avail the remedy under the Act. The word "delivery" in the case of Time Charter has a different meaning which was not considered at all.
3. I have considered over the matter.
First of all, the question of legislative jurisdiction to issue the notice in respect of territorial waters and point of "delivery" on the basis of Time Charter was not raised by the petitioner in the reply submitted. In the writ petition, the petitioner could have raised only those points which are raised below. In any case, the question of jurisdiction in respect of territorial waters to issue the notice is being considered.
In A.M.S.S.V.M. & Co. v. State of Madras AIR 1954 Mad 291 ; ILR 1953 Mad. 1175, it was observed that under Article 297 of the Constitution what vests in the Union is bed of the sea and not the territorial waters and in law the territorial waters do not stand in the same position. The territorial waters belong to the several littoral States from which the marginal sea takes off. Reference was made of the observations made in Oppenheim's International Law, VII Edition, Volume I, at page 415 to the following effect :
"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 adjacent to its land boundaries, and these waters are of two kinds--national and territorial :
(i) 'National waters' : These consist of the waters in its lakes, in its canal, in its rivers together with their mouths, in its ports and harbours, and in some of its gulfs and bays..............
(ii) 'Territorial waters': These consist of the waters contained in a certain zone or belt, called the maritime or marginal belt, which surrounds a State and thus includes a part of the waters in some of its bays, gulfs and straits."
and the learned author adds "that the territorial waters are as much inseparable appurtenances of the land as are the territorial subsoil and atmosphere".
Hyde on International Law, Second Edition, Volume I, page 452 after noting that the marginal seas "bore such a relation to the nearest land as to be regarded as appurtenant to it", observed that it had come to be recognized.
"that a State was capable of substantially occupying a narrow rim of the sea adjacent to its ocean coasts, and of dealing with it, for most purposes, as though it were a part of the national domain"
and that it could "exercise a right of control over such marginal sea within certain definite limits and treat it for most purposes as a part of its territory".
Messrs. Higgins and Columbos on International Law of the sea have the following on the subject :
"Notwithstanding, the principle of the freedom of the seas, there are certain portions of the sea along a State's coasts which are universally considered as a prolongation of its territory and over which its jurisdiction is recognized."
The learned authors then proceed to discuss the several views which have been advanced as to the true nature of the rights which a State possesses over its maritime belt and observe :
"With some it is an actual ownership ('dominium') because it implies in certain cases an exclusive enjoyment very characteristic of ownership, especially in the matter of fishing and pilotage ; others treat it as a right of limited sovereignty conferring only a right of jurisdiction on the littoral State."
The better view, according to them is that the right which the State possesses is one "of jurisdiction or qualified sovereignty", the reason being that during times of peace other nations possess certain rights over the territorial waters such as peaceful navigation and that that could not be reconciled with the theory of ownership.
Oppenheim, however, favours the contrary opinion and observes :
"that the universally recognized 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."
Similar views were taken in Susori v. Director of Fisheries (1965) 2 MLJ 35 and Deputy Commissioner of Commercial Taxes v. Devar and Co. [1963] 14 STC 904 (Mad.).
In Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Commercial Tax Officer it was held that the customs barrier does not set terminal limit to the territory of West Bengal for sales tax purposes. The sale beyond the custom barrier is still a sale in fact, in the State of West Bengal. Relying this decision the Supreme Court in the case of Madras Marine and Co. v. State of Madras [1986] 63 STC 169, observed that the sale beyond the customs barrier is still a sale within the State. In this case, the goods were supplied to the ship on Board which was held within the State.
The Andhra Pradesh High Court in the case of Fairmacs Trading Company v. State of Andhra Pradesh [1975] 36 STC 260 have considered the sale of ship stores from bonded warehouse to ships going abroad for consumption during voyage, as safes within the State of Andhra Pradesh.
4. Section 5C of the KST Act is the charging section for levy of tax on the transfer of the right to use any goods. Under Explanation (3) of Clause 2(t) in the definition of "sale" it is provided that the sale or purchase of goods shall be deemed for the purpose 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 in the case of specific or ascertained goods at the time of contract of sale or purchase is made.
5. The goods in the present case were in the State of Karnataka though in the territorial waters which form part of the territory of the State. The question as to whether there was transfer of goods which purely is a question of fact to be decided on the basis of the evidence which may be produced by either side cannot be considered over here. Petitioner has to raise these objections before the Assistant Commissioner, Commercial Taxes. A detailed reply may now therefore be filed within a period of four weeks which will be considered by the Assistant Commissioner of Commercial Taxes and appropriate order in accordance with law after hearing the petitioner would be passed. If the petitioner is aggrieved by the order he would be free to challenge the same by filing appeal which is an efficacious remedy under the Act.
6. Petition stands disposed of with the above observations.