Legal Principles:
I. A state may Only impose a tax on a transaction if there is a reasonable nexus between the territory of the state and the transaction.
II. Existence of a reasonable nexus is to be determined with reference to the significance of the territory of the state for a particular transaction.
Factual Situation: Bangkok imposes a tax of 22% on any commodity that passes through its territorial limits. A ship belonging to Pluto duck lines, a shipping company carrying coal, is detained when it enters into territorial waters of Bangkok and authorities say that the company should pay the tax of 22% of the value of the cargo, which is the coal. The cargo pertained to a transaction between Coal India's office in Kolkata and a buyer which is based in Malaysia. Coat India agreed to ship the coal through Pluto duck lines for a fee paid at latter’s office at Mumbai port. Tax authorities in Bangkok claimed all ships plying between Mumbai and Malaysia had to pass through the territorial waters of Bangkok for reducing journey time.
Decide:
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