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PETITIONER: OIL AND NATURAL GAS COMMISSION

       Vs.

RESPONDENT: STATE OF BIHAR AND OTHERS

DATE OF JUDGMENT24/08/1976

BENCH: RAY, A.N. (CJ) BENCH: RAY, A.N. (CJ) UNTWALIA, N.L. SHINGAL, P.N.

CITATION:  1976 AIR 2478            1977 SCR  (1) 354  1976 SCC  (4)  42  CITATOR INFO :  APR        1978 SC 449  (48,52)  C          1989 SC1371  (15)

ACT:             Sales  Tax--Supply of crude oil by Oil and  Natural  Gas         Commission from Assam to refinery of Indian Oil  Corporation         in  Bihar--Supply  under directions of Government  at  price         fixed  by Government--If inter-state sale liable to  Central         Sales Tax.

HEADNOTE:             Under  the Oil and Natural Gas Commission Act, 1959,  it         is  the  business of the Oil and Natural Gas  Commission  to         plan,  promote,  organise and implement programmes  for  the         development  of petroleum resources and the  production  and         sale  of  petroleum products produced by it and  to  perform         such  functions as the Central Government may, from time  to         time, assign to it.  Under s. 29 of the Act, the  Commission         shall  be deemed to be a Company, liable for any tax or  fee         levied  by  the  Central or State  Government.   Section  31         empowers  the Central Government to make  rules  prescribing         the  conditions  subject to which, and the  mode  in  which,         contracts may be entered into by or on behalf of the Commis-         sion.  The Commission is engaged in the business of  produc-         ing crude oil in Assam and supplying it to the refineries of         the  Indian Oil Corporation at Gauhati in Assam and  Barauni         in  Bihar.   It was decided by the Government of  India  and         agreed  to by the Commission; that the crude is  deemed  no-         tionally to be delivered only to Barauni Refinery and not to         Gauhati  Refinery,  and  that payment of  Sales-tax  by  the         Commission is to be on the same principle.             The Commission however challenged, in a petition to this         Court,  its liability to pay any sates-tax either under  the         Central  Sales  Tax Act to the State of Assam or  the  State         Sales  Tax to the .State of Bihar, on the ground,  that,  in         supplying crude oil to the Corporation there was no contract         of sale between the Commission and the Corporation, because,         the  supply  was pursuant to. directions and orders  of  the         Central  Government  and the Commission had no  volition  or         freedom  in the matter.  The Commission also contended  that         assuming  that  they are sates they are  inter-state  sales,

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       under  the  Central Sales Tax Act, 1956, and  the  State  of         Bihar was not competent to levy any State sales tax.             HELD: (1) The supplies of crude oil by the Commission to         the  Brauni  Refinery  of the Corporation  satisfy  all  the         ingredients of a sale and amount to sales by the  Commission         to the Corporation. [356 A]             (a) Statutory orders regulating the supply and distribu-         tion  of  goods  by and between the  parties  under  Control         Orders  do  not absolutely impinge on the freedom  to  enter         into contract. [357 C]             (b)  Directions,  decisions and orders of  agencies   of         the  Government  to control production and supply of commod-         ities,  may  fix the person who has to carry them  out,  the         parties to whom the goods are to be supplied,  and he  price         at which, and the time during which they are to be supplied.         In  much cases it cannot be said that compulsive. directions         rob the transactions of the character of agreement.    There         is  privity  of  contract between the  parties,  he  statute         supplying the consensus and the modality of consensus.  [357         D--E]             (c) Such a transaction is a valid transfer of,  property         for  consideration and he law presumes assent when there  is         transfer of goods from one to the other. [357 F]         (d) Also, a sale may not require the consensual element  and         there may  compulsory sale of property under a statute for a         price fixed against the  owner’s will. [357 F]         355             (e)  Delimiting areas for transactions or denoting  par-         ties  or price for transactions are all within the  area  of         individual freedom of contract with limited choice by reason         of  ensuring  the greatest good for the greatest  number  by         achieving  proper  supply as standard or  fair  price.  [357         G]                    .             (f) The transactions in substance represent the outgoing         of the business and the price would come into computation of         profits. [357 G]             Salar  Jung Sugar Mills Ltd. Etc. v, State of  Mysore  &         Ors. [1972] 2 S.C.R. 228 followed.             (2)  The movement of crude oil from Assam to Barauni  in         Bihar is pursuant to and as an incident to the contract for,         sale between the Commission and the Corporation.  The  Sales         are  therefore  inter-state  sales. and  under  the  Central         Sales-tax  Act only the. State of Assam is entitled to  levy         central sales tax on the Commission. [358 G]

JUDGMENT:         ORIGINAL JURISDICTION: Writ Petition No. 74 of 1975.         L.N.  Sinha,  Sol. General of India and B.  Datta,  for  the         Petitioner.             A. K. Sen, B. P. Singh, Shambhu Nath Jha and U.P.  Singh         for the Respondents (For State of Bihar) R-1 and R-2.             D. Mookherjee, and S.K. Nandy, for the Respondent (State         of Assam) R-3 and R-4.         The Judgment of the Court was delivered by             RAY,  C.J.--The Petitioner in this Writ Petition  raises         the  question  that the supplies of crude oil  made  by  the         Petitioner  Oil and Natural Gas Commission, referred  to  as         the  Commission to Indian Oil Corporation Limited,  referred         to as the Corporation are not exigible to Salestax either by         the  State of Assam or the State of Bihar under the  Central         Sales Tax Act or the Bihar Sales Tax Act respectively.   The         petitioner  contends that the supplies by the Commission  to         the  Corporation  are pursuant to directions/orders  of  the

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       Central Government, and, therefore, there is no Contract  of         sale.   The petitioner in particular contends that the  Com-         mission  is  obliged to supply to the  Corporation  and  the         petitioner  has no volition or freedom in the  matter.   The         petitioner, therefore, contends that there is no contract of         sale between the Commission and the Corporation.             The second contention of the petitioner is that if it be         held  to be sales these are inter-state sales under  section         3(a)  of  the Central Sales Tax Act, 1956 and the  State  of         Bihar is not competent to levy Sales-tax under section 16(5)         of the Bihar Sales Tax Act.             In  order  to find out as to  whether  the  transactions         between  the  Commission and the Corporation amounted  to  a         Sale, it is necessary to ascertain the correct facts.             The  letter  dated  15 June 1968 is  important.   It  is         written by the Corporation to the Commission.  The  Corpora-         tion States as follows                "I am writing to confirm that Indian Oil  Corporation         would be in a position to receive 300 tonnes a day of  Lakwa         crude  via the Oil Pipeline any time from today.   We  would         also wish you to augment the supplies so as to reach about a         356         million tonnes per annum as soon as possible. The above  300         tomes  ’will  be in addition to the’ supplies  that  we  are         receiving  currently from OIL (Oil India Ltd.) and  by  rail         from  Rudrasagar.  Kindly arrange to supply full  analytical         data  regarding the crude that you would  be   sending  from         Lakwa.   I would also suggest that the  pricing  arrangement         may also be worked out regarding the supply and intimated to         us, if necessary, after consulting OIL."             The  next important document relates to the  Minutes  of         the meeting held at the Office of the Chairman of the Corpo-         ration at  New Delhi on 8 August, 1968.  The representatives         of  the  Corporation, the Commission and Oil  India  Limited         were present.             Crude oil supplied both by the Commission and Oil  India         Limited  come  through the pipeline belonging to  Oil  India         Limited  to refineries at Gauhati and Barauni  belonging  to         the  Corporation.  The manner of measurement and of  payment         for crude is ascertained by the Corporation from the Commis-         sion and Oil India Limited.             At  the  meeting held on 18 October  1968,  the  Central         Government representatives and representatives of the  peti-         tioner, Oil India Limited and the Corporation were  present.         It  was decided that crude oil which was being delivered  to         the refineries of the Corporation at Gauhati and Barauni  is         a  mixture  of Oil India Limited crude  and  the  Commission         crude.   Oil  India Limited would send  the  bills-for   the         entire quantities of crude, so delivered, giving the  bifur-         cation  of  crude  belonging to Oil India  Limited  and  the         Commission with API gravity of each.             The  document dated 23 February, 1968 records the  price         of  crude oil purchased by the Corporation from the  Commis-         sion and the basis on which payment should be made.             Another document dated 17 February, 1969 written by  the         Central  Government to Oil India Ltd., shows that crude  oil         would be supplied to the Barauni, Gauhati and Digboi  refin-         eries  as mentioned therein. For the Barauni Refinery,  Oil’         India would supply a certain quantity and the Commission the         balance..  In  case the Commission’s supply fell  short,  it         would  be made good by Oil India Limited.  For  the  Gauhati         Refinery,  certain quantity would  be supplied by Oil  India         Limited  and  the  remainder would be deemed  to  have  been         supplied  by  the Commission.  The  requirements  of  Digboi         refinery would be met by Oil India Limited.

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                  The next document is dated 7 August 1973 incorpo-         rating   the Minutes of the meeting held on that day at  the         Ministry  of Petroleum & Chemicals to discuss the Sales  Tax         liability of the Commission crude  Sold to the  Corporation.         The representatives of the Ministries  of Petroleum & Chemi-         cals and of Finance, the  Commission  and Oil  India Limited         were  present.  After  discussion,  it  unanimously  decided         that  whatever  principle had been adopted in the  past  for         computation    of pipeline tariff payable by the  Commission         should also be adopted         357         for  payment  of  Sales-tax by the  Commission.   Since  for         tariff  computation  all  of Commission’s  crude  is  deemed         notionally  to be delivered to Barauni Refinery and none  to         Gauhati Refinery, the Sales-tax liability of the  Commission         would also accrue on the principle that all of its crude was         being sold to Barauni Refinery.             The Commission is described by the Solicitor General  to         be  a statutory body which has no option either with  regard         to the production or supply and the directions and decisions         of  the  Government leave no choice with the  Commission  in         regard to supplies.             This  Court in  Salar  Jung  Sugar  Mills Ltd.  Etc.  v.         State  of MysOre & Ors. C) laid down the following  proposi-         tions:  First,  statutory orders regulating the  supply  and         distribution  of  goods  by and between  the  parties  under         Control  Orders in a State do not absolutely impinge on  the         freedom  to enter into contract.  Second, directions,  deci-         sions  and orders of agencies of the Government  to  control         production and supply of commodities, may fix the parties to         whom the goods are to be supplied, the price at which  these         are  to be supplied, the time during which these are  to  be         supplied  and the persons who has to carry out these  direc-         tions.   In  such cases it cannot be  said  that  compulsive         directions rob the transactions of the character of   agree-         ment.   The  reason is that the transfer of  property  which         constitutes the agreement in spite of the compulsion of  law         is neither void nor voidable.  It is not as result of  coer-         cion.   The statute supplies the consensus and the  modality         of consensus is furnished by the statute.  There is  privity         of contract between the parties.             The  other third, fourth, fifth and sixth   propositions         are  these. Third, such a transaction is neither a gift  nor         an exchange nor  a hypothecation nor a loan.  It is a trans-         fer  of property from one person to another.  There is  con-         sideration  for  the  transfer.  There is  assent.  The  law         presumes the assent when there is transfer of goods from one         to the other.  Fourth, a sale may not require the consensual         element  and that there may, in truth, be a compulsory  sale         of property with which the owner is compelled to part for  a         price against his will and the effect of the statute in such         a  case is to say that the absence of the transferor’s  con-         sent does not matter and the sale is to proceed without  it.         In truth, transfer, is brought into being which ex facie  in         all  its  essential characteristics is a transfer  of  sale.         Fifth, delimiting areas for transactions or denoting parties         or  denoting price for transactions are all within the  area         of  individual  freedom of contract with limited  choice  by         reason of ensuring the greatest good for the greatest number         of  achieving  proper supply at standard or  fair  price  to         eliminate the evils of hoarding and scarcity on the one hand         and  ensuring availability on the other.  Sixth,  after  all         the transactions in substance represent the out-going of the         business and the price would come into computation of  prof-         its.

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           Judged  by  the principles laid down by  this  Court  in         Salar  Jung  Sugar  Mills’ case, which is a  decision  by  a         seven-Judge Bench, there         (1) [1972] 2 S.C.R. 228.         358         is  no  doubt  that the transactions  in  the  present  case         amounted  to  a sale of crude oil by the Commission  to  the         Corporation.   It  is true that the Government  decided  and         directed the Commission to supply to the Indian Oil Corpora-         tion  at  a  price to be fixed, but the  transaction  is  in         course of business conducted by the Commission.             It  is the business of the petitioner under the  statute         to plan, promote, organise and implement programmes for  the         development  of petroleum resources and the  production  and         sale  of  petroleum products produced by it and  to  perform         such  functions as the Central Government may, from time  to         time, assign to the Commission.  These are the functions  of         the  Commission  under section 14 of the Oil &  Natural  Gas         Commission Act, 1959.  Further, section 29 of the Act states         that "the Commission shall be deemed to be a Company  within         the  meaning  of any enactment for the time being  in  force         providing  for  the levy of any’ tax or fee by  the  Central         Government or a State Government and shall be liable to  pay         such tax or fee accordingly".  Section 31 contemplates power         of the Central Government to make rules inter alia prescrib-         ing the conditions subject to which, and the mode in  which,         contracts may be entered into by or on behalf of the Commis-         sion.   The provisions of the Oil & Natural  Gas  Commission         Act  show that the Commission is engaged in the business  of         producing  crude  oil in Assam and the supply of  the  crude         oil.   The supply  to the Corporation is a sale  transaction         fulfilling  all the ingredients  of a sale.  The  supply  of         crude  oil by the Commission to the Barauni Refinery of  the         Corporation  is  also a sale in the  course  of  inter-state         trade.   The movement of crude oil from Assam to Barauni  is         pursuant to the Contract for sale of crude oil.             The  directions given by the Government are  because  of         the character and constitution of  the  Commission.   Direc-         tions   and decisions do not detract from the sale of  crude         oil  by the Commission to the Corporation.  These  statutory         Corporations work in collaboration with the Central  Govern-         ment  particularly the  Ministries  of Petroleum and Finance         for policy and planning.             The  State of Bihar raised a feeble contention  that  it         was  not an inter-State sale.  The delivery may be in  Assam         or  in  Bihar at Barauni but the movement of  goods  is  the         result  of  contract  and as an incident  to  the  agreement         between  the Commission and the Corporation.  The  State  of         Assam  has  lawfully  levied the Central Sales  Tax  on  the         petitioner.  The State of Assam is entitled to levy  Central         Sales Tax on the petitioner.  The Commission has been paying         Sales Tax since the commencement of sales.  It is made clear         that  it is open to the Commission to make applications  for         refund, if any, in accordance with the Sales Tax Law.             For  the  foregoing reasons the Writ  Petition  is  dis-         missed. Parties will pay and bear their own costs.         V.P.S.                                       Petition   dis-         missed.         359