COMMISSIONER OF INCOME TAX vs. SRI V KARUNAKARAN

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 4TH DAY OF MARCH, 2020

PRESENT

THE HON’BLE MR. JUSTICE ARAVIND KUMAR AND THE HON’BLE MR. JUSTICE HEMANT CHANDANGOUDAR

CIVIL REVISION PETITION NO.248 OF 2011

BETWEEN:

STATE OF KARNATAKA BY THE COMMISSIONER OF COMMERCIAL TAXES VANIJYA THERIGE KARYALAYA GANDHINAGAR, BANGALORE – 9. ...PETITIONER

(BY SRI. VIKRAM HUILGOL, HCGP)

AND:

M/S. DREDGING CORPORATION OF INDIA LIMITED N.M.P.T. YARD, PENAMBUR MANGALORE – 575 010 REPESENTED BY THE PARTNERS. …RESPONDENT

(BY SRI. G. RABHINATHAN & SRI. N. THIRUMALESH, ADVOCATES)

THIS CIVIL REVISION PETITION IS FILED UNDER SECTION 15(A) OF THE KARNATAKA TAX ON ENTRY OF GOODS ACT, 1979 AGAINST THE JUDGMENT DATED:30.06.2010 PASSED IN STA NO.379/2009 ON THE FILE OF THE KARNATAKA APPELLATE TRIBUNAL, BANGALORE, ALLOWING THE APPEAL FILED UNDER SEC.14(1) OF THE KARNATAKA TAX ON ENTRY OF GOODS ACT, 1979.

THIS PETITION COMING ON FOR HEARING THIS DAY, ARAVIND KUMAR J, MADE THE FOLLOWING:

O R D E R

This revision petition came to be admitted on 7.6.2012 to consider the following substantial questions of law: (i) Whether in the facts and circumstances of the case, the Karnataka Appellate Tribunal was right in law in holding that the dredges are ocean going vessels i.e., ships and it cannot be called as machinery?

(ii) Whether in the facts and circumstances of the case, the Hon’ble Karnataka Appellate Tribunal was right in law in holding that the dredges is a ship or vessel based on the registration under the Merchant Shipping Act 1958 and also described under Chapter 89 of the Central Excise Act?

ships into and out of the ports. Respondent owns dredgers and deploys the same at the ports to carry out dredging operations. The Assessing Authority under Section 5(4) of the Karnataka Tax on Entry of Goods Act, 1979 (for short ‘KTEG Act’) levied entry tax of Rs.1,06,00,000/- @ 2% on dredges by construing the same as machinery and similar penalty under Section 5(5) of the KTEG Act, which was rectified under Section 17(1) of the KTEG Act on 29.06.2006 determining the tax at Rs.22,91,164/- and also levied same amount of penalty for the assessment year 1992-93 and said assessment order which came to be passed on 17.3.2006 was affirmed by the Appellate Authority on 11.11.2008. Being aggrieved by the same, Assessee filed an appeal in STA 379/2009 before Karnataka Appellate Tribunal urging several grounds. Tribunal, after having considered the rival contentions, by order dated 30.06.2010 which is under challenge, held that

dredgers are ocean going vessel i.e., ship and it cannot be clarified as machinery. It was further held that dredgers being unscheduled goods, no tax can be levied under KTEG Act. Hence, this revision petition.

for usage of removal of silt deposited in the approach channel of the port, dredgers cannot be construed as a ship, but on the other hand, it is to be construed as machinery as defined under entry 52 of 1st schedule of the KTEG Act. He would also contend that as per the definition of Webster’s Dictionary, ‘dredger’ is a machine for removing earth usually by buckets on an endless chain or a suction tube; and ‘ship’ is a large sewaging vessel or a sailing vessel having a bow spirit and usually through moist such composed of a lower moist, a top moist and a top gallant moist and as such, dredger cannot take the place of a ship and thereby, Tribunal committed an error in considering the ‘dredger’ also as a ship and hence, he prays for answering the substantial questions of law in favour of the revenue and against the respondent-assessee.

would support the order of the Tribunal and draws the attention of the Court to the documents produced before the Tribunal in order to substantiate or support the order passed by the Tribunal. Hence, he prays for answering the substantial questions of law in favour of the respondent-assessee and against petitioner-revenue.

(i) Facts having already been stated hereinabove, repetition of the same would only burden this order and as such, we desist from repeating the facts except to the extent required for

adjudicating the questions of law formulated hereinabove.

(ii) The short point which arises for our consideration is, “Whether the dredger would partake the character or definition of a machinery as defined under Entry 52 of 1st Schedule of the ‘KTEG Act’ or otherwise?”

Entry 52 of 1st Schedule of KTEG Act reads:

“52. Machinery (all kinds) and parts and accessories thereof but excluding agricultural machinery.”

(iii) ‘Dredger’ which is the subject matter of this revision petition, is undisputedly registered under the Merchant Shipping Act, 1958 (‘Act’ for short). Section 3(18) of the Act defines “Indian Ship” as under:

“3(18) “Indian Ship” means a ship registered as such under this Act and includes any ship registered at any port in India at the commencement of this Act which is recognized as an Indian ship under the proviso to sub-section(2) of section 22.”

(iv) Any ship which is registered at any port at India at the commencement of the Act, which is recognized as an Indian ship under the proviso to sub-section (2) of Section 22 of the Act would be an Indian Ship. (v) ‘Ship’ has been defined under Section 3(45) of the Act as under:

“3(45). “ship” does not include a sailing vessel”.

(vi) An obligation is cast for every Indian ship which does not exceed fifteen tons net, to be registered under the Act as required under Section 22(1) of the Act. On completion of registration of an ‘Indian Ship’ the Registrar would grant a certificate of register containing particulars reflecting the said registration by grant of certificate as contemplated under Section 34. Section 318 of the Act prohibits any Indian Ship to proceed to sea unless the certificate issued under Section 316 of the Act.

Section 356B of the Act would indicate the definitions of various phrases and as defined therein clause (n) defines ‘ship’ as under: “356B(n). “ship” means a vessel of any type whatsoever operating in the marine environment and includes hydrofoil boats, air-cushion vehicles, submersibles, floating craft and fixed or floating platforms.”

(vii) In the background of above definition of the ‘ship’ when certificate of Indian Register issued by the Registrar of Indian Ships under the Merchant Shipping Act, 1958 is perused it would disclose that dredger which has been deployed by the respondent to carry out dredging operations for removal of sand, silt and other debris accumulated at the sea-bed it cannot be gain said by revenue that “dredger” would fall within the definition of “machinery”. In fact, under Chapter 89 of the Central Excise Act, under the head “ships, boats and floating constructions”, dredgers are classified with Exim code 8905.10.00.

The expression ‘dredge’ has been defined in Chambers dictionary as under:

“dredge, drej, n. a bag-net for dragging along the bottom to take oysters, biological specimens, mud etc.: a machine for deepening a harbour, canal, river, etc., for excavating under water or on land, or for raising alluvial deposits and washing them for minerals, by means of buckets on an endless chain, pumps, grabs, or other devices – v.t. to gather, explore, or deepen with a dredge.— dredg’er, one who dredges: a machine for dredging : a boat, ship, or raft equipped for dredging. [Conn, with drag, draw.] dredge, drej, v.t. to sprinkle.—ns. dredg’er, dredge – box, dredg’ing —box, a vessel with perforated lid for dredging. [O.Fr. dragie, sugarplum—Gr. tragemata, dessert.]”

The expression ‘dredge’ has been defined in The Law Lexicon reprint Edition 1987 to the following effect: “Dredge. As a noun in its original meaning, a net or drag for taking oysters; it is now called a machine for cleansing canals and rivers; but sometimes applied to a dredger. As a verb, to gather or take with a dredge to remove sand, mud and filth from the beds of rivers, harbours and canals with a dredging machine.”

In the light of above said definition in the common parlance and the definition of ‘ship’ as defined under the Merchants Shipping Act, 1958 are read together, contention of revenue that dredgers cannot be construed as “ships” cannot be accepted. Even other taxing authorities having considered that ‘dredgers’ as equivalent to ships, boats and floating constructions, and as such, contention of Sri.Vikram Huilgol, learned High Court Government Pleader cannot be accepted and the judgment of ATUL GLASS INDUSTRIES (PVT) LTD., VS. COLLECTOR OF CENTRAL EXCISE reported in (1986) 3 SCC 480 pressed into service would lean in favour of assessee rather than revenue, inasmuch as, even applying the test of commonality to determine whether an article for subjecting it to tax, the only irresistible conclusion which can be drawn is that the ‘dredger’ is also a sea going vessel or a floating

craft which is self propelled used in the sea for the purpose of de-silting, removal of mud etc., as already noticed hereinabove.

In fact, under the Central Excise Act similar issue came up for consideration before the appellate Tribunal in the matter of COLLECTOR OF CUSTOMS, BOMBAY VS. DREDGING CORPORATION OF INDIA LTD., whereunder the Tribunal had held that “dredgers” are to be considered as “ocean going vessels” against which order a Civil Appeal No.5/87 had been field by the Collector of Customs, Bombay and the said appeal came to be withdrawn by order dated 07.05.1991. In other words, as noted hereinabove and at the cost of repetition, we will have to hold that statutory authorities under different enactments have consistently held that ‘dredgers’ are to be considered as “ocean going vessels”. In fact, the dredger which has been registered as a ship under the Merchant

Shipping Act, 1958 has also been recognized by the Income Tax Department as a ship.

(i) Revision petition is dismissed by answering the substantial question of law against the petitioner-revenue and in favour of the respondent- assessee. (ii) The order dated 30.6.2010 passed by the Karnataka Appellate Tribunal

at Bengaluru in STA No.379/2009 is affirmed. (iii) No order as to costs. SD/- JUDGE

SD/- JUDGE

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