Oil India Ltd. v. the Superintendent of Taxes & Others

Judgment

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 for the p;oduction ·of petroleum and crude oil. The promotion agreement was later on modified by a supplemental agreement dated 15-2-1959. The pelltioner company was incorporated in accordance with the promotion agreement as modified by the aforesaid supplemental agreement. By an adoption agret~ment dated 14-3-1959, the petitioner adopted the promotion agreement of 1958 as modified by tbe said supplemental agreement. The petitioner has its head office in the State of Assa11n and is engaged in the business of prospecting petroleum and also prodm:ing and transporting crude oil. from the State of Assam pursuant to the prospecting licence and mining lease granted by the State of ' Ass11m.

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 provisions 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 2u of the Promotion Agreement 'VIil (subject as hereinafter provided) be sold to and purchased by-the Government of India PROVIDBD that after meeting as a first call on such oil the joint annual requirements upto 2i 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 OIL INDIA LTD. V. SUI'DT. OF TAxES (Mathew,!,) 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 m ,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 measp.rements 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 intra-state 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 wa~ 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 intra-State and not subject to tax under the Central Sales Tax Act. By the assessment order dated 31-3-1966, respondent No. 1 negatived 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 r-espondent No. 1 (Annexure K). ;f n these writ petitions the· petitioner prays for quashing Annexures J-and K and for a mandamus directing respondents 1 to 3 not to levy sales ,tax under the Central Sales Tax Act on the sale of crude oH suppJied/by the petitioner to the refinery at Barauni. Jn the alternati\·e, the. petitioner prays for : l . 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 · SUPREMB COURT REPORTS ll975J 3 s.c.R. 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 m pursuance to clause 7 of the second supplemental agreement to Government of India through the agency of fndian 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. St~e Tata Iron & Steel Co. Ltd. v. S. R. Sarkar( 1) and The State of Jarnmu & Kashmir & Ors. v. Caltex (India) Ltd.(2). Here, the crude otl w:'IS 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 arrani~e for the construction of pipeline Or such other related facilities as tl1e company shall consider necessary for the transport . of crude oil to be produced by it to the refinery at Barauni.

This would indicate that tile construction of pipeline was under-taken 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 be movement of goods.from the State of Assam to the State of Bihar in pursUAnce to tbe contract of sale. Clause 7 of the 1961 agreement must needs be read with its pn~­ cursory clause 12 of the 1958 agreement since all the contracting parties were well aware of their respective obligations in the transactions arismg 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 etpressly provide for movement of the goods, it is clear that the parties ~nvisaged the movement of crude oil in ptrrsu?:ice to the contract from (I) [1961] I S.C.R. 379 at 391. (2) 17 S.T.C. 61 ~ 13 0 OIL INDIA LTD. v. SUPDT.

OF TAXES (Mathew, J.) llie State of Assam to rhe 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 tbc property m the goods passes, a sale which occasions "movement of goods from om: State to another is a sale in the course or inter-state trade". The inkr-·Statc mov:'!ment must be the result of a cownant express or implied in the contract of sale or an incident of the contract. · It is nm ne.::cssary that the sale must precede the inter-State movement in order ll1at the sale mav be deemed to have occasioned such movement. It is dlSv not ne,·essa.ry for a sale to be deemed to have taken place in the rnurs~ of inter-State trade or commerce, that the covenant regarding iina-~tate movement must he specified in the contract itself. [t would be enough if the movcmi::nt was m purs11ance of and incidental to rhc rnntrnc1 of sale. See State Trading Corporation v. State of Mysore( 1).

Therefore, we think that the sales in question were sales in the course of inter State trade and that the Bihar Government had no jurisdiction to tax the sales under the Sales Tax Jaw of the State. The petitiOner is, therefore, entitled to the alternative reliefs prayed for in the writ petit1on5. namely, that respondents 4 to 6 in each of the petitions should be enjoined not to impose saks tax under the provi>ions of the Bihar Sales Tax Act in respect of sales made in pursuance of clause 7 and that they s11ould be directed to refund to the petitioner the sales tax collected from the petitioner hy way of sales tax as the various assessment orders made by respondent Np. 4 stand quashed. The writ petitions are allowed to the extent indicated and they are dismissed in other resp~cts. In the 1:in:umstances. we make no order as to costs. P.H.P. (IJ 14 S.T.C. 188. 5-5t4SCl/75 Petitions allowed in part.