State of Tamil Nadu vs. Essar Shipping Limited [2012] 47 vst 209 (mad)

Sales Tax – Location of Goods at The Time of Contract of Sale Entered – Sale of Named Ship – Not in State – Sale outside the State – Not Taxable – Section 3A of The Tamil Nadu General Sales Tax Act, 1959

Facts :
The assessee company, owner of ships, had let on hire 11 ships to various parties, within and out side the State of Tamil Nadu and collected charges on rendering services. The assessee had entered into Time charter party agreement for letting ship on hire to transport goods mentioned therein. The assessee had also effected sale of old ships. The assessing authorities treated time charter party agreement as transfer of right to use ships and levied tax on charges collected thereon and also levied tax on sale of named ships as local sale although ships were not in the State at the time of sale. The Tribunal held that time charter party agreement is taxable as transfer of right to use goods but accepted the plea of the assessee that the transactions is in the course of inter-State trade as such not taxable u/s. 3A of The Tamil Nadu General Sales Tax Act. The Tribunal in respect of sale of Ships held that it is not taxable as at the time of sale it was not located in the State. The State filed revision petition before the Madras High Court against the Judgment of Tribunal.

Held :
A reading of the various clauses enumerated in the charter shows that the contract is not for the hire of the vessel but hiring of the services to be provided by the owner as a carrier to carry goods which are put on board of the ship by the time charterer. The Tribunal committed a serious error in its understanding of what possession would mean, in the face of the time charter agreement. The High Court accordingly held that the time charter party agreement is one for services, hence not taxable under the provisions of the sales tax act.

As regards sale of named ships, the High Court held that the location of the goods at the time of sale determines the jurisdiction of that State to levy sales tax under the local Act. Thus, in the case of ascertained goods, the place where goods are at the time of contract is the State which has the jurisdiction to assess the transaction. Admittedly on the date of sale, the agreement was for named ships which were nowhere near the jurisdiction of the State of Tamil Nadu. The mere fact that the contract was entered into in the State of Tamil Nadu or for that matter the assessee had sought for registration under the State act, by itself, would not confer jurisdiction on the State to impose tax on the sale of assets located outside the State. The Tribunal found that at time of sale of Ships, all the named ships were positioned out side the State as such the Tribunal was right in holding the transaction not taxable in the State of Tamil Nadu.

Accordingly, the High Court dismissed the revision petition filed by the State.