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PETITIONER: OIL INDIA LTD.

       Vs.

RESPONDENT: THE SUPERINTENDENT OF TAXES & OTHERS

DATE OF JUDGMENT03/03/1975

BENCH: MATHEW, KUTTYIL KURIEN BENCH: MATHEW, KUTTYIL KURIEN GOSWAMI, P.K.

CITATION:  1975 AIR  887            1975 SCR  (3) 797  1975 SCC  (1) 733  CITATOR INFO :  R          1976 SC1016  (25)  R          1979 SC1160  (15)  RF         1981 SC 446  (6)  F          1992 SC1952  (8,12)

ACT: Central  Sales Tax Act--Section 3--Interstate Sale--Sale  in the  course of interstate trade--If movement of goods  as  a result  of  covenant  or  an incident  of  the  contract  of sale--Must sale precede the movement of goods.

HEADNOTE: By  an  agreement entered into between the  petitioner,  the Government of India, Burma Oil Company Limited and Assam Oil Company  Limited, it was agreed that all crude oil  produced by  the petitioner (except Assam Oil Company’s  entitlement) be  sold to and purchased by the Government of  India.   The exact clause reads as under :               "All crude oil produced by Oil India excluding               Assam Oil Company’s entitlement in respect  of               Oil India’s existing areas under clause 20  of               the  Promotion  Agreement  will  (subject   as               hereinafter   provided)   be,  sold   to   and               purchased by the Government of India PROVIDED,               that after meeting as a first call on such oil               the joint annual requirements upto 21  million               tons  of Indian Refineries  Limited’s  Barauni               and  Nunmati  Refineries  Assam  Oil  Companys               Digboi  refinery  shall  have  the  next  call               thereon  up to a maximum of 435,000  tons  per               annum   to  the  extent  that  it  cannot   be               economically  met  from  Assam  Oil  Company’s               leased areas." The  petitioner  pursuant  to the. provisions  of  the  said clause  7 supplied crude oil to Barauni Refinery  of  Indian Oil   Corporation   situated  in  Bihar   through   pipeline constructed and owned by the petitioner Company.  At Barauni Refinery  the crude oil which flows through the  pipes  from the  oil  fields  of Assam is pumped  into  the  Indian  Oil Corporation’s  tanks and thereafter it is  measured.   After the measurement is agreed upon, the, Indian Oil  Corporation takes  delivery on behalf of the Government of  India.   The

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petitioner Company has been filing regular sales tax returns under  the Bihar Sales Tax Act and was being assessed  under that  Act  for the supply of crude oil to  the  Refinery  at Barauni   treating   the   supply   as   intrastate   sales. Thereafter.  the Sales Tax Authority in Assam issued  notice to the petitioner on the, ground that the Central sales  tax was payable under the central Sales Tax Act on the supply of crude  oil to the Refinery at Barauni as the sales  were  in the  course of inter-State trade.  The  Assessing  Authority held that the supply of crude oil to the Refinery at Barauni by  the  petitioner  attracted Central Sales  Tax.   In  the present  petition, the petitioner seeks a writ  of  mandamus directing  the Assam Sales Tax Authorities not to  levy  the sales  tax under the Central Sales Tax Act on the supply  of crude  oil to the refinery at Barauni.  In the  alternative, the  petitioner  prayed  for a direction to  the  Bihar  Tax Authorities to refund the taxes collected. HELD  : Under Section 3 of the Central Sales Tax Act a  sale or purchase of goods shall be deemed to have taken place  in the  course of inter-State trade or commerce if the sale  or purchase  occasions  movement  of goods from  one  State  to another.   "is Court has held in a number of cases  that  if the  movement  of  goods from one State to  another  is  the result of a covenant or an incident of the contract of  sale then  the  sale is an inter-State sale.  In this  case,  the crude oil was carried from Assam through pipeline to Barauni in  Bihar.   Clause 12 of the agreement  provides  that  the petitioner shall arrange for the construction of pipeline or such other related facilities as the Company shall  consider necessary  for the transport of crude oil to be produced  by it  to the refinery at Barauni.  This would  indicate,  that the  construction  of  the pipeline was  undertaken  by  the petitioner in pursuance of the agreement 798 and that was for the specific purpose of transporting  crude oil  to  Barauni  from Assam.  This can only  point  to  the conclusion  that the parties contemplated that there  should be movement of goods from the State of Assam to the State of Bihar in pursuance to the contract of sale. It is immaterial as to in which state the property in the goods pass".  It is not  necessary  that the sale must precede  the  inter-State movement  in  order  that the sale may  be  deemed  to  have occasioned such movement.  The sales were, therefore, in the course  of interState trade and the Bihar Government had  no jurisdiction  to tax the sales under the Sales Tax  Laws  of the  State.  The Bihar Sales Tax Authorities  were  directed not to impose sales tax under the provisions of Bihar  Sales Tax  Act and were directed to refund the sales  tax  already collected. [800D-(G 8O1A-C]

JUDGMENT: ORIGINAL  APPELLATE JURISDICTION : Writ Petitions Nos.  641- 642 of 1970. Petition Under Article 32 of the Constitution. L.  N.  Sinha,  Solicitor  General of  India,  K.  K.  Jain, Bishaumber Lal and S. K. Gupta, for the Petitioner. D. Mukherjee and S. N. Choudhury, for the Respondents 1-3. L.M. Singhvi and U. P. Singh, for Respondents No. 4-6. The Judgment of the Court was delivered by MATHEW, J.  An agreement dated 14-1-1958 was executed by and between the Government of India, the Burmah Oil Company Ltd. and  the Assam Oil Company Ltd. for the promotion of  a  new company inter alia with the object of obtaining mining lease

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for  the  production  of  petroleum  and  crude  oil.    The promotion agreement was later on modified by a  supplemental agreement  dated  15-2-1959.   The  petitioner  company  was incorporated  in accordance with the promotion agreement  as modified  by  the aforesaid supplemental agreement.   By  an adoption  agreement dated 14-3-1959, the petitioner  adopted the  promotion  agreement of 1958 as modified  by  the  said supplemental agreement.  The petitioner has its head  office in  the  State of Assam and is engaged in  the  business  of prospecting  petroleum and also producing  and  transporting crude   oil  from  the  State  of  Assam  pursuant  to   the prospecting  licence and raining lease granted by the  State of  Assam.  By a second supplemental agreement  dated  27-7- 1961  executed between the Government of India,  Burmah  Oil Company Ltd. and Assam Oil Company Ltd. and the  petitioner, certain provision,-, of the promotion agreement dated  14-1- 1958  were  modified.  Clause 7 of the  second  supplemental agreement reads as follows :               "7.  All  crude  oil  produced  by  Oil  India               excluding  Assam Oil Company’s entitlement  in               respect  of Oil India’s existing  areas  under               clause  20  of the  Promotion  Agreement  will               (subject  as hereinafter provided) be sold  to               and  purchased  by  the  Government  of  India               PROVIDED that after meeting as a first call on               such oil the joint annual requirements upto  2               3/4   million   tons  of   Indian   Refineries               Limited’s Barauni and Nunmati Refineries Assam               Oil  Company’s Digboi Refinery shall have  the               next  call thereon up to a maximum of  435,000               tons per 799               annum   to  the  extent  that  it  cannot   be               economically  met  from  Assam  Oil  Company’s               leased areas." The  petitioner in pursuance to the provisions of  clause  7 supplied  crude  oil to Barauni and  Nunmati  Refineries  of Indian  Oil  Corporation (previously Indian  Oil  Refineries Ltd.)  and  to  Digboi Refinery of Assam  Oil  Company  Ltd. through  pipe-lines constructed and owned by the  petitioner company-.   The Barauni Refinery is situated in Bihar  while the other two refineries are situated in the State of Assam. At  Barauni Refinery the crude oil which flows  through  the pipes from the oil fields of Assam is pumped into the Indian Oil  Corporation’s  tanks  and thereafter  it  is  measured. After  the measurements are agreed to by both  the  parties, namely,  the petitioner and the Indian Oil Corporation,  the crude oil is taken delivery of by the Indian Oil Corporation on behalf of the Government of India. The  petitioner  company has been filing regular  sales  tax returns  before  the Bihar Sales-tax authorities  under  the Bihar  Sales Tax Act and was being assessed under  that  Act for  the  supply  of crude oil to the  refinery  at  Barauni treating  the  supply as intrastate sales.  For  the  period ending 31 September 1964, the petitioner company sold  crude oil  worth Rs. 49,26,813.06 to the refinery at  Barauni  and the  same was subjected to sales tax under the  Bihar  Sales Tax  Act.  In the year 1966, sales tax authorities in  Assam issued  notice to the petitioner stating that Sales Tax  was payable  on  the  supply of crude oil  to  the  refinery  at Barauni under the Central Sales Tax Act as according to them the  sales  were in the course of  inter-state  trade.   The petitioner  contended  that sales were  intrastate  and  not subject  to  tax under the Central Sales Tax  Act.   By  the assessment order dated 31-3-1966, respondent No. I negatived

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the  contention  raised by the petitioner and held  that  by supplying   crude  oil  to  the  refinery  at  Barauni   the petitioner  effected sales of oil to the Indian Oil  Company and that they were sales in the course of inter-State  trade and  assessed  the petitioner-company to pay a  tax  of  Rs. 4,47,892.10 (Annexure J).  By another order dated 31-3-1966, the petitioner was assessed to sales tax under Central Sales Tax  Act to Rs. 12,23,072.90 by respondent No.  1  (Annexure K). In  these writ petitions the petitioner prays  for  quashing Annexures J and K and for a mandamus directing respondents I to  3 not to levy sales tax under the Central Sales Tax  Act on  the sale of crude oil supplied by the petitioner to  the refinery at Barauni.               In the alternative, the petitioner prays for :               1. the issue of a writ, order or direction  in               the  nature of mandamus directing  respondents               4,  5  and 6 not to levy tax under  the  Bihar               Sales  Tax Act on the sales of crude oil  made               by the petitioner to the refinery at Barauni;               2. A writ, order or direction in the nature of               certiorari  quashing  the  various  assessment               orders passed by respondent No. 4 on the sales               of crude oil made by the petitioner-company to               the refinery at Barauni; and 800               3. A writ, order or direction in the nature of               a mandamus directing the respondents 4 to 6 to               refund the various amounts collected as  sales               tax from the petitioner company. The  question for consideration in these writ  petitions  is whether  the  sales made by the petitioner in  pursuance  to clause 7 of the second supplemental agreement to  Government of  India through the agency of Indian Oil Corporation  were sales in the course of inter-state trade and were  therefore liable  to  sales  tax  under the  Central  Sales  Tax  Act. Section 3 of the Central Sales Tax Act provides :               "3.  A  sale  or purchase of  goods  shall  be               deemed  to take place in the course of  inter-               State  trade  or  commerce  if  the  sale   or               purchase-               (a)  occasions the movement of goods from  one               State to another; or               (b) is effected by a transfer of documents  of               title to the goods during their movement  from               one State to another." This  Court  has  held  in a number of  cases  that  if  the movement of goods from one State to another is the result of a covenant or an incident of the Contract of Sale, then  the sale is an inter-state sale.  See Tata Iron & Steel Co. Ltd. v.  S. R. Sarkar(1) and The State of Jammu & Kashmir &  Ors. v. Caltex (India) Ltd. (2).  Here, the crude oil was carried from  Assam through the pipelines specially  constructed  by the petitioner to the refinery at Barauni in Bihar and there the  oil  was  pumped  and  delivered  to  the  Indian   Oil Corporation.   Clause  12 of the agreement  dated  14-1-1958 provides   that  the  petitioner  shall  arrange   for   the construction of pipeline or such other related facilities as the  company shall consider necessary for the  transport  of crude  oil to be produced by it to the refinery at  Barauni. This  would indicate that the construction of  pipeline  was undertaken  by the petitioner in pursuance of the  agreement and  that that was for the specific purpose of  transporting crude oil to Barauni from Assam.  This can only point to the conclusion  that the parties contemplated that there  should

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be movement of goods from the State of Assam to the State of Bihar in pursuance to the contract of sale. Clause  7 of the 1961 agreement must needs be read with  its precursory  clause  12 of the 1958 agreement since  all  the contracting  parties  were well aware  of  their  respective obligations  in the transactions arising out of the  several agreements-not   one   of   which  can  be   left   out   of consideration. Even though clause 7 of the supplemental agreement does  not expressly  provide  for movement of the goods, it  is  clear that  the  parties envisaged the movement of  crude  oil  in pursuance to the contract from (1) [1961] 1 S.C.R. 379 at 391. (2) 17 S.T.C. 612 801 the  State of Assam to the State of bihar. In  other  words, the  movement  of crude oil from the State of Assam  to  the State of Bihar was an incident of the contract of sale.   No matter  in which State the property IF the goods  passes,  a sale  which occasions "movement of goods from one  State  to another is a sale in tile course of inter-state trade".  The inter-State  movement  must  be the  result  of  a  covenant express or implied in the contract of sale or an incident of the  contract.   It  is not necessary  that  the  sale  must precede the inter-State movement in order that the sale  may be  deemed to have occasioned such movement. it is also  not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commecrce, that the  covenant regarding  interstate  movement  must be  specified  in  the contract itself.  It would be enough if the movement was  in pursuance  of and incidental to the contract of  sale.   See State Trading Corporation v. State of Mysore(1). Therefore,  we think think that the sales in  question  were sales  in the course of interstate trade and that the  Bihar Government  had no jurisdiction to tax the sales  under  the Sales Tax law of the State.  ’The petitioner is,  therefore, entitle  to the alternative reliefs prayed for in  the  writ petitions,  namely, that respondents 4 to 6 in each  of  the petitions  should be enrolled not to impose sales tax  under the  provisions  of the Bihar Sales Tax Act  in  respect  of sales made in pursuance of clause 7 and that they should  be directed to refund to the petitioner the sales tax connected from  the  petitioner  by way of sales tax  as  the  various assessment  orders made by respondent No. 4  stand  quashed. ’The writ petitions are allowed to the extent indicated  and they are dismissed in other respects. In the  circumstances, we make no order as to costs. P.H.P.                     Petitions allowed in part. (1) 14 S.T.C. 188. 802