P. Vishwanatha Shetty, J.@mdashThe appellant in this appeal was the petitioner in Writ Petition No. 4971 of 1999 (Great Eastern Shipping Company Ltd. v. State of Karnataka [2000] 117 STC 437) before this Court. The learned single Judge in the impugned order rejected the writ petition.
2. Facts in brief, which have led to the filing of this appeal, are as hereunder :
The appellant is a public limited company and owns a Tug (Towing vessel) by name "Kumari Tarini" (hereinafter referred to as "the tug"). The appellant entered into a charter party agreement with New Mangalore Port Trust (hereinafter referred to as "the NMPT") on January 8, 1998, wherein it was agreed to make available the services of the said tug for the purposes mentioned in the said agreement 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 u/s 5C 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 since the appellant has failed to get itself registered as a dealer under the KST Act, a last chance is given to it to get itself registered under the KST Act within 15 days from the date of receipt of the said notice and the failure to do so, the 2nd respondent would be constrained to file charge sheet for offences committed by the appellant u/s 29(2) of the KST Act. In the meanwhile, in response to the letter dated September 2, 1998 written on behalf of the appellant by its tax practitioner, the Joint Commissioner of Commercial Taxes (Administration), Mangalore, informed the tax practitioner of the appellant that the appellant was required to get itself registered as a dealer under the KST Act and liable for payment of tax u/s 5C of the said Act. However, he further observed in the said letter that he was not the competent authority to issue clarification with regard to the liability or otherwise of the appellant to pay tax u/s 5C of the KST Act, The appellant, aggrieved by notice, annexure D, dated December 28, 1998, filed the writ petition. In the writ petition, in addition to its prayer for quashing of the notice, annexure D, the appellant also prayed for declaration that the provisions of the KST Act do not extend to the territorial waters of India situated adjacent to the landmass of the State of Karnataka ; and the appellant is not liable to get itself registered u/s 10 of the KST Act and also not liable to pay tax on hire-charges received from NMPT pursuant to the agreement, annexure A, dated January 8, 1998 entered into between the appellant and the NMPT. However, the learned single Judge while rejecting the writ petition took the view that the tug in question was in the State of Karnataka, though in the territorial waters which forms the territory of the State ; the question as to whether there was transfer of right to use the tug or not, being purely a question of fact, the same has to be decided on the basis of the evidence which may be produced by the parties before the 2nd respondent and the same cannot be considered in the writ petition. Aggrieved by the order passed by the learned single Judge rejecting the writ petition, this appeal is filed.
3. Sri R.N. Narasimhamurthy, learned Senior Advocate, appearing along with Sri G.K.V. Murthy, challenging the correctness of the orders passed by the 2nd respondent 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 resolution being passed by both the Houses of the Parliament, the Central Government, whenever it considers necessary, by issuing of notification on that behalf modify the limits of the territorial waters. He also drew our attention to Sub-section (1) of Section 3 of the Territorial Waters Act wherein it is stated that "the sovereignty of India extends and has always extended to the territorial waters of India and to the sea-bed and subsoil underlying, and the air space over such waters". According to the learned counsel, if the territorial waters abutting the landmass of the State is not vested with the Union of India, the Central Government would not have been conferred with the power to modify the limits of the territorial waters u/s 3 of the Territorial Waters Act. He also emphasized his submission that the territorial waters do not form part of the State of Karnataka by reading to us the Constituent Assembly debates on this question. According to him, when Article 297 of the Constitution specifically provides "all lands, minerals and other things of the value underlying the ocean within the territorial waters vest with the Union of India", everything above ocean also must be understood having vested with the Union of India. It is his further submission that since the tug in question is located in the territorial waters and not situated within the State of Karnataka, the appellant not being liable to pay tax u/s 5C of the KST Act, was not required to get itself registered as a dealer u/s 10 of the KST Act and as such the impugned notice issued to the appellant is liable to be quashed. He also pointed out that the constitutional scheme also envisages that the territorial waters must vest and be under the control of Union of India and in this connection he referred to us the entries 25 to 27 and 30 of List I and entries 13 and 21 of List II and entry 32 of List III. Secondly, he submitted that the learned single Judge has seriously erred in law in refusing to consider the contention urged on behalf of the appellant that there is no transfer of right to use the goods by the appellant to the NMPT in which event alone the appellant will be liable to pay tax u/s 5C of the KST Act. It is his submission that since the Joint Commissioner of Commercial Taxes in his communication dated November 9, 1998 has taken the view and 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 AP. 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 clear from the agreement that the effective control over the tug remained with the appellant ; and the appellant had made available only the service of the tug to NMPT by employing its own personnel to man the tug ; and the appellant had to maintain the tug, machinery, spare parts, etc., in good stage of repair. He also referred to us various clauses in the agreement and more particularly Clause (3) of the agreement. Therefore, he submits that the only reasonable conclusion that one can arrive at, on proper consideration of terms of the agreement would be, there is no transfer of right to use the tug--"Kumari Tarini" by the appellant to the NMPT.
4. However, Sri B. Anand, learned Government Advocate, appearing for the State while strongly refuting the contention of the learned counsel for the appellant, submitted that since the order impugned passed by the learned single Judge does not suffer from any error, the said order is not liable to be interfered with by us in this appeal. It is his submission that the counsel for the appellant cannot derive any assistance either from Section 3 of the Territorial Waters Act or from Article 297 of the Constitution of India in support of his contention that the territorial waters do not form part of the State. It is his submission that what is contemplated under Article 297 of the Constitution and Section 3 of the Territorial Waters Act is with regard to the determination of the territorial waters, continental shelf and exclusive economic zone of India with reference to the country as a whole and is made with reference to other neighbouring countries. According to him, what Sub-section (1) of Section 3 of the Territorial Waters Act only states is that the sovereignty of India extends and has always extended to the territorial waters of India ; but there is no provision in the Territorial Waters Act which excludes the territorial area being outside the part of the State land-mass. It is also his submission that the power given to the Union of India to limit the boundaries of territorial waters cannot be understood to mean the territorial waters falls outside the State limits. Therefore, he submits that the reading of Article 297 of the Constitution and Section 3 of the Territorial Waters Act would not support the contention of the appellant that the territorial waters abutting the landmass of a State is not a part of the 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 pointed out that Section 2(j) of the Karnataka Marine and Fishing Regulation (Act), 1986 (hereinafter referred to as "the Marine and Fishing Act") defines "State" as State of Karnataka and includes the territorial waters along with entire coastline of the State. Therefore, according to the learned Government Advocate, the entire territorial waters falling within the distance of twelve nautical miles from the landmass of the State of Karnataka is a part and parcel of the State of Karnataka. When the Marine and Fishing Act makes the territorial waters as part of the State of Karnataka, it is not permissible for the appellant to contend that the territorial waters is outside the boundary limit of the State of Karnataka.
5. In the light of the rival submissions made by the learned counsel appearing for the parties, the three questions that would emerge for our consideration are :
1. Whether the use of tug on the territorial waters would amount to use of the tug within the State of Karnataka ?
2. Whether the learned single Judge was justified in not considering the contention of the appellant that there was no transfer of right to use the goods, i.e., the tug--"Kumari Tarini" from the appellant to the NMPT ; and the said question is required to be considered by the Assistant Commissioner for Commercial Taxes ? and
3. Whether in the event of our answer on the second question referred to above being in favour of the appellant, whether there has been transfer of right to use the goods, i.e., the tug--"Kumari Tarini" from appellant to the NMPT by virtue of the terms set out in agreement, annexure A, dated January 8, 1998 entered into between the appellant and the NMPT ?
Regarding 1st question :
The answer to the first question referred to above would depend upon our answer to the question whether the territorial waters abutting the landmass, forms the part of the State of Karnataka. There is no dispute that the extent of territorial waters is up to a distance of 12 nautical miles from the land, i.e., the baseline.
6. India is a Union of States. The territory of India consists of--(a) territory of States, (b) the Union territories specified in the First Schedule, and (c) such other territories as may be acquired by India. This is clear from Article 1 of the Constitution of India. Article 3 of the Constitution empowers the Parliament to make law providing for formation 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 reorganization on linguistic or other basis. The States reorganization Act, 1956 is one such Act made by the Parliament providing for constitution of States on linguistic basis. The scheme of administration of the country and exercise of power by the Centre and the State is federal in character. Both the Centre and the State are conferred with the power of making laws to govern the administration of the Centre and also the States within the assigned sphere of subjects allotted to them in three lists given to Seventh Schedule to the Constitution. While the power that can be exercised by a State cannot go beyond the territorial jurisdiction of the State, the power that can be exercised by the Parliament can be throughout the country so long as the legislative competency is conferred on it under List I or List III of the Constitution. However, the pivotal question in these appeals, as noticed by us earlier, that would arise for consideration is as to whether the territorial waters abutting the landmass of the State of Karnataka on the coastal area is also a part of the State ? In our considered view, the answer should be in the affirmative. Either the Article 297 of the Constitution or the provisions contained in Section 2, and more particularly, Section 3 of the Territorial Waters Act, strongly relied upon by Sri Narasimha Murthy, would not in any way advance the case of the appellant to support its contention that the territorial waters is not part of the State of Karnataka on the ground it vests in the Union of India. Article 297 of the Constitution reads :
"Article 297. Things of value within territorial waters or continental shelf and resources of the exclusive economic zone to vest in the Union.--(1) All lands, minerals and other 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 purposes of Union.
(2) All other resources of the exclusive economic zone of India shall also vest in the Union and be held for the purposes of the Union.
(3) The limits of territorial waters, the continental shelf, the exclusive economic zone, and other maritime zones, of India shall be such as may be specified, from time to time, by or under any law made by Parliament."
7. Clause (1) of Article 297 of the Constitution referred to above, provides that all lands, minerals and other 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 understood as meaning that such a power is conferred because territorial waters vest with the Union of India. In this connection, it is necessary to point out that several subjects set out in List I of the Seventh Schedule to the Constitution confer power on the Parliament to make legislation even in respect of the items referred to therein which are located within the State. Further, what is provided under Clause (3) of Article 297 is the power conferred on the Parliament to make a law to prescribe the limits of territorial waters. This power has to be understood in the context of prescription of limits of territorial waters in the background of international law. In that background, what should be the distance covering the water abutting the lands should be declared as territorial waters is required to be decided by the Parliament by means of legislation to be made by the Parliament. It is in exercise of that power the Territorial Waters Act has been passed. As noticed by us earlier, 12 nautical miles have been prescribed as territorial waters. The power conferred in Clause (3) of Article 297, as observed by us earlier, is a power to prescribe the limits of territorial waters. Now, one other aspect of the matter which requires to be considered in the backdrop of the submission of Sri Narasimha Murthy that since Clause (1) of Article 297 provides that all lands, minerals and other things of value underlying the ocean within the territorial waters, or the continental shelf, or the exclusive economic zone of India shall vest with the Union and be held for the purposes of the Union, would also lead to the inference that what is above the water level of the territorial waters also vest with the Union of India ? In our considered view, it is not possible to draw such an inference or conclusion. The reasonable inference that should be drawn from Clause (1) of Article 297 of the Constitution is that the makers of Constitution intended to exclude the territorial waters as one vest with the Union of India. This view of ours, it appears to us, also stands to reason. Just as one State is separated by the boundaries prescribed by means of a legislation made by the Parliament from the other, the territorial waters which is abutting the land of the State, also forms part of the State. So far as the country is concerned, the Union of India has been constituted by union of 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 the intention of the Constitution makers was to include the territorial waters as one vest with the Union of India and exclude it as part of the State territory, nothing would have been easier than to state so when care was taken to state "all lands, minerals and other things of value underlying the ocean within the territorial waters, or the continental shelf, or the exclusive economic zone, of India shall vest with the Union of India". The* only other question that requires to be considered is, whether the provisions of the Territorial Waters Act would, in any manner, support the contention of the counsel for the appellant that the territorial waters has vested with the Union of India ? In our view, it? would not. The Territorial Waters Act has been made in exercise of the power conferred on the Parliament in Clause (3) of Article 297 of the Constitution. The definition of "limit" provided u/s 2 of the Territorial Waters Act which states that the provisions contained under the said Act means the limit of such waters, shelf or zone with reference to the mainland of India as well as the individual or composite group or groups of islands constituting part of the territory of India, is of no assistance to support the contention of the appellants that the territorial waters vests with the Union of India. Similarly Sub-section (1) of Section 3 of the Territorial Waters Act which provides that the sovereignty of India extends and has always extended to the territorial water of India and to the seabed and subsoil underlying, and the air space over such waters vests with the Union of India also does not support the contention of the appellant that the territorial waters vest with the Union of India. The plain reading of the said provision, it appears to our mind, is to declare that the sovereign power of the country extends and always extended to the territorial waters of India and to the sea-bed and subsoil underlying, and the air space over such waters. This provision is made to clarify and notify the foreign countries and other parts of the world that India alone has sovereign power over the territorial waters, sea-bed and subsoil underlying and air space over such waters. Such a provision cannot be understood to limit the territorial jurisdiction of a State in respect of the territorial waters lying adjacent to the land. Section 4 of the Territorial Waters 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 u/s 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 power under the Territorial Waters Act to limit the territorial waters is being exercised by the Union of India by virtue of law made by the Parliament as provided under Clause (3) of Article 297 of the Constitution. Therefore, as noticed by us earlier, the provisions of the Territorial Waters Act to which reference has been made by us above, is of no assistance to support the contention of the learned counsel for the appellant that the territorial waters vests with the Union of India. In our view, we are also supported by the decision of the Madras High Court in the case of A.M.S.S.V.M. Company AIR 1954 Mad. 291. In the said decision while considering the question whether the State has power to make a legislation, the division Bench of the High Court of Madras speaking through Rajamannar, C.J. (as he then was) has taken the view that the State Legislature has such a power on the premises that the territorial waters falls within the State. In this connection, it is useful to refer to the observation made in the said decision at paragraphs 11 and 12 wherein it is observed as follows :
"11. In this view it is unnecessary to decide whether the impugned Act has extra-territorial operation and was, therefore, beyond the competence of the Madras Legislature. But as the question has been argued fully and as the matter might be taken before a superior Court, we shall express our opinion on this question. It is not disputed by the learned Advocate-General that the Legislature of the Madras State is competent to pass laws having operations only within the State. That is enacted in Section 99, Government of India Act, 1935, which provides that ''a Provincial Legislature may make laws for the province or any part thereof and under that section it is only the Federal Legislature that has the competence to enact laws having extra-territorial operation. These provisions have been re-enacted in Article 245 of the Constitution. The point for determination therefore is whether the fishing waters which are the subject-matter of this application form part of the Province of Madras.
The contention of Mr. M.R.M. Abdul Karim on behalf of the petitioners is that the territory of a State comprises its lands up to its frontiers, that the seas form no part of such territory and that, therefore, the legislative jurisdiction of the States must stop, like a witch, at the waters of the sea. 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 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 that 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 1, page 452 after nothing 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 recognised.
''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 Colombos 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 recognised.''
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 pilot age ; 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 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 was whether that court had jurisdiction over an offence committed by the foreigner within territorial waters.
The determination of that question depended on the fact whether the Admiralty Court to which it was the successor, had jurisdiction over the cause. It was held by the majority that it had not. The law on the subject of territorial waters was elaborately considered by the Judges and the petitioners rely upon various observations contained therein. But it must be noticed that the question for determination was not about the title of the State to the territorial waters or of the powers of the Legislature to enact laws with reference thereto, but only of the jurisdiction of the courts.
In Manchester v. Commonwealth of Massachusetts (1890) 139 US 240 (S), the effect of this decision was thus stated by Blatchford, J.:
There the question was not as to the extent of the dominion of Great Britain over the open sea adjacent to the coast, but only as to the extent of the existing jurisdiction of the court of Admiralty in England over offences committed on the open sea ; and the decision had nothing to do with the right of control over fisheries in the open sea or in bays of arms of the sea. In all the cases, cited in the opinions delivered in Queen v. Keyn (1877) 2 Ex. D. 63 (R) wherever the question of the right of fishery is referred to, it is conceded that the control of fisheries, to the extent of at least a marine league from the shore, belongs to the nation on whose coast the fisheries are prosecuted,''
and again,
''We think it must be regarded as established that, as between nations, the minimum limit of the territorial jurisdiction of a nation over tide-waters is a marine league from its coast ; ....... and that included in this territorial jurisdiction is the right of control over fisheries, whether the fish be migratory, free-swimming fish, or free-moving fish, or fish attached to or embedded in the soil.''
In Secretary of State v. Chellikani Ramarao AIR 1916 PC 21 (T), where the question was as to the title of the Crown to islands formed within territorial waters, Lord Shaw has the following observations on the decision in--Queen v. Keyn (1877) 2 Ex.D. 63 (R) :
''It should not be forgotten that the Franconia case had reference on its merits solely to the point as to the limits of Admiralty jurisdiction ; nothing else fell to be there decided. It was marked 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 territorial waters, are extra-territorial in character must accordingly be overruled."
8. We are also of the view that the Counsel for the appellant and also the Central Government Standing Counsel appearing for the Union of India, cannot derive any assistance in support of their contention on the basis of the discussion that has taken place in the Constituent Assembly debate ; and therefore we find it unnecessary to refer to the passages read out to us by learned counsel appearing for the parties. Further, it is also necessary to point out that the definition of "State" given u/s 2(j) of the Marine and Fishing Act also makes territorial waters as part of the State of Karnataka. The said definition reads :
"2(j). ''State'' means the State of Karnataka and includes the territorial waters along the entire coast line of the State."
9. The Marine and Fishing Act is the State legislation made in exercise of the power conferred on it under entries 13 and 21 of State List of the Seventh Schedule to the Constitution. There is no law made by the Parliament which comes in conflict with the definition of "State" provided u/s 2(j) of the Marine and Fishing Act. On this ground also, the contention of the appellant that the territorial waters does not form part of the State of Karnataka is liable to be rejected. Accordingly it is rejected.
Regarding 2nd question :
10. The learned single Judge, as noticed by us earlier, has refused to consider the question whether there is transfer of right to use the goods from the appellant to the NMPT on the ground that the matter is required to be considered by the Assistant Commissioner of Commercial Taxes. In the facts and circumstances of the case, it appears to us that the view taken by the learned single Judge is not correct. The Supreme Court, fairly under similar circumstances, in the case of
"....On a careful reading and analysis of the various clauses contained in the agreement, and in particular, looking to Clauses (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 1988-89, it is an additional factor and circumstance, which supports the stand of the respondent."
11. Therefore, in the light of the decision of the Supreme Court in the case of State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. [2002] 126 STC 114 AP, the learned single Judge was not justified in refusing to consider the same. Accordingly, point No. 2 is answered in favour of the appellant.
Regarding 3rd question :
12. Section Karnataka Mar of the KST Act is a charging section. It makes every dealer to pay sales tax for each year on its "taxable turnover" in respect of the transfer of right to use any goods mentioned in column (2) of the Seventh Schedule for the purpose (whether or not for a specified period) at the rate specified in the corresponding entries in column (3) of the said Schedule. The said section reads :
"Karnataka Mar. Levy of tax on the transfer of the right to use any goods,--Notwithstanding anything contained in Sub-section (1) or Sub-section (3) of Section 5, but subject to Sub-sections (4), (5) and (6) of the said section, every dealer shall pay for each year a tax under this Act on his taxable turnover in respect of the transfer of the right to use any goods mentioned in column (2) of the Seventh Schedule for any purpose (whether or not for a specified period) at the rates specified in the corresponding entries in column (3) of the said Schedule."
13. Section 2(t) of the KST Act defines "sale". Relevant portion of Section 2(t) of the KST Act, is as hereunder :
"Section 2(t) : ''Sale'' with all its grammatical variations and cognate expressions means every transfer of the property in goods (other than by way of a 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,--
(i) a transfer otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration ;
(ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract ;
(iii) a delivery of goods on hire-purchase or any system of payment by instalments ;
(iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.
Explanation 1.--.................
Explanation 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 other valuable consideration. Explanation 3 given to definition of "sale" also provides that 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 the 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. Therefore, among other things, to fasten the liability on a dealer for payment of tax, except in the case of sale or purchase made in the course of inter-State trade or commerce or in the course of import or export, the goods should be within the State. We have already negatived the contention of the learned counsel for the appellant that the territorial water does not form part of the State. Now the only other question is whether there is a transfer of right to use the tug by the appellant to the NMPT ? The answer to this question will depend upon the interpretation we are required to place on agreement, annexure A, after consideration of several clauses incorporated in the said agreement. We find it is appropriate to refer to Clauses (1), (3), (5), (6), (7)(a), (12) and (14)(a) of the agreement. They read :
"(1) The contractors let and the charterer hire the good vessel ''Kumari Tarini'' for a period of six months with effect from commencement of service. (Not a Sunday or a legal holiday unless taken over) the vessel is delivered and placed at the disposal of the charterers and the contractor undertakes to maintain the vessel during the period of this charter.
(2).................
(3) The vessel to be used for various lawful services required by charterers including towing, docking and undocking of vessels at New Mangalore Port round the clock (24 hours a day) and throughout the contract period of six months including but not limited to :
(a) Berthing and under thing of vessels in port,
(b) To stand by as fire float, Oil spill dispersant spraying boat, etc.,
(c)To assist in double baking by way of acting as docking tug,
(d) To maintain communication by VHF,
(e) All other operations required in connection with docking/ undocking operations of vessels at Port related to Harbour conservancy and/or movement of vessels within the Port and such other operations as are conventionally performed by Port Tugs.
In the event of the tug being unable to perform any of 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 anti pollutants. 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 and burthen of the vessel, including lawful deck capacity to be at charterer''s disposal, reserving proper and sufficient space for the vessel''s master, officers, crew, tackles, apparel, furniture, provisions and stores.
(13) .........
(14)(a) The master to execute charterer''s instructions with the utmost dispatch and to render customary assistance with the vessel''s crew. The master to be under the order of the charterers as regards employment, agency or other arrangements. The contractors to indemnify the charterer against all consequences or liabilities arising from the master, officers or agents for their unlawful actions as well as from any irregularity in the vessel''s papers.
15. The reading of clauses referred to above in the agreement, to our mind appears, there cannot be any doubt that there has been a transfer of right to use the tug--"Kumari Tarini" by the appellant to NMPT. Clause (1) of the agreement states that the contractor let and the charterer hire the good vessel "Kumari Tarini" for a period of six months with effect from commencement of service and the vessel was delivered and placed at the disposal of the charterers and the contractor undertakes to maintain the vessel during the period of the charter. This only shows that there has been a delivery of possession of vessel from the appellant to NMPT who is a charterer and the vessel was placed at the disposal of the charterer by way of hire and for payment of hire charges. Clause (3) of the agreement referred to above, further provides that the vessel could be used for various lawful services required by the NMPT including towing, docking and undocking of vessels at NMPT round the clock and throughout the contract period. Therefore, the reading of Clauses (1) and (3) referred to above makes it clear that the possession and control of the tug was handed over by the appellant to the NMPT. Clause (7)(a) of the agreement makes it clear that the tug, during the charter period is, for all purposes, at the disposal of the charterer and under its control in every respect. Clause (12) of the agreement shows that the whole reach and burthen of the vessel including lawful deck capacity to be at the charterer''s disposal. Clause (14)(a) also provides that the master of the vessel to carry out charterer''s instructions with utmost despatch and to render customary assistance with the vessel''s crew and the master 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
"27. Article 366(29A)(d) further shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use the goods accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. 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."
16. Therefore, as noticed by us earlier, the reading of several clauses in the agreement would, in our view, in unmistakable terms show that there has been a transfer of right to use the tug by the appellant to the NMPT. Therefore, we are of the view that there is no merit in the submission of the learned counsel for the appellant that there has not been transfer of right to use the tug by the appellant to the NMPT. Accordingly, third question is answered.
17. In the light of the discussion made above, we are of the view that this appeal is liable to be rejected. Accordingly it is rejected. However, no order is made as to costs.
18. Sri B. Anand, learned Government Advocate is given four weeks time to file memo of appearance.
