Devi Prasad Singh, J.
1. The petitioner has preferred instant writ petition under Article 226 of the Constitution of India feeling aggrieved with the impugned order passed under Section 25 of the Uttar Pradesh Value Added Tax Act, 2008 (in short VAT Act) after remand of the matter by the Trade Tax Tribunal, Lucknow. The impugned assessment order imposing tax has been assailed pointing out the jurisdictional error claiming transaction to be Inter-State sales.
2. In this bunch of writ petitions, common question of law and facts are involved and the same assessment order has been challenged, hence with the consent of the parties' counsel, arguments were heard and now decided by common judgment. Writ petition No. 6281 of 2010 is treated as leading writ petition to adjudicate the controversy.
3. Keeping in view lengthy argument advanced by the parties' counsel, we are adjudicating the dispute under the following heads:
(II) Maintainability of Writ Petition
(III) Constitutional and Statutory Provisions
(IV) Law Commission Report on Article 286
(V) Central Sales Tax Act 1956
(VI) Literal Construction/Deemed Provision
In Section 3 of the CST Act
(VII) Central Sales Tax (Registration and Turnover) Rules,1957
(VIII) U.P. Value Added Tax Act, 2008
(IX) Other Statutory Provisions
(X) Section 3 and 4 of the CST Act
(XI) Production Sharing Contract (PSA)
(XII) Gas Sales and Purchase Agreement (GSPA)
(XIII) Gas Transmission Agreement (GTA)
(XIV) Common Carrier. Open Access System
(XV) Construction of Agreement
(XVI) Whether GSPA/GTA are colourable device to escape tax liability?
(XVII) Whether Movement is Necessary to Constitute Inter-State Sale
(XVIII) Situs of the Sale
(XIX) Sales of Goods Act
(XX) Assessing Authority
(XXI) Main Judgments relied upon
by the State of U.P.
(XXII) American Law
We have heard Shri Abhishek Manu Singhvi, Shri R.N.Trivedi, Shri Bharat Ji Agrawal, Shri Vivek Tankha, Shri Prashant Chandra, Shri S.M.K. Chaudhari, Shri Sunil Gupta, learned Senior Counsels assisted by their associate counsels, assailing the impugned order passed by assessing authority assisted by other counsels and Shri J. N. Mathur, learned Senior Counsel assisted by Shri H.P.Srivastava for the State of U.P. A large number of cases have been cited by the both sides, relevant of which is considered while dealing with different issues under the aforesaid heads.
4. The petitioner is a public limited company incorporated under the Indian Companies Act, 1956 having its office in the State of Uttar Pradesh at Park Road, Lucknow and is engaged in business of extracting and refining petroleum and petro-chemical products.
5. Under Entry 53 of List I of the Seventh Schedule of Constitution of India Parliament has got power to make legislation for regulation and development of oilfields, mineral oil resources, petroleum, petroleum products, other liquids and substances declared by Parliament by law to be dangerously inflammable. Natural gas product extracted from oil wells is predominantly comprising of methane. Production of natural gas is not independent of the production of other petroleum products; though from some wells natural gas alone would emanate, other products may emanate from subterranean chambers of earth. But all oilfields are explored for their potential hydrocarbon. Therefore, the regulation of oilfields and mineral oil resources necessarily encompasses the regulation as well as development of natural gas. For free and smooth flow of trade, commerce and industry throughout the length and breadth of the country, natural gas and other petroleum products play a vital role. The Union of India alone has got legislative competence to regulate the flow of natural gas in view the Entry 53 List I of the Seventh Schedule of the Constitution.
To obtain a marketable product, the raw natural gas flowing from gas or oil wells are processed to remove water vapour, inert or poisonous constituents, and condensable hydrocarbons. Apart from methane, the processed gas contains small amounts of ethane, propane, butane, pentane, carbon dioxide and nitrogen. The gas is transported from the producing areas to the market in underground pipelines under pressure or in liquefied form at low temperatures and transported in specially designed ocean-going tankers. The natural gas is found in areas of the earth that are covered with sedimentary rocks. These sediments were first laid down during the Cambrian period, ca 500 million years ago, and this process continued until the end of the Tertiary period ca 100 million years ago. The sediments contain the organic source materials from which natural gas and petroleum are produced. The gas and petroleum, being less dense than the water present in the rocks, tended to migrate upward until contained under impervious rock barriers.
6. The Government of India in the year 1999 announced a New Exploration and Licensing Policy (in short "NELP) whereby it provided that the various petroleum blocks should be awarded for exploration, development and production of petroleum and gas to provide entities. According to the policy, the petroleum resources which may exist in the territorial waters, the continental shelf and the exclusive economic zone of India be discovered and exploited with utmost expedition in the overall interest of the country and in accordance with international petroleum industry practice. The Reliance Industries Ltd. was formed in the year 1973 simultaneously with an announcement of policy by the Government of India. The petitioner has formed a consortium with NIKO Ltd, a company organized and existing under the laws of Cayman Islands with its Indian office at Mumbai. The consortium was the successful bidder for Block KG-D6 and termed as Contractor.
On 24.3.2000 Reliance Platforms Communications. Com (P) Ltd. was incorporated which was changed to Global Fuel Management Services Ltd. and is now called "Reliance Natural Resources Ltd. (in short RNRL).
7. A Production Sharing Contract (in short PSC) was entered into between the Government of India and the contractor on 12.4.2000. The PSC, as recorded, is within the contract area identified as Block KGDWN-98-3. KG-D6 is situated offshore the coast of Andhra Pradesh in the Indian Ocean. Such blocks are called "deep water exploration blocks." The exploration in such areas requires employment of highly skilled and experienced technical persons and an extremely expensive and time consuming exercise. All exploration expenses required to locate petroleum resources have to be borne by the contractor. Thus, the contractor is bound to incur huge cost and resources for discovery of reserves in the area at their risk. The exploration activities are still in progress. Under the PSC, all expenses relating to the exploration, development and production of cost incurred by the contractor can only be recovered from the petroleum/gas actually produced and sold by the contractor. The contractor has the freedom to sell the gas produced from the block subject to the adjustment and the terms of profit sharing between the Government and RIL, as set out in the PSC.
8. Silent features of PSC has been considered by Hon'ble Supreme Court in the case reported in (2010) 7 SCC 1 Reliance Natural Resources Ltd. vs. Reliance Industries Ltd. To quote relevant portion.:.
"Some of the salient features of the PSC are as follows:
(i)Clause 6 of the Preamble makes it clear that discovery and exploitation will be in the over all interest of India.
(ii) Article 8.3(k) makes the contractor is to be mindful of the rights and interest of the people of India in the conduct of petroleum operations.
(iii) Article 10.7(c) (iii) the contractor is duty bound to ensure that the production area does not suffer any excessive rate of decline of production or an excessive loss of reservoir pressure.
(iv) Article 32.2 makes it clear that the contractor is not entitled to exercise the rights, privileges and duties within the contract in a manner which contravenes the laws of India.
(v) Article 21(1) mandates that the discovery and production of natural gas shall be in the context of government's policy for the utilization of natural gas. The above clauses in the form of articles make it clear that PSC is subject to the Constitution of India, the Oil Fields Act, 1948, the Petroleum and Natural Gas Rules, 1959, the Territorial Waters, the Continental Shelf and 81
Exclusive Economic Zone and other Maritime Zones Act, 1976 and also the gas utilization policy.
(vi)Article 27(1) deals with title to petroleum under the contract areas as well as natural gas produced and saved from the contract area vests with the Government unless such title has passed in terms of PSC. As per Clause (2), title remains with the Government till the time the natural gas reaches the delivery point as defined in the PSC.
Another important consideration to be kept in mind is that the PSC overrides any other contract which may be entered into for the supply for gas. This principle flows from the following:
(a) the natural resource, gas, is held by the Government and trust on behalf the people. Therefore, for legal purposes, the Government owns the gas till it reaches its final consumer;
(b) the PSC is the basis on which the contractor exercises his right over the supply of gas. Since it is the very basis of such a right, the contractor does not have the competent power to give any rights which do not accrue to it under the PSC.
From the above analysis, the following are the broad sustainable conclusions which can be derived from the position of the Union:
(1)The natural resources are vested with the Government as a matter of trust in the name of the people of India. Thus, it is the solemn duty of the State to protect the national interest.
(2)Even though exploration, extraction and exploitation of natural resources are within the domain of governmental function, the Government has decided to privatize some of its functions. For this reason, the constitutional restrictions on the government would equally apply to the private players in this process. Natural resources must always be used in the interests of the country, and not private interests.
(3) The broader constitutional principles, the statutory scheme as well as the proper interpretation of the PSC mandates the Government to determine the price of the gas before it is supplied by the contractor.
(4) The policy of the Government, including the Gas Utilization Policy and the decision of EGOM would be applicable to the pricing in the present case.
(5) The Government cannot be divested of its supervisory powers to regulate the supply and distribution of gas."
Thus, in the case of Reliance Natural Resources Ltd. (supra), Supreme Court applied the Public Trust Doctrine and held that in a constitutional democracy like ours, the national assets belong to the people and the government holds such natural resources in trust and utilizes them for the purpose of developing them in the interests of the people. The government owns the gas till it reaches its ultimate consumer. A mechanism is provided under the PSC. The PSC overrides all other contractual obligations between the contractor and any other party.
9. Under the terms and conditions of the licence, the petitioner has been permitted to extract petroleum and natural gas from KG Basin and sell it to the different customers (buyers). Once the petitioner recovered the investment made by it through extraction process, then a part of the product is to be given to the Government of India free of cost and the remaining quantity of petroleum and natural gas may be sold by the petitioner to its customers subject to allocation of product in their favour by the Government of India.
Subject to above conditions, the petitioner entered into Gas Sales and Purchase Agreement(in short GSPA) with its customers of different States including the State of U.P. Some of the customers of State of U.P. are respondent no. 4 to 10. A copy of the GSPA signed between the petitioner and the respondent no. 5, i.e., Indo Gulf Fertilizers Ltd. dated 27.3.2009 is attached as Annexure No. 1 to the writ petition. The GSPA has been entered into between the petitioner and other customers/respondent nos. 4,6,7,8,9 and 10. The gas is extracted from the sea and brought to a place called Gadimoga in the State of Andhra Pradesh. At Gadimoga, the petitioner delivers natural gas (lean gas) to its different customers through a meter installed there to measure the quality and quantity of gas supplied to the buyers.
10. According to learned counsel for the petitioner, various customers have entered into agreement with the companies like Reliance Gas Transportation Infrastructure Ltd. (in short RGTIL) to transport the gas from Gadimoga to Hajira in Gujrat through pipeline operated by RGTIL. From Hajira (Gujrat), transportation through gas pipeline takes place by Gas Authority of India Ltd. (in short GAIL). The Gail bring the gas through its pipeline to district Auraiya in the State of U.P. From Auraiya, in terms of agreement, the required quantity of gas is taken by the respondent nos. 4 to 10 to their respective plants or factories where they manufacture fertilizers, chemicals and other products.
11. The respondent nos. 4 to 10 entered into separate agreements with RGTIL and GAIL. At the delivery point, i.e., Gadimoga, the purchaser, i.e., respondent nos. 4 to 10 take delivery of natural gas, furnish Form C to the petitioner issued by the State Trade Tax Authorities and the Form C so received is furnished to the assessing authority. Specific case of the petitioner is that delivery point of natural gas to the purchaser is the outlet flange of petitioner's delivery facility located at the onshore processing terminal of the Gas Field at Gadimoga of Andhra Pradesh. Further specific plea of the petitioner is that for the selling of lean gas sold by the petitioner to the purchaser (respondent nos. 4 to 10) through transporter, with regard to taxability as a result of commingling of gas or the title of the gas being transferred at the delivery point itself, the petitioner shall not be answerable to any alleged "post sale" processing of gas. There is no agreement between the petitioner and the RGTIL or GAIL either for transport, commingling, extracting or processing of gas transported under the transport agreement between the consumer and the transporter.
12. While filing counter affidavit, respondent nos. 4 to 10 admitted that they have entered into agreement for transporting natural gas to State of U.P. with RGTIL and GAIL. It has further categorically been stated and pleaded by respondent nos. 4 to 10 that they have been regularly purchasing natural gas for the manufacture of UREA and other products and providing Form C under Section 8(4) of the Central Sales Tax Act, 1956 readwith Rule 12 of the Central Sales Tax (Registration and Turnover) Rules, 1957 (in short Rules) to the seller, i.e. the petitioner. The document filed by the respondent nos. 4 to 10 with the counter affidavit also indicate the delivery point at Gadimoga village, Andhra Pradesh. The IFFCO Ltd. has filed an agreement dated 27.3.2009 between itself and RGTIL which reveals that RGTIL operates gas pipeline termed as 'East West Pipeline' and the transporter i.e. RGTIL agreed to carry natural gas on behalf of the respondent no. 5 to Hajira (Gujrat) in terms of GSPA for sale between the petitioner and respondent-industry. Another agreement annexed with the counter affidavit of IFFCO is with GAIL which also deals with the transportation of gas.
13. According to learned counsel for the petitioner, from April, 2009 to March, 2010, the petitioner had paid Central Sales Tax to the tune of Rs. 14,21,29,149.14. A table indicating the details of sale of natural gas by the petitioner is given below:.
|CST (Rs.)||Total Value (Rs.)|
15. One Shri P.C. Tiwari was the assessing authority, who heard the case on 11.6.2010. However, he was appointed as Additional Commissioner, Grade-2, Commercial Tax, by order dated 8.6.2010 and resumed duty on the said post on same day but instead of releasing the case, Shri P.C. Tiwari had passed the impugned assessment order on 11.6.2010 while holding the post of Additional Commercial, Grade-2. Feeling aggrieved, the present writ petition has been preferred on the ground that on account of payment of CST, Value Added Tax cannot be imposed, more so when it is Inter-State Trade covered under Section 3 of the CST Act. It is further pleaded that the Additional Commissioner, Grade-2 could not have passed the impugned order on account of availing the promotional benefit on 8.6.2010. It is also stated that since under Rule an officer of the rank of Additional Commissioner is appellate authority, against the impugned order no appeal shall lie and the petitioner has got no remedy to approach the Tribunal since only against the order passed by the Additional Commissioner, the First Appellate Authority, an appeal may be preferred before the Tribunal.
16. While filing counter affidavit, under para 29, it has not been disputed by the State Government that in pursuance of the promotion order dated 8.6.2010, Shri P.C. Tiwari, the assessing authority had joined the promotional post of Additional Commissioner, Grade-2, Commercial Tax on 8.6.2010 itself. However, defence has been taken that Shri P.C.Tiwari was working as 'empowered assessing authority' under the Provisions contained in Section 2(b) of the U.P. VAT Act.
17. Shri J.N. Mathur, learned Senior Counsel has vehemently argued that the writ petition should be dismissed on account of availability of alternative remedy.
II. MAINTAINABILITY OF WRIT PETITION
18. While admitting the writ petition by interim order dated 26.7.2010, the preliminary objection raised with regard to maintainability of writ petition and the objection raised by the respondents in that regard on account of availability of alternative remedy was rejected while admitting the writ petition and the interim order dated 26.7.2010 was passed. Special Leave Petition was preferred by the State of U.P. which was disposed of by order dated 23.1.2012. Hon'ble Supreme Court without interfering with the order dated 26.7.2010 keeping in view the statement made by the petitioner to pay tax subject to the outcome of writ petition, had not interfered with the findings of this Court in its order dated 26.7.2010 in regard to availability of alternative remedy and the State Government also does not appear to have pressed for it.
19. However, it shall be appropriate to consider the argument of parties with regard to alternative remedy. Section 2 (b) of the U.P. VAT Act, 2008 defines the 'assessing authority' which is as under:.
"2(b) "assessing authority' means any person-.
(i)appointed and posted by the State Government; or
(ii)appointed by the State Government and posted by the Commissioner; or
(iii) appointed and posted by the Commissioner,and empowered under rules framed under this Act to perform all or any of the functions of the assessing authority under this Act.
Section 2 (c) of the U.P. VAT Rules, 2008 defines the assessing authority, which is reproduced as under:.
"2(c) Assessing Authority shall include.
(i) A Joint Commissioner (assessment) appointed and posted by the State Government in a corporate circle to perform the functions and exercise the powers of assessing authority;
(ii) A Deputy Commissioner or an Assistant Commissioner appointed by the State Government and posted either by the State Government or by the Commissioner or a Commercial Taxes Officer appointed and posted by the Commissioner;
(a) in a circle to perform the functions and exercise the powers of an assessing authority in such circle;
(b) in any offices of the Department and empowered under Rule 5 to exercise powers under sections 45,48 and 49."
20. A combined reading of the aforesaid provision reveals that an assessing authority shall be a person appointed by the State Government and posted by the Commissioner and empowered under rules framed under the Act to perform any function of the assessing authority.
In the present case, admittedly, Shri P.C. Tiwari was not appointed or conferred power of the assessing authority by the Commissioner by any order on or after 8.6.2010. Under Rule 2(c), the assessing authority shall be Joint Commissioner (assessment) appointed and posted by the State Government or Deputy Commissioner or the Assistant Commissioner appointed and posted by the State Government or Commissioner or a Commercial Tax Officer.
In the present case, nothing has been brought on record by which Mr. Tewari can be said to be conferred with the power of assessing authority on or after 8.6.2010 in terms of Section 2(b) of VAT Act and Rule 2(c) of the VAT Rules. Defence taken while filing counter affidavit with regard to availability of power or "empowered assessing authority" under Section 2(b) of the VAT Act readwith Rule 2(c) of the VAT Rules seems to be misconceived and unfounded.
21. The language of Section 2(b) or Rule 2(c) of the VAT Act and Rules are clear and does no suffer from any ambiguity, hence no 'causus omisus' may be supplied. Once Shri P.C.Tiwari had joined on the post of Additional Commissioner on 8.6.2010 itself, then he could not have exercised the jurisdiction of assessing authority on 11.6.2010. While passing the impugned order, only option open to him was to leave the case for adjudication by his successor in office. Accordingly, the impugned order suffers from lack of jurisdiction.
Apart from above, under Rule 4 (11) of the U.P. VAT Rules, 2008 in the event of casual vacancy of Additional Commissioner or the Joint Commissioner, the Commissioner shall have power to authorize to discharge the function by assigning the work to any other Additional Commissioner or Joint Commissioner. Neither the VAT Act, 2008 nor VAT Rules confers power on the Additional Commissioner to discharge the duty of Joint Commissioner (assessment) in corporate circle as an assessing authority.
Apart from the aforesaid judgment of the Hon'ble Supreme Court, it should not be over-sighted that while construing the statute, meaning should be given to each and every word, every section of whole of the statute. Statutory provision should not be read in piecemeal. The CST Act should be considered in its totality alongwith VAT Act vide 2009 (27) LCD 1232, Mansa Ram Yadav and others Vs. State of U.P. and others.
Apart from CST Act, when issue of jurisdictional error has been raised with regard to right of the State Government to impose VAT, then alongwith CST Act, different provision of the VAT Act (supra) may also be taken into account, particularly Section 7 of the VAT Act.
22. Rule 60 of the VAT Rules provides for Forum of Appeal before the Additional Commissioner (Appeal) against the order the Joint Commissioner (assessment), which is reproduced as under:.
"60. Forum of appeal-(1) An appeal under Section 55 shall lie to.
(a) the Additional Commissioner (Appeal) in case the order appealed against has been passed by a Joint Commissioner (Assessment); and
(b) the Additional Commissioner (Appeal) or Joint Commissioner (Appeal) in cases other than clause (a) above.
(2) An appeal under Section 57 shall lie to the Tribunal.
23. Section 55 (12(a) of the U.P. VAT Act provides the appellate forum in the form of tribunal, Section 55 of the Act creates forum of appeal against the order passed by the assessing authority and under Section 57, provision with regard to constitution of Tribunal has been made. The Tribunal has been conferred power to entertain appeal against the order passed by the appellate authority. For convenience, Section 55 (12a) of the Act is reproduced as under:.
"An appeal against the order of appellate authority under Section 55 shall be heard and disposed of.
(i) by a bench of two members, where such order, not being an order passed on the application of the appellant for stay, is passed by an Additional Commissioner (appeals) or the amount of tax, fee or penalty in dispute, exceeds two lakh rupees;
(ii) by a single member bench, in other case."
24. In the present case, since the order has been passed by an authority, who lacks jurisdiction, that too, as an assessing authority appeal may not be maintainable before the Tribunal. It is well settled proposition of law that a thing should be done in the manner provided in the Act or statute and not otherwise vide Nazir Ahmed Vs. King Emperor, AIR 1936 PC 253; Deep Chand Versus State of Rajasthan, AIR 1961 SC 1527, Patna Improvement Trust Vs. Smt. Lakshmi Devi and others, AIR 1963 SC 1077; State of U.P. Vs. Singhara Singh and other, AIR 1964 SC 358; Barium Chemicals Ltd. Vs. Company Law Board AIR 1967 SC 295, (Para 34) Chandra Kishore Jha Vs. Mahavir Prasad and others, 1999 (8) SCC 266; Delhi Administration Vs. Gurdip Singh Uban and others, 2000 (7) SCC 296; Dhanajay Reddy Vs. State of Karnataka, AIR 2001 SC 1512, Commissioner Of Income Tax, Mumbai Vs. Anjum M.H. Ghaswala and others, 2002 (1) SCC 633; Prabha Shankar Dubey Vs. State of M.P., AIR 2004 SC 486 and Ramphal Kundu Vs. Kamal Sharma, AIR 2004 SC 1657.
25. In the case of M/S. Zunaid Enterprises and others vs. State of M.P. and others decided by Hon'ble Supreme Court on 22.2.2012, the petition was filed against the judgment of High Court, whereby factual finding was recorded on the basis of material before it. Their Lordships held that the controversy should have been referred to the assessing authority because of the fact that there was serious disputed question of fact. It was held that the assessing authority may appreciate the material and decide whether it is inter-state sale or intrastate sale. In the present case, the assessing authority has recorded its finding on the basis of evidence on record after providing opportunity of hearing to the parties. Assuming the assessing authorities' factual finding as correct, the question with regard to inter-state sale or intrastate sale may be looked into. Moreover, substantially, there appears to be no dispute with regard to factual position.
26. It is trite law that in case an order is passed without jurisdiction or in violation of principles of natural justice or affects fundamental rights, alternative remedy is no bar vide (2009) 14 SCC 338 (Godreg Sara Lee Ltd. Vs. Commr.), (2009) 9 SCC 610 (Babubhai Jamunadas Patel. Vs State of Gujarat), AIR 1990 SC 772, Salonah T. Company Vs. Superintendent of Taxes; 2001 (9) SCC 99, T.N.Transport Corporation VS. Neethivalangan; 1980 (2) SCC 437, Shiv Shankar Dal Mill VS. State of Haryana, 1998 (8) SCC 1 Whirpool Corporation VS. Registrar of Trade Marks.
27. In another case reported in (1985) 3 Supreme Court Cases 267 Ram and Shyam Company vs. State of Haryana and others, Hon'ble Supreme Court ruled that alternative remedy is a rule of convenience and discretion, rather than a rule of law. It does not oust the jurisdiction of the Court.
Otherwise also in the present case, there appears to be no disputed question of facts with regard to sales and purchase of natural gas. Question involves construction of constitutional and statutory provisions.
28. It has been submitted by the learned Senior Counsel that writ petition filed by the fertilizers companies/private respondent Nos. 4 to 10 are not maintainable since State has not taken any action against them. Argument advanced by the learned Counsel for the State seems to be misconceived since keeping in view the fact that in pursuance to assessment order the State Government had proceeded to impose penalty and issued notices to some of the private respondents. Writ Petition No. 6508 of 2010, IFFCO VS. State of U.P. was dismissed by this Court by judgement and order dated 25.7.2010 only on the ground that basic order i.e. assessment order has been challenged with liberty to move impleadment application. A review has been filed, which is pending for disposal. Hence, there appears to be no reason not to decide this writ petition filed by IFFCO along with the present leading writ petition being effected by order passed by the Assessing Authority. In case, basic order is set aside or upheld it shall effect all consequential action, hence it is not necessary to keep the other writ petitions pending.
29. In view of above, we reiterate the order dated 26.7.2010 and proceed on merit instead of relegating the matter to the alleged appellate Forum.
III. CONSTITUTIONAL AND STATUTORY PROVISIONS
30. Reliance entered into product sharing agreement with the Government of India with regard to exploration and sharing of natural gas and under the rights conferred by product sharing agreement, the Reliance entered into GSPA for sharing of natural resources and thereafter sale and purchase of natural gas is carried out in pursuance to right conferred by constitutional provisions as well as statutory provisions.
Shri Abhishek Manu Singhvi, Shri R.N.Trivedi and other counsels had invited attention of this Court towards different provisions of Indian Constitution, Statutory Provisions, Rules and Regulations, reference of which is necessary to be given to resolve the controversy.
31. Article 269 of the Constitution contains provision with regard to tax levied and collected by the Union but assigned to the States which includes tax on consignment of goods where such consignment takes place in the course of inter-State trade or commerce. Competence of State legislature to impose tax vis-a-vis Union of India may resolve by applying doctrine of pith and substance since the nomenclature used by the taxing statute is not conclusive vide AIR 1990 SC 781 Goodyear India Ltd. vs. State of Haryana, (1991) 2 SCC 580 Mukerian Papers vs. State of Punjab.
32. Thus, Article 269 specifies the taxes levied and collected by the Government of India but assigned to the State in the manner provided therein. Among the different taxes and duties specified in clause (1) is the tax mentioned under sub-clause (a) to the explanation, to quote:.
"(a) the expression "taxes on the sale or purchase of goods" shall mean taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce;"
Different provisions contained in Central Sales Tax Act seems to be borne out from Article 269 readwith Article 286 of the Constitution of India.
33. Article 297 of the Constitution provides that things of value within territorial waters or continental shelf and resources of the exclusive economic zone shall vest in the Union and be held for the purposes of the Union. Article 298 further provides that the executive power of the Union and of each State of the country shall extend to the carrying on of any trade or business by making contract for any purpose subject to law made by the Union of India and each of the State. It has been settled by Hon'ble Supreme Court that the power conferred by Article 298 extends to carrying on a trade in other States also vide AIR 1974 SC 669 Khazan Singh vs. State of U.P.
By using word 'business' and 'contracts for any purpose' and its title 'power to carry on trade etc.' makes the field of Article 298 wider than Article 301. So every trade which is covered by Article 301 would be within the filed of Article 298 vide AIR 1999 SC 1867 B.R. Enterprises vs. State of U.P. Article 299 of the Constitution provides that all contracts made in exercise of executive power of Union or of a State shall be expressed to be made by the President, or by the Governor, as the case may be. Neither the President nor the Governor shall be personally liable in respect of any contract or assurance made or executed for the purpose. Article 301 of the Constitution deals with Freedom of Trade, commerce and intercourse throughout the territory of India and provides that these shall be free.
34. It has been settled by Hon'ble Supreme Court that Article 301 provides freedom not from all laws but freedom from such laws which restrict or affect activities of trade or commerce among the States. It further refers freedom from law which goes beyond regulations which burdens, restricts or prevents the trade movements between states and within state vide AIR 2006 SC 2550 Jindal Stainless Steel Ltd. vs. State of Haryana. Article 304 confers power on Parliament to impose restrictions on trade, commerce and intercourse between one state and another state or within any part of the territory of India as may be required in public interest. Article 303 deals with the restrictions on the legislative powers of the Union and of the States with regard to trade and commerce. Article 304 deals with restrictions on trade, commerce and intercourse among States. For convenience, Article 304 is reproduced as under:.
"Article 304. Restrictions on trade, commerce and intercourse among State:. Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law.
(a) impose on goods imported from other States [or the Union territories] any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and
(b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest.
Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President,
35. Thus, the power of State to impose tax on imported goods is subject to restriction that the State shall not discriminate between goods so imported and goods so manufactured or produced and the restriction shall be reasonable.
The test of reasonableness for the purposes of clause (b) of article 304 would be the same as the test adopted for the purpose of article 19(6) vide AIR 1956 SC 676 Tika Ramji vs. State of U.P., AIR 1966 SC 1686 Kalyani Stores vs. State of Orissa.
36. Hon'ble Supreme Court ruled that the State cannot impose different tax on the produce of the State itself and imported from outside State vide AIR 1990 SC 1912 Andhra Steel Corporation vs. Commissioner of Commercial Tax.
37. The effect of the imposition of tax upon imported goods is to be taken into consideration in determining whether it is subject to a tax higher than that imposed on local goods. If there is a single area or any class of producers in a State who are exempted from any tax, that tax cannot be levied upon imported goods, and such taxing law must be held to be invalid to the extent of imported goods vide AIR 1969 SC 147 State of Madras vs. Nataraja Mudaliar, AIR 1974 SC 1505 State of Tamil Nadu vs. Sitalakshmi Mills, AIR 1967 SC 1189 State of Mysore vs. Sanjeeviah H., AIR 1963 SC 928 Mehtab Majid and Co. A.T.B. vs. State of Madras, AIR 1986 SC 63 Anraj H. vs. Government of Tamil Nadu, AIR 2003 SC 1149 Premier Enterprises, Secunderabad vs. Commercial Tax Officer.
38. Hon'ble Supreme Court in AIR 1966 SC 1686 Kalyani Stores vs. State of Orissa held that the exercise of the power under Article 304 can only be effective if the tax or duty imposed on goods, imported from other States and the tax or duty imposed on similar goods manufactured or produced in the State are such that there is no discrimination against imported goods. Hence, if there is no foreign liquor produced within a State, the State cannot, under Article 304 (a) read with Entry 51 of List II, impose any duty on imported foreign liquor.
39. Under Entry 53 List I of 7th Schedule, Union of India may frame Regulation for development of oil fields and mineral oil resources etc. Under Entry 92 A of List I, tax may be imposed by Union of India with regard to goods where sale or purchase takes place in the course of inter-Stater trade or commerce. For convenience, Entry 53, 92A and 92B are reproduced as under:.
"Entry 53:. Regulation and development of oil fields and mineral oil resources; petroleum and petroleum products; other liquids and substances declared by Parliament by law to be dangerously inflammable.
Entry 92A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce"
Entry 92B. Taxes on the consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the coursed of inter-State trade or commerce."
40. The power of the State Government to impose tax on the sale or purchase of goods has been conferred by Entry 54 List II of 7 Schedule, which is as under:.
"Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List 1."
41. Article 285 of the Constitution of India provides exemption of property of the Union from State taxation. Immunity of Union property from state taxation may be withdrawn in case the Parliament makes law to that effect. Similarly existing right of a local authority to tax Union property under Clause (2) of Article 285 may be taken away by Law made by the Parliament vide AIR 1978SC 1603 Union of India vs. City Municipal Council.
Property owned by a Government Company or a statutory corporation which has a corporate personality of its own, cannot be said to be 'property of the Union, hence may be liable to State or Municipal taxation vide AIR 1982 SC 697 Western Coalfields vs. Special Area Development Authority, (1999) 4 SCC 458 Electronics Corporation of India vs. Secretary, Revenue Department, Government of Andhra Pradesh.
IV. LAW COMMISSION'S REPORT ON ARTICLE 286
42. Article 286 deals with the inter-State trade and right of the Union of India to impose tax debarring the State to interfere in the matter of inter-State trade. Original Article 286 of the Constitution of India was having explanation creating conflict between State and the Union of India in the matter of Inter-state trade. The matter was referred to the Law Commission and in pursuance to the report of Second Law Commission, Article 286 was amended. The Second Law Commission Report was submitted by Sri M.C.Setalvad on 2nd July, 1956. According to the report, purpose to amend Article 286 has been sorted out as under:.
"1. The Law Commission was invited to offer its suggestions for formulating principles for determining when a sale of goods takes place.
(i) outside a State;
(ii) in the course of the import of the goods into, or export of the goods out of, the territory of India;
(iii) in the course of inter-State trade or commerce.
2. At the date of the reference to the Commission the Constitution (Tenth Amendment) bill had been introduced in Parliament and under it Parliament was to be empowered to formulate by law principles for determining when a sale or purchase of goods takes place in any of the ways mentioned above. The bill has since been passed by both Houses of Parliament.
3. Broadly speaking, the proposed Constitutional Amendment seeks to curtail the power of States to levy taxes on the sale or purchase of goods other than newspapers by providing that that power is to be subject to the power of the Union to levey taxes on the sale or purchase of goods other than newspapes where such sale or purchase takes places in the course of inter-State trade or commerce. The taxes levied by the Union in exercise of this added power are to be assigned to the States. The Amendment seeks to empower Parliament by law to formulate principles not only for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce but also for determining when a sale or purchase takes place in the course of import into, or export out of the territory of India or outside a particular State."
43. In the aforesaid backdrop, Law Commission (supra) after considering the judgment of Hon'ble Supreme Court reported in (1952) SCR 1112 and (1954) SCR 53, Tranvancore-Cochin Cases, considered the original Article 286 and accepted the principle laid down by Hon'ble Supreme Court in its judgment (supra) as well as decisions of American Supreme Court, to quote relevant portion:.
"Under this head, we, therefore, recommend the acceptance of the principles laid down by the Supreme Court. We express them in the following manner:.
A sale or purchase of goods shall be deemed to take place in the course of export of the goods out of the territory of India, only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.
A sale or purchase of goods shall be deemed to take place in the course of import of the goods into the territory of India, only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India.
In considering the principles for determining when a sale or purchase takes place in the course of inter-State trade or commerce, two important aspects have to be borne in mind. First, such a sale or purchase is not to be exempt from tax as in the case of a sle or purchase in the course of import or export. It is to be taxed b the Union. Secondly, the proceeds of such a tax are under the amended article 269 to be assigned to the States. These sales have to bear the burden of the sales tax but the burden is to be strictly limited by the Union in the interest of trade and commerce through the territory of India which has, according to the policy underlying the Constitution, to be free and unrestricted.
No doubt the expression "in the course of inter-State trade or commerce" has a very wide connotation. In India we are, however, not concerned with the regulation of commerce generally among several States as under the commerce clause in the American Constitution. What we have to determine is what is a sale or purchase in the course of inter-State trade or commerce. The problem, therefore, is to ascertain what transactions of sale or purchase can fairly be said to arise in the course of inter-State trade or commerce. For this purpose we have to fix upon some characteristics of these transactions which can well be said to stamp them with an inter-State character. In the large mass of American decisions under the commerce clause the one element which is stated to be an indispensable incident of commerce between the States is the movement of the goods which are the subject-matter of the sale or purchase from one State into another. We may refer in this connection to the definition of "inter-State commerce" given by Rottschafer in his "Constitutional Law".
44. Law Commission (supra) after discussing the entire pros and cons of inter-State trade and judgment of Indian Supreme Court and American Supreme Court finally recommended to amend Article 286 with sound reasoning. Concluding remarks of Second Law Commission Report is as under:.
"The principles for determining when a sale or purchase takes place in the course of inter-State trade or commerce may be framed in the following manner.
A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce, only if the sale or purchase.
(a) occasions the movement of the 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.
Explanation. Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of sub-clause (b) be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee."
The laying down of principles for determining when a sale or purchase takes place in the course of inter-State trade or commerce does not relieve us of the necessity of laying down principles for determining when a sale or purchase takes place outside a State. The Taxation Enquiry Commission has pointed out that all transactions of sale or purchase not made in the course of import into or export out of the territory of India should suffer sales-tax which is increasingly becoming one of the main sources of the revenues of States. At the same time provisions have to be framed to prevent the same transaction of sale or purchase being taxed by more than one State. The main purpose of Article 286 (1) (a) is to prevent the multiple taxation of a single transaction. A test which can be applied with little difficulty in order to determine whether a transaction of sale or purchase is without or within a State can alone prevent such overlapping taxation.
As stated by the Supreme Court, the general law of the sale of goods while it lays down when a sale takes place nowhere provides where a sale is deemed to take place. The problem of giving a situs to a sale is not free from difficulty. A transaction of sale has several ingredients. The essential ingredients are:
(a) the conclusion of the contract of sale,
(b) the appropriation of the goods to the contract,
(c) the passing of the property in the goods,
(d) the payment of the price, and
(e) the delivery of the goods
One or more of these ingredients have been used in the legislation enacted by the States for fixing the situs of a sale within a particular State. The question for consideration is which out of these ingredients affords a certain and easily workable basis for fixing the situs of a sale.
The Explanation to Article 286(1) (a) which is now proposed to be omitted attempted to fix as the situs of a sale the State in which goods were actually delivered for consumption. That attempt led to numerous difficulties. Controversies arose as to what constituted actual delivery and consumption. In effect that provision laid down that the tax should go with consumption and that the exporting State should not be entitled to levy any part of it. As pointed out by the Taxation Authority Commission the Constitutional provision as interpreted placed the exporting States and States with a backward economy in a disadvantages position. (T.E.C. Report, p. 48, para.8). In selecting the appropriate ingredient with reference to which the situs of a sale may be determined these considerations will have to be borne in mind.
We are of the view that the location of the goods will be a very suitable test to apply in determining the situs of a sale. The physical existence of the goods at a place at a particular time is easily capable of ascertainment and such a test will avoid legal controversies. The difficulty, however, is in fixing the point of time at which the location of the goods should be taken as determining the situs of the sale. Is it to be the time of the making of the contractor or the appropriation of the goods to the contract or the passing of the property in the goods or the delivery of the goods? We have given very careful consideration to the various questions which would arise in the event of one or the other of these points of time being taken with reference to the location of the goods as indicative of the situs of a sale. We have come to the conclusion that in the case of all sales of specific or ascertained goods their location at the time of the marking of the contract of sale should determine their situs for the purpose of article 286 (1) (a). In regard to unascertained or future goods two views were considered by us. It was suggested that in regard to such sales the location of the goods at the time when the goods first became ascertained should be taken as the situs of the sale. The other suggestion was that the location of the goods at the time of their appropriation to the contract of sale should be regarded as the situs of the sale. We rejected the former view as the ascertainment of goods with reference to contracts for the sale of unascertained or future goods is not a distinct legal concept. Ascertainment is but a part of the process of appropriation which is a well-accepted legal concept and which results, generally speaking, in the passing of property in the goods. We are, therefore, of the view that in the case of sales of unascertained or future goods their location at the time of their appropriation to the contract of sale should be the test for determining the situs of the sale.
In some cases of the sale of unascertained or future goods it may happen that the seller or the buyer may make an appropriation of the goods without the assent of the other party and put them into the course of transit. It may in such cases happen that the location of the goods when the assent of the buyer or seller is given to the appropriation may be different from their location at the time when the seller or the buyer made the appropriation. We do not know whether such cases would arise frequently in practice. But in order to provide for them we have in framing the principle used language which makes it clear that the location of the goods at the time of the appropriation by the seller or the buyer irrespective of their location at the time when the assent of the other party is given to the appropriation should be the decisive factor in determining the situs of the sale.
We have thought it necessary also to provide for cases where a single contract of sale comprises goods located in different States. In order to obviate difficulties in determining the situs of the sale by reference to the location of the goods in such cases we have suggested that such contracts of sale or purchase should be regarded as separate contracts in respect of the goods situated at different places.
Article 286 (1)(a) of the Constitution prohibits a State from taking a sale outside the State. The principles we have suggested will indicate the State within which the sale has taken place. It will, therefore, have further to be provided that as soon as a sale is deemed to have taken place within a State, it shall be deemed to have taken place outside all other States. It will be recalled that the absence of such a provision in Article 286(1)(a) readwith the Explanation proposed to be deleted caused a great deal of controversy and resulted in varying interpretation being put on that Article read with the Explanation.
The principles we enunciate under this head are as follows:.
"1. A sale or purchase of goods shall be deemed to take place where the goods are.
(a) in the case of specific or ascertained goods, at the time the contract of sale is made; and
(b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale, by the seller or by the buyer whether the assent of the other party is prior or subsequent to such appropriation.
Where there is a single contract of sale or purchase of goods situated at more placed than one, the above provision shall apply as if there were separate contracts in respect of the goods at each of such places.
2. When a sale or purchase of goods is determined in accordance with sub-clause (1) to be within a State, such sale or purchase shall be deemed to have taken place outside all other States."
45. Sri J.N. Mathur, learned Senior Counsel has given much emphasis inviting attention towards para 22 and 23 of the Law Commission's Report whereby Law Commission observed as under :.
"We are, therefore, of the view that in the case of sales of unascertained or future goods their location at the time of their appropriation to the contract of sale should be the test for determining the situes of the sale."
46. The aforesaid observation of the Law Commission should be looked into keeping in view the facts and circumstances of the present case and 2008 Regulations and the nature of goods as well as sale executed in terms of agreement. It cannot be applied ignoring the statutory contracts or mandate. The appropriation of natural gas to the transporters in terms of agreement shall be the determining factor with regard to situs of sale.
47. Because of explanation contained in Article 286 of the Constitution to determine the situs of sale, there was difference of opinion on the issue in the pronouncement of Supreme Court. To obviate such controversy, the explanation was omitted by the constitutional amendment by adding clause 2 to Article 286 for determining when sale deemed to have taken place within the State within the meaning of Clause 1 of Article 286 of the Constitution.
48. Hon'ble Supreme Court in the case reported in AIR 1966 SC 142 S.T.O. vs. Shiv Ratan G. Mohatta held that location of goods means, the location of goods in the form which constituted the subject matter of the agreement and in view of language of Section 23 of the Sales of Goods Act, the appropriation may be by the seller with the assent of the buyer or by the buyer with the assent of seller and the assent to appropriation may be expressed or implied or in advance before such appropriation.
49. Article 286 of the Constitution and the provisions contained in Central Sales Tax Act may be considered and interpreted with the extrinsic aid, i.e., Law Commission Report (supra) to resolve ambiguity, if any.
50. While deciding Writ Petition No. 7825 (MB) of 2011 Sadhana Sharma vs. State of U.P. by judgment and order dated 11.1.2012, of which one of us (Hon'ble Devi Prasad Singh) was a member, importance of Law Commission's Report has been considered after taking into account various pronouncements of Hon'ble Supreme Court and it has been held that in the event of ambiguity, Law Commission's Report may be guiding spirit.
51. In a case reported in AIR 1989 SC 1247 Mithilesh Kumari and another versus Prem Behari Khare, Hon'ble supreme Court held that where particular enactment or amendment is the result of the recommendation of the Law Commission of India, it may be permissible to refer to relevant report. Their Lordships relied upon the earlier judgment reported in AIR 1976 SC 2386 Shanta Singh versus State of Punjab where Hon'ble Supreme Court of India relied upon the Law Commission Reports with regard to Benami transactions. It was in pursuance to the report of the Law Commission that Benami Transactions (Prohibition of Right to Recover Property) Ordinance, 1988 was promulgated. Their Lordships of Hon'ble Supreme Court held that the Report of the Law Commission may be referred to as external aid to construction of the statutory provisions. To quote :
"15....................Is it permissible to refer to the Law Commission's Report to ascertain the legislative intent behind the provision We are of the view that where a particular enactment or amendment is the result of recommendation of the Law Commission of India, it may be permissible to refer to the relevant report as in this case. What importance can be given to it will depend on the facts and circumstances of each case."
"19...............Law Commission's Reports may be referred to as external aid to construction of the provisions........................................."
52. In a case reported in (1993)4 SCC 288 All India Judges' Association and others versus Union of India and others, their Lordships of Hon'ble Supreme Court has stated with pain that the Law Commission's Recommendation of 1958 has not been implemented with regard to services of subordinate judiciary in respect of pay-scale and streamlining the service conditions. Hon'ble Supreme Court held that the Court has ample power to issue directions to implement the Law Commission's Reports in the event of failure on the part of the executive legislatures to fulfil their obligation. Their Lordships turned down the argument of the State that such direction byepassed the constitutionally permissible modes for change in the law.
The aforesaid proposition has been reiterated by Hon'ble Supreme Court in the case reported in 1993(4) SCC 441 Supreme Court, Advocates on Record Association and others versus Union of India.
53. In the case reported in AIR 2006 SC 980, Rameshwar Prasad and others versus Union of India and others, while considering the matter with regard to appointment of Governor, their Lordships of Hon'ble Supreme Court noted the factual position that Raj Bhawans are increasingly turning into extensions of party offices and the Governors are behaving like party functionaries of a particular party. Hon'ble Supreme Court relied upon the Sarkariya Commission's Report and noted that the Governors were not displaying the qualities of impartiality expected of them. Their Lordships held that it has become imperative and necessary that right persons are chosen as Governor for the maintenance of sanctity of post. Hon'ble Supreme Court has taken into account the opinion expressed by Sarkaria Commission and National Commission to review working of the Constitution in the matter of appointment of Governors while expressing its views.
54. In a case reported in 2009(10) SCC 374, U.P. Cooperative Federation Limited versus Three Circles, Hon'ble Supreme Court has relied upon the 55th Report of the Law Commission, 1973 and held that in a lengthy litigation proceeding, there is no infirmity in awarding interest on costs while awarding damages for wrongful retention of money.
55. Thus, Hon'ble Supreme Court held that the report of Law Commission is valuable as a matter is of history and it is permissible to refer the opinion expressed by Law Commission while interpreting the statutory provision. Accordingly, in the event of conflicting opinions or uncertainty in law, the report of Law Commission may be taken into account while constructing such statutory provision.
Aforesaid proposition has been reiterated by Hon'ble Supreme Court in the cases reported in AIR 1957 SC 857 Mobarik Ali Ahmad versus The State of Bombay, (1980)2 SCC 684 Bachan Singh versus State of Punjab, 1981 Suppl. SCC 87 S.P. Gupta versus Union of India, (1993)4 SCC 119 R.K. Jain versus Union of India, (2006)11 SCC 245 Centrotrade Minerals and Metal Inc. versus Hindusatan Copper Limited, (2009)6 SCC 99 G. Sekar versus Geetha.
56. In compliance of Law Commission's Report, by 6th Constitutional Amendment, Article 286 was amended. A comparative chart has been filed by the petitioner's counsel containing unamended and amended Article 286, which is as under:.
"ARTICLE 286 OF THE CONSTITUTION OF INDIA
|Before 11.9.56||After 11.9.56|
|Art. 286. Restrictions as to imposition of tax on the sale or purchase of goods.-|
(1) No law of a State shall impose, or authorize the imposition of, a tax on the sale or purchase of goods where such goods sale or purchase takes place-
(a) outside the State; or
(b) in the course of the import of the goods into, or export of the goods out of, the territory of India.
Explanation-for the purposes of
sub-clause (a), a sale or purchase shall be deemed to have been taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another Sate.
|Art. 286. Restrictions as to imposition of tax on the sale or purchase of goods..|
(1) No law of
a State shall impose, or authorize the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place-
(a) outside the State; or
(b) in the course of the import of the goods into, or export of the goods out of, the territory of India.
* * * * *
|(2) Except in so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter-State trade or commerce.|
Provided that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the Government of any State immediately before the commencement of this Constitution shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the thirty first day of March, 1951.
|(2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in|
any of the ways mentioned in
|3. No law made by the Legislature of a State imposing, of authorizing the imposition of, a tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent.||(3) Any law of a State shall, in so far as it imposes, or authorises the|
(a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or
(b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub clause (c) or sub-clause (d) of clause (29A) of article 366. be subject to such restrictions and
conditions in regard to the system of levy, rates and other incidents of
the tax as Parliament may be law specify
V. CENTRAL SALES TAX ACT 1956
58. Immediately after the commencement of 6th Amendment Act, Parliament enacted Central Sales Tax Act, 1956 ( in short the Act) to give effect the provision contained in amended Article 286 and 269. Preamble of the Act may be read as under:.
"An Act to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce or outside a State or in the course of imports into or export from India, to provide for the levy, collection and distribution of taxes on sales of goods in the course of inter-State trade or commerce and to declare certain goods to be of special importance in inter-State trade or commerce and specify the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subject."
59. The Central Sales Tax Act, 1956 deals with the situation when sale or purchase of goods take place in the course of inter-State trade or commerce or outside a State or in the course of import or export from India and to provide for levy, collection and distribution of taxes on the sales of goods in the course of inter-state trade or commerce and to impose restriction and condition where tax is imposed on sale or purchase of such goods. Section 2 (a) defines 'appropriate State', Section 2 (d) defines 'goods', Section 2 (dd) defines 'place of business', Section 2 (g) defines 'sale', Section 2 (i) defines 'sales and tax' Section 2(ja) defines 'work contract', which are reproduced as under;.
Section 2(a) "appropriate State' means.
(i) in relation to a dealer who has one or more places of business situated in the same State, that State;
(ii) in relation to a dealer who has places of business situated in different States, every such State with respect to the place or places of business situated within its territory;
Section 2(d) "goods" includes all materials, but does not include [newspaper] actionable claims, stocks, shares and securities"
Section 2(dd) "place of business" includes.
(i) in any case where a dealer carries on business through an agent by (whatever name called), the place of business of such agent;
(ii) a warehouse, godown or the place place where a dealer stores his goods; and
(iii) a place where a dealer keeps his books of account;
60. Section 2 (g) "sale" with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or deferred payment or for any other valuable consideration, and includes,.
(i) a transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;
(ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(iii) a delivery of goods on hire-purchase or any system of payment by instalments;
(iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(v) a supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;
(vi) a supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration,but does not include a mortgage or hypothecation of or a charge or pledge on goods;]
61. Section 3 of the CST Act deals with the situation when a sale or purchase of goods is said to take place in the course of inter-state trade or commerce and Section 4 deals with the situation when a sale or purchase of goods is said to take place outside a State. For convenience, Sections 3 and 4 are produced as under:.
"Section 3:. When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce:. 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.
Explanation 1 . Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.
Explanation 2 . Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State.
Section 4.. When is a sale or purchase of goods said to take place outside a State:.
(1) Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in accordance with sub-section (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States.
(2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State-.
(a) in the case of specific or ascertained goods, at the time the contract of sale is made; and
(b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation.
Explanation . Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the goods at each of such places.
62. Section 5 of the CST Act deals with the situation when sale or purchase of goods is said to take place in the course of import or export, whereas Section 6 deals with the situation where as to when there shall be liability to pay tax on inter-State sale. For convenience, Section 6 of the CST Act is reproduced as under:.
"6 Liability to tax on inter-State sales:. (1) Subject to the other provisions contained in this Act, every dealer shall, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, not being earlier than thirty days from the date of such notification, be liable to pay tax under this Act on all sales of goods other than electrical energy effected by him in the course of inter-State trade or commerce during any year on and from the date so notified:
Provided that a dealer shall not be liable to pay tax under this Act on any sale of goods which, in accordance with the provisions of sub-section (3) of section 5, is a sale in the course of export of those goods out of the territory of India.
(1A) A dealer shall be liable to pay tax under this Act on a sale of any goods effected by him in the course of inter-State trade or commerce notwithstanding that no tax would have been leviable (whether on the seller or the purchaser) under the sales tax law of the appropriate State if that sale had taken place inside that State.
(2) Notwithstanding anything contained in sub-section (1) or sub-section (1A), where a sale of any goods in the course of inter-State trade or commerce has either occasioned the movement of such goods from one State to another or has been effected by a transfer of documents of title to such goods during their movement from one State to another, any subsequent sale during such movement effected by a transfer of documents of title to such goods to a registered dealer, if the goods are of the description referred to in sub-section (3) of section 8, shall be exempt from tax under this Act :
PROVIDED that no such subsequent sale shall be exempt from tax under this sub-section unless the dealer effecting the sale furnishes to the prescribed authority in the prescribed manner and within the prescribed time or within such further time as that authority may, for sufficient cause, permit, .
(a) a certificate duly filled and signed by the registered dealer from whom the goods were purchased containing the prescribed particulars in a prescribed form obtained from the prescribed authority; and
(b) if the subsequent sale is made to a registered dealer, a declaration referred to in sub-section (4) of section 8,
PROVIDED FURTHER that it shall not be necessary to furnish the declaration or the certificate referred to in clause (b) of the preceding proviso in respect of a subsequent sale of goods if, .
(a) the sale or purchase of such goods is, under the sales tax law of the appropriate State, exempt from tax generally or is subject to tax generally at a rate which is lower than four per cent, or such reduced rate as may be notified by the Central Government, by notification in the Official Gazette, under sub-section (1) of Section 8 (whether called a tax or fee or by any other name); and
(b) the dealer effecting such subsequent sale proves to the satisfaction of the authority referred to in the preceding proviso that such sale is of the nature referred to in clause (a) or clause (b) of this sub-section.
(3) Notwithstanding anything contained in this Act, no tax under this Act shall be payable by any dealer in respect of sale of any goods made by such dealer, in the course of inter-State trade or commerce, to any official, personnel, consular or diplomatic agent of .
(i) any foreign diplomatic mission or consulate in India; or
(ii) the United Nations or any other similar international body, entitled to privileges under any convention or agreement to which India is a party or under any law for the time being in force, if such official, personnel, consular or diplomatic agent, as the case may be, has purchased such goods for himself or for the purposes of such mission, consulate, United Nations or other body.
(4) The provisions of sub-section (3) shall not apply to the sale of goods made in the course of inter-State trade or commerce unless the dealer selling such goods furnishes to the prescribed authority a certificate in the prescribed manner on the prescribed form duly filled and signed by the official, personnel, consular or diplomatic agent, as the case may be.
63. Section 6A of the CST Act was inserted in 1973 which deals with the burden of proof where a claim is made in case of transfer of goods otherwise than by way of sale. For convenience, Section 6 A of the Act is reproduced as under:.
"6A Burden of proof, etc., in case of transfer of goods claimed otherwise than by way of sale.
(1) Where any dealer claims that he is not liable to pay tax under this Act, in respect of any goods, on the ground that the movement of such goods from one State to another was occasioned by reason of transfer of such goods by him to any other place of his business or to his agent or principal, as the case may be, and not by reason of sale, the burden of proving that the movement of those goods was so occasioned shall be on that dealer and for this purpose he may furnish to the assessing authority, within the prescribed time or within such further time as that authority may, for sufficient cause, permit, a declaration, duly filled and signed by the principal officer of the other place of business, or his agent or principal, as the case may be, containing the prescribed particulars in the prescribed form obtained from the prescribed authority, along with the evidence of dispatch of such goods and if the dealer fails to furnish such declaration, then, the movement of such goods shall be deemed for all purposes of this Act to have been occasioned as a result of sale..
(2) If the assessing authority is satisfied after making such inquiry as he may deem necessary that the particulars contained in the declaration furnished by a dealer under sub-section (1) are true, he may, at the time of, or at any time before, the assessment of the tax payable by the dealer under this Act, make an order to that effect and thereupon the movement of goods to which the declaration relates shall be deemed for the purposes of this Act to have been occasioned otherwise than as a result of sale.
Explanation . In this section, "assessing authority", in relation to a dealer, means the authority for the time being competent to assess the tax payable by the dealer under this Act.
64. Section 9 deals with the rates of tax on sales in the course of inter-State trade or commerce. Under sub-Section (1) of Section 8 of the Act, liability with regard to payment of tax has been provided whereas sub section (4) of Section 8 of the said Act deals with the situation where sale takes place in the course of inter-State trade or commerce. For convenience, Sections 9(1), 9(3) and sub-section (4) of Section 8 is reproduced as under:.
" Section 9 (1) Levy and collection of tax and penalties:.
The tax payable by any dealer unde3r this Act on sales of goods effected by him in the course of inter-State trade or commerce, whether such sales fall within clause (a) or clause (b) of section, 3 shall be levied by the Government of India and the tax so levied shall be collected by that Government in accordance with provision of sub-section (2), in the State from which the movement of the goods commenced:
Provided that, in the case of a sale of goods during their movement from one State to another, being a sale subsequent to the first sale in respect of the same goods and being also a sale which does not fall within sub-section (2) of section 6, the tax shall be levied and collected.
(a) where such subsequent sale has been effected by a registered dealer, in the State from which the registered dealer obtained or, as the case may be, could have obtained, the form prescribed for the purposes of [sub-section (4) of section (8) in connection with the purchase of such goods; and
(b) where such subsequent sale has been effected by an unregistered dealer in the State from which subsequent sale has been effected.
Section 9(3):. The proceeds in any financial year of any tax, [including any interest or penalty] levied and collected under this Act in any State (other than a Union Territory) on behalf of the Government of India shall be assigned to the State and shall be retained by it: and the proceeds attributable to Union territories shall form part of the Consolidated Fund of India."
"Sub-section (4) of Section 8:. The provisions of sub-section (1) shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars in a prescribed from obtained from the prescribed authority:
Provided that the declaration is furnished within the prescribed time or within such further time as that authority may, for sufficient cause, permit."
65. Sales in the course of inter-state trade are defined in Section 3 of the Act. Section 6 of the Act provides that every dealer shall be liable to pay tax under the Act on a sale made by him in the course of inter-state trade. Section 9(1) provides that the tax payable by a dealer under the Act shall be levied and collected in the appropriate State by the Government of India. Sub-Section (3) of Section 9 of the Act provides that the appropriate authority is empowered to collect tax under the Central Sales Tax Act on behalf of Government of India in any State except the Union Territory which shall be retained by it and it shall exercise all powers relating to it.
66. It is important to note that the State which collects CST goes to the same State, notwithstanding the fact that the tax is levied and collected by the Central Government. The Central Sales Tax Act has not created any machinery of its own to assess and collect the tax levied by it. Job has been entrusted to each state to the machinery created by the State under Section 9(2) of the Act. The CST leviable in the respective States will be collected by its machinery, for and on behalf of the Central Government, which will, cf course, make it over to that State as contemplated by Article 269 of the Constitution.
67. Hon'ble Supreme Court in a case reported in 1996(4) SCC 230 Bharat Heavy Electrical Ltd. vs. Union of India and others while considering the different provisions of the Act readwith Article 286 and 269 of the Constitution has held as under;.
"The aforesaid survey of the relevant provisions of the Act clearly shows that Sections 3,4,5,9(1), 14 and 15 pertains to and deal with distinct topics and different aspects of Articles 286 and 269. It follows that if a question arises whether a sale is an inter-State sale or not, it has to be answered with reference to and on the basis of section 3 and section 3 alone. Section 4, or for that matter section 5, is not relevant on the said question--see the Constitution Bench decision in TISCO vs. S.R. Sarkar and the decisions in Manganese Ore (India) Ltd. vs. Regional Asst. Commr. of Sales Tax and Union of India vs. K.G. Khosla and Co. Ltd. Similarly, where the question arises, in which State is the Tax leviable, one must look to and apply the test in Section 9(1); no other provision is relevant on this question."
VI. LITERAL CONSTRUCTION/DEEMING PROVISION IN SECTION 3 OF THE CST ACT
68. At this stage, it shall be appropriate to consider Section 3 of the CST Act literally. The situation dealt with by Section 3 with regard to inter-state sale has been subjected to deeming provision. The legislature in its wisdom has used the word "shall deem to take place" dealing with two conditions with regard to inter-state sale. It has rightly been argued by learned Senior Counsels that because of deeming clause, in case the conditions contained therein are fulfilled, it shall be inter-state trade and not another trade.
69. In Black's Law Dictionary, word 'deemed' has been defined as under:.
"To treat (something) as if (1) it were really something else, or (2) it has qualities that is does not have. 2. To consider, think, or judge
"Deem' has been traditionally considered to be a useful word when it is necessary to establish a legal fiction either positively by 'deeming something be what it is not or negatively by 'deeming' something not to be what it is...All other uses of the word should be avoided....Phrases like' if he deems fit' or 'as he deems necessary' or nothing in this Act shall be deemed to...'are objectionable as necessary deviations from common language. 'Thinks' or 'considers' are preferable in the first two examples and 'construed' or 'interpreted' in the third...Deeming' creates an artificiality and artificiality should not be resorted to if it can be avoided. "G.C. Thornton, Legislative Drafting 99 (4th ed. 1996)"
70. The word 'deemed' is frequently used in laws to create a legal fiction which means for the purpose of respective law, what is deemed to be, must be regarded as being in fact also.
71. Hon'ble Supreme Court in the case reported in AIR 1954 SC 155 Income Tax Commissioner vs. Bhogilal Laherchand while interpreting Section 4 of the Income Tax Act held that the term 'deemed' brings within the act of chargeability income not actually accruing but which is supposed notionally to have accrued.
In AIR 1959 SC 763 Income Tax, West Bengal vs. Calcutta Stock Exchange Association, their Lordships held that the use of word 'deemed' shows that the Legislature is deliberately using the fiction of law treating a thing as something which otherwise it may not have been.
In AIR 2004 SC 5120 Sudha Rani Garg vs. Jagdish Kumar, their Lordships ruled that the word 'deemed' is used to put beyond doubt a particular construction that might otherwise be uncertain.
72. In AIR 1980 SC 1468 Consolidated Coffee Ltd. and another vs. Coffee Board, Bangalore, their Lordships held that a deeming provision might be made to include what is obvious or what is uncertain or to impose, for the purpose of a statute, an artificial construction of a word or phrase that would not otherwise prevail. In (1996) 3 SCC 282 Governor of Andhra Pradesh vs. H.E.H., The Nizam, Hyderabad, their Lordships ruled that the word 'deemed' used in Section 10 (3) of the Act is used to give effect to the operation of a statutory provision from a particular date or from the date the Act was brought into force.
In (2000) 5 SCC 415 Rishabh Agro Industries Ltd. vs. P.N.B. Capital Services Ltd. their Lordships held that the word 'deemed' means 'supposed', 'considered', 'construed', 'thought', 'taken to be', or ' presumed'.
73. Aforesaid proposition has been reiterated by catena of judgments. Some of them are AIR 1958 All 498 M.R. Mehrotra vs. State, AIR 1972 SC 2350 Ramprakash vs. S.A.F. Abbas, AIR 1959 Bom 477 New Shorrok Spinning And Manufacturing Co. Ltd. vs. N.V. Raval Income Tax Officer AIR 1971 SC 44 Hira H. Advani vs. State of Maharashtra, AIR 1951 Cal 139 Madhai Mondal vs. Pram Krishna Binsar, AIR 1963 Bom. 61 Khatizabai Mohamed Ibrahim vs. Controller of Estate Duty.
To sum up, whenever word 'deemed' is used in the statute in relation to a person or thing, it implies that the legislature after due consideration exercised their judgment in conforming with the status attributed to a person or thing. These two synonyms of the word 'deemed' are to be adjudged.
74. Legal fiction has been defined as the supposition of law, that a thing is true, without enquiring whether it be so or not, that it may have the effect of truth so far as it is consistent with equity.
A legal assumption means a thing is true which is either not true, or which is as probably false as true; an allegation in legal proceedings, that does not accord with the actual facts of the case, and which may be contradicted for every purpose, except to defeat the beneficial end for which the fiction is invented and allowed vide New Hampshire Stafford Bank vs. Cornell, 2 N.H. 324, 327. Hon'ble Supreme Court in the case reported in AIR 1955 SC 661 Bengal Immunity Co. vs. State of Bihar held that a legal fiction presupposes the correctness of the state of facts on which it is based and all the consequences which flow from that state of facts have got to be worked out to their logical extent. If the purpose of legal fiction is for a specified purpose, one cannot travel beyond the scope of that purpose.
75. Accordingly, fiction is defined as a legal assumption that a thing is true which is either not true, or which is as probably false as true; and assumption or supposition of law that something which is or may be false as true, or that a state of facts exists which nearly takes place subject to the rider that it cannot be stretched to a point where it looses very purpose for which it is used and in any case it may not be allowed to perpetuate injustice.
76. Keeping in view the deeming provision of sub-section 3 in the course of inter-state trade or commerce, if the sale or purchase has occasioned the movement of goods from one State to the other or is effected by transfer of document of title to the goods during their movement from one State to the other, it shall be deemed to be inter-state trade. Meaning thereby, transfer of goods from one State to other State in pursuance to covenant (agreement) if occasions the movement of goods, it shall be deemed to be an incident of inter-state sale. Because of any subsequent development, the nature of transaction shall not be changed but it shall remain the inter-state sale by the fiction of law.
77. Explanation 2 of Section 3 further clarifies that subject to clause (a) and (b) of Section 3, delivery of goods to a carrier or other bailee for its transmission to outside the State coupled with the movement of goods, shall, for the purpose of clause (b) be deemed to commence immediately when it is delivered to a carrier or bailee and terminate when delivery is taken from such carrier or bailee.
Thus, in the event of inter-state sale, the trade in such category starts immediately at the time of delivery of goods to bailee or transporter in pursuance to covenant to transport the same outside the State.
78. However, mere movement of goods from one State shall not be sufficient in view of Explanation 2. Movement of goods must commence in one State and terminate in other State but in case it commences from one State, then passes to other State, again redirected to same state, it shall not be deemed to be movement of goods from one State to other State and shall not be inter-state trade. Meaning thereby, passing of goods to other State with its redirection to same State shall not constitute inter-state trade.
79. The provision contained in Section 3 of the CST Act does not seem to be ambiguous or require any clarification. Every word of Section 3 individually and jointly are quite clear and does not require supply of causus omisus. Plea of reading down cannot be applied to it since the language is plain and unambiguous. It is well settled proposition of law that when language is clear and unambiguous, the statute should be construed literally applying the golden rule of construction vide 2002 (4) SCC 297 Grasim Industries Limited v. Collector of Customs; 2003 SCC (1) 410 Easland Combines v. CCE; 2006 (5) SCC 745 A. N. Roy v. Suresh Sham Singh and 2007 (10) SCC 528 Deewan Singh v. Rajendra Prasad Ardevi.
80. Accordingly, argument advanced by the learned counsel appearing for the State of U.P. that transaction shall take place at Orai in State of U.P., in case it is accepted, then it shall amount to applying the principle of reading down, which does not seem to be permissible by the plain reading of CST Act. Causus Omisus may be supplied only in case there is any ambiguity in the statutory provision vide 2006 (2) SCC 670, Vemareddy Kumaraswamy Reddy and another VS. State of A.P.; (2004) 11 SCC 625, Delhi Financial Corporation and others Vs. Rajeev Anand and others; AIR 1953 SC 148, Nalinakhya Bysacik Vs. Shyam Sunder Haldar and 2001 (8) SCC 61, Dental Council of India Vs. Hari Prakash.
81. In view of above, by construing Section 3 of the CST Act literally, since in pursuance to covenant the lean gas was delivered through RGTIL pipeline at Gadimoga, present case seems to be an instance of inter-state sale.
VII. CENTRAL SALE TAX (Registration and Turnover) Rules,1957
82. The Central Sales Tax (Registration and Turnover) Rules, 1957 deals with the procedure to regulate inter-State sales. Rule 12 of 1957 Rules provides that a declaration is to be made under Form C and Form D respectively with regard to inter-State trade in pursuance to sub-section (4) of Section 8 of the Act. For convenience, relevant portion of Rule 12 is reproduced as under:.
"Rule 12:. (1) The declaration and the certificate referred to in sub-section (4) of Section 8 shall be in Forms C and D respectively;
Provided that Form C in force before the commencement of the Central Sales Tax (Registration and Turnover) (Amendment) Rules, 1974, or before the commencement of the Central Sales Tax (Registration and Turnover) (Amendment) Rules, 1976, may also be used upto the [31st December, 1979] with suitable modifications:]
Provided further that a single declaration may cover all transactions of sale, which take place in a quarter of a financial year between the same two dealers:
Provided also that where, in the case of any transaction of sale, the delivery of goods is spread over to different quarters in a financial year or of different financial years, it shall be necessary to furnish a separate declaration or certificate in respect of goods delivered in each quarter of a financial year.
(4) The certificate referred to in sub-section (2) of section 6 shall be in Form E I and Form E II, as the case may be].
(5) The declaration referred to in sub-section (1) of section 6A shall be in Form F.
Provided that a single declaration may cover transfer of goods, by a dealer, to any other place of his or to his agent or principle, as the case may be, effected during a period of one calendar month:
Provided further that if the space provided in Form F is not sufficient for making the entries, the particulars specified in Form 'F' may be given in separate annexures attached to that form so long as it is indicated in the form that the annexures form part thereof and every such annexure is also signed by the person signing the declaration in Form F:
Provided further that Form F in force/before the commencement of the Central Sales Tax (Registration and Turnover) (Second Amendment) Rules, 1973 may continue to be used up to 31st day of December, (1980) with suitable modifications."
83. In pursuance to Rule 12 of the 1957 Rule, Form C is issued by the assessing authority of the State to the buyer who while purchasing goods from a dealer outside State submits it to the seller. At the time of assessment, the seller produces Form C in compliance of rule 12 of the Rules (supra) readwith Section 8(4) of the Act. "From C" is the statutory document to prove that certain goods have been purchased from outside a State and brought into a State and constitutes the material evidence to establish inter-State sale and purchase of goods.
In the present case, the assessing authority of the State of U.P. had provided Form C to the buyer (respondents no. 4 to 10) who entered and handed over the same to the petitioner with regard to specified natural gas purchased from the seller. The petitioner had submitted Form C to the assessing authority. However, while passing the impugned order, the assessing authority has not considered the relevance of Form C issued by it to the buyer and submitted during the course of assessment by the seller. Ordinarily, From C submitted by the dealer to establish inter-state sale and purchase should be honoured and believed as a material piece of evidence. In case assessing authority feels that things have been manipulated, then appropriate finding must be recorded by the authority but in the present case, it has not been done.
VIII. U.P. Value Added Tax Act, 2008
84. The U.P. Value Added Tax Act, 2008 contains provision with regard to sale and purchase of goods liable for taxation under the U.P. Act. The sale has been defined under Section 2(ac) of the Act, Section 2 (ag) defines tax, which shall be leviable under the Act, Section 2 (ag) of the Act is reproduced as under:.
"Tax" means a tax leviable under this Act, on the sale or purchase of goods other than newspapers; and shall include.
(a) tax or lump sum, as the case may be, payable, in lieu of actual amount of tax due on turnover of sales, in accordance with provisions of Section 6; or
(b) amount of reverse input tax credit;
85. Section 3 deals with the incident and levy of tax. Section 4 and Section 5 deal with the levy of tax on turnover of sale.
A combined reading of these provisions of the Act reveals that the State may impose tax on the sale or purchase of goods in the manner provided therein. Right of the State to impose tax is confined to statutory provision contained in the VAT Act.
86. Section 7 of the VAT Act further provides that no tax shall be levied on certain sales and purchases, which includes inter-State trade or commerce or where sale or purchase takes place outside the State. For convenience, Section 7 is reproduced as under:.
"7. Tax not to be levied on certain sales and purchases.---No tax under this Act shall be levied and paid on the turnover of-.
(a) sale or purchase where such sale or purchase take place-.
(i) in the course of inter-State trade or commerce; or
(ii) outside the State; or
(iii) in the course of the export out of or in the course of the import into, the territory of India;
(b) sale or purchase of any goods named or described in column (2) of the Schedule I or;
(c)such sale or purchase; or sale or purchase of such goods by such class of dealers, as may be specified in the notification issued by the State Government in this behalf:
Provided that while issuing notification under clause (c), the State Government may impose such conditions and restrictions as may be specified.
Explanation.---For the purpose of this Act, Section 3, 4 and 5 of the Central Sales Tax Act, 1956, shall apply respectively for determining whether or not a particular sale or purchase of any goods falls under any of the sub-clauses (I), (ii) and (iii) of clause (a)"
87. The explanation added to section 7 further provides that for the purpose of VAT Act, Sections 3, 4 and 5 of CST Act, 1956 shall apply for determining whether or not sale or purchase falls under any of the category of sub-clauses of Section 7.
88. Thus, Section 7 of the VAT Act exempts tax where the turnover of sale and purchase is in the course of inter-State trade or commerce and sale takes place outside the State.
According to Oxford Business English Dictionary, the turn over has been defined as under :
The Competition Act, 2002 defines "turn over" as under :
"2(y) "turnover" includes value of sale of goods or services"
In the Central Sales Tax Act, 1956, the word, "turnover" has been defined in Section 2(j) as under :
"turnover" used in relation to any dealer liable to tax under this Act means the aggregate of the sale prices received and receivable by him in respect of sales of any goods in the course of inter-State trade or commerce made during any prescribed period [and determined in accordance with the provisions of this Act and the rules made thereunder]"
The U.P. Value Added Tax Act, 2008 defines "turnover of purchase" and "turnover of sale" as under :
2(ap) "turnover of purchase" with its cognate expressions means the aggregate of the amounts of purchase prices paid or payable in respect of purchase of goods made by a dealer either directly or through another dealer, whether on his own account or on account of others, after deducting the amount, if any, refunded by the seller in respect of any goods returned to such seller within such period as may be prescribed;
(aq) "turnover of sale" means the aggregate of amount of sale prices of goods, sold or supplied or distributed by way of sale by a dealer, either directly or through another, whether on his own account or on account of others;"
89. Hon'ble Supreme Court while dealing with the word, "turnover" has defined it as under :
(1) (2005)1 SCC 719 State of A.P. versus A.P. Paper Mills Limited : ''TURNOVER' means the total amount set out in the bill of sale excluding the amount collected towards the tax or the tax due under the Act, whoever is less.
(2) (1975)2 SCC 358 Joint Commrl. Tax Officer versus Spencer and Co.
"TURNOVER" means the aggregate amount for which goods are bought or sold, or supplied or distributed, by a dealer, either directly or through another, on his own account or on account of others whether for cash or for deferred payment or other valuable consideration.
(3) AIR 1962 SC 1352 George Oakes (P) Limited versus State of Madras
"turnover" means the amount of money which is turned over in the business.
(4) (2007)7 SCC 320 State of U.P. versus P.N.C. Construction Co. Limited
The ''turnover' as defined under Section 2(i) of the Act means the total amount for which goods are supplied or distributed by any of sale by a dealer on his own account or on account of others for cash or deferred payment or for any other valuable consideration.
(5) (2008)4 SCC 548 Mariroku Ut Injdia (P) Limited versus State of U.P.
The aggregate amount for which the goods are sold constitutes the ''turnover' relating to such sales within meaning of Section 2(h) of the Act.
(6) AIR 1999 all 333 Dheeraj Coal Traders versus Commr. Of Trade Tax, Lucknow
''Turnover' under section 2(i) means the aggregate amount for which the goods are supplied to the buyers and it includes freight payable by the buyers.
(7) (1997)5 SCC 93 State of W.B. versus O.P. Lodha
The expression ''turnover' under Section 2(i) of the Act includes sales made by a dealer whether on his own account or on account of somebody else as an agent.
90. Thus, in view of definition of turn over under the CST Act as well as VAT Act, no Trade Tax or Vat Tax shall be payable where the turn over of purchase relates to the amount of purchase price paid or payable in respect of purchase of goods made by a dealer either directly or through another dealer There appears to be no dispute over the fact that the petitioner had received sale consideration under the GSPA from the respondent buyers in pursuance to the agreement executed in the State of Andhra Pradesh.
91. In view of Entry 54, List II of Schedule 7 of the Constitution, the State lacks jurisdiction to impose Tax or VAT with regard to goods brought in the State where sale or purchase had taken place outside the State. State can neither frame law nor impose tax directly or indirectly with regard to goods which are subject matter of inter-state sale and purchase in pursuance to power conferred by the VAT Act.
92. The definition given in Section 2(g) of the CST Act will have overriding effect over the definition of sale given in the Sales Tax Act or VAT Act. Overriding effect shall be discussed in latter part of the judgment.
93. In (1976) 4 SCC 124 Manganese Ore (India) Ltd. vs. The Regional Assistant Commissioner of Sales Tax, Jabalpur, Hon'ble Supreme Court while interpreting Section 3(a) of the CST Act held that so far as Section 3(a) of the CST Act is concerned, there is no distinction between unascertained and future goods and goods which are already in existence. When the sale takes place, the goods come into actual physical existence where movement of goods takes place in pursuance to the contract of sale, then immediately after movement, the contract by sale merges into actual sale and being transported to outside the State, no tax could be imposed. To quote the relevant portion:.
"So far as s. 3(a) of the Central Sales Tax Act is concerned there is no distinction between unascertained and future goods and goods which are already in existence, if at the time when the sale takes place these goods have come into actual physical existence. In the instant case also it was never disputed before the High Court or before us that the manganese ore was loaded into the wagons after being extracted from the mines and that the sales of these manganese ores despatched from Madhya Pradesh to various States actually took place and the goods were ultimately accepted by the buyers in other States. In these circumstances, therefore, it is quite clear in this case that the movement of the goods took place in pursuance of the contracts of sale which ultimately merged into actual sales and it was only there after that the tax was sought to be levied by the State of Madhya Pradesh. It was also not disputed that the tax has been levied only on such sales of the manganese ore despatched from the State of Madhya Pradesh which came from the mines situated in the State of Madhya Pradesh. Thus all the incidents of an inter-State sale are present in the instant case and the view taken by the High Court that the sales were covered by s. 3(a) of the Central Sales Tax Act is absolutely correct and we fully endorse the same."
94. In (1976) 2 SCC 44 Balabhagas Hulaschand vs. State of Orissa the sale in terms of Section 3(a) of the CST Act was interpreted by the Hon'ble Supreme Court. It has been held that sale defined in Clause (g) of Section 2 and used in Section 3 of the CST Act is wide enough to include not only a concluded contract of sale but also a contract or agreement of sale provided the agreement of sale stipulates that there was a transfer of property or movement of goods. Their Lordships relied upon the definition of sale by Benjamin as the definition of sale given in the Sale of Goods Act. Hon'ble Supreme Court further held that while interpreting Section 3 of the CST Act in terms of agreement, whether agreement to sell was a forward contract or a contract in respect of unascertainable or future goods, it would make no difference, to quote relevant portion:.
"The serious question that arises for consideration in this case is whether or not the term 'sale of goods' as used in s. 3 includes an agreement to sell. It has already been pointed out that an agreement to sell is undoubtedly an element of sale. In fact a sale consists of three logical steps-(i) that there is an offer; (ii) that there is an agreement to sell when the offer is accepted; and (iii) that in pursuance of the said agreement a concluded sale takes place. When the statute uses the words "sale or purchase of goods" it automatically attracts the definition of sale of goods as given in s. 4 of the Sale of Goods Act. 1930 which is a statute passed by the same Parliament and is to some extent in pari materia to the Central Sales Tax Act so far as transaction of sale is concerned. Section 4 of the Sale of Goods Act runs thus:
"4. (1) A contract of sale of goods is a contract where by the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another.
(2) A contract of sale may be absolute or conditional.
(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.
(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred."
Section 4(1), therefore, clearly provides that a contract of sale of goods includes also an agreement to transfer property in goods to the buyer for a price. The inevitable conclusion that follows from the combined effect of the interpretation of s. 3 of the Central Sales Tax Act and s. 4 of the Sale of Goods Act is that an agreement to sell is also an essential ingredient of sale provided it contains a stipulation for transfer of goods from the seller to the buyer. This being the position if there is a movement of goods from one State to another, not in pursuance of the sale itself, but in pursuance of an agreement to sell, which later merges into a sale, the movement of goods would be deemed to have been occasioned by the sale itself wherever it takes place. In this view of the matter the question as to whether agreement to sell was a forward contract or a contract in respect of unascertainable or future goods would make no difference for the simple reason that when once a sale takes place, or for that matter when the goods start moving from one State to another in pursuance of the agreement to sell they cease to be future goods because they are in existence and they become also ascertainable. The argument of the learned counsel for the appellant is based on a clear fallacy because it seeks to draw an artificial distinction between a contract of sale of ascertainable goods and a contract of sale of unascertainable or future goods. This argument fails to take note of the fact that when the movement of the goods start they shed the character of either unascertained goods or future goods. Hence for the purpose of application of s. 3(a) of the Central Sales Tax Act the question whether the contract is a forward contract or not makes no material difference.
Section 12. Further more, we can hardly conceive of any case where a sale would take place before the movement of goods. Normally what happens is that there is a contract between the two parties in pursuance of which the goods move and when they are accepted and the price is paid the sale takes place. There would, therefore, hardly, be any case where a sale would take place even before the movement of the goods. We would illustrate our point of view by giving some concrete instances:
Case No. I-A is a dealer in goods in State X and enters into an agreement to sell his goods to in State X. In pursuance of the agreement A sends the goods from State X to State Y by booking the goods in the name of B. In such a case it is obvious that the sale is preceded by the movement of the goods and the movement of goods being in pursuance of a contract which eventually merges into a sale the movement must be deemed to be occasioned by the sale. The present case clearly falls within this category.
Case No. II.-A who is a dealer in State X agrees to sell goods to B but he books the goods from State X to State Y in his own name and his agent in State Y receives the goods on behalf of A. Thereafter the goods are delivered to B in State Y and if B accepts them a sale takes place. It will be seen that in this case the movement of goods is neither in pursuance of the agreement to sell nor in the movement occasioned by the sale. The seller himself takes the goods to State Y and sells the goods there. This is therefore, purely an internal sale which takes place in State Y and falls beyond the purview of s. 3(a) of the Central Sales Tax Act not being an inter-State sale.
Case No. III-B a purchaser in State Y comes to State X and purchases the goods and pays the price thereof. After having purchased the goods he then books the goods from State X to State Y in his own name. This is also a case where the sale is purely an internal sale having taken place in State X and the movement of goods is not occasioned by the sale but takes place after the property is purchased by B and becomes his property."
95. Shri J. N. Mathur, learned Senior Advocate representing the State has relied upon the example given under Case No. 111 of Para 12 of the aforesaid judgment (supra) and would submit that the delivery being given at Orai in the State of U.P. under sale takes place at Gadimoga. However, learned Senior Counsel does not seem to take into account the observation made by the Hon'ble Supreme Court in the same judgment with regard to inter-State sale. Paras 14,15,16 and 17 of the judgment of Balabhagas Hulaschan (supra) are reproduced as under:.
" 14. (1) That the word 'sale' appearing in s. 2(g) as also in s. 3(a) of the Central Sales Tax Act includes an agreement to sell also provided the said agreement contains a stipulation regarding passing of the property. Even in the Bengal Immunity Company Ltd's case (supra) this Court observed thus:
".... the expression "contract of sale" in this context has the same meaning as the words "contract of buying and selling" in the definition of inter-State commerce given by Rottschaefer in the passage already quoted, and they both refer to the bargain resulting in the sale irrespective of whether it is in the stage of an agreement to sell, or whether it is a sale in which title to the goods has passed to the purchaser. That is also the definition of "contract of sale" in section 5(1) of the Indian Sale of Goods Act."
15. (2) That the following conditions must be satisfied before a sale can be said to take place in the course of inter-State trade or commerce:
(i) that there is an agreement to sell which contains a stipulation express or implied regrading the movement of the goods from one State to another;
(ii) that in pursuance of the said contract the goods in fact move form one State to another; and
(iii) that ultimately a concluded sale takes place in the State where the goods are sent which must be different from the State from the goods move.
If these conditions are satisfied then by virtue of s. 9 of the Central Sales Tax Act it is the State from which the goods move which will be competent to levy the tax under the provision of the Central Sales Tax Act. This proposition is not, and cannot, be disputed by the learned counsel for the parties.
16. Lastly another aspect of the matter is that in order to determine whether a sale has taken place in the course of inter-State trade or commerce the matter has to be approached only after a concluded sales has taken place because unless the sale takes place or in other words the agreement to sell merges into a concluded sale the question regarding the application of the provisions of the Central sales Tax Act does not arise at all because the tax is on sale and not on an agreement to sell or a forward contract.
17. Finally if all these conditions are satisfied the question whether the agreement to sell is in respect of ascertained or unascertained goods, existing or future goods, makes no difference whatsoever so far as the interpretation of s. 3(a) of the Central Sales Tax Act is concerned."
In case, aforesaid judgment is read in its totality, then there appears to be no room of doubt that sale of the natural gas by the petitioner takes place at Gadimoga and not in the State of U.P.
96. In (1985) 4 SCC 173 Sahney Steel and Press Works Ltd. and another vs. Commercial Tax Officer and others, Section 3 of the Act was again interpreted by the Hon'ble Supreme Court and relying upon earlier judgment, Hon'ble Supreme Court ruled that movement of goods makes out inter-State sale under Section 3(a) of the CST Act. The Hon'ble Supreme Court considered the controversy with regard to movement of goods in the following words:.
"In the instant case, the goods were despatched by the branch office situated outside the State of Andhra Pradesh to the buyer and not by the registered office at Hyderabad. In our opinion, that makes no difference at all. The manufacture of the goods at the Hyderabad factory and their movement thereafter from Hyderabad to the branch office outside the State was an incident of the contract entered into with the buyer, for it was intended that the same goods should be delivered by the branch office to the buyer. There was no break in the movement of the goods. The branch office merely acted as a conduit through which the goods passed on their way to the buyer. It would have been a different matter if the particular goods had been despatched by the registered office at Hyderabad to the branch office outside the State for sale in the open market and without reference to any order placed by the buyer. In such a case if the goods are purchased from the branch office, it is not a sale under which the goods commenced their movement from Hyderabad. It is a sale where the goods moved merely from the branch office to the buyer. The movement of the goods from the registered office at Hyderabad to the branch office outside the State cannot be regarded as an incident of the sale made to the buyer."
97. Keeping in view the aforesaid factual position with regard to inter-State sale, in case present case is considered, then admittedly in pursuance to the agreement, the natural gas was handed over to RGTIL for transportation in between RGTIL and the buyer, meaning thereby, the buyers purchased the natural gas at Gadimoga and RGTIL accepted the natural gas on behalf of the buyer to transport it to Gujrat and from Gujrat to GAIL and then to Orai for the buyers. Accordingly, it seems to be goods of inter-State sale where the sale takes place at Gadimoga itself. This proposition is evident from the observation made by the Hon'ble Supreme Court in the same case (supra) which is reproduced as under:.
"The law was clarified in Union of India and Another v. K.G. Khosla and Co. Ltd. and Others. (1979) 43 S.T.C. 457, where this Court observed that a sale would be an inter. State sale even if the contract of sale does not itself provide for the movement of goods from one State to another, provided, however, that such movement was the result of a covenant in the contract of sale or was in incident of that contract. Two cases on opposite sides of the line were considered by this Court in K.G. Khosla and Co. Ltd. (supra). In Tata Engineering and Locomotive Co. Ltd. v. Assistant Commissioner of Commercial Taxes Anr. the appellant carried on the business of manufacturing trucks in Jamshedpur in the State of Bihar. The sales office of the appellant in Bombay used to instruct the Jamshedpur factory to transfer stocks of vehicles to the stock-yards in various States after taking into account the production schedule and requirements of customers in different States. The stocks available in the stock-yards were distributed from time to time to dealers. The transfer of the vehicles from the factory to the various stock-yards was a continuous process and was not related to the requirement of any particular customer. Until an appropriation of the vehicle was made by the stock-yard incharge against a contract of sale out of the stocks available with him it was open to the appellant to allot any vehicle to any purchaser or even to transfer the vehicles from the stock-yard in the State to a stock-yard in another State. It was held on the facts that the sale by the appellant to a purchaser from its stock-yard was not an inter-State sale. On the other side of the line is State of Bihar and Anr. v. Tata Engineering and Locomotive Co. Ltd. In that case, the turnover in dispute related to sales made 789 by the company to its dealers of trucks for being sold in the territories assigned to them under the dealership agreements. Each dealer was assigned an exclusive territory and under the agreement between the dealers and the company, they had to place their indents, pay the price of the goods to be purchased and obtain delivery orders from the Bombay office of the company. In pursuance of such delivery orders trucks used to be delivered in the State of Bihar to be taken over to the territories assigned to the dealers. Under the terms of the contracts of sale the purchasers were required to remove the goods from the State of Bihar to other States. The Court observed that if a contract of said contained a stipulation for such movement, the sale would be an inter-State sale."
98. In 1980 (Supp) SCC 426 Indian Oil Corporation Ltd. and another vs. Union of India and others, Hon'ble Supreme Court after considering the earlier judgments ruled that it shall be inter-State sale where there is contract of sale preceding the movement of goods from one State of another and the movement is the result of a covenant in the contract of sale or is an incident of that contract.
99. In the case reported in (2002) 5 SCC 203, State of Andhra Pradesh vs. National Thermal Power Corporation Ltd. and others, after considering all earlier cases (supra), the constitution Bench of Hon'ble Supreme Court held that when there is movement of goods in pursuance to the preceding contract from one State to the other State and the sale being proximate cause of movement and the goods moved from one State to the other State where the sale concludes, then it shall fall within the meaning the inter-State sale.
"It is well settled by a catena of decisions of this Court that a sale in the course of inter-State trade has three essential ingredients:(i) there must be a contract of sale, incorporating a stipulation, express or implied, regarding inter-State movement of goods; (ii) the goods must actually move from one State to another, pursuant to such contract of sale; the sale being the proximate cause of movement; and (iii) such movement of goods must be from one State to another State where the sale concludes. It follows as a necessary corollary of these principles that a movement of goods which takes place independently of a contract of sale would not fall within the meaning of inter-State sale. In other words, if there is no contract of sale preceding the movement of goods, obviously the movement cannot be attributed to the contract of sale. Similarly, if the transaction of sale stands completed within the State and the movement of goods takes place thereafter, it would obviously be independently of the contract of sale and necessarily by or on behalf of the purchaser alone and, therefore, the transaction would not be having an inter-State element.
100. In (2009) 4 SCC 231 DCM Ltd. vs. Commissioner of Sales Tax, Delhi, Hon'ble Supreme Court reiterating the aforesaid proposition of law held that the determinative test of inter-State sale is: whether the purchasing dealers were obliged contractually to remove the goods from Delhi, in which they were bought, to the assigned territories and whether in fact the goods stood actually removed, the entire contract must be examined to answer this question.
101. In (2011) 4 SCC 705 Hyderabad Engineering Industries vs. State of Andhra Pradesh, it has been held that it is sufficient if the agreement of sale contemplates an inter-State movement of the goods though the sale itself may take place at the destination or in the course of the movement of the goods, to quote relevant portion:.
"For a sale to be in the course of inter-State trade or commerce under Section 3(a), the two conditions must be fulfilled. There must be sale of goods. Such sale should occasion the movement of the goods from one State to another. A sale would be deemed to have occasioned the movement of the goods from one State to another within the meaning of clause (a) of Section 3 of the Act when the movement of those goods is the result of a covenant or incidence of the contract of sale, even though the property in the goods passes in either State. With a view to find out whether a particular transaction is an inter-State sale or not, it is essential to see whether there was movement of the goods from one State to another as a result of prior contract of sale or purchase."
"From the above decisions, the principle which emerges is-when the sale or agreement for sale causes or has the effect of occasioning the movement of goods from one State to another, irrespective of whether the movement of goods is provided for in the contract of sale or not, or when the order is placed with any branch office or the head office which resulted in the movement of goods, irrespective of whether the property in the goods passed in one State or the other, if the effect of such a sale is to have the movement of goods from one State to another, an inter-State sale would ensue and would result in exigibility of tax under Section 3(a) of the Central Act on the turn over of such transaction. It is only when the turnover relates to sale or purchase of goods during the course of inter-State trade or commerce that it would be taxable under the Central Act."
102. Keeping in view the statutory provision and law settled by Hon'ble Supreme Court (supra) for the purpose of tax and C.S.T., State means every State where the business exists. Under Section 2(g) of the C.S.T. Act, sale means transfer of property in goods involved in execution of work contract, which includes delivery of goods under any system of payment by instalment, which includes transfer of right to use any goods for any purpose for cash, deferred payment or valuable consideration. Under Section 3 of C.S.T. Act the ingredients for inter-state sale relate to a transaction where sale or purchase occasions the moment of goods from one State to other and is affected by transfer of documents of title to goods during its movement from one State to other. In view of Explanation to Section 3 of the Act, the delivery of goods to a carrier or other bailee for transaction shall be inter-state trade and will be deemed to commence at the time of delivery and terminate at the time when delivery is taken from such carrier or bailee. Keeping in view the Explanation to Section 3, the delivery of goods means to terminate the transaction in other State.
IX. OTHER STATUTORY PROVISIONS
103. Apart from aforesaid statutory provisions, there are certain other statutory provisions meant to regulate the extraction, distribution, sale and purchase of petroleum and natural gas and for the purpose, different Boards have been constituted conferred with statutory powers referred to by Shri Sunil Gupta, learned Senior Counsel. They are:-The Petroleum and Natural Gas Regulatory Board Act, 2006, Policy for Development of Natural Gas Pipelines, The Petroleum and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate or Expand Natural Gas Pipelines) Regulations, 2008, The Petroleum and Natural Gas Regulatory Board (Access Code For Common Carrier or Contract Carrier Natural Gas Pipelines) Regulations, 2008, The Petroleum and Natural Gas Regulatory Board (Affiliate Code of Conduct for Entities Engaged in Marketing of Natural Gas and Laying, Building, Operating or Expanding Natural Gas Pipeline) Regulations, 2008, The Petroleum and Natural Gas Regulatory Board (Determination of Natural Gas Pipeline Tariff) Regulations, 2008, The Petroleum and Natural Gas Regulatory Board(Guiding Principles for declaring or authorizing Natural Gas Pipeline as Common Carrier or Contract Carrier) Regulations, 2009, The Petroleum and Natural Gas Regulatory Board (Technical Standards and Specifications including safety Standards for Natural Gas Pipelines) Regulations, 2009, The Petroleum and Natural Gas Regulatory Board (Determining Capacity of Petroleum, Petroleum Products and Natural Gas Pipeline) Regulations, 2010, The Petroleum and Natural Gas Regulatory Board (Petroleum and Natural Gas Register) Regulations, 2010, The Oilfields (Regulation and Development) Act, 1948.
104. Hon'ble Supreme Court in a case reported in (2004) 4 SCC 489 Association of Natural Gas and others vs. Union of India and others in a reference under Article 143(1) of the Constitution of India, has held that the Union of India has got exclusive legislative competence to enact laws on natural gas. The answers given by the constitution bench with regard to three referred questions are as under:.
"1. Natural gas including liquefied natural gas (LNG) is a Union subject covered by Entry 53 of List I and the Union has exclusive legislative competence to enact laws on natural gas.
2. The States have no legislative competence to make laws on hte subject of natural gas and liquefied natural gas under Entry 25 of List II of the Seventh Schedule to the Constitution
3. The Gujarat Gas (Regulation of Transmission, Supply and Distribution) Act, 2001, so far as the provisions contained therein relating to natural gas or liquefied natural gas (LNG) are concerned, is without any legislative competence and the Act is to that extent ultra vires the Constitution."
In view of above, the State has got no legislative competence to make law on the subject of natural gas or liquefied natural gas and it shall be exclusively governed by provision contained in CST Act readwith different constitutional provisions.
X. SECTION 3 AND 4 OF THE CST ACT
105. Shri J.N. Mathur, learned Senior Counsel representing the State has relied upon sub-Section 2 of Section 4 of C.S.T. Act and submits that in case controversy in question is considered under the said provision, it shall not be inter-state trade. Section 4 has been subjected by legislature to Section 3 of the Act. Accordingly while interpreting Section 4, the provisions contained in Section 3 of the Act cannot be overlooked.
Accordingly, in the event of ascertained goods, the sale or purchase shall take place at the time of execution of contract but in the event of unascertained goods or future goods, the sale shall take place at the time of appropriation of goods in pursuance to contract of sale by seller or buyer. Assent subsequent to or prior to appropriation shall make no difference.
106. Section 4 of the Act begins with the word 'subject to provision contained in Section 3'. Hon'ble Supreme Court from time to time in catena of judgments considered and interpreted the word 'subject to'. It shall be appropriate to consider some of the cases, whereby Hon'ble Supreme Court has interpreted the word "subject" to in one or other form.
In AIR 1961 SC 1152 K.R.C.S. Balakrishna Chetty and Sons and Co. versus The State of Madras, their Lordships held that it does not mean 'conditional upon' but liable to the rules and provisions. It has reference to effectuating the intention of law.
In AIR 1964 SC 207 South India Corporation (P) Limited versus Secretary, Board of Revenue, Travandrum and another, while considering the words, "subject to other provisions of the Constitution", their Lordships ruled that if there is irresistible conflict between the pre-existing laws and the provision or provisions of the Constitution, the latter shall prevail to the extent of inconsistency.
In (1978)2 SCC 140 M/s. Rohtas Industries Limited versus Shri Ramlakhan Singh and others, the words, "subject of manufacturing process" cropped up for interpretation by the Supreme Court. Their Lordships interpreted and correlated it to the raw materials of the factory for manufacturing process.
In (2003)4 SCC 86 M.V. Shankar Bhat and another versus Claude Pinto since (deceased) by LRS. and others, question cropped up before Hon'ble Supreme Court was in regard to an agreement made subject to ratification of terms and conditions thereof by the co-heirs who were not parties to agreement. Their Lordships relied upon the definition given in Blacks Law Dictionary which defines it as subservient, inferior, obedient to, governed or affected by, provided that, provided, answerable for etc.
107. Keeping in view the catena of judgments of Hon'ble Supreme Court, the expression "subject to" conveys the idea of a provision yielding place to another provision or other provisions subject to which it is made vide Surinder Singh vs. Central Government (1986) 4 SCC 667: AIR 1986 SC 2166; South India Corpn. (P) Ltd. vs. Secy, Board of Revenue, Trivandrum; AIR 1964 SC 207; Ashok Leyland Ltd. vs. State of Tamil Nadu: (2004) 3 SCC 1 and S.N.Chandrashekar vs. State of Karnataka: (2006) 3 SCC 208 Southern Petrochemical Industries Co. Ltd. vs. Electricity Inspector and ETIO: (2007) 5 SCC 447.
While considering the Entry 36 and Entry 42 of Concurrent List and word 'subject to', Supreme Court held that both the legislatures can legislate under Entry 42 but the Parliamentary statute made in exercise of powers under this entry would have preference over a State law in case of repugnancy, meaning thereby the law made by the State Legislature under Entry 36 shall be subject to provision of Parliamentary statute made in exercise of legislative powers under Entry 42 of the Concurrent list vide AIR 1952 SC 252 The State of Bihar vs. Maharajadhiraja Sir Kameshwar Singh of Darbhanga and others, AIR 1961 SC 1152 K.R.C.S. Balakrishna Chetty and Sons and Co. vs. State of Madras.
108. Shri Sunil Gupta, learned Senior Counsel while rebutting the argument advanced on behalf of Shri J.N.Mathur submitted that in any case, Section 4 of the Act does not have overriding effect which may amount to ignore Section 3 while considering a case with regard to inter-state trade or commerce.
109. In a case reported in AIR 1961 SC 65 Tata Iron and Steel Co. vs. S.R. Sarkar, their Lordships of Supreme Court after considering different provisions of the Act have held that the purpose of sub-section 2 of Section 4 is to define when a sale shall be deemed to take place inside a State and sub-section 1 of Section 4 provides that when a sale or purchase of goods is determined in accordance with sub-section 2 to take place inside a State, to quote relevant portion:.
"The Parliament by sub-section 2 of section 4 attempted to define when a sale shall be deemed to take place inside a State, and by sub. section 1 of section 4 provided that when a sale or purchase of goods was determined in accordance with sub-section 2 to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States. But sub. section 1 having been made subject to the provisions contained in section 3, it is evident that only those sales which were not in the course of inter-State trade or commerce should be determined under sub. section 1 of section 4 as having taken place outside a State. We are unable to hold that any weight can be attached to the argument that if it was the object of the Legislature by enacting sub. section (2) of section 4 to explain the expression, " where the sale is effected " as used in cl. (ii) of the Explanation to section 2(a), the Legislature would have expressly stated so. Nor are we able to agree with the contention that section. 4 only seeks to define " outside sales " and is not intended to locate the place where a sale is effected. The argument that by the application of section 4, sub. section 2, in cases where the goods sold are unascertained or future goods, there will be difficulty in ascertaining the place where the sale is effected, has also no force. In any event, section 4(2) may not be denied its full operation, merely because difficulty may be encountered in some cases in ascertaining the place where it is effected by the application of the rules set out therein."
Their lordships held that under the Constitution, the State has got no power to impose tax on such such sale and only Union legislature can do it. It is well recognized principle of law that the power to impose tax on sale made in the course of inter-state trade has been denied to State legislature. Meaning thereby, Section 4 of the Act does not extend power to the State Government to impose VAT under the VAT Act. Shri R.N.Trivedi, learned Senior Counsel rightly invited attention to majority opinion which rules that contract of sale occasioning the movement of goods outside the State constitutes inter-state sale and the system of payment may be on higher purchase or in instalment (supra, para 15.16,28,30 and 39 are immaterial).
110. In (1985) 4 Supreme Court Cases 404, M/s Onkarlal Nandlal vs. State of Rajasthan and another again the Supreme Court considered section 4 of the Act and held that where sale is in the course of inter-state trade, if its situs is within the State, the State cannot impose tax because the State Legislature lacks legislative competence to impose tax on sale in the course of inter-State trade or commerce. To quote relevant portion:.
"There is, in our opinion, no antithesis between a sale in the course of inter-State trade or commerce and a sale inside the State. Even an inter-State sale must have a situs and the situs may be in one State or another. It does not involve any contradiction in saying that an inter-State sale or purchase is inside a State or outside it. The situs of a sale may fall for consideration from more than point of view. It may require to be considered for the purpose of determining its exigibility to tax as also for other purposes such as the one arising in the present case. Of course a sale which is in the course of inter-state trade or commerce cannot be taxed by a State Legislature even if its situs is within the State, because the State Legislature has no legislative competence to impose tax on sale in the course of inter-State trade or commerce. That can be done only by Parliament. If therefore a question arises whether a sale is exigible to tax by the State Legislature, it may have to be considered whether it is a sale in the course of inter-State trade or commerce. The same sale in another context may have to be examined from a different point of view for determining where its situs lies and whether it is a sale inside the State or outside the State. There is therefore no incompatibility in the same sale being both a sale in the course of inter-state trade or commerce within the meaning of Section 3 of the Central Act as also a sale inside the State in accordance with the principles laid down in sub-section (2) of Section 4 of the Central Act."(para 7)
However, case of Onkarlal (supra) related to a situation of resale of goods which is covered by Explanation II of Section 3 of CST Act, and not clause (a) or (b) of Section 3 of CST Act. Movement of goods commences and terminates in the same State.
111. In 1996 (4) SCC 231 Bharat Heavy Electrical Ltd. vs. Union of India while considering Section 4 of the Act, their Lordships held that Section 4 specifies when sale or purchase takes place outside the State, to quote relevant portion:.
"Section 4 specifies when does a sale or purchase take place outside a State. Sub-section (1) of Section 4 says that where a sale or purchase of goods is determined in accordance with subsection (2) [of Section 4] to have taken place inside a State, such sale or purchase shall be deemed to have taken place outside all other States. Sub-section (2) sets out when shall a sale or purchase of goods be deemed to have taken place inside a State. It is obvious that Section 4 has been enacted to give effect to Article 286 (1)(a) read with clause (2) of the said Article."
Thus, keeping in view the definition of the phrase 'subject to' used in Section 4 and interpretation given by Hon'ble Supreme Court, reliance placed by Shri J.N.Mathur, learned counsel representing the State, under sub-section 2 of Section 4 of the Act to create right for the State Government to impose VAT seems to be misconceived and not sustainable.
112. The other argument advanced by the learned counsel for the State relates to appropriation of goods in terms of agreement readwith provision contained in sub-section (2) of Section 4 of the Act. He submits that appropriation of natural gas is at Orai and not at Gadimoga. This argument also does not seem to be sustainable for the reasons discussed here-in-above.
113. According to Black's law Law Dictionary, word 'appropriation' has been defined as under:.
"Appropriation:-The exercise of control over property; a taking of possession. Cf. Expropriation (1); Misappropriation, A legislative body's act of setting aside a sum of money for a public purpose. If the sum is earmarked for a precise or limited purpose, it is sometimes called a specific appropriation. [Cases: States 129.] 3. The sum of money so voted. 4. Torts. An invasion of privacy whereby one person takes the name or likeness of another for commercial gain. [Cases: Torts 385, 386.] 5. The transfer of a benefice, together with all its interests, to a spiritual corporation. See spiritual corporation under Corporation. Cf. Impropriation. 6. The benefice so transferred.-. appropriate, vb.--appropriable, adj.--appropriator, n.
114. In the Major Law Lexicon, by P. Ramanatha Aiyar, fourth edition, dictionary meaning of word "appropriate" in terms of judgment of Hon'ble Supreme Court, another Courts has been defined as under:
"Appropriate. To make a thing one's own; to set apart for, or assign for a particular use to the exclusion of all other uses; to claim or use as by an exclusive right; to make peculiar, as to appropriate words to ideas; to take from another to one's self, with or without violence; necessary and proper (as) "appropriate words and expressions." "Appropriate" is said to be "to allot", assign, set apart, or apply anything to the use of a particular person or thing, or for a particular purpose," (3 Cyc 565).
"The assembly appropriated more money than was needed", "to appropriate a spot of ground for a garden."
To assign for a special purpose; to prescribe a particular use for particular moneys, or for the payment of a particular demand [S. 58(d), T.P. Act (4 of 1882)]; specially suitable [Ss. 54 and 55, IPC 45 of 1860].
The word 'appropriate' means 'right for the occasion, suitable, proper, fitting...' [World Book Dictionary as cited in C.C.E. v. Usha Martin Industries, (1997) 7 SCC 47, para 12.
The word 'appropriate' occurring in the Notification means the correct or the specified rate of excise duty. C.C.E. v. Dhiren Chemical Industries, (2002) 2 SCC 127, 130, para 7. [Central Excise and Salt Act (1 of 1994), S. 5-A, Notification issued under Central Excise Rules, 1944, R.8(1)]"
115. Keeping in view the dictionary meaning of appropriation (supra) there appears to be no room of doubt that the buyer appropriated the goods at Gadimoga through the transporter in terms of GSPA readwith Regulation 2008. In case argument advanced by the learned counsel for the State is accepted, it shall amount to record contrary finding to statutory agreement entered into between the parties as well as Regulation 2008. Keeping in view the definition of sale under Section 2(g) of the Act, sale shall be deemed to be executed at Gadimoga immediately after transfer of natural gas through pipeline of RGTIL, who accepts the gas on behalf of Shipper to transport it to the connecting pipeline of GAIL at Gujarat who in turn carry the natural gas to Orai.
116. Thus arrangement made in the agreement with regard to delivery of the goods sold or purchased after or before appropriation has no bearing on the right of the parties under inter-state trade.
There should be movement of goods from one State to other, affected by the transfer of documents of title and where goods are delivered to a carrier or bailee, the moment of goods shall commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee i.e. at the time of appropriation.
117. In view of Section 6 of the C.S.T. Act a declaration furnished by the assessee with regard to movement of goods within prescribed time in the prescribed format along with evidence with regard to dispatch of goods shall be deemed to be result of inter-state sale. The dealer has to furnish to the prescribed authority in prescribed manner a declaration duly filled and signed by the registered dealer to whom goods are sold in view of provisions contained in sub Section (4) of Section 8 of the Act readwith Rule 12 of the Registration and Turnover Rules, 1957. Admittedly Form C duly signed by the assessing authority was handed over to the seller and furnished at the time of assessment. It is not disputed that the Form C was issued by the assessing authority of the State of U.P. and submitted to seller and produced at the time of assessment.
118. In view of various pronouncements of Hon'ble Supreme Court (supra) there can be an agreement between the parties with regard to sale of unascertained goods under Section 3 of the CST Act and when a question crops up with regard to inter-state sale or purchase of goods, in view of Entry 92-A readwith Article 286 only Parliament has got power to legislate law and not the State Government.
This is also evident from the definition of Tax given under Section 2 (a)(g) of the VAT Act (supra). A close reading of Sections 3, 4, 5 and 7 of the VAT Act reveals that the authority of the State Government is to impose VAT Tax only with regard to sale or purchase of goods taking place in the State of U.P.
119. Hon'ble Supreme Court, while considering Section 3 and 4 of Central Sales Tax Act in a case reported in (1996) 4 SCC 230, BHEL Vs. Union of India, held as under:.
"Para 17....................It follows that if a question arises whether a sale is an inter-state sale or not it has to be answered w.r.t. and on the basis of S.3 and S.3 alone, S.4 or for that matter S.5 is not relevant on the said question."
120. In the present case, all conditions provided by Section 3 have been fulfilled, hence, Section 4 does not require to be considered with regard to State's right to impose VAT. Shri Abhishek Manu Singhvi learned Senior Counsel rightly says that Central Sales Tax Act being Central Act enacted under the power exercised by Parliament under list I, it has got overriding effect on the law made by the State.
121. Under Section 7 of the VAT Act (supra), State Government may not impose Tax on goods where sale or purchase takes place in the course of trade or commerce outside the State. Accordingly in case sale or purchase takes place in the course of inter-state trade or commerce or outside the State, then the State authority shall have no jurisdiction to impose tax.
122. In the present case there appears to be no evidence or material on record which may establish that sale of natural gas or its purchase took place in the State of U.P. Hence, imposition of tax on the petitioner appears to be also hit by Section 7 of the VAT Act.
123. Different pronouncements of Hon'ble Supreme Court reveal that in the event of inter-state trade, in case all the conditions of Section 3 of the CST Act are satisfied, then whether the sale is in respect of ascertained or unascertained goods, existing or future goods, it makes no difference (supra).
XI. PRODUCTION SHARING CONTRACT (PSC)
124. The production Sharing Agreement executed between the Government of India and the petitioner contains almost identical provision as contained in GSPA with regard to delivery point. Under the PSC dated 12.4.2000 entered into between Government of India and the petitioner RIL, the delivery point has been defined as under:.
"Delivery Point" means, except as otherwise herein provided or as may be otherwise agreed between the Parties having regard to international practice, the point at which Petroleum reaches the outlet flange of the delivery facility, either offshore or onshore and different Delivery Point(s) may be established for purposes of sales. Delivery Points(s) for the purpose of sale(s) of Petroleum from the Contract Area shall be approved by the Management Committee."
125. The procedure with regard to valuation of natural gas has been dealt with under Clause 21.6 of the PSC, which is as under:.
"Clause 21.6 Valuation of Natural Gas
21.6.1 :. The Contractor shall endeavour to sell all Natural Gas produced and saved from the Contract Area at arms-length prices to the benefits of Parties to the Contract.
21.6.2 :. Notwithstanding the provision of Article 21.6.1, Natural Gas produced from the Contract Area shall be valued for the purposes of this Contract as follows:.
(a) Gas which is used as per Article 21.2 or flared with the approval of the Government or re-injected or sold to the Government pursuant to Article 21.4.5 shall be ascribed as zero value.
(b) Gas which is sold to the Government or any other Government nominee shall be valued at the prices actually obtained; and
(c) Gas which is sold or disposed of otherwise than in accordance with paragraph (a) or (b) shall be valued on the basis of competitive arms length sales in the region for similar sales under similar conditions.
21.6.3 :. The formula or basis on which the prices shall be determined pursuant to Articles 21.6.2 (b) or (c) shall be approved by the Government prior to the sale of Natural Gas to the consumers/buyer. For granting this approval, Government shall take into account the prevailing policy, if any, on pricing of Natural Gas including any linkages with traded liquid fuels, and it may delegate or assign this function to a regulatory authority as and when such an authority is in existence."
126. Under Clause 27.1, 27.2 and 27.3. the contractor is entitled under this Contract, and title to Petroleum sold by the Companies shall pass to the relevant buyer party at the Delivery Point, Contractor shall be responsible for all costs and risks prior to the Delivery Point and each buyer party shall be responsible for all costs all risks associated with such buyer party's share after the Delivery Point. For convenience, Clause 27.1, 27.2 and 27.3 are reproduced as under:.
27.1 The Government is the sole owner of Petroleum underlying the Contract Area and shall remain the sole owner of Petroleum produced pursuant to the provisions of this Contract except as regards that part of Crude Oil. Condensate or Gas the title whereof has passed to the Contractor or any other person in accordance with the provisions of this Contract.
27.2 Title to Petroleum to which Contractor is entitled under this Contract, and title to Petroleum sold by Companies shall pass to the relevant buyer party at the Delivery Point, Contractor shall be responsible for all costs and risks prior to the Delivery Point and each buyer party shall be responsible for all costs and risks, associated with such buyer party's share after the Delivery Point.
27.3 Title to all Data specified in Article 26 shall be vested in the Government and the Contractor shall have the right to use thereof as therein provided.
Thus, under the terms and conditions of the PSC, it is obligatory for the petitioner to transfer all rights and liabilities to the buyer (shipper) at the delivery point. Meaning thereby, the title of natural gas gets transferred to buyer at the delivery point, i.e. Gadimoga in terms of PSC. In consequence of contractual obligation of PSC, it shall be obligatory for the contractor or the petitioner to make necessary provision in GSPA with regard to transfer of rights and tile of natural gas in favour of buyer at the delivery point, which shall be discussed in the proceeding paras.
Needless to say that PSC, entered into between the Government of India and the petitioner, is in pursuance to constitutional obligation vis a vis statutory provisions (supra) and has overriding effect.
127. Shri R.N.Trivedi, learned Senior Counsel has filed comparative chart indicating the similarity between PSC and GSPA, which has not been objected at any stage of argument advanced by the learned counsel for the State of U.P. It shall be appropriate to reproduce the chart which shows binding similarity with regard to contractual obligation.
"COMPARATIVE CHART OF RELEVANT PROVISIONS OF PSC AND GSPA
|"Delivery Point" means, except as otherwise herein provided or as may be otherwise agreed between the Parties having regard to international practice, the point at which Petroleum reaches the outlet flange of the delivery facility, either offshore or onshore and different Delivery Point (s) may be established for purposes of sales (s) of Petroleum from the Contract Area shall be approved by the Management Committee (Article 1.31/at pg. 6)||"Delivery Point" means, the outlet flange of Sellers delivery facilities located at the onshore processing terminal of the Gas Fields at Gadimoga near Kakinada, Andhra Pradesh at which point Sellers' Facilities are interconnected to the Gas transportation facilities of RGTIL (Clause 2/at pg.60)|
|Title to Petroleum to which the Contractor is entitled under this Contract, and title to Petroleum sold by the Companies shall pass to the relevant buyer party at the Delivery Point. The Contractor shall be responsible for all costs and risks prior to the Delivery Point and each buyer party shall be responsible for all costs and risks associated with such buyer party's share after the Delivery Point (Article 27.2/at pg.75)||Transfer of Property and transfer of Risk|
(a) Sellers shall make all Gas supplied hereunder available for delivery at the Delivery Point, in accordance with and subject to the terms and conditions of this Agreement. Buyer shall ensure receipt, offtake and transportation of the Gas from the Delivery Point to Buyer's Facilities.
Property (title) in and risk of loss of the Gas delivered hereunder shall pass from Sellers to Buyer a the Delivery Point upon delivery of the Gas to Buyer (or Buyer's designee) at such point. (Clause 7/at pg. 68).
|The Management Committee shall not take any decision without obtaining prior approval of the Government where such approval as required under the Contract or any applicable law (including rules and regulations) of India. The Management Committee shall obtain such approval/decision and convey the same to Contractor with utmost expedition. (Article 6-7/at pg.22||Laws and Approvals:|
(ii) The Parties acknowledge and agree that Sellers are selling Gas to Buyer under this Agreement in their capacity as Contractors under the PSC and subject to the terms thereof. The obligations of Seller under this Agreement are subject to the receipt and continued effectiveness of all requisite approvals required under laws and regulations and the PSC and approvals of the Gas Price formula in Exhibit 2 as the Gas Price formula to be used for cost recovery, profit sharing, and all other purposes under the PSC in respect of Gas old under this Agreement. (Clause 26 (e) At Page 91)
|Valuation of Natural Gas|
21.6.1. The Contractor shall endeavour to sell all Natural Gas produced and saved from the Contractor Area at arms-length prices to the benefits of Parties to the Contract.
21.6.2. Notwithstanding the provision of Article 21.6.1, Natural Gas produced from the Contract Area shall be valued for the purposes of this Contract as follows:
(a) Gas which is used as per Article 21.2 or flared with the approval of the Government or re-injected or sold to the Government pursuant to Article 21.4.5 shall be ascribed a zero value;
(b) Gas which is sold to the Government or any other Government nominee shall be valued at the prices actually obtained; and
(c) Gas which is sold or disposed of otherwise than in accordance with paragraph (a) or (b) shall be valued on the basis of competitive arms length sales in the region for similar sales under similar conditions.
The formula or basis on which the prices shall be determined pursuant to Article 21.6.2 (b) or (c) shall be approved by the Government prior to the sale of Natural Gas to the consumers/buyers. For granting this approval, Government shall take into account the prevailing policy, if any, on pricing of Natural Gas including any linkages with traded liquid fuels, and it may delegate this function to a regulatory authority as and when such an authority is in existence (Article 21.6/at pg. 66)
(a) The price of Gas at the Delivery Point ("Sales Price") shall be the sum of the Gas Price in US$MMBtu (NHV) and the Marketing Margin in US$MMBtu (NHV) as set out in Exhibit 2. "Gas Price" means the price in US$MMBtu (NHV) determined in accordance with the formula set out in Exhibit 2.
(b) Sales Price shall be exclusive of Taxes for which Buyer is responsible under Clause 22
(c) Sellers shall bear any royalty on Gas sold to Buyer under this Agreement. (Clause 6 At page 67)
A combined reading of PSC and GSPA defines sale in terms of the CST Act, Vat Act or even Sales of Goods Act. Sale has taken place at Gadimoga itself so far as petitioner is concerned and delivery point being at Gadimoga, sale consideration also co-relates to the delivery point in terms of measurement made there and only thereafter, the natural gas is transported to outside the State of Andhra Pradesh and then passes through Hajira, Bijapur, Pata and then to Uttar Pradesh.
XII. GAS SALES AND PURCHASE AGREEMENT (GSPA)
129. Subject to aforesaid proposition of law with regard to inter-State sale and keeping in view the applicability of CST with regard to inter-State sale, it shall be appropriate to look into at a glance the gas sale and purchase agreement (in short GSPA) entered into between the petitioner and the respondent Indo Gulf Fertilizer, copy of which has been annexed as Annexure No. 1 to the writ petition. Sale agreement has been signed between the petitioner and other buyers, i.e., respondents no. 4 to 10. It shall be appropriate to reproduce relevant portion of the GSPA, as under:.
(a) Buyer is the business of production and sales of fertilizer and desires to purchase Gas from Sellers for its unit at Jagdishpur Industrial Area, Dist Sultanpur, PIN 227817, Uttar Pradesh India.
(b) Sellers are parties to a Production Sharing Contract with the Government of India dated 12 April 2000 in respect of Block KG-DWN-98/3 ("PSC") and a Join Operating Agreement dated 4 October 2002 in respect of the PSC ("JOA"). Each of the Sellers desire to supply Gas to be available to them for sale from the Gas Fields to Buyer in a commingled stream in the qualities and subject to the terms stated herein.
(c) The PSC requires Sellers to maintain accounts in United States Dollars and accordingly all calculations under this Agreement shall be done in United States Dollars and where necessary, United States Dollars shall be converted into Indian Rupees as provided herein.
(d)Buyer desires to purchase Gas supplied by Sellers for use in Buyer's Facilities in the quantities and subject to the terms stated herein".
"Buyer" has the meaning given to such term in the Preamble to this Agreement.
"Buyer Event of Default" has the meaning given to such term in Clause 21(b).
"Buyer's Facilities" means the Gas handling and consuming facilities at Buyer's fertiliser facility located at Jagdishpur Industrial Area, Dist. Sultanpur, PIN . 227817, Uttar Pradesh, India, at which the Gas supplied under this Agreement is to be consumed.
"Daily Contract Quantity" or "DCQ" of Gas, means the quantity of Gas in MMBtu per Day specified in Exhibit 1.
"Day" means a period of twenty-four (24) consecutive hours beginning at 06:00 hours on a day and ending at 06:00 hours on the following day and "Daily" shall be construed accordingly.
"Delivery Point" means the outlet flange of Sellers' delivery facilities located at the onshore processing terminal of the Gas Fields at Gadimoga near Kakinada, Andhra Pradesh, at which point Sellers' Facilities are interconnected to the Gas transportation facilities of RGTIL.
"Gas" means wet natural gas, dry natural gas, all other gaseous hydrocarbons, and all substances contained therein (including sulphur, carbon dioxide and nitrogen but excluding extraction of helium), which are produced from oil or natural gas wells, excluding those condensed or extracted liquid hydrocarbons that are liquid at normal temperature and pressure conditions, and including the residue gas remaining after the condensation or extraction of liquid hydrocarbons from the gas.
"Gas Fields" means the Gas fields located within the contract area under the PSC for the Block KG-DWN-98/3 in respect of which a development plan has been approved in accordance with the terms of the PSC and from which Sellers have the right to produce Gas under Petroleum Mining Leases issued from time to time.
"Gas Price" has the meaning given to such term in Clause 6(a).
"RGTIL" means Reliance Gas Transportation Infrastructure Limited, a company incorporated under the Companies Act, 1956 having its registered office at 101, Shivam Apartment, 9, Patel Colony, Bedi Bunder Road, Jamnagar, Gujrat, 361008.
"RGTIL GTA" means the agreement titled Gas Transportation Agreement entered or shortly to be entered into between RGTIL as Transporter and Buyer and Shipper for transportation of Gas purchase and sold under this Agreement.
"RIL" has the meaning given to such term in the Preamble to this Agreement.
"Scheduled Daily Quantity" has the meaning given to such term in Exhibit 4.
"Seller" and "Sellers" has the meaning given to such term in the Preamble to this Agreement.
"Sellers' Facilities" means the reservoirs in the Gas Fields and any platforms, pipelines, wells, plant, machinery or any other equipment or facilities used or to be used from time to time by Sellers to produce, gather, receive, process, compress, store, treat, transport, meter, test, or deliver Gas at the Delivery Point for sale to Buyer.
"Seller's Representative" has the meaning given to such term in Clause 26(h).
"Taxes" means any and all present or future statutory taxes, levies, duties, cesses, charges, withholdings and imposts, or any similar charges or levies imposed by any Relevant Authority of Republic of India from time to time including sales tax, value added tax, excise duty, customs duty, octroi duty, works contract tax, construction cess, service tax and stamp duty, but shall not include any corporate or income tax".
"Sale and Purchase of Gas
(a) Scope of Sellers' Obligations: Sellers shall sell and deliver Gas from the Gas Fields at the Delivery Point on an as-available basis, at the Sales Price and subject to the terms and conditions set forth herein. Seller shall deliver the Gas to Buyer or Buyer's designee for onward transmission to Buyer's facilities.
(b) Scope of Buyer's Obligations: Buyer shall purchase from each Seller that Seller's Participating Interest share of Gas in the qualities and at the Sales Price and subject to the terms and conditions set forth herein. Buyer or Buyer's designee shall take delivery of Gas purchased under this Agreement at the Delivery Point. Buyer shall cause the Gas to be transported to Buyer's
"Transporter's Facilities" means the Gas pipelines, compression, measurement, and related facilities owned by RGTIL or any other Gas pipeline owned by any other gas transmission company, required to transport Gas received under this Agreement from the Delivery Point to the inlet to Buyer's Facilities (or a portion of such movement)."
"Transfer of Property and Transfer of Risk
(a) Sellers shall make all Gas supplied hereinunder available for delivery at the Delivery Point, in accordance with the subject to the terms and conditions of this Agreement. Buyer shall ensure receipt, offtake and transportation of the Gas from the Delivery Point to Buyer's Facilities.
(b) Property (title) in and risk of loss of the Gas delivered thereunder shall pass from Sellers to Buyer at the Delivery Point upon delivery of the Gas to Buyer (or Buyer's designee) at such point."
(a) The obligations of the Parties under this Agreement to purchase or sell Gas, as applicable, are subject to the execution of (and further the satisfaction or waiver of all conditions precedent under) any and all Gas transportation agreement(s) that are required to transport the Gas from Delivery Point to the inlet of Buyer's Facilities.
(b) The conditions precedent in Clause 8(a) above shall be fulfilled to the satisfaction of both Parties and may only be waived by mutual agreement of Parties. If such condition precedent has not been fulfilled within thirty (30) days of Execution Date, time being of the essence, this Agreement shall terminate automatically at the end of such thirty (30) day period unless the Parties mutually agree to extend such period, without the need for any further action or notice by the Parties, and the Parties shall have no right of any nature whatsoever against the other Parties in relation to the maters contemplated by this Agreement. Any termination of this Agreement under this Clause 8 shall be without liability to any party.
(c)on the date of condition precedent in Clause 8(a) has been satisfied, the rights and obligations of the Parties in respect of the purchase and sale of Gas shall become effective."
"Nominations, Scheduling, and Allocation
Buyer shall give estimates and nominations (indents) in accordance with the nomination procedures set out in Exhibit 4. Sellers shall schedule Gas flow and allocate Gas deliveries in accordance with the scheduling and allocation procedures set out in Exhibit.4".
(a) During the Commissioning Period, Sellers may (at their discretion) supply Gas and Buyer may (as its discretion) take delivery of Gas, but Sellers shall have no obligation to supply Gas (or liability for failure to supply Gas) and Buyer shall have no obligation to take Gas (or liability for failure to take Gas) during such period. Buyer shall pay Sellers for the Allocated Quantity of Gas supplied during the Commissioning Period at the Sales Price and any Gas deliveries during the Commissioning Period shall be subject to the other provisions of this Agreement excluding Clauses 11 and 12, which shall not apply.
(b) The determination of Monthly Contact Quantity, Adjusted Monthly Contract, Monthly Deficiency Quantity, Adjusted Annual Contract Quantity, Annual Take Obligation, Annual Deficiency Quantity, Monthly Supply Quantity, Adjusted Monthly Supply Quantity, and Shortfall Quantity shall exclude any relevant period falling within the Commissioning Period, notwithstanding any provision hereof to the contrary".
"Sellers' Supply Obligations
(a) The provisions of this Clause 12 are subject to Clause 10 in respect of the Commissioning Period.
(b) For any Contract Month, Sellers shall be deemed to have fulfilled their Gas supply obligations under this Agreement for such Contract Month to the extent Sellers made available for delivery to Buyer the applicable Adjusted Monthly Supply Quantity at the Delivery Point in accordance with the terms and conditions hereof, irrespective of whether Buyer offtakes such quantities of Gas at the Delivery Point.
(d) If the quantity of Gas made available by Sellers during a Contract Month (calculated as the aggregate of the Allocated Quantity for that Contract Month) is less than the Adjusted Monthly Supply Quantity, the difference shall be the "Shortfall Quantity". All Gas taken by Buyer that fails to meet the Specifications shall not be part of Short fall Quantity. Any Gas that fails to meet the Specifications that was rejected by Buyer in accordance with Clause 14(b) shall for the purpose of determining Shortfall Quantity be considered as not having been made available by Sellers."
"Measurement and Quality
(i) Gas shall be sold on the basis of the Measured Quantity and the quality determined using Sellers' meter at the Delivery Point. The quantity sold to Buyer is the Allocated Quantity as set out in Exhibit 4.
(ii) Measurement standards and meter verification shall be as set out in Exhibit.
(iii) Sellers shall install metering facilities and provided measurement information to Buyer as set out in Exhibit 5.
(i) Gas delivered under this Agreement shall meet the Specifications, or be subject to the provisions of this Clause 14(b).
(ii) Sellers shall notify Buyer of tendering Gas that does not meet the Specifications as soon as practicable following Sellers becoming aware of the same.
(iii) Buyer (or Buyer's nominee) may reject Gas that does not meet the Specifications by giving notice to Sellers as soon as practicable following Buyer becoming aware of the same.
(iv) If Buyer (or Buyer's nominee) accepts Gas not being aware of the failure of such Gas to meet the Specifications, subject to Clause 23, Sellers shall pay to Buyer any actual costs paid by Buyer to RGTIL relating to losses, costs, and expenses incurred by RGTIL (A) in cleaning or clearing RGTIL's facilities or rectifying an other damage caused by the acceptance of such Gas by RGTIL; (B) in disposing of and replacing Gas in RGTIL's facilities contaminated by such Gas delivered by Sellers; and (C) otherwise in connection with any reasonable measures taken by RGTIL to bring the Gas within the Specifications.
(v) Buyer's sole remedy with respect to the tendering by Sellers of Gas that does not meet the Specifications shall be rejection of such Gas under Clause 14 (b)(iii) (or, in case that Buyer accepts Gas not being aware of the failure of such Gas to meet the Specifications, Buyer's sole remedy shall be the provisions made in Clause 14(b)(iv).
(a) Payments shall be made in full in accordance with the invoices and debit notes not later than the fourth (4th) Business Day after the day on which electronic delivery of the invoices and debit notes occurs; provided, however, that if such delivery occurs after 17:30 hours, it shall be deemed to occur on the following day. Without prejudice to any other rights and remedies available under this Agreement or under law, if any Party fails to make a payment to another Party of any amount due under this Agreement, interest thereon shall accrue at the rate per annum equal to the SBIPLR plus two (2) percentage points, for each day from and including the day on which such sum became due up to the day prior to the day on which payment thereof is received.
Suspension and Termination
(a) Without prejudice to any other rights and remedies available under this Agreement, Sellers may suspend delivery of Gas, upon three (3) Business Days notice, in any of the following circumstances:
(i) Buyer has railed to make payments in full when due even if Sellers are able to draw down the Letter of Credit;
(ii) Buyer has failed to establish, maintain or renew the Letter of Credit as required herein;
(iii) Buyer has breached the use/resale limitations in Clause 5; or
(iv)at Sellers' discretion, instead of or prior to terminating this Agreement, upon the occurrence of any Buyer Event of Default under Clause 21(b) below.
Upon and for the duration of such suspension, Sellers shall be relieved of obligations to supply Gas under this Agreement, but Buyer shall not be discharged of any of its obligations under this Agreement including Buyer's obligations under Clause 11 to take or pay for Gas, Sellers shall resume delivering Gas as soon as reasonably practicable following the cure of the events listed above and in any case within 48 hours of such cure.
Taxes and Duties
(a) Buyer shall assume full and exclusive liability for payment of all Taxes to Sellers, imposed in connection with the purchase of Gas under this Agreement and any payments made under this Agreement. For the avoidance of any doubt the liability for payment of Taxes shall include any Taxes that are paid or accrued and payable or assessed or imposed pursuant to any interim order, provisional assessment, revisional assessment or final assessment or any other order made by any Relevant Authority. Buyer shall be liable for fines, penalties or interest on Taxes which are reqired to be paid by Sellers under order made by Relevant Authority.
(b) Buyer shall be liable for and shall indemnify (and keep indemnified), protect, defend and hold harmless Sellers and its Affiliates from and against all actions, proceedings, claims and demands brought or made and all losses, damages, costs, expenses, liabilities, settlements, and judgments from and against any Taxes which should properly have been levied against Buyer or for which Buyer has assured full and exclusive liability for payment in connection with the pursuant to this Agreement or any activities connected thereto and Seller may recover such sums from Buyer including all costs, expenses and charges incurred by Sellers in connection therewith."
130. Exhibit 1 of the aforesaid contract contains proforma with regard to Daily Contract Quantity. Exhibit 2 relates to Sales Price and Exhibit 3 provides different conditions regulating Gas Quality Specifications. Nomination, Scheduling and Allocation Procedures have been provided under Ext. 4 of the agreement. Measurement is to be done in terms of provisions contained in Exhibit 5. Clause 1 of the Exhibit 5 provides that the seller shall provide and install, at their own expenses the measurement at delivery point, i.e., Gadimoga in the present case. The measured quantity shall be recorded in MMBtu at the delivery point. It shall be appropriate to reproduce relevant portion from Exhibit 5 which is as under:.
"1. Delivery Point Measurement Equipment
1.. Sellers shall provide and install, at their own expense, at the point upstream of and near and Delivery Point, and thereafter operate, maintain and renew, measurement equipment at the Delivery Point ("Measurement Equipment"). The ownership of the Measurement Equipment shall remain with Sellers. Sellers shall ensure that Gas delivered hereunder at the Delivery Point shall be measured in accordance with the methods established and from time to time amended under this Agreement.
2.. Sellers shall ensure that equipment for the proper measurement of gas delivered at the Delivery Point shall be properly maintained and corrected in accordance with this Agreement.
2. Measurement and Calibration:
2.1. The Measured Quantity shall be recorded in MMBtu at the Delivery Point. Gas measurement shall include all corrections in installation practices recommend for accurate metering of Gas in accordance with American Gas Association (AGA) Report No.8, 9 and 10 for ultrasonic meter metering systems. The error / inaccuracy permitted shall be within a range of + 1%. At the end of the calibration, Measurement Equipment shall register accurately and no individual transmitter feeding into total flow computation shall have an error more than 0.5%.
2.2. Sellers shall install an appropriate form of on-line composition measurement device, Gas Chromatograph (GC), at or upstream of the Delivery Point consistent with recognised international standards (ISO6975/6976 or any other equivalent standard) which shall be used to determine the composition of Gas.
2.3. If Buyer has any doubt about the proper working of the Measurement Equipment, it may request that Sellers re-calibrate, validate or prove the equipment. Buyer may not request a recalibration or validation of the Measurement Equipment in the event that such Measurement Equipment was the subject of a recalibration or validation within the previous thirty (30) days or such other mutually agreed period whether or not requested by Buyer. Buyer shall not withhold the payments to the Sellers under the Agreement pending action to Buyer's request for such re-calibration or validation or proving of the equipment or the final result of such calibration, validation or proving; however' Buyer or Sellers may lodge claim for refunds or adjustments, if any, depending upon the final results of such calibration, re-calibration, validation or proving within a period of seven (7) days of such calibration, re-calibration, validation or proving. Such claim, if found correct by Buyer or Sellers shall be adjusted against the subsequent invoice(s) of supply of Gas. The cost of such special test shall be borne by Sellers if the percentage of inaccuracy is found to be beyond + 1%, but the cost of such special test shall be borne by Buyer if the percentage of inaccuracy is no greater than + 1%."
131. From the aforesaid reading of contractual obligation in terms of GSPA, there appears to be no reason to disagree with the petitioner's contention that the delivery point of the natural gas to the buyer is at Gadimoga. The quantity of gas delivered to the buyer is measured in accordance to MMBtu Scale at delivery point and according to GSPA, it is the buyer who owes responsibility with regard to damage or loss caused, if any. However, in case quantity of gas made available by the seller during contractual period is less than the adjusted monthly supply quantity, then it shall be shortfall quantity, which may be supplied by the seller. Supply of natural gas by the petitioner is subject to execution of gas transportation agreement requiring the transporter to transport gas from delivery point to the inlet of buyer. It is for the buyer to make necessary arrangement for supply of gas from delivery point to buyer's facility. Delivery of gas from one pipeline to other in the course of transportation of gas to buyer's facility according to GSPA is for the purpose of making integrated and continuous movement of gas from delivery point to buyer's facility.
132. From the aforesaid reading of the contract, it appears that the petitioner or the seller is relieved from its liability immediately after delivery of possession of gas to the buyer at the sale point, i.e., Gadimoga in Andhra Pradesh. The seller or the petitioner shall be entitled for payment of cost of gas supplied at Gadimoga for the measured quantity. Virtually, the seller or the petitioner is absolved of the liability after delivery of gas at Gadimoga to the transporter, i.e. RGTIL and shall be entitled for payment of sale consideration on the basis of delivery made to RGTIL and not at Orai in the State of U.P.
Accordingly, in view of the provisions contained in Section 3 of the CST Act readwith definition of sale given in the CST Act or the VAT Act or even Sales of Goods Act, sale takes place in Gadimoga itself so far as petitioner is concerned.
Delivery point being at Gadimoga, the sale consideration also co-relates to the delivery point and thereafter natural gas is transported to outside the State of Andhra Pradesh and comes to Uttar Pradesh via Gujrat, thus it appears to be inter-State sale.
133. It has rightly been argued by learned Senior Counsel appearing for the petitioner that GSPA has been entered into between the parties in pursuance to statutory compulsion under 2008 Regulation read with PSA. Argument of learned Senior Counsel for the State i.e. it is merely an agreement to sale seems to be misconceived argument.
It has been rightly submitted by Shri Abhishek Manu Singhvi learned Senior counsel that the terms of contract should be treated on their face value and be presumed to mean what they say and must be acted upon unless proved to be sham or farce vide; 1995 Supp. (2) SCC 372; 2009 (4) SCC 231, DCM Limited Vs. Comm. of Sales Tax, Delhi and 2000 (6) SCC 579, Hindustan Shipyard limited Vs. State of U.P.
134. Neither there is any pleading on record nor a finding has been recorded by Assessing Authority creating doubt over the genuineness of GSPA. In absence of any pleading or finding recorded by Assessing Authority, the genuineness and effectiveness of GSPA in question cannot be doubted which has been entered into between the parties in pursuance to statutory provisions and PSA. It has got binding effect. It is binding on the parties and State Government not to ignore the binding nature of PSC, GSPA and GTA with an intention to acquire right to impose VAT.
XIII. GAS TRANSMISSION AGREEMENT (GTA)
135. The condition precedent with regard to inter-state trade under Section 3 of the CST Act is that there should be movement of goods from one State to other and should be affected by transfer of documents of title to the goods during their movement from one State to the other. The delivery of goods to a carrier or a bailee for transmission shall be deemed to commence at the time of such delivery and shall terminate at the time when delivery is taken from such carrier. Meaning thereby, in the present context, the delivery of natural gas to a buyer must be at Gadimoga, i.e. delivery point to the carrier and should terminate when delivery is taken.
136. To fulfil aforesaid conditions, the buyer (respondents) entered into agreement with Reliance Gas Transportation Infrastructure Ltd. (RGTIL). The transmission of natural gas from Gadimoga to Hajira in Gujrat takes place by the carrier, i.e. RGTIL through its pipeline and from Hajira to Orai via Bijaipur in State of U.P. by the gas pipeline of GAIL. GTA defines MDQ to mean entry point MDQ or exit point MDQ and MMBtu means one million Btu. Transporter's facilities has been defined as East-West pipeline and all related ancillary facilities operated by transporter. Transporter's obligation has been provided under Clause 2.1 of the agreement whereas Shipper obligation has been dealt with under Clause 2.2 of the agreement, which are reproduced as under:.
"2.1-Transporter's Obligation to Provide Transportation Services:.
(a) In accordance with and subject to the terms and conditions of this Agreement, Transporter shall perform Transportation Services for Shipper commencing on the Start Date. "Transportation Services" means the following services:
(i) receiving the quantity of Gas tendered by Shipper at the Entry Point, provided such Gas is properly nominated by Shipper,
(ii) transporting such quantity of Gas through Transporter's Facilities; and
(iii) making such quantity of Gas available for delivery to (or for the account of) Shipper, including, if applicable, transferring custody of such Gas to the Downstream Operator at the Exit Point as directed by Shipper for the purpose of onward transmission of such quantities through the Downstream Pipeline to the Consumer's facilities.
(b) Without prejudice to the other terms and conditions of this Agreement, Transporter's obligation to provide Transportation Services shall be limited as follows:
(i) Transporter shall not be obligated to make available at the Exit Point quantities of Gas in excess of the quantities of Gas accepted by Transporter at the Entry Point (subject to the provisions of Section 9 of the Operating Code regarding the resolution of imbalances).
(ii) Transporter shall not be obligated to perform Transportation Services in respect of quantities of Gas in excess of the Exit Point MDQ.
(iii) Transporter may consider, but shall be under no obligation to accept, any request made by Shipper for Transportation Services in respect of Authorised Overrun Quantities. Transporter may at any time restrict, limit, or cancel any Authorised Overrun Quantity under the provisions of Operating Code. Transporter shall incur no liability to Shipper for failure to schedule or accept any Authorised Overrun Quantity.
(c) In providing Transportation Services, Transporter shall have the right to commingle Shipper's Gas with other Gas in Transporter's Facilities.
(d) Transporter shall provide quantities of Gas required for line pack, and System Use Gas, and the Tariff shall include an allowance for recovery of the costs of such quantities of Gas. At the request of Transporter, Shipper shall sell or provide its pro rate share of Gas for such purposes at the prevailing market price, in proportion to Shipper's Exit Point MDQ.
(e) In accordance with and subject to the terms and conditions of this Agreement, Transporter shall be responsible for the payment of Liquidated Damages with respect to Shortfall Quantities pursuant to Clause 6.
"2.2:. Shipper's Obligation with Respect to Transportation Services:.
(a) In accordance with and subject to the terms and conditions of this Agreement, in consideration of Transporter's obligations to provide Transportation Services, Shipper shall be responsible for the payment of Transportation Charges, and, if applicable, Monthly Ship-or-Pay Payments, Unauthorized Overrun Charges, and imbalance Charges (as well as any other charges as may be applicable with respect to this Agreement).
(b) As a condition to utilising the Transportation Services, Shipper shall comply with the nomination provisions of the Operating Code and of all other applicable terms and conditions of this Agreement and of the Operating Code.
(c) In the event that Shipper has exercised its right as "Buyer" under the GSPA to reduce DCQ (as such term is defined in the GSPA) thereunder or if the "Sellers" under the GSPA have exercised their rights to reduce the DCQ thereunder, then Shipper has the right, exercisable by giving thirty (30) days prior notice to Transporter, to reduce the Entry Point MDQ and Exit Point MDQ by an identical quantity, effective no earlier than the effective date of the reduction of DCQ under the GSPA. In the event Shipper exercises its right to reduce MDQ under this Clause 2.2 (c), Exhibit B shall be revised accordingly to reflect such reduced MDQ. Shipper's right to decrease MDQ under this Clause 2.2(c) may not be exercised by Shipper before the first Business Day that is one hundred and eighty (180) days following the end of the Commissioning Period. For the avoidance of doubt, any reduction in MDQ made pursuant to this Clause 2.2(c) shall be prospective in nature only and shall not affect any rights or obligations of the Parties accruing prior to such reduction to the MDQ."
137. Title to Gas and Acknowledgement has been dealt with under Clause 2.6 of the agreement, which is as under:.
"2.6:. Title to Gas and Acknowledgement:.
(a) Transporter shall not have nor receive title to any quantities of Gas delivered at the Entry Point by Shipper under this Agreement.
(b) Transporter shall issue to the "Seller" under the GSPA, on Shipper's behalf, an acknowledgement in the form of Exhibit C for the Allocated Quantity of Gas received on each Day at the Entry Point, such acknowledgement to be delivered to such 'Sellers" under the GSPA promptly following the determination of Allocated Quantity for each Day.
(c) Transporter is authorised by Shipper to;
(i) receive quantities of Gas at the Entry Point from the Upstream Operator on behalf of Shipper;
(ii) transport such quantities and deliver such quantities at the Exit Point to Shipper or, as applicable, to the Downstream Operator at such point on behalf of Shipper.
(d) References under this Agreement to tender or delivery of Gas by Shipper at the Exit Point shall include such actions taken by the Upstream Operator or the Downstream Operator (as applicable) or other party designated by Shipper, on Shipper's behalf."
Clause 15.11 of the agreement further provides as under:.
"This Agreement does not constitute either Party as the agent, partner or legal representative of the other for any purpose whatsoever, and neither Party shall have any express or implied right or authority to assume or to create any obligation or responsibility on behalf of or in the name of the other Party."
138. Under the agreement, different issues have been dealt broadly but keeping in view the relevant conditions referred here-in-above, there appears to be no room of doubt that the liability of transporter, subject to conditions provided in the agreement, is to transport the gas to exit point to the venue of downstream operator. It shall be obligation of shipper (buyer) to deliver gas to the transporter at entry point in terms of GSPA. Meaning thereby, the seller shall deliver the gas at delivery point, i.e., Gadimoga on behalf of buyer to the transporter in terms of GSPA. The transporter shall carry it to downstream exit point without any right or title with regard to gas.
139. The Gas Transport Agreement with GAIL also contains almost same conditions with regard to transport of gas from Hajira in Gujrat from delivery point to re-delivery point. The agreement between Shipper and GAIL with regard to transportation contains following provisions. Relevant clauses are as under:.
"(a) The Transporter is engaged in the business of transmission/processing of gas and owns and operates natural gas pipelines/processing plants. Further, transporter may build new transmission facilities or buy capacity from any other transporter for the purpose of providing Transmission Services.
(b) The Shipper is having existing facilities or creating facilities which requires Gas as fuel/feedstock or has plans to sell gas to to various consumers. The Shippers has requested the Transporter to make necessary arrangements for transportation of Gas from Delivery Point to Redelivery Points on HVJ/DV Pipelines Systems(s).
(c) Shipper has requested the Transporter to provide arrangements for receipt of Gas at the Delivery Point(s) on HVJ/DV pipelines system(s), transmission of Gas and delivery of certain quantities of Gas at the Redelivery Point(s) on HVJ/DV pipeline system(s) and Transporter has agreed to do so subject to and on the terms and conditions hereinafter contained;
(d) The Shipper agrees to pay Transmission Charges and other charges to the Transporter in accordance with the terms and conditions of this Agreement."
140. In both the agreements between buyer and transporter, i.e., RGTIL and GAIl as well as GSPA, the British measurement system, i.e., MMBtu has been recognized as accepted mode. The liability of transporter is to transport the natural gas to the buyer's destination. Their rights and duties are purely of a transporter and without sharing any liability of seller or buyer.
141. A combined reading of all three agreements reveals that the petitioner provides gas at Gadimoga to the buyer and payment is made in terms of measurement done at the entry point situated at Gadimoga by the 4th day of receipt of invoice. The movement of goods, in the present case, is for outside the State of Andhra Pradesh but the sale in terms of Section 3 takes place in the State of Andhra Pradesh at Gadimoga in pursuance to the conditions contained in GSPA. In view of Section 7 of the VAT Act, the State Government may not impose tax to a sale or purchase taking place outside its territory.
142. The agreement with RGTIL which is in common format reveals that the RGTIL i.e. transporter operates gas pipeline system in India from Kakinada in the State of Andhra Pradesh to Bharuch (Gujrat), referred as East-West pipeline. The buyer, i.e., Shipper secured transportation services from transporter for transportation of natural gas through East-West pipeline from entry point to exit point for onward transportation in downstream pipeline to consumer's facilities. The Gas Transport Agreement (in short GTA) reveals that the Shipper or buyer has executed GSPA (supra) or shall execute GSPA (supra) and for downstream transportation, GTA was executed.
XIV. Common Carrier. OPEN ACCESS SYSTEM
143. The Petroleum and Natural Gas Regulatory Board Act, 2006 has been enacted by the Parliament (in short Regulatory Board Act) with the aim and object to check the exploitation and setting up of a petroleum and Natural Gas Regulatory Board to oversee and regulate the refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas. It empowers the Central Government to broadly lay down policy framework and also makes provision for the Central Government to intervene in matters adversely affecting the public interest in certain exigencies. It also empowers to maintain a data bank of information on activities relating to petroleum, petroleum products and natural gas to enable planning and development thereof. It also empowers the appellate Tribunal for Electricity established under Section 110 of the Electricity Act, 2003 to function as the Appellate Tribunal for the proposed legislation.
144. Under Sections 60, 61 and 62 of the Act, the Government of India has got power to make rules and and the Board has got power to make regulations, both to be laid before the Parliament.
In pursuance of the aforesaid power conferred by the Act readwith Section 61, The Petroleum and Natural Gas Regulatory Board had framed Regulations, namely, The Petroleum and Natural Gas Regulatory Board (Access Code For Common Carrier Or Contract Carrier Natural Gal Pipelines) Regulations, 2008 ( in short Regulation 2008).
145. Regulation 4 provides that the capacity of natural gas pipeline shall be authorized by the Board and it is the Board which is authorized for declaring natural gas pipelines as common carrier or contract carrier. It shall be obligatory for the transporter to declare for each natural gas pipeline section, entry and exit point wise design and available capacity of the pipeline and host the same on its website on the 1st day of every month in the prescribed manner.
146. Regulation 7 deals with the measurement of gas, which is reproduced as under:.
"Measurement of gas. (1) The transporter shall ensure the provision of the entry and exit point equipments to measure gas composition, calorific value, pressure and temperature on continuous basis as specified in Regulation 9.
2. The transporter shall divide the natural gas pipeline into a number of "a homogenous area" (AHA) and shall continuously measure the quality parameters by Gas Chromatograph (GC) in each AHA.
3. Measurement of CV and gas quality as provided in sub-regulations (1) and sub-regulation (2) shall be sufficient for billing and other contractual purposes for all exit points served by the AHA.
4. Total error limit and accuracy of the measuring equipment shall be as agreed to between the entities subject to any mandatory specification, if any, laid down by the Board through regulations.
5. The transporter shall carry out verification, calibration or proving of measuring equipment as per the relevant codes and standards.
6. Either shipper or transporter may instal check meters at requisite points with a pre-condition so as not to interfere with the measurement equipment installed by the entity for custody transfer purpose.
7. Gas accounting shall be done on daily basis and the gas reconciliation, billing and other terms shall be as decided between the entities."
147. Regulation 8 further deals with entry point and exit point. Regulation 9 provides the obligation for the Shipper (buyer) to make arrangement at entry point and provide facility including measuring equipments etc. and Regulation 10 deals with pipeline capacity booking. It shall be appropriate to reproduce Regulations 9 and 10 of the Regulation 2008.
"9. Facilities at entry point and exit point. (1) Shipper shall arrange to deliver gas at entry point on the pipeline system and shall provide all facilities, including measuring equipments, required for transfer of custody and delivery of gas to the transporter unless otherwise agreed to between shipper and transporter.
(2) Transporter shall execute hooking up facility of shipper to the entry point at the cost of shipper.
(3) Shipper or his authorized nominee shall own, operate and maintain facilities upstream of entry points at his own cost and unless the facilities are provided by the transporter under a separate contract.
(4) The transporter shall own and operate facilities including measuring equipments at exit point for transfer of custody and delivery of gas to the shipper unless otherwise agreed to between shipper and transporter and the exit point gas parameters shall be mutually agreed to between shipper and transporter.
(5) The transporter shall execute, at the cost of shipper, the facility of hooking up of shipper facility with that of transporter at exit point.
(6) The shipper shall provide space and co-operate with the transporter in installing, operating, maintaining and modifying any specific exit point facilities when such exit point facilities are provided in the premises of the shipper.
(7) The shipper may provide check meter, conforming to the applicable standard and specifications, at the delivery point in natural gas pipeline:
Provided that in case of any variation in the readings in the meter of transporter and shipper, the reading of the transporter meter shall be taken as final.
(8) In case of any dispute in metering, the meter proving or certification shall be carried out by an accredited third party as approved by the Board.
(9) In case of any fault in the meter of transporter, the expenses on this account shall be borne by the transporter and in case no fault is found in the meter, the expenses shall be borne by the shipper.
10. Pipeline capacity booking. (1) More than one shipper can hold capacity at any entry or exit point.
(2) The booked capacity shall be through a contract between shipper and transporter under "Access Arrangements" in the form of MDQ.
(3) When a transporter receives a request for access from a shipper it shall respond within three days after receiving the request from the shipper.
(a) confirming that spare capacity exists to satisfy the request and specifying the charges and terms and conditions upon which it will make the service available.
(b) advising that spare capacity does not exist to satisfy the request;
(c) advising that the data provided by the shipper require technical study to accommodate his request and such study shall be completed within seven days from the date of receipt of request; or
(d) advising that it is not technically or operationally feasible to provide access.
(4) Shipper may release the capacity in favour of other shippers to the extent of the capacity booked.
(5) The shipper may assign in part or full the capacity booked by him or trade in open market and the transporter shall deliver the capacity in physical terms of any person or entity which wishes to take physical delivery on the basis of a valid contract.
(6) The nomination of natural gas for transportation shall contain the expected gas flow details of one or more days daily-nominated quantities as per the agreed schedule between the shipper and the transporter.
(7)The accounting of the gas shall be in energy terms and shall be based on Gross calorific value as defined in ISO 6976-1:1983 (E)."
148. A combined reading of Regulations 9 and 10 reveals that the Shipper or buyer shall provide facilities including measuring equipments, required for transfer of custody and delivery of gas to the transporter unless otherwise agreed to between shipper and transporter. Under Regulation 10, the gas shall be measured in energy terms and shall be based on Gross calorific value.
149. In the present case, apart from PSC and GSPA keeping in view the Regulations 9 and 10, it was statutory obligation of the petitioner or for the buyer to make necessary arrangements with regard to measurement of gas alongwith necessary formalities and equipments to assure the transfer of custody and delivery of gas to transporter. Indisputably, all facilities have been provided by the seller, i.e. the petitioner in terms of Regulation at Gadimoga for measurement of gas and its delivery to the buyer (Shipper).
150. Under Regulation 11, interconnection of two common carrier or contract carrier natural gas pipeline is permissible and it may be allowed subject to capacity available in the receiving common carrier pipeline and when it is operationally and technically feasible. Regulation 11 is reproduced as under:.
"11. Interconnection of two common carrier or contract carrier natural gas pipeline. (1) The interconnection of two common carrier or contract carrier pipeline systems may be necessitated by either a transporter or a shipper and such interconnection shall be allowed subject to capacity available in the receiving common carrier pipeline and when it is operationally and technically feasible.
(2) The gas quality specifications and interconnecting pipelines should be compatible.
(3) The cost of such interconnection point shall be borne by the entity that has triggered such requirement for interconnection and the cost of interconnection may include the cost of compression equipments for meeting the operational requirements for receiving natural gas in the common carrier system.
(4) The execution of the interconnection facilities shall be carried out by the transporter who owns the system which receives the gas.
(5) The interconnection point shall be mutually agreed between transporter and the shipper.
(6) Interconnection of pipeline network is like adding an exit point to the existing pipeline and all such provisions shall be applicable for such interconnection.
(7) The authorized entity for receiving common carrier pipeline shall inform the Board in the case any interconnection request is denied."
Thus, interconnection pipeline of RGTIL and GAIL at Hajira seems to possess statutory sanction to transport natural gas to onward destination in the State of U.P.
151. With regard to excess of gas, Regulation 12 provides that the contracted capacity between a shipper and a transporter shall be for a gas quantity not exceeding the own firmed up capacity and aggregated volume contracted by the transporter. The excess 33% capacity shall be allocated on common carrier principle in terms of Regulation 12. For convenience, Regulation 12 is reproduced as under:.
"12. Methodology for providing access. (1) The contracted capacity between a shipper and a transporter shall be for a gas quantity not exceeding the own firmed up capacity and aggregated volume contracted by the transporter for a period of more than a year.
(2) The excess 33% capacity shall be allocated on common carrier principle on first come first serve basis.
[Provided that in case any capacity out of the 33% excess capacity under sub-regulation (2) is available at any time due to non-existence of demand from any shipper, then, the same may be contracted for a period of one year or more subject to the stipulation that in case another entity seeks booking of the same for a period of less than one year, the request shall be accommodated after prorating the same from the common carrier capacity already contracted to other entities for a period of one year or more'
Provided further that pro-rating the common carrier capacity shall not exceed ten per cent of the total common carrier capacity]"
152. In view of above, a complete reading of Regulation 2008 reveals that a detailed procedure has been provided for transportation of natural gas from one place to other on common carrier principle dealing with different facets of trade or commerce.
153. Earlier to the Regulation 2008, the Government of India had issued Notification dated 20.12.2006 laying down the policy of natural gas pipeline.
The Guidelines provides that no gas pipeline or local gas distribution network will be laid, built, operated or expanded without the authorization of the Board. It further provides that authorization of gas pipeline shall be granted to any entity only if the design pipeline capacity is at least 33% more than the capacity requirements of the concerned entity plus firmed up contracted capacity (termed as total capacity) and this extra capacity is available for use on common carrier basis on open access and non-discriminatory basis at transportation rates laid down by the Board.
154. Accordingly, in terms of earlier Notification dated 20.12.2006 also, the RGTIL or GAIL both transported gas from one place to other not only to the respondents but so many buyers.
In the present case, entire procedure adopted by the petitioner as well as Shipper or buyer seems to be in tune with 2008 Regulation.
155. Shri J.N. Mathur, learned Senior Counsel appearing for the State vehemently argued that transportation of gas in common pipeline belongs to different buyers, hence it becomes unascertained goods and as such, sale shall be deemed to take place at Orai in the State of U.P. and not in Gadimoga of Andhra Pradesh.
Relying upon the order passed by the assessing authority, he further submits that the gas of different buyers mixed with each other becomes unascertained goods, hence it cannot be an instance of inter-state sale. He further submits that the gas while moving in common pipeline is in commingled form hence it is not known as to which portion of gas belongs to whom, and thus it becomes ascertained goods only at Orai at the delivery point where appropriation takes place.
156. In case argument advanced by the learned counsel for the State of U.P. is accepted, then the seller or buyer of natural gas, who does not possess his own pipeline shall be prevented to transport his gas and everyone will have to install his own pipeline, which shall not be feasible or practical. Transportation of natural gas cannot be compared with transportation of tangible goods. Mixture of natural gas of the common quality during the course of transportation shall not affect the right of the buyer. Every buyer or shipper may draw its natural gas from open access gas pipeline with due measurement at exit point.
157. It is not disputed that a large number of customers are being allotted gas by 'Gas Linkage Committee' and the price determined by the sale committee, the customers draw gas from the pipeline. 80% or more of gas is Methane and remaining are other natural gases. Basically, it is the Methane which is being utilized by the industrial units. While transporting the gas from Hajira to onward destination because of addition of natural gas of GAIL, it is subjected to processing and extracting of some molecules to make it suitable for the industrial consumption and then carry it through spur pipeline at the installation of the customers where again the processing or purification and removal of raw material is undertaken.
158. However, there appears to be no evidence on record, which may indicate that the petitioner or the seller is concerned as to where the re-processing of gas takes place. The payment to seller is made on the basis of measurement done at the delivery point in terms of GSPA. Under Section 3 of CST Act readwith Section 7 of the VAT Act, natural gas is delivered at delivery point, i.e., Gadimoga and quantity is ascertained with due movement to forward destination situated outside the State, then it shall be inter-state sale or trade. In view of the statutory compulsion under the Regulation 2008 (supra) and the 2006 Notification (supra), the change of nature of gas during movement or by the processing to some extent that too outside the State of U.P. does not seem to change the nature of sale in pursuance to inter-state trade. Assessing authority seems to be mistaken while imposing VAT, that too without considering statutory obligations (supra).
159. Accordingly, movement of gas or transportation of gas on the open access common carrier basis does not make any difference with regard to petitioner's claim for the benefit of Section 3 of CST Act readwith Section 7 of the VAT Act even if it is carried forward in commingled form keeping in view the substance of agreement between the parties at three stages, i.e., GSPA to deal with transaction at Gadimoga and two gas transport agreements (GTA) to transport gas from Gadimog to Hajira (Gujrat) and from Hajira to Orai in State of U.P.
XV. CONSTRUCTION OF AGREEMENT
160. GSPA and GTA are the contracts for sale and transport of natural gas/lean gas. A mutual understanding between two or more persons about their relative rights and duties regarding past or future performance is called 'agreement'. Though the term 'agreement' frequently used as synonymous with the word contract but really it is an expression of greater breadth of meaning and less technicality. Every contract is an agreement but every agreement is not a contract. In its colloquial sense, the term agreement would include any arrangement between two or more persons intended to affect their relations to each other. Virtually, an agreement is nothing more than a manifestation of mutual assent by two or more parties or legally competent persons to one another.
Contracts deal with variety of subjects relating to business transaction or performance. In Black's Law Dictionary (9th Edition Page 365), the contract has been defined as under:.
"An agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law [Cases: Contracts-]The writing that sets forth such an agreement .
"The term contract has been used indifferently to refer to three different thing:
(1) the series of operative acts by the parties resulting in new legal relations: (
(2) the physical document executed by the parties as the lasting evidence of their having performed the necessary operative acts and also as an operative fact in itself:
(3) the legal relations resulting from the operative acts, consisting of a right or rights in personam and their corresponding duties, accompanied by certain powers, privileges, and immunities. The sum of these legal relations is often called 'obligation'. The present editor prefers to define contract in sense(3).... William R. Anson, Principles of the Law of Contract 13 n. 2 (Arthur L. Corbin ed. 3d Am. ed. 1919).
"A contract is a promise, or a set of promises, for breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. This definition may not be entirely satisfactory since it requires a subsequent definition of the circumstances under which the law does in fact attach legal obligation to promises. But if a definition were attempted which should cover these operative facts, it would require compressing the entire law relating to the formation of contracts into a single sentence. Samuel Williston. A Treatise on the Law of Contracts at 1-2 (Walter H.E.Jaeger ed. 3d ed. 1957)/
The terms contract is also used by lay persons and lawyers alike to refer to a document in which the terms of a contract are written. Use of the word in this sense is by no means improper so long as it is clearly understood that rules of law utilizing the concept 'contract' rarely refer to the writing itself. Usually, the reference is to the agreement, the writing being merely a memorial of the agreement. John D. Calamari and Joseph M. Perillo. The Law of Contracts S 1.1. at 3 (4th ed. 1998).
A promise or set of promises by a party to a transaction, enforceable or otherwise recognizable at law; the writing expressing that promise or set or promises when the lessor learned that the rooms were to be used for the delivery of blasphemous lectures, he declined to perform his contract. See Restatement (Second) of Contracts 2 (1979).
The promissory element present in every contract is stressed in a widely quoted definition. A contract is a promise , or set of promises, for breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. [1 Samuel Williston, Contracts 1.1. (4th ed. 1990]. This, like similar definitions, is somewhat misleading. While it is true that a promise, express or implied, as a necessary element in every contract, frequently the promise is coupled with other element such as physical acts, recitals of fact, and the immediate transfer of property interest. In ordinary usage the contract is not the promise alone, but the entire complex of these elements. John D. Calamari and Joseph M. Perillo. The Law of Contracts $ 1.1. at 1-2 (4th ed. 1998).
Broadly, any legal duty or set of duties not imposed by the law or tort; esp, a duty created by a decree or declaration of a court [Cases:Contracts] The body of law dealing with agreements and exchange the general theory of contract. The terms of an agreement, or any particular termthere was no express contact about when the money was payable. Loosely, a sale or conveyance.
"Sometimes the word 'contract' is used to designate a transaction involving the exchange of goods or land for money. When money is exchanged for goods, this constitutes a sale. When money is exchanged for land, this constitutes a conveyance. Sales and conveyances may be the result of a previous contract but they are not the contracts in themselves. There is no undertaking or commitment to do or refrain from doing anything in the future. This indispensable element of contract is missing. John Edward Murray Jr. Murray on Contracts $ 2, at 5 (2d ed. 1974)."
161. The Black's Law Dictionary further defined the variety of contracts like absolute simulated contract, accessory contract, adhesion contract, aleatory contract, alternative contract, assessment contract, best-efforts contract, bilateral contract, blanket contract, bona fide contract, build-to-print contract, certain contract, collateral contract, commutative contract, conditional contract, consensual contract, construction contract etc.
Contract for sale has been defined as under:.
"A contract for the present transfer of property for a price. A contract to sell goods at a future time."
162. Words and Phrases (Permanent Edition 3 defines the agreement/contract as under:.
"Bkrtcy. D. Dist. Col. Given broad interpretation of term 'agreement' for purposes of statutory codification of D'Oench Duhme doctrine, obligation of good faith and fair dealing and obligation to act as fiduciary would be viewed as conditions to performance of borrower's obligation; these conditions would constitute part of overall "agreement", for purposes of statute, and would need to satisfy statute's rigorous requirements in order for borrower to base claim upon such obligation. Federal Deposit Insurance Act, #2(e), 12 U.SC.A. # 1823 (e). In re Beitzell and Co. Inc. 163 B.R.637-Banks 505."
Cal.App. 4 Dist. 1946. An "agreement" is a manifestation of mutual assent by two or more persons to one another and has wider meaning than contract, bargain, or promise, and a manifestation thereof may be by word or any other conduct or, under some circumstances, by silence. Civ. Code, ## 1549, 1550, 1581-Stevens vs. Dillion, 168 P. 2d 492, 74 Cal. App. 2d 178-Contracts 1.
Ga.1915. A "contract" is an "agreement" between two or more parties for the doing or not doing of some specified thing, there being no difference a contract and an agreement-Doug-lass vs. W.L. Williams Art Co. 85 S.E. 993, 143 Ga. 846-Contracts 1."
163. Under the Indian Contract Act, 1872 (in short the Contract Act), section 10 provides that all agreements shall be contracts in case made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object and not expressly declared to be void. For convenience, Section 10 is reproduced as under:.
"Section 10. What agreements are contracts:-All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.
Nothing herein contained shall affect any law in force in (India) and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents.
164. The agreements in question (PSA, GSPA and GTA) ordinarily cannot be doubted unless, material on record, reveals the existence of conditions provided by Section 10 of the 1872 Act.
Agreements in question should be construed keeping in view the statutory provisions and should be given literal meaning considering the trade compulsions and requirement.
In view of Reliance case (supra) the Production Sharing Agreement (PSA) has got overriding effect over all the agreements like GSPA and GTA. The delivery point has been approved in a meeting convened by Empowered Group of Ministers dated 25.6.2008, copy of which has been annexed as Annexure No. SCA-2 to the counter affidavit filed by Union of India in Writ Petition No. 6281 (MB) of 2010. The delivery point is also fixed in terms of 2008 regulation (supra).
Accordingly, there cannot be delivery point other than Gadimoga where in pursuance to covenant, sale takes place. No different meaning can be given to the agreement than what is literally contained therein, made in pursuance to statutory provisions.
XVI. WHETHER GSPA/GTA ARE COLOURABLE DEVICE TO ESCAPE TAX LIABILITY?
165. Shri J.N.Mathur, learned Senior Counsel while defending the State's right to impose VAT submits that the entire arrangement coupled with the agreement entered into between the parties has been made in such a manner to avoid payment of VAT in the State of U.P. He relied upon (1985) 3 SCC 230 McDowell and Co. Ltd. vs. CTO. In concurring judgment, justice Chinnappa Reddy deprecated the Westminster's attempt to rationalize and legitimatize tax avoidance. His Lordship noted " how ready the minds are to adapt themselves and discover excuses to dip into the treasury" By using phrase "the art of dodging tax without breaking the law" Lordship deprecated tax payers attempt to avoid tax.
However, the present case does not appear to be related to a controversy with regard to avoidance of tax; rather it is a case where question cropped up as to whether the petitioner is liable to pay CST or VAT?
166. In any case McDowell (supra) does not come in the way of petitioner to hold it responsible for payment of VAT in terms of order passed by the assessing authority ignoring the literal interpretation of GSPA/GTA. There appears to be no material on record which may establish even, prima facie, that the GSPA and GTA are sham and farce and payment of CST to Andhra Pradesh Government is meaningless. More so, when the assessing authority himself issued Form C and handed over to the buyers at the delivery point. It is not necessary to look into each and every pronouncement of Hon'ble Supreme Court after McDowell (supra).
167. In a recent judgment Vodafone International Holdings vs. UOI decided on 20.1.2012 reported in JT 2012 (1) SC 410 Hon'ble Supreme Court has considered McDowell (supra) followed by two other Constitutional Bench Judgment, i.e., Mathuram Agrawal vs. State of Madhya Pradesh reported in (1999) 8 SCC 667 and Union of India vs. Azadi Bachao Andolan reported in (2004) 10 SCC 1.
While reiterating as to how in certain circumstances tax avoidance should be brought within the tax net Hon'ble Supreme affirmed the Westminster principle that "where a document or transaction is genuine, the court cannot go behind it to some supposed underlying substances" Acceptance of argument of learned Senior Counsel representing the State of U.P. shall amount to going behind some supposed underlying substance merely on presumption and supposition having no material on record.
168. In Vodafone (supra) after considering various Indian and Foreign judgments and subsequent development in law with regard to Westminster principle, their Lordships have summarized and made observation as under:.
"The majority judgment in McDowell held that "tax planning may be legitimate provided it is within the framework of law" (para 45). In the latter part of para 45, it held that "colourable device cannot be a part of tax planning and it is wrong to encourage the belief that it is honourable to avoid payment of tax by resorting to dubious methods". It is the obligation of every citizen to pay the taxes without resorting to subterfuges. The above observations should be read with para 46 where the majority holds "on this aspect one of us, Chinnappa Reddy, J. has proposed a separate opinion with which we agree".The words "this aspect" express the majority's agreement with the judgment of Reddy, J. only in relation to tax evasion through the use of colourable devices and by resorting to dubious methods and subterfuges. Thus,it cannot be said that all tax planning is illegal/illegitimate/impermissible. Moreover, Reddy,J. himself says that he agrees with the majority. In the judgment of Reddy,J. there are repeated references to schemes and devices in contradistinction to "legitimate avoidance of tax liability" (paras 7-10, 17and 18). In our view, although Chinnappa Reddy,J. makes a number of observations regarding the need to depart from the Westminster" and tax avoidance . these are clearly only in the context of artificial and colourable devices. Reading McDowell, in the manner indicated hereinabove, in cases of treaty shopping and/or tax avoidance,there is no conflict between McDowell and Azadi Bachao or between McDowell and Mathuram Agrawal."
Keeping in view the settled proposition of law with regard to colourable device or illegitimate tax planning, there appears to be no material on record which may reveal that the GSPA and GTA are colourable device or outcome of illegitimate tax planing empowering the State of U.P. to impose VAT. No finding has been recorded by the assessing authority against the genuineness of GSPA, GTA and PSA.
169. For a colourable device or illegitimate tax planning, there must not only be some material on record but also it shall be obligatory for the revenue to establish how and in what manner the GSPA and GTA violate statutory provisions, that too, keeping in view not only CST Act but also Section 7 of the VAT Act. That is why, their Lordships of Supreme Court in Vodafone ruled that McDowell (supra) does not call for reconsideration relying upon subsequent Constitution Bench judgment in the case of Mathuram Agrawal (supra) with the following observation:.
"Facts stated above are food for thought to the legislature and adequate legislative measures have to be taken to plug the loopholes, all the same, a genuine corporate structure set up for purely commercial purpose and indulging in genuine investment be recognized. However, if the fraud is detected by the Court of Law, it can pierce the corporate structure since fraud unravels everything, even a statutory provision, if it is a stumbling block, because legislature never intents to guard fraud. Certainly, in our view, TRC certificate though can be accepted as a conclusive evidence for accepting status of residents as well as beneficial ownership for applying the tax treaty, it can be ignored if the treaty is abused for the fraudulent purpose of evasion of tax."
A five Judges Bench judgment of this Court in Mathuram Agrawal v. State of Madhya Pradesh (1999) 8 SCC 667, after referring to the judgment in B.C. Kharwar (supra) as well as the opinion expressed by Lord Roskill on Duke of Westminster stated that the subject is not to be taxed by inference or analogy, but only by the plain words of a statute applicable to the facts and circumstances of each case.
Revenue cannot tax a subject without a statute to support and in the course we also acknowledge that every tax payer is entitled to arrange his affairs so that his taxes shall be as low as possible and that he is not bound to choose that pattern which will replenish the treasury.Revenue's stand that the ratio laid down in McDowell is contrary to what has been laid down in Azadi Bachao Andolan, in our view, is unsustainable and, therefore, calls for no reconsideration by a larger branch.
170. Thus, while reiterating the McDowell (supra) in the light of subsequent judgment of Mathuram Agrawal and Azadi Bachao Andolan (supra) Hon'ble Supereme Court on one hand held that legislative measures be taken to plug the loopholes, but at the same time on the other hand, held that a genuine corporate structure set up for purely commercial purpose and indulging in genuine investment should be recognized. Of course, if the fraud is detected by the Court of Law, it can pierce the corporate structure, since fraud unravels everything, even a statutory provision. There does not appear to be any pleading nor material on record to establish fraud in the instant case.
171. Section 18 of the Contract Act defines misrepresentation which is as under:.
"Misrepresentation" defined--'Misrepresentation' means and includes.
(1) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, through he believes it to be true;
(2) any breach of duty which, without an intent to deceive, gains an advantage of the person committing it, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him;
(3) causing, however, innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement.
172. Under Section 19 of the Contract Act, a contract or agreement signed without free consent may be voidable. When contract is an outcome of undue influence, it shall be voidable under Section 19(a) of the Act. Under Section 20 of the Act, agreement shall be void where both the parties are under mistake as to matter of fact. Under Section 21 of the Act, a contract shall not be voidable caused by a mistake as to any law in force in India, but a mistake as to a law not in force in India shall have same effect as a mistake of fact.
173. Section 23 of the Contract Act provides as to what consideration and objects are lawful and what not. For convenience, Section 23 is reproduced as under:.
"What consideration and objects are lawful, and what not-.
The consideration or object of an agreement is lawful, unless.
It is forbidden by law; or
is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or
involves or implies, injury to the person or property of another; or
the Court regards it as immoral, or opposed to public policy.
In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void."
174. Section 24 further provides that even if consideration and objects are unlawful in part, a contract may be void. For convenience, Section 24 is reproduced as under:.
"Agreements void, if consideration and objects unlawful in part. If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations of a single object, is unlawful, the agreement is void."
175. In the present case, no finding has been recorded by the assessing authority that GSPA or GTA suffer from some illegality, misrepresentation of fact or any portion or part of it is for unlawful object and consideration. No portion of the contract or its object has been held to be forbidden by law by the assessing authority or that it is for any immoral purpose or opposed to public policy.
176. In absence of any such finding or pleading on record, argument advanced by Shri J.N.Mathur, learned Senior Counsel representing the State that the GSPA or GTA are sham and farce or are designed in such a manner so as to avoid tax or is an instrument to escape tax seems to be a misconceived argument. The GSPA and GTA seem to be drafted in accordance to Regulation 2008 and practice prevailing in the commercial field with regard to sale and purchase of natural gas.
177. It has been vehemently argued alternatively by Shri J.N.Mathur, learned Senior Counsel appearing for the State of U.P. that though the agreement may not be farce and sham but it has been construed in a manner so as to avoid payment of VAT Tax to the State of U.P. Merely, because agreement has been signed and executed in such manner that it escape VAT, the letter and spirit of the GSPA may not be interpreted in a manner than what is revealed by it from its plain reading readwith the constitutional and statutory provisions.
178. Hon'ble Supreme Court in a case reported in 1969 (3) SCC 562 M/S. V.O. Tractoroexport, Moscow vs. M/S. Tarapore and Company and Another, while considering the interpretative English Law with regard to agreement held that the Courts have to be guided by the words of statute in which legislature of the country has expressed its intention and are bound by the mandate of legislature.
179. In AIR 1980 Supreme Court 1468 Consolidated Coffee Ltd. vs. Coffee Board, Bangalore, Hon'ble Supreme Court held that an agreement should be construed based on trade practice, to quote relevant portion:.
"In fact the construction which we are inclined to accept would be in consonance with the trade practice obtaining in export trade, namely, that normally the export activity commences with securing or obtaining an export contract or a firm order from a foreign buyer as the first step towards the ultimate export: AIR 1958 SC 1002.
As regards the other aspect it is clear that two public interests are involved; promotion of the exports of the country is one public interest while augmentation of the State's revenues through sales tax is the other and it is obvious that if the liberal construction, is accepted the former public interest will undoubtedly be served while the latter will greatly suffer and if the narrow construction is accepted the latter public interest will be served and the former will suffer. It is difficult to say that the Parliament intended to prefer one and sacrifice the other. In fact the granting of exemption to penultimate sales was obviously with a view to promote the exports but limiting the exemption to certain types of penultimate sales that satisfy the two specified conditions displays an anxiety not to diminish the State's revenues beyond a certain limit. The section in any case gives no indication that one public interest is to be preferred to the other and, therefore, the matter must again depend upon the proper construction of the language employed. On construction it must be held that by implication the expression 'the agreement' occurring in S. 5 (3) refers to the agreement with a foreign buyer."
180. In (1987) 2 SCC 424 K.P. Subbarama Sastri and others vs. K.S. Raghavan and others, Hon'ble Supreme Court while agreeing with the contractual obligations upheld the condition provided in the agreement with regard to payment of consideration in instalments giving sanctity to the contractual obligation.
181. In (2004) 4 SCC 698 Dr. Karan Singh vs. State of J and K and another, while giving primacy to the constitutional provision upheld the settled proposition of law with regard to contractual obligation within four corners of statutory provisions.
182. In (1977) 3 SCC 147 The Bhopal Sugar Industries Ltd. vs. Sales Tax Officer, Bhopal, while considering the dispute under the tax law of Madhya Pradesh, Hon'ble Supreme Court ruled that the Court has to look the substance in the form of agreement, to quote relevant portion:.
"It is well settled that while interpreting the terms of the agreement, the Court has to look to the substance rather than the form of it. The mere fact that the word 'agent' or 'agency' is used or the words 'buyer' and 'seller' are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inference that the parties did in fact intend that the said status would be conferred. Thus the mere formal description of a person as an agent or buyer is not conclusive, unless the context shows that the parties clearly intended to treat a buyer as a buyer and not as an agent...
It is clear from the observations made by this Court that the true relationship of the parties in such a case has to be gathered from the nature of the contract, its terms and conditions, and the terminology used by the parties is not decisive of the said relationship. This Court relied on a decision in W.T. Lamb and Sons Vs. Goring Brick Company Ltd. where despite the fact that the buyer was designated as sole selling agent, the Court held that it was a contract of sale. Lord Scrutton, with whom other Lords agreed, observed as follows:
Now it is well know that in certain trades the word "agent" is often used without any reference to the law of principal and agent. The motor trade offers an obvious example, where persons described as "agents" are not agents in respect of any principal, but are purchasers who buy from manufacturers and sell independently of them; and many difficulties have arisen from this habit of describing a purchaser, sometimes a purchaser upon terms, as an agent."
183. In (1999) 5 SCC 725, Veena Hasmukh Jain and another Vs. State of Maharashtra and others, while construing the agreement Their Lordships held as under:
"....Still, by reason of the fact that under the terms of the agreement, there is an intention of sale and possession of the property has also been delivered, it is certainly open to the State to charge such instruments at a particular rate which is akin to a conveyance and that is exactly what has been done in the present case. Therefore, it cannot be said that levy of duty is not upon the instrument but on the transaction. Therefore, we reject the contention raised on behalf of the appellants in that regard."
184. Neither there is pleading on record nor Assessing Authority has recorded any finding raising any doubt over the genuineness of GSPA and GTA, hence, they cannot be termed to be a colourful device to escape tax liability more so, when they have been created in pursuance to statutory mandate and PSA.
185. Subject to aforesaid proposition of law, there appears to be no reason to interpret GSPA in a manner other than what is revealed from it literal construction, moreso when, GSPA does not seem to be violative of constitutional mandate (supra); rather it is drafted in terms of Regulation 2008 . The collective reading of GSPA and GTA in the light of PSC and Regulation 2008 reveals that the delivery of natural gas takes place at Gadimoga to the buyer (shipper) through transporter with due measurement and payment thereon. Though it has been argued by Shri Mathur, representing the State, that payment is made after delivery of gas at Orai in U.P. in terms of measurement made there, but it seems to be misconceived argument and is not based on material on record. The Assessing Authority has also not recorded any finding that payment to seller(petitioner) is made after delivery of natural gas at Orai in State of U.P. Hence, argument advanced is based on unfounded facts. Otherwise also, it shall not change the nature of sale or trade.
XVII. WHETHER MOVEMENT IS NECESSARY TO CONSTITUTE INTER-STATE SALE
186. While filing counter affidavit the Government of India as well as State of Andhra Pradesh, both have virtually asserted that present controversy relates to inter-state sale, and petitioner Reliance is liable to pay CST and not VAT.
187. Various pronouncements of Hon'ble Supreme Court (supra) reveal that with regard to inter-state sale criteria required to be fulfilled is that the sale or purchase should occasion the movement of goods from one state to the other and is effected by transfer of document by title during their movement from one State to the other.
188. Shri J.N.Mathur submits that it takes few days to complete sale process and payment is made only after arrival of gas to its destination. Argument seems to be not only misconceived but based on unfounded facts. Neither the assessing authority has recorded finding that payment is made after arrival of gas at Orai nor there is any material on record to establish that payment is made after arrival of the gas at Orai. Even assuming the argument of learned counsel to be correct, it shall make no difference for the reasons discussed hereinabove and in the proceeding paragraphs. Once in terms of GSPA readwith Regulation 2008, goods are handed over to transporter RGTIL and natural gas moves on and reaches Uttar Pradesh through the pipeline of RGTIL, it shall be an instance of inter-state sale or commerce.
189. In a case reported in 1980 (Supp) SCC 426 Indian Oil Corporation Ltd. vs. Union of India, movement of goods (Naphtha) from Barauni (Bihar) to Uttar Pradesh has been found to be an instance of inter-state sale and Bihar Government has been held to be entitled to recover CST.
190. In 1981(3) SCC 457 South India Viscose Ltd. vs. State of Tamil Nadu, Hon'ble Supreme Court ruled that once goods are dispatched in pursuance to contract, it shall be inter-state trade. To quote relevant portion:.
"The goods having been dispatched from one State to another Sate pursuance to a contract of sale which came into existence directly between the appellant and the buyer within a few days after the date of the allocation card, the sale was on inter-State sale."
191. In (1985) 4 SCC 173 Sahney Steel and Press Works Ltd. and another vs. Commercial Tax Officer and others again Supreme Court held that once in pursuance to agreement/delivery orders trucks used to be in the State of Bihar and taken over to the territories assigned to the dealer and where under the terms of the contracts of sale the purchasers were required to remove the goods from other State, it shall be inter-state trade. Aforesaid proposition has been reiterated in the case reported in 2009 (4) SCC 231 DCM Limited vs. CST. Hon'ble Supreme Court held as under:.
"In our view taking of delivery in Delhi by the purchasing dealers for their assigned territories outside Delhi per se would not take away the transactions in question from the category of inter-State sales. The determinative test to be applied in this case is: whether the purchasing dealers were obliged contractually to remove the goods from Delhi, in which they were bought, to the assigned territories and whether in fact the goods stood actually removed. It is this test that would decide the question as to whether the sales in question were "inter-State sales" or "local sales"."
Keeping in view the aforesaid proposition of law discussed here-in-above in terms of GSPA readwith 2008 Regulation once the natural gas is handed over to transporter i.e. RGTIL and leaves State of Andhar Pradesh through the pipeline, it becomes inter-state sale and for any reason whatsoever the State of U.P. shall not be entitled to impose VAT.
XVIII. SITUS OF THE SALE
192. Learned Senior Counsel representing the State has further vehemently argued that the situs of sale shall be at receding end of the gas pipeline, i.e., Orai because of alleged change in quantity of gas and payment of cost after delivery at buyer's end. The question cropped up whether the State may change the situs of sale or purchase with regard to natural gas in pursuance to GSPA.
193. Hon'ble Supreme Court in the case reported in (2000) 6 SCC 12, 20th Century Finance Corporation Ltd. vs. State of Maharashtra (Constitution Bench) examined the power of the State Legislatures under Entry 54 of List II and held that the State Legislature cannot by law, treat sales outside the State and sales in the course of import as "sales within the State" by fixing the situs of sales within its State since it is within the exclusive domain of appropriate legislature, i.e., Parliament. Their Lordships further held that the location of sale would be the place where the property in goods passes, to quote relevant portion:.
"While examining the power of States legislatures under Entry 54 of List II in earlier part of this judgment, we have noticed that the situs of the sale or purchase is wholly immaterial as regards the inter-State trade or commerce, as held in Bengal Immunity Co.Ltd. case. Further, the State legislature cannot by law, treat sales outside the State and sales in the course of import as sales within the State by fixing the situs of sales within its State in the definition of sale, as it is within the exclusive domain of the appropriate legislature, i.e. Parliament to fix the location of sale by creating legal fiction or otherwise.
It may be noted that the transactions contemplated under sub. clause (a) to (f) of clause (29A) of Article 366 are not actual sales within the meaning of sale but are deemed sales by legal fiction created therein. The situs of sale can only be fixed either by the appropriate legislature or by judge made law, and there is no settled principles for determining the situs of sale. There are conflicting views on this question. One of the principles providing situs of sale was engrafted in Explanation to clause (1) (a) of Article 286, as it existed prior to the Constitution (Sixth Amendment) Act, which provided that the situs of sale would be where the goods are delivered for consumption. The second view is, situs of sale would be the place where the contract is concluded. The third view is, that the place where the goods are sold or delivered would be the situs of sale. The fourth view is, that where the essential ingredients, which complete a sale, are found in majority would be the situs of sale. There would be no difficulty in finding out situs of sale where it has been provided by legal fiction by the appropriate legislature. In the present case, we do not find Parliament has, by creating any fiction, fixed the location of sale in case of the transfer of right to use goods. We, therefore, have to look into the decisional law.
The aforesaid decisions unambiguously laid down that where situs of sale has not been fixed or covered by any legal fiction created by the appropriate legislature, the location of sale would be place where the property in goods passes. The Constitution Bench held, that it was the passing of the property within the State that was intended to be fastened on for the purpose of determining whether the sale was inside or outside the State."
Keeping in view the aforesaid proposition of law borne out from the constitution bench judgment of Hon'ble Supreme Court, in the present case, the situs of sale shall be at Gadimoga where the property or goods passes to buyer's realm. Admittedly, in terms of GSPA and GTA, the lean gas passes to buyer in terms of GSPA and sale consideration at Gadimoga and not at Orai in the State of U.P. Hence, the situs of sale shall be at Gadimoga and not Orai in the State of U.P. as submitted by the learned counsel representing the State.
194. Shri Vivek Tankha, learned Senior Counsel appearing for the NTPC has rightly invited attention to a judgment of State of Andhra Pradesh vs. NTPC reported in (2002) 5 SCC 203. Their Lordships of Supreme Court in NTPC (supra) held that though it may be permissible to fix the situs of sale either by appropriate State legislation or by Judge-made law but it cannot be done artificially so as to create territorial nexus attracting applicability of tax legislation of the State. No State legislation can fix situs of sale, to quote relevant portion:.
"Though it may be permissible to fix the situs of sale either by appropriate State legislation or by Judge-made law as held by the majority opinion in 20th Century Finance Corporation case we would like to clarify that none of the two can artificially appoint a situs of sale so as to create territorial nexus attracting applicability of tax legislation enacted by any State Legislature and tax an inter-State sale in breach of Section 3 of CST Act read with Articles 286(2) and 269(1) and (3) of the Constitution. No State legislation, nor any stipulation in any contract, can fix the situs of sale within the State or artificially defined the completion of sale in such a way as to convert an inter-State sale unless permitted by an appropriate Central legislation.
In view of aforesaid Constitution Bench judgment of Hon'ble Supreme Court, argument advanced by the learned Senior Counsel for the State of U.P. that situs of sale shall be deemed to be at Orai in State of U.P. seems to be not sustainable. PSA has got overriding effect over other contracts in the chain of transaction and transportation. Under the PSA the delivery point has been fixed, i.e. Gadimoga.
XIX SALES OF GOODS ACT
195. Learned Senior Counsel appearing for the State while defending the impugned judgment and order of assessing authority relied upon different provisions of the Sales of Goods Act and submits that the agreement does not mention the exact quantity of gas and the gas does not exist at the time of agreement and is unascertained goods. Appropriation takes place only in the State of U.P. He relied upon the provisions contained in Section 6 and 23 of the Sales of Goods Act. Section 6 provides where the contract of sale is a future goods, when there shall be contract for sale of goods. Section 23 provides that where there is a contract for sale of unascertained or future goods by description and goods in a deliverable state, it is unconditionally appropriated to the contract, either by seller with the assent of the buyer, the property passes to the buyer.
196. Learned counsel relied upon Section 18 of the Act which provides that where there is contract for the sale of unascertained goods, no property in the goods shall be transferred to the buyer unless and until the goods are ascertained. Argument advanced by the learned Senior Counsel does not seem to be sustainable for the reasons that the natural gas or lean gas purchased by the buyer is in terms of British Measurement Unit. The measurement was done not only in terms of GSPA but in terms of Regulation 2008 and guideline issued by the Government of India.
197. So far as Clause 1 of Section 23 of the Act with regard to appropriation of goods is concerned, learned Senior Counsel could not take notice of Clause 2 of Section 23 of the Sales of Goods Act, which is reproduced as under:.
"Section 23(2) Delivery to carrier:. Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract."
198. In view of Clause 2 of Section 23 of the Act, since admittedly the delivery was given to the Shipper in terms of agreement with RGTIL at Gadimoga, Shri Sunil Gupta, learned Senior Counsel correctly argued that the appropriation shall be deemed to take place at Gadimoga and not at Orai in the State of U.P.
Submission is that in view of Section 23(1), the goods pass to the buyer only at Orai where due measurement takes place and delayed payment is made in terms of GSPA. He relied upon the cases reported in (2005) 6 SCC 499 State of H.P. and others vs. Gujarat Ambuja Cement Ltd. And others, (1978) 1 SCC 69 Juggilal Kamlapat vs. Pratapmal Rameshwar, AIR 1961 Sc 1214 Jute and Gunny Brokers Ltd. vs. Union of India, AIR 1968 SC 741 P.S.N.S. Ambalavana Chettiar vs. Express Newspapers, (2010) 8 SCC 110 United Bank of India vs. Satyawati Tandon and some other cases.
199. Shri Sunil Gupta, learned Senior Counsel invited attention of the Court to Section 39 of the Sales of Goods Act which provides that where in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of goods to a carrier, whether named by the buyer or not, for the purpose of transmission to buyer or delivery of the goods to a safe custody shall be, prima facie, deemed to be a delivery of goods to the buyer.
200. So far as the controversy in the present case is concerned, in terms of GSPA readwith Regulation 2008, the delivery to the buyer shall be deemed at Gadimoga not at Orai and once delivery is at Gadimoga to the buyer, it shall be inter-state trade in terms of Section 3 of the CST.
It is further observed that while considering the provisions contained in Sales of Goods Act, the provision contained in Section 8 and 23 should not be considered separately but they should be considered keeping in view the definition of goods given in section 2 of the Sales of Goods Act, 1930 and other provisions. Section 5 deals with how the contract of sale is made. Section 6 deals with the existing or future goods. Section 11 relates to stipulations as to time. Section 15 deals with sale by description. Section 16 deals with the conditions as to quality or fitness. Section 19 deals with passing of property passes in goods.
In case the entire material on record alongwith GSPA and Regulation 2008 are considered, there appears to be no reason to disbelieve that the parties intended to pass natural gas in the hands of buyer at Gadimoga.
201. Section 21 of the Sales of Goods Act provides that specific goods should be kept in deliverable state after due processing and removing the raw materials. Reliance supplied the lean gas to the buyer through its own machinery set up at Gadimoga. Entire processing is done by the Reliance to make the natural gas as 'lean gas' in conformity with Section 21 of the Sales of Goods Act.
202. In a case reported in AIR 1973 Rajasthan 132, Maharana Bhupal Electric Supply Co. Ltd. State of Rajasthan, a Division Bench of Rajasthan High Court ruled that the Gas, Water and Electricity are not the goods covered by the Sales of Goods Act which applies only to goods as defined in Section 2 (7) of the Sales of Goods Act. The Court held that the goods must be movable property. Rajasthan High Court relied upon the Apex Court judgment reported in AIR 1965 SC 666 Avtarsingh vs. State of Punjab.
203. Hon'ble Supreme Court in the case reported in AIR 1990 SCC 1753 M/s. Marwar Tent Factory vs. Union of India while considering sub-section (2) of Section 23 had relied upon Halsbury Law of England (4th edition Volume 41 Page 800) which provides that where the seller undertakes to deliver goods to railway wagons or at the station in terms of convenient (contract) with the delivery, the risk passes to the buyer.
204. GSPA does not seem to be in tune with sub-section 2 of section 23 of the Sales of Goods Act. Virtually, sub-section 2 of Section 23 and 39 of the Sales of Goods Act are complementary to each other. A combined reading of both the provisions makes the thing clear that in case, in terms of contact, property is handed over to the buyer or Shipper through the transporter, there shall be presumption that the goods are delivered to buyer.
205. In AIR 1961 AP 86 Shri Ramkrishna Commercial Society and others vs. Sate of Andhra Pradesh, the Andhra Pradesh High Court ruled that fiction with regard to presumption has been created for fixing liability for the goods lost or damaged through transit.
206. In AIR 1959 Madras 502 A.M. Mohd. Ishaok vs. State of Madras, Division Bench of Madras High Court has also expressed the same view while interpreting Section 39 of the Act and held that whenever actual delivery of goods is made in terms of contractual obligation, there shall be presumption with regard to delivery of goods to the buyer. While considering Section 39 (1) of the Sales of Goods Act, Madras High Court considered the definition of sale given in BENJAMIN'S Sale of Goods. Their lordships held that the carrier constituted as an agent of the buyer for accepting delivery of goods on his behalf.
There appears to be no room of doubt that the goods were delivered to the buyer in terms of contact with RGTIL through its pipeline at Gadimoga.
207. There is one other aspect of the matter. Though the Sales of Goods Act regulates the contractual obligation but when a question relates to inter-state sale, then primacy should be given to the construction of different provisions of Central Sales Tax Act not the Sales of Goods Act. Central Sales Tax is special enactment to regulate the inter-state sale whereas the Sales of Goods Act is general law.
208. Generalia Specialibus Non Derogant is well recognized principle of construction of statutory provision.
" Generalia Specialibus Non Derogant has been applied by the courts:. One type of case that frequently comes up before courts is the one that involves a general law and a special law dealing with some aspect dealt with by the general law. In such a case the question is whether the general law, to the extent dealt with by the special law, is impliedly repealed.
209. In Begal Immunity Co. Ltd. vs State of Bihar reported in AIR 1955 SC 662, Hon'ble Supreme Court held (per Venkatarama Ayyar,J):
One of the applications of the rule of harmonious construction is that a law generally dealing with a subject and another dealing particularly with one of the topics comprised therein, the general law is to e construed as yielding to the special in respect of the matters comprised therein.
The principle that particular or special rule must control or cut down the general rule is inapplicable where the two provisions do not relate to the same subject.
210. In J.K.Cotton Spg and Wvg. Mills Co. Ltd. vs State of U.P. reported in AIR 1961 SC 1170, Hon'ble Supreme Court held:
In case of conflict between a specific provision and a general provision the specific provision prevails over the general provision and the general provision applies only to such cases which are not covered by the special provision.
The rule that general provisions should yield to specific provisions is not an arbitrary principle made by lawyers and judges but springs from the common understanding of men and women that when the same person gives two directions one covering a large number of matters in general and another to only some of them, his intention is that these latter directions should prevail as regards these, while, as regards all the rest, the earlier directions should have effect. In Petty vs Solly Romilly, M.R. mentioned the rule thus:
"The rule is that whenever there is a particular enactment and a general enactment in the same statute and the latter, taken in its most comprehensive sense, would overrule the former, the particular enactment must be operative, and the general enactment must be taken to affect only the other parts of the statute to which it may properly apply.
The rule has been applied as between different provisions of the same statute in numerous cases.
211. In CIT v Shahzada Nand and Sons reported in AIR 1966 SC 1342, Hon'ble Supreme Court held:
The maxim generalia spcialibus non derogant, means that when there is a conflict between a general and a special provision, the latter shall prevail.
212. But this rule of construction is not of universal application. It is subject to the condition that there is nothing in the general provision, expressed or implied, indicating an intention to the contrary. When the words of a section are clear, but its scope is sought to be curtailed by construction, the approach suggested by Lord Coke in Heydon case yields better results.
213. In Maxwell on Interpretation of Statutes, the relevant principle is stated at p. 168 thus:
A general later law does not abrogate an earlier special one by mere implication Generalia Specialibus non derogant, or in other words, where there are general words in a later Act capable or reasonable and sensible application without extending them to subjects specially dealt with by earlier legislation, you are not to hold that earlier and special legislation indirectly repealed, altered, or derogated from merely by force of such general words without any indication of a particular intention to do so. In such cases it is presumed to have only general cases in view, and not particular cases which have been already otherwise provided for by the special legislation.
214. In Anandji Haridas and Co. (P) Ltd. v. S.P. Kasture reported in AIR 1968 SC 565, the Hon'ble Supreme Court held:
The special provision must be taken silently to exclude all cases falling within it from the purview of the more general provision.
Section 11(4) (a) of C.P. and Berar Sales Tax Act (21 of 1947) specially provides for the initiation of proceedings against a registered dealer who has not furnished returns in respect of any period by the prescribed date. Having made this special provision, the legislature must be taken to have intended that in a case falling Section 11 (4) (a) the Sales tax authority must proceed against the registered dealer under Section 11 (4) (a) and not under Section 11-A (1).
215. In Om Prakash v. Union of India reported in (1970)3 SCC 942, the Hon'ble Supreme Court held:
Were a specific power is conferred without prejudice to the generality of the general powers already specified, the particular power is only illustrative and does not in any way restrict the general power.
216. In Ashoka Marketing Ltd. v. Punjab National Bank reported in (1990) 4 SCC 406, Hon'ble Supreme Court held as under:.
The Latin maxim, leges posteriores priores contrarias abrogant (later laws abrogate earlier contrary laws) is subject to the exception embodied in the maxim, generalia specialibus non derogant (a general provision does not derogate from a special one). This means that where the literal meaning of the general enactment covers a situation for which specific provision is made by another enactment contained in earlier Act, it is presumed that the situation was intended to continue to be dealt with by the specific provision rather than the later general one. However, where both the enactments are special statutes in relation to the matters deal with therein the exception contained in the principle that a subsequent general law cannot derogate from an earlier special law cannot be invoked and the principle that the later laws abrogate earlier contrary laws, can be applied. In the case of inconsistency between the provisions of two enactment, both of which can be regarded as special in nature, the conflict has to be resolved by reference to the purpose and policy underlying the two enactments and the clear intendment conveyed by the language of the relevant provisions therein.
217. Aforesaid proposition has been reiterated from time to time in a catena of judgments of Supreme Court. Some of them AIR 1968 SC 565 Anandji Haridas and Co. (P) Ltd. vs. S.P. Kasture, (1970) 3 SCC 942 Om Prakash vs. Union of India, (1990) 4 SCC 406 Ashoka Marketing Ltd. vs. Punjab National Bank and other cases.
In view of aforesaid principle of construction, the provision contained in Sales of Goods Act shall not override the provision contained in Central Sales Act readwith 2008 Regulation and constitutional mandate particularly Articles 269, 297 and 286 of the Constitution.
218. These broader principles of law have been considered by the Constitution Bench of Supreme Court in the case reported in (1993) 1 SCC 364 Gannon Dunkerley and Co. vs. State of Rajasthan where in it has been held that the legislative power of the State under Entry 54 of the State List is subject to two limitations; one flowing from the entry itself which makes the said power subject to the provisions of Entry 92-A of List I, and the other, flowing from the prohibition contained in Article 286. The location of the situs of the sale in sales tax legislation of the State, would therefore, have no bearing or the chargeability of tax on sales in the course of inter-State trade or commerce since they fall outside the field of legislative competence of the State Legislatures and will have to be excluded while assessing the tax liability under the State legislation. The Central Sales Tax Act is a composite law enacted under Entry 92-A of List 1 readwith clause (1) of Article 269 as well as under clause (3) of Article 269, Clause (2) of Article 286 and sub-clause (a) of clause (3) of Article 286. The State Legislature cannot so frame rule as to convert an outside sale or a sale in the course of import and export into a sale inside the State. Accordingly, the provisions contained in the Sales Tax Act cannot be read in a manner which may whittle down the provision contained in the Sales Tax Act.
219. The judgment pronounced by Hon'ble Supreme Court from time to time discussed in the preceding paragraphs do not leave any room of doubt that inter-state sale and commerce should be considered in terms of provision contained in Section 3 of the Act and not otherwise, except where the GSPA and GTA violates the 2008 Regulation or guideline issued thereon or any other statutory provisions.
Keeping in view Article 269, 286 and 297, there appears to be no reason to raise doubt by the process of inference on the GSPA and GTA governing the sale and purchase of natural gas between the petitioner and the buyer (respondents no. 4 to 10).
So many other cases have been cited by both the sides but keeping in view the clarity in law discussed in the preceding paragraphs, it is not necessary to consider all of them.
XX. ASSESSING AUTHORITY
220. Argument advanced by the parties' counsel on the basis of finding recorded by the assessing authority is considered hereinafter:.
Whether the natural gas supplied to Shipper(buyer) is unascertained Natural gas is transported through common carrier under open access system (supra) in pursuance to statutory compulsion. While submitting that the gas is unascertained, it is stated that the gas pipeline possessing the gas of different customers is passed on in commingled form, hence it is unascertained goods. Factual matrix with regard to transportation of gas in commingled form is not disputed. The State while filing counter affidavit in para 6 stated that RGTIL transports the gas from Gadimoga through pipeline of Gas Authority of India (GAIL). The GAIL sends the gas to PATA Plant, wherein except Methane Gas, remaining gases are extracted for preparation of Plastic Nodules, LPG, Propane and other related by-products. Thereafter, the lean natural gas containing 98% Methane Gas is supplied to Fertilizer Producing units. In para 17 of the counter affidavit, it is stated that the natural gas delivered at Gadimoga is processed at PATA Plant through various technical processes. The State had relied upon a judgment of Gujrat Sales Tax Tribunal.
221. On the other hand, it has been stated by the petitioner as well as respondent no. 5 M/s Indo Gulf Fertilizers and others that the natural gas drawn from KG D6 basin is brought on shore at RIL Terminal where it is processed to remove condensate and moisture. The processed natural gas consists of 98% of Methane (CH-4) and traces of Nitrogen, Ethane, Propane and Butane. After processing of the gas, lean gas is extracted and in terms of agreement (Ext. 3), the buyers is entitled for natural gas containing minimum of 80% Methane. The East-West Pipeline of RGTIL goes upto Ankot, Gujrat. At Hazira, the natural gas from ONGC, is brought on shore and transported through GAIL pipeline (known as HBJ) pipeline. Processing is done by GAIL to remove the condensate. The processed gas is put in HBJ pipeline of GAIL alongwith natural gas from trunk East-West Pipeline of RGTIL at Ankot, Gujrat. The gas in the pipeline of GAIL when reaches Vijaypur, is drawn by GAIL Plant where Butane and Propane and traces of other higher hydrocarbons are removed/extracted for manufacture of LPG. Thereafter gas reaches Pata, where GAIl has a Petrochemical Plant for the manufacture of High Density Poly Ethylene (HDPE).
222. The GAIL extracts Ethane, Propane and Butane present in the natural gas which are used as raw-material by GAIL except methane. The resultant natural gas is transported from Pata consists of about 98% Methane in terms of specification given under the GSPA. It has not been disputed that the GAIL is the producer as well as transporter being owner of gas pipeline. That is why, Gujrat Tax Tribunal had held the transaction falling within the purview of VAT Act. In the present case, upstream transporter RGTIL is not the producer of gas. The downstream transporter GAIL works as only carrier or transporter so far as transport of natural gas sold by the petitioner to buyer (respondents) is concerned. The processing at Bijaipur and Pata is done because of impurity of gas mixed with the petitioner's gas at the connecting point. The GAIL is delivering the same quality of gas to buyer at Orai in U.P. which is being pumped into its pipeline at the connecting point situated at Hazira. It is not disputed that processing at Vijaypur is neither requested by the petitioner nor is required by it nor it is mentioned under the contract nor any payment is made by the petitioner for such processing.
223. Commingling of gas or mixture of gas of two or more buyers(shippers) is the statutory compulsion because of common carrier or open access system. It does not make any difference so far as rights and liabilities of seller or buyer are concerned. Inference drawn by the assessing officer on the ground of commingling of gas belonging to more than one buyer or purchaser seems to be misconceived. The assessing officer has not taken into account the constitutional mandate as well as 2008 Regulation (supra). Shri Abhishek Manu Singhvi, learned Senior Counsel rightly submitted that the movement of gas on common carrier basis under the open access system because of statutory compulsion does not make the Shipper's gas unascertained. Gas purchased by the Shipper in pursuance to GSPA with due measurement under the British Measurement System (MMBtu) is reprossessed by the buyer and same measure system is applied at Orai through its spur pipeline. Once quantity of gas is same at the delivery point and receiving point, then it cannot be termed as unascertained goods.
224. It is vehemently argued by Shri Mathur, that according to finding recorded by the assessing authority, gas received at Orai in the State of U.P. is more in quantity than what had been handed over to Shipper through RGTIL at Gadimoga. Submission is that because of commingling of gas and increase of quantity, the finding recorded by the assessing authority imposing VAT does not suffer from any perversity and illegality. Argument advanced by the learned counsel does not seem to be correct under the facts and circumstances of the present case, that too, where the controversy relates to sale and purchase of natural gas. It is necessary to consider the quality of gas and international practice as well as scientific views with regard to measurement and transport of gas from one place to another.
225. According to Oxford Dictionary of Science, 6th Edition 2010, gas has been defined as under:.
"Gas:-A state of matter in which the matter concerned occupies the whole of its container irrespective of its quantity. In an *Ideal gas, which obeys the *gas laws exactly, the molecules themselves would have a negligible volume and negligible forces between them, and collisions between molecules would be perfectly elastic. In practice, however, the behaviour of real gases deviates from the gas laws because their molecules occupy a finite volume, there are small forces between molecules, and in polyatomic gases collisions are to a certain extent inelastic."
Keeping in view the nature and definition of gas whenever Lean or Natural gas is transported through a container or pipeline, it shall occupy the whole of its space irrespective of its quantity. Accordingly, supply of natural gas to two or more buyer or shipper shall always be in commingled form.
Temperature, pressure and volume of an ideal gas are interconnected with each other. Volume of gas is directly proportional to thermodynamic temperature.
226. According to Oxford Dictionary of Science, 6th Edition 2010, Gas Law has been defined as under:.
"Laws relating the temperature, pressure, and volume of an *deal gas. *Boyle's law states that the pressure (p) of an specimen is inversely proportional to the volume (V) at constant temperature(pv-constant). The modern equivalent of *Charies' law states that the volume is directly proportional to the thermodynamic temperature (T) at the constant pressure(V/T-constant); originally this law stated the constant expansively of a gas kept at constant pressure. the pressure law states that the pressure is directly proportional to the thermodynamic temperature for a specimen kept at constant volume. The three laws can be combined in the universal gas equation, pv-nRT, where in is the amount of gas in the specimen and R is the *gas constant. The gas laws were first established experimentally for real gases, although they are obeyed by real gases to only a limited extent; they are obeyed best at high temperatures and law pressure."
227. BENJAMIN'S Sale of Goods defined the "Fungible goods". It shall be appropriate to reproduce the definition of Fungible goods, which is as under:.
"Fungible goods:-The expression "fungible goods" is not used in the Act; but it is common in countries of civil law jurisdiction and in the United States. It is used to define goods of which every particle or unit is indistinguishable from, or at least commercially equivalent to, every other particle or unit, e.g. grain, flour, or oil. Whether the term can be extended so as to include units capable of separate identification (e.g. barrels of flour, or the individual cattle in a herd) depends on whether it was the intention of the parties to regard them as equivalent.
228. In Gas Sales and Gas Transportation Agreements: Principles and Practice, Third Edition by Peter Roberts, definition of gas has been given as under:.
"Gas is a shorthand term for those hydrocarbon (or petroleum) deposits which occur naturally in a gaseous or a mixed gaseous and liquid state, consisting primarily of methane, ethane, propane and then the progressively heavier hydrocarbon fractions of butane, hexane, heptane and octane. This is natural gas, which at the point of production is often called raw gas, and can be distinguished from the synthetically produced mixtures of methane and other gases which are derived from the distillation of coal (often called town gas or syn-gas).
229. Shri R.N.Trivedi, learned Senior Counsel invited attention to a Book dealing with sale and gas transport agreement principle and practice (Third Edition) written by Peter Roberts seems to be relevant for adjudication of controversy.
230. Learned author (supra) while considering the Behaviour of Gas observed as under:.
"Gas is a fluid (that is, dynamic rather than liquid) body composed of molecules is constant and chaotic motion. Gas is highly compressible but equally it will expand to fill any vessel in which it is placed. The behaviour of gas with reference to the three primary behavioural characteristics of temperature (the thermodynamic) quotient of the gas), pressure (the molecular compression of the gas) and volume( the space occupied by a given quantity of gas) can be predicted in part by the application of three theoretical laws, together known as the gas laws:
(i) Boyle's Law (also known as Mariotte's Law, or the Boyle-Mariotte Law)-which says that the volume of gas is inversely proportional to pressure where temperature is constant.
(ii) Charles' Law (also known as the law of volume)-which says that the volume of gas is directly proportional to temperature where pressure is constant.
(iii) Gay-Lussac's Law( also known as the pressure law)-which says that the pressure of gas is directly proportional to temperature where volume is constant."
231. With regard to measurement unit, learned author writes that the imperial unit for the measurement of gas volume is the cubic foot, which is the simplest form but since gas expands and contracts according to changes in pressure and temperature, the measurement of a cubic foot is typically standardised at a temperature of 60 F and at a pressure of 14.7 pound per square inch to give a standard cubic foot. In modern metric system gas is measured in cubic metres and one cubic metre is approximately 35.3 cubic feet. Production volumes of LNG are also typically measured in millions of metric tonnes per annum. Learned author (supra) further held as under:.
"The usual imperial unit for the measurement of the calorific value (see below) of gas (or LNG) is the British thermal unit (or Btu) which can be defined as the amount of heat required to raise the temperature of one pound of pure water from 59 F to 60 F at an absolute pressure of 14.7 pound per square inch. In the SI system gas calorific value is typically measured in Joules (also defined in ISO 1000:1992 (E), and often scaled up to the Giga Joule (GJ), meaning one billion Joules). One Btu is equal to approximately 1055 Joules.
The usual imperial unit for the measurement of gas pressure is the pound per square inch (or ibf/in or psi). One psi equates to 144 pounds of pressure per square foot. The SI unit for gas pressure is the Pascal (or Pa) or kilopascal 9or kPa) (also defined in ISO 1000:1992(E), where one kPa is equal to 0.145 ibf/in.
Gas (and LNG) sales and transportation arrangements typically reference atmospheric pressure in various technical and operational provisions. Because atmospheric pressure varies with temperature and elevation above sea level an arrangement might specify its own particular definition of atmospheric pressure."
232. Thus, measurement in terms of British Thermal Unit seems to be will recognized scientific method to measure gas which has been accepted under the GSPA. With regard to purification precess of raw gas prior to delivery to the buyer or putting it into gas pipeline for transportation, the author (supra) noted the procedure adopted for purification alongwith its calorific value, relevant portion of which is as under:.
"Notwithstanding this the raw gas stream can, prior to its delivery to the buyer or into a gas pipeline for transportation, undergo several process in order to modify its constitution:
(i) Impurities removal. the raw gas stream could be treated in order to remove any impurities, or at least to reduce those impurities to commercially and/or operationally acceptable levels.
(ii) Liquids Stripping. the interest of the seller in extracting hydrocarbon fractions other than methane prior to the delivery of gas to the buyer will depend on a combination of the extent to which those fractions are present in the raw gas stream, how their presence offends the agreed gas quality specification (e.g. by taking the calorific value beyond a specified range) and the opportunity for the seller to commercialize such extracted fractions. Liquids stripping can be an inherent part of the process of LNG production where the raw gas stream is wet gas.
(iii) Calorific value modification. where the calorific value of the raw gas stream is too rich or too lean (see below) to meet the requirements of the gas (or LNG) sales arrangements then the seller or the transporter may have to blend (or spike) the raw gas stream by introducing a component (often called an inert) such as nitrogen in order to reduce the calorific value or a heavier hydrocarbon fraction in order to enhance the calorific value. This modification process might also be applied to LNG at the point of unloading.
(iv) Various. the gas could be heated or cooled and may be odourised through the addition of an odourising agent.
Calorific value (also thermal value or energy content) defines how many units of heat output (measured, for example, in British thermal units or Joules) will be released when a given volume of gas (measured, for example, in standard cubic feet or cubic metres) is combusted. This would give, for example, a calorific value of 1,100 Btu/scf. The determination of calorific values enables a straight line comparison to be made between gas (or LNG) and other fuel sources and is necessary because greater or lesser calorific values for gas can result in correspondingly greater or lesser economic values for that gas (where, typically, higher calorific values can make the gas more valuable as a commodity, because of its proportionately higher thermal content).
Calorific values can be quoted as gross (or higher heating value), meaning that any latent heat released by water vapour produced during combustion of the gas has been added into account in determining the calorific value, or as not (or lower heating value), meaning that any latent heat so released has been subtracted in determining the calorific value of the combusted gas.
The calorific value of gas will vary across the range of hydrocarbon fractions with methane having the lowest calorific value (lean gas) and progressively heavier fractions having progressively higher calorific values (rich gas). The calorific value of a gas stream increases as the molecular weight increases, with the heavier hydrocarbon fractions having greater calorific values. Thus, the net calorific value of methane is 909 Btu/scf, and this figure rises progressively to give 1,618 Btu/scf for ethane, 2,316 Btu/scf for propane and so on.
Gas required by a buyer as feedstock for combustion in a gas-fired power plant is typically bought by reference to its calorific value rather than by reference to volume, because the turbines through which the gas will be combusted will be designed to consume gas within a specified range of calorific values. Consequently, the calorific value of gas is more important to the buyer than the volume of gas which is delivered. The gas (or LNG) sales arrangements in this instance will therefore, dictate in the gas (or LNG) specification provisions a range of calorific values within which the buyer will require the seller to deliver gas (or LNG).
The calorific value of a particular quantity of gas ( or LNG) will be determined by the chemical composition of that gas (or LNG). Where the value then, unless the calorific value of the gas stream (or LNG volume) can be increased by bringing in alternative supplies of richer calorific values, a greater volume of gas (or LNG) will need to be delivered by the seller in order to maintain the aggregate calorific value of the quantity of gas nominated (or LNG scheduled) by the buyer for delivery. For example, in respect of pipeline gas deliveries:
The seller will need to bear this in mind in light of the physical constraints of its gas (or LNG) production and transportation infrastructure, which might have insufficient capacity to accommodate any greater volume of gas (or LNG) which is required. This inability to deliver the requisite quantity of gas (or LNG) by reference to calorific values could lead to a default of the seller under the gas (or LNG) sales arrangements (Ch. 12).
To protect the seller from the situation where a falling calorific value might necessitate (and so give rise to the impossibility of) the delivery of increasing physical volumes of gas ( or LNG) the gas (or LNG) sales arrangements could contain a provision to the effect that where over a specified period the average calorific value of delivered gas (or LNG) has fallen below a certain level then the seller's gas (or LNG) delivery obligation will be adjusted correspondingly.
From the buyer's perspective, however, such a mechanism will mean a reduced gas (or LNG) delivery, which might be commercially or operationally unacceptable. The buyer might therefore, require the seller to address the problem by taking such operational steps as may be needed to maintain the calorific value of the gas stream (or LNG volume) at the required level.
Conversely, where the calorific value increases and there is a resultant reduction in the physical volume of gas requiring to be delivered to meet the buyer's nomination then this could lower the gas delivery profile to the point where there could be the risk of a shutdown in the gas delivery facilities. Thus, the GSA might also contain a mechanism allowing the seller to curtail gas deliveries (without liability for shortfall-12 -002) where this happens too.
Similar provisions could apply in the context of gas transportation, in protection of the transporter."
233. A plain reading of aforesaid status noted by the author (supra) with regard to supply of natural gas through gas pipeline reveals that there can be increase or decrease of calorific value which may necessitate the delivery of increasead physical volume of gas and hence sales arrangements could contain a provision to the effect that wherever in a specified period the average calorific value of delivered falls down below a certain level then the seller's gas under delivery obligation will be adjusted correspondingly. Provision has been made in the GSPA by using word 'shortfall'. Conversely, there will be reduction in physical volume of gas and to meet out such requirement, proper arrangement may be made in the agreement.
234. Learned author (supra) after considering the 'Flow Control' and 'Pressure Control' of natural gas when delivered through pipeline noted that the seller may require a delivery tolerance and shortfall tolerance in the gas sales arrangements in order to account for over-deliveries or under-deliveries, to quote relevant portion:.
"It may be that at the delivery point the flow of gas can be controlled by either party by the deployment of a valve which is configured to do so. Alternatively, the ability of gas to flow freely could effectively be controlled by either party maintaining certain gas pressure differentials in their respective facilities. Where, for example, the buyer maintains a higher gas pressure in its gas reception facilities than the seller maintains in its gas delivery facilities then there will be a pressure barrier which could prevent the seller from being able to deliver gas into the buyer's gas reception facilities.
Correspondingly, a much lower gas pressure in the gas reception facilities will lead to a pressure drop and the seller may be unable to control the flow of gas from its gas delivery facilities into the gas reception facilities.
If the buyer can exercise flow control and/or can control the gas pressure then the buyer could have the ability to undertake or to overtake gas (Ch. 13) and the gas sales arrangements should address this. The same applies in respect of the shipper under the gas transportation arrangements.
Alternatively, the seller may control the flow of gas and/or the gas pressure regime in which case the buyer is unlikely to have the ability to undertake or overtake, but in such a situation the seller may requite a delivery tolerance (8-013) and a shortfall tolerance (12-002) in the gas sales arrangements in order to account for over deliveries or under-deliveries. The same applies in respect of the transporter under the gas transportation arrangements."
235. Learned author (supra) further noted that while managing the affairs with regard to gas sales and transportation agreement, delivery may be done on board, that is called Free on board (FOB) or delivery is done to buyer when goods are placed at the buyer's disposal on board the ship, that is called Delivered ex ship (DES). However, recent trend is Delivered at Terminal (DAT) or Delivered at Place. The DAP and DES are almost same and the delivery of gas is made available to the buyer at the named place of delivery. The delivery point shall be the point at which title, custody and risk or loss of damage to the gas transfers from seller to buyer. Learned author with regard to transfer of title had made the following observation:.
"The delivery point will ordinarily be the point at which title to, custody of and the risk of loss of or damage to the gas (or LNG) transfers from the seller to the buyer. The delivery point will also often be determinative in the allocation of tax liabilities between the parties (40-017). Modern contracts and commercial codes have successfully separated provisions for the transfer of custody, title and risk in arrangements for the sale of goods, such that these components can be considered and applied individually.
The GSA (or SPA) might seek to exclude certain implied conditions which would otherwise apply to define the transfers of title, custody and risk under GSA (or SPA). The GSA (or SPA) might also set up a regime whereby the seller indemnifies the buyer for claims and liabilities associated with the gas (or LNG) prior to the transfer of title and the buyer indemnifies the seller for claims and liabilities after the transfer of title.
In a cross-border pipeline gas sale, where teh delivery point is within the buyer's territory and the seller has to transport the gas to that delivery point, a formulation which is sometimes used is one where title to the gas will pass to the buyer at a defined border point and risk of loss of or damage to (and custody of) the gas will remain with the seller up to the delivery point:
The passing of title at the border point is intended to promote the suggestion that the seller is exporting gas to (but is not conducting business within) the buyer's territory and that the buyer (not the seller) is importing gas, which may be important to either or both parties for tax reasons. That risk remains with the seller up to the delivery point, rather than also transferring at the border point, is a commercial point for the benefit of the buyer but it could jeopardise the intended operation of the earlier title transfer."
Keeping in view the international practice with regard to delivery point noted by the author (supra) in the present context, Gadimoga shall be delivery point not only in terms of GSPA but in terms of international practice and all rights and liabilities and risk shall be transferred to Shipper at Gadimoga.
236. Keeping in view the recent technological development in the measurement of gas and its supply, the natural gas supplied to buyers at Gadimoga may not be termed as unascertained goods. The cases relied upon by Shri Mathur, learned Senior Counsel seem to be based on tangible goods covered under the Sales of Goods Act without taking into account the provisions contained in the CST Act readwith Section 7 of the VAT Act and the 2008 Regulation (supra), hence do not seem to be applicable to the present case..
237. While assailing the finding recorded by the assessing authority with regard to increase of quantity of natural gas to the extent of 12%, Shri R.N.Trivedi, learned Senior Counsel submits that it is because of adoption of two different measurement scales, i.e. Gross Calorific Value and Net Calorific Value. The assessing authority has recorded a misconceived finding.
238. In para 25 of the rejoinder affidavit, it has been stated that because of difference of measuring scale, there may be higher quantity. Higher quantity may be inferred at the time of delivery to the buyer at the tale end. It has been submitted that Gross Calorific Value is higher by 11.1% than the Net Calorific Value. The argument advanced by the learned counsel for the petitioner has not been rebutted by the State on any scientific parameter.
239. Indo Gulf Fertilizers, in its rejoinder affidavit has explained the reason for 12% increase of quantity at Orai noted by the assessing authority. The GSPA is for supply of lean gas measured in MMBtu on NHV basis. 8135 MMBtu (Million Metric British Thermal Unit) per day on NHV/NCV is supplied in terms of GSPA. BTU means the Energy required for raising temperature of one avoirdupois pound of pure water by 1 degree Fahrenheit from 59 to 60 degree Fahrenheit at an absolute pressure of 14.696 per square inch. The buyer entered into contract with GAIL whereby the unit of measurement of gas is MMBtu per day GCV (Gross Calorific Value) amounting of 8949 MMBtu. According to learned counsel NCV and GCV are different methods of measurement and according to scientific parameter GCV is higher by about 11% as compared to NHV (Net Calorific Value).
240. Shri Prashant Chandra, learned Senior Counsel appearing for the Tata Chemicals invited attention to bills and delivery receipts on record which reveal that in terms of agreement, the delivery of natural gas is done keeping in view the Net Calorific Value and delivery by the petitioner (reliance) is done on the basis of Net Calorific Value in terms of GSPA whereas at the receding end, it is delivered to Shipper in terms of Gross Calorific Value.
Apart from above, attention has been invited to Regulation 10 of 2008 Regulation which provides that more than one shipper can hold capacity at any entry or exit point. The Shipper may release the capacity in favour of other Shipper to the extent of capacity booked. It further provides that the nomination of natural gas for transportation shall contain the expected gas flow details of one or more days daily nominated quantities as per the agreed schedule between the shipper and the transporter. It shall be appropriate to reproduce Clause 6 and 7 of Regulation 10, which are as under:.
"The nomination of natural gas for transportation shall contain the expected gas flow details of one or more days daily nominated quantities as per the agreed schedule between the shipper and the transporter.
The accounting of the gas shall be in energy terms and shall be based on Gross Calorific Value as defined in ISO 6976-1:1983(E).
Needless to say that aforesaid provision has got statutory force and there is no option with the Shipper except to abide by the aforesaid provision at exit point calculating the quantity of gas in terms of Gross Calorific Value, though under the GSPA delivery has been received under Net Calorific Value. This change of measurement scale has made the difference. The Assessing Authority had not taken into account all the aforesaid statutory compulsions while recording the finding and seems to have not applied his mind on the material on record as well as statutory provisions.
241. Reliance has been placed on a book titled Petroleum Refinery Engineering (Third Edition) by W.L. Nelson. Copy of the relevant page of book has been filed with the rejoinder affidavit.
However, it is the concern of State of Andhra Pradesh to ensure the actual delivery of gas and collect CST accordingly, since CST is collected in Andhra Pradesh and accordingly avail benefit in terms of provisions contained in Section 9(3) of the CST Act.
242. However, increase or decrease of volume of gas at the tail end is a natural phenomena and shall not be a ground to disapprove the inter-state sale and also does not empower the State Government to impose Vat. Neither there is any material on record nor even a whisper which may establish that because of alleged receipt of higher volume of gas, some additional amount has been paid to the petitioner in terms of Regulation 2008. Quality and quantity of gas is measured and tested everyday and displayed on website.
243. While filing counter affidavit, State Government had not taken the plea that some sale consideration is being paid to the petitioner keeping in view the alleged change of quantity. As already held, the inter-state sale and commerce is based on movement of goods in terms of GSPA and not on its quality.
244. In a case reported in 1997 (7) SCC 531, State of U.P. Vs. Universal Exporters and others, Hon'ble Supreme Court considered Rule 12 with regard to Form C. It is held that right of the state government to collect trade tax (in the present case) VAT is rebutable. The dealer is required to furnish the State authorities a declaration from the purchasing dealer in such form and manner within such period as may be prescribed and for that under Rule 12-A (5), the Sales Tax Officer has been empower to issue blank form in this behalf if he is satisfied that requisition in that behalf is "genuine and reasonable". In the present case, Form C was issued to the buyers which has been given to the petitioner at the time of delivery of gas at Gadimoga. No finding has been recorded by assessing authority with regard to misrepresentation of fact or cooking a false case to avoid VAT. In the case of Universal Exporters (supra) Hon'ble Supreme Court observed as under:.
"That the Sales Tax Officer may satisfy himself that the requisition for the blank forms is genuine and reasonable does not empower him to pre-judge the issue as to whether or not the presumption under Section 3-AAA can be rebutted. That is something that the assessing authority must consider only after the blank form has been issued and it has been duly filled in and submitted, along with such other proof as the dealer adduces. It is only then that the assessing authority may consider whether such proof, along with the filled in form is sufficient to rebut the presumption drawn under the provision."
Non-consideration of relevance of Form "C" seems to make out a case for interference and reveals that assessing authority had not applied mind to the material evidence on record and passed the impugned order in a arbitrary and hasty manner.
XXI-MAIN JUDGMENTS RELIED UPON BY THE STATE OF UTTAR PRADESH
245. While submitting written arguments and also defending the State orally, Shri J.N.Mathur, assisted by Shri H.P.Srivastava, the then Additional Chief Standing Counsel had relied upon the cases reported in Sales Tax Officer, Pilibhit vs. Budh Prakash Jai Prakash, AIR 1961 SC 65 Tata Iron and Stell Co. Ltd. vs. S.R. Sarkar and others, 1970(1) SCC 622 Tata Engineering and Locomotive Co. Ltd. vs. The Assistant Commissioner of Commercial Taxes and Another, 1969(23) Sale Tax Cases 489 Commissioner of Sales Tax vs. Godrej Soap Pvt. Ltd., 1978 (41) STC 156 Fairmacs Trading Company vs. The State of Tamil Nadu and 1986(3) SCC 552 Madras Marine and Co. vs. State of Madras.
Since the State while submitting the written argument, out of bundle of cases cited from either side vehemently placed reliance on the aforesaid six cases while defending the order passed by the assessing authority, it shall be appropriate to consider them individually.
246. The case of Sales Tax Officer, Pilibhit (supra) deals with a situation where the proceeding under U.P. Sales of Goods Act was quashed by this Court. Various provisions of Indian Sales of Goods Act have been dealt with by the Constitution Bench of Hon'ble Supreme Court. The provision contained in CST Act was not in question being a dispute to earlier period. The judgment does not seem to be applicable under the facts and circumstances of the present case since the contract, i.e., GSPA, PSA and GTA were entered into between the parties in pursuance to constitutional mandate readwith CST Act and 2008 Regulation.
Accordingly, reliance placed by learned Senior Counsel on the judgment of Sales Tax Officer (Pilibhit) (supra) while interpreting the contractual obligation under present dispute seems to be misconceived and not sustainable. The judgment does not seem to be applicable under the facts of the present case.
247. The case of Tata Iron and Steel Co. Ltd. (supra) has been considered at appropriate place in this judgment and requires no repetition, That judgement too is also not applicable to the facts of the present controversy keeping in view 2008 Regulation (Supra), which is subsequent enactment having statutory force.
The GSPA was entered into between the parties in terms of statutory provisions under 2008 Regulation. Balabhagas Hulaschand (supra) or the Tata Iron and Steel Co. Ltd. (supra), makes no difference.
248. The case of Tata Engineering and Locomotive Co. Ltd. (supra) relates to dispute where sales of motor vehicle was in question and not natural gas regulated by 2008 Regulation. Otherwise, in the case of Tata Engineering (supra) their Lordships held that it was duty of the assessing authority to examine each individual transaction and then decide whether it constituted a inter-state sale eligible to tax under the provisions of the Act. Since the Assistant Commissioner (assessing authority) had not examined each transaction as indeed he ought to have done and has arrived at certain conclusions which appear to be wholly erroneous based on a complete misapprehension of the true position, their Lordships allowed the appeal.
249. Virtually, Tata Engineering and Locomotive Co. Ltd. (supra) helps the petitioner and not the State of U.P. In the present case, the assessing authority had not examined the transaction keeping in view the contractual obligation under 2008 Regulation coupled with constitutional mandate. In such a situation, order passed by the assessing authority shall not be sustainable.
Even in Tata Engineering and Locomotive Co. Ltd. (supra), their Lordships held that the sale being transfer of property becomes taxable under Section 3(a) of the Act if the movement of goods from one State of another is under covenant or incident of contract of sale. Since the controversy was with regard to export, their Lordships held that to occasion export there must exist such a bond between the contract of sale and the actual exportation that each link is inextricably connected with the one immediately preceding it.
The case of Tata Engineering and Locomotive Co. Ltd. (supra) strengthens the petitioner's case. In Tata Engineering and Locomotive Co. Ltd. (supra), their Lordships could not find as to how under the facts and circumstance of the said case, the movement of vehicles from the works to the stockyards was occasioned by any covenant or incident of the contract of sale. In the present case, movement of natural gas is in pursuance to covenant entered into between the parties in terms of 2008 Regulation.
250. It is incorrect to argue that in Balabhagas Hulaschand (supra), Tata Engineering and Locomotive Co. Ltd. (supra) has not been considered. In Balabhagas Hulaschand (supra) under para 24, their Lordship of Supreme Court has consciously considered the case of TELCO and reproduced relevant portion.
251. Similarly, the case of M/s Kelvinator of India Ltd. Versus State of Haryana reported in 1973 (2) SCC 551 and State of Tamilnadu Versus the Cement Distributors Pvt. Ltd. and others reported in 1975 (4) SCC 30 as well as Tata Iron and Steel Co. Ltd. (supra) have been considered by Hon'ble Supreme Court under para 26 of the Judgment of Balabhagas Hulaschand (supra). Once Hon'ble Supreme Court has itself considered these judgments and recorded a finding, then, it is not open for this Court to take a contrary view.
It may be noted that in the case of Tata Iron and Steel Co. Ltd (supra) relied upon by learned Senior Counsel for the State of U.P. it is held by Hon'ble Supreme Court that mere contract not followed by the sale shall render the contract unenforceable. Meaning thereby, there must be actual sale. In the present case, there has been actual sale of natural gas transported to outside the state, hence, it does not extend any help to learned counsel for the State of U.P.
Otherwise also, overall reading of these judgements (supra) do not make out a case to ignore section 3 of CST Act in present controversy.
252. The case of Madras Marine and Company (supra) also deals with business with regard to import of ship chandlers. The plea taken was that goods were on-board the ship and exported outside the country and could not be consumed before they reached the high seas. Plea taken was that the sale of goods took place in the territorial water of India and not within the State of Tamil Nadu, hence not exigible to sales under the General Sales Tax Act, 1959. Supreme Court held that sale took place when appropriation was made and appropriation was made within the State of Tamil Nadu even if goods were not delivered. Their Lordships held that even if territorial water did not form part of State of Tamil Nadu, there was nothing in the contemplation of the contracting parties that goods were moved from one State to another State. Hence, it may not be inter-state sale. (para 26).
The facts and circumstances of Madras Marine (supra) is entirely different and seem to be not applicable because of the fact that in the case in hand, the entire sale transaction is in pursuance to covenant prepared in terms of 2008 Regulation and contemplates movement of goods from Gadimoga to State of U.P. The delivery of natural gas was to the buyer at Gadimoga through the bailee or transporter. Hence, the case of Madras Marine (supra) in no way assists the State of U.P. to impose VAT. Madras Marine (supra) was not inter-state sale being hit by Explanation 2 readwith sub-section (2) clause (a) and (b) of Section 4 of CST Act. Hence, it shall not be applicable under the facts and circumstances of the present case.
253. The case of Godrej Soap Pvt. Ltd. (supra) deals with authorization under Bombay Sales Tax Act, 1959. The expression 'sale' defined in the said Act contains a stipulation that a sale within the State includes a sale determined to be inside the State in accordance to principle formulated in sub-section (2) of Section 4 of the CST Act , 1956. Thus, the State enactment of Bombay adopted the principles formulated in sub-section (2) of section 4 of the CST Act. Their Lordships held that the purpose of entire section 24 of Central Act is twofold: (i) to define and achieve what is an outside sale, and (ii) to fix the situs of sale. The principles for fixing the situs of sale are in section 4(2) and these are the only principles which are to be applied in determining situs of any sale under the Act, for the purpose of the definition in section 2(28) or section 2(36) to find out a 'turnover of sales' within the State. In view of the notional inclusion by fiction, provided in the Explanation, it is clear that every sale which is held to be a sale inside the State or an inter-State sale on application of the principles of section 4(2) of the Central Act would have to be included in the turnover of sales under section 2(36) of the Act.
Thus, situs of sale was tested on the touchstone of Section 4 of CST Act while interpreting the State enactment with regard to tangible goods and not natural gas regulated by 2008 Regulation. While concluding the finding, their Lordships clarified the position with regard to State enactment and Central enactment in the following words:.
"On this doctrine of incorporation once we have written this section 4(2) of the Central Act in the Explanation to section 2(28) of our Act, we would have thereafter no occasion to refer to the Central Act from which this incorporation was done and as to its purpose or context. Therefore, so far as our present Act is concerned, if the Legislature did not lack the legislative power to fix situs of the sale as distinguished from the taxing power, which it lacks because of the inclusion of certain sales under Article 286 of the Constitution, it cannot be held that we should construe the Explanation to section 2928) as being confined to and as applicable only to cases other than those which fell within section 3 or 5 of the Central Act. In fact, so far as the context of the present is concerned and especially of the relevant provisions regarding the authorization, the 'turnover of sales' under section 24 has to be of the goods exported, whether in the course of export out of the territory of India or otherwise."
254. In view of above, reliance placed by the learned Senior Counsel appearing for the State of U.P. on Godrej Soap Pvt. Ltd. (supra) to acquire right to impose VAT on the sale of natural gas in terms of 2008 Regulation seems to be misconceived and not sustainable.
255. The case of Fairmacs Trading Company (supra) does not seem to be applicable under the facts and circumstances of present case. The judgment of Madras High Court with regard to supply of chandlers in the economic water zone of country was considered by the Supreme Court in Madras Marine (supra), which requires no further discussion and is not applicable under the facts of the present case.
256. While distinguishing Balabhagas Hulaschand (supra), Sri J.N. Mathur, learned Senior Counsel relied upon certain other cases which should also be looked into.
257. In 1992 (3) SCC 750 : Commissioner Sales Tax, U.P. and others Versus Bakhtawar Lal Kailash Chandra Arthi and Others, Hon'ble Supreme Court had considered the Balabhagas Hulaschand (supra) and proceeded to observe as under :
"It is immaterial whether a completed sale precedes the movement of goods or follows the movement of goods, or for that matter, takes place while the goods are in transit. What is important is that the movement of goods and the sale must be inseparably connected. The ratio of Balabhagas is this : if the goods move from one State to another in pursuance of an agreement of sale and the sale is completed in the other State, it is an inter-State sale.............. Indeed, if one looks to the language employed in clause (a) of Section 3 it seems to suggest that the movement of goods follows upon and is the necessary consequence of the sale or purchase, as the case may be, and not the other way round"
258. In the present case, virtually, the case of Bakhtawar Lal Kailash Chand Arhti (supra) favours the petitioner since goods move out of Gadimoga in pursuance to GSPA and RGTIL and delivered to transporter at the Gadimoga itself in terms of agreement.
259. The case reported in 1980 (3) SCC 358 : Consolidated Coffee Ltd. Versus Coffee Board also does not seem to extend any help to the respondent-State of U.P. Their Lordships in the case of Consolidated Coffee Ltd. (supra) held (para 19) that in Balabhagas Hulaschand (supra) the definition of sale given in the Sale of Goods Act shall not be applied. Their Lordships held, to quote :.
"It is not possible to accept this contention for more than one reason. In the first place, the definitions of 'sale' and 'agreement to sell' in the Sale of Goods Act, 1930 would not apply to the expression 'sale' occurring in the Central Sales Tax Act, 1956, wherein the expression 'sale' has been defined in Section 2 (g) for the purpose of that Act .................
In Balabhagas Hulaschand case this Court in the context of the question as to when a sale could be said to take place in the course of inter-state trade or commerce gave an extended meaning to the word 'sale' as defined in Section 2 (g) and as used in Section 3 (a) and 4 (2) (a) and (b) of Central Sales Tax Act, 1956 and what was said by this Court was that the word 'sale' as used in Section 3 (a) and Section 4 (2)(a) and (b) was wide enough to include not only a concluded contract of sale but also an agreement of sale provided that the later stipulated that there was a transfer of property or movement of goods; the ratio of that decision will be inapplicable to Section 5 (3) which deals with the question as to when a penultimate sale shall also be deemed to be in the course of export and there is nothing therein to suggest that the word 'sale' should have any such extended meaning; on the contrary, the context suggests that the word 'sale' in the phrase "if such last sale or purchase takes place after" refers to a completed sale i.e. a sale as defined in Section 2 (g) of the Act. The contention urged by counsel must, therefore, be rejected."
The case of Consolidated Coffee Ltd. (supra) deals with a controversy under Section 5 (3) of the Central Sales Tax Act i.e. export and import and not a goods of inter-State trade covered by Section 3 of the Central Sales Tax Act. That is why Hon'ble Supreme Court held that under sub-section (3) of Section 5, the Parliament intended to prescribe that the obligation to export arising only from such agreement or order that would afford the inextricable link so as to constitute the penultimate sale, a sale in the course of export.
It does not seem to make out a case to record a contrary finding then what has been recorded in the preceding para of the present judgement.
260. An other judgement vehemently relied upon by the learned Senior counsel for the State of U.P. is reported in 2007 (9) SCC 97, State of Orissa and another Vs. K.B.Saha and Sons Industries (P) Ltd. and others. While considering the inter-State sale in K.B. Saha (supra), their Lordships held that it shall depend upon the nature of transactions and factual scenario. Their Lordships have relied upon the agreement entered into between the parties and observed that in order to decide whether sale is inter-State, it is sufficient that movement of goods took place, to quote :.
"In order to decide whether sale is inter-State, it is sufficient that movement of goods should have been occasioned by sale or should be incidental thereto. What is important is that the movement of goods and the sale must be inseparably connected. It is not necessary that there should be an existence of contract of sale incorporating the express or implied provision regarding inter-State movement of goods, even if hypothetically, it is accepted that such a requirement is necessary in the facts of the present case such implied stipulation does exists. This is referabale to clause 3.7 of the agreement."
261. In view of above, it is incorrect to say that the GSPA, RGTA and PSA are meaningless or irrelevant and cannot be relied upon while deciding the present controversy. These agreements are outcome of the statutory provisions (supra) and neither can be ignored nor misinterpreted to give them different meaning, than, what emerges from the plain reading of the agreements.
262. After hearing learned counsel for the parties, it appears that the cases have been cited keeping in view the observation made by Hon'ble Supreme Court under the particular facts and circumstances of the case and judgments are in personam and not in rem. It is well settled law that the judgment should be read in reference to context vide 2002 (4) SCC 297 Grasim Industries Limited v. Collector of Customs; 2003 SCC (1) 410 Easland Combines v. CCE; 2006 (5) SCC 745 A. N. Roy v. Suresh Sham Singh and 2007 (10) SCC 528 Deewan Singh v. Rajendra Prasad Ardevi.
Majority of the cases relied upon by the learned Senior Counsel for the State of U.P. or even by some of the petitioner's counsel deal with the Sales of Goods Act and contractual obligations thereon. The provision contained in 2008 Regulation and other statutory enactments in the last decade dealing with exploration, sale and purchase of natural gas, have not been dealt with and only in few cases like Reliance (supra), the matter has been adjudicated.
263. The expression 'judgment' has been defined in Section 2 (9) of C.P.C. 'judgment' means the statement given by the Judge on the grounds of a decree or order.' The judgment must be intelligible and must have meaning and should be based on reason vide AIR 1954 SC 194 Surendra Singh and others vs. State of U.P.
264. Sections 41 to 43 of the Evidence Act make it clear that if a judgment of the Court is a judgment in rem, it is binding on subsequent proceedings on that issue though the parties may not be the same. But if it is a judgment in personam, it does not have any binding effect in subsequent proceedings. The judgements where particular issue has been decided keeping in view the statutory provision prevailing at the relevant time, may not be applicable under facts and circumstances of each case based on subsequent legislation.
265. The cases relied upon by the learned Senior Counsel for the State of U.P. are broadly based on contractual obligation prior to 2008 Regulation or 2006 guidelines. The sale transaction with different facts and circumstances and not being regulated by 2008 Regulation is inapplicable to the facts and circumstances of the present case. The assessing authority had also not taken into account 2008 Regulation or 2006 Guidelines which deal with exploration, sale and purchase of natural gas.
266. The Law Commission while considering the reference of Ministry of Law and Justice for the amendment of Article 286 of the Constitution of India had taken into account the views of American Supreme Court to arrive at a definite conclusion. Under the American Constitution, federal structure has been given more strength than Indian Constitution. Broadly, Indian Constitution also provides a federal structure but the overall constitutional mandate tilts towards unitary feature giving more power to Central Government than the State in the variety of subjects that seems to ensure national integration and development and the check divisible forces. The power of Congress has been dealt with under Section 8 of Article I of the Constitution of United States of America (1787). For convenience, Section 8 is reproduced as under:.
"Section 8. The Congress shall have power:
(1) To lay and collect taxes, duties, imposts and excise, to pay the debts and provide for the common defence and general welfare of the United States.
(2) To borrow money on the credit of the United States.
(3) To regulate commerce with foreign nations, and among the several States and with the Indian tribes.
(4) To establish an uniform rule of naturalization and uniform laws on the subject of bankruptcies throughout the United States.
(5) To coin money, regulate the value thereof, and of foreign coin, and fix the standards of weights and measures.
(6) To provide for the punishment of counterfeiting the securities and current coin of the United States.
(7) To establish post offices and post roads.
(8) To promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.
(9) To constituted tribunals inferior to the Supreme Court.
(10) To define and punish piracies and felonies committed on the high seas, and offences against the law of nations.
(11) To declare war, grant letters of marque and reprisal, and make rules concerning captures on land water.
(12) To raise and support armies, but no appropriations of money to that use shall be for a longer term than two years.
(13) To provide and maintain a navy.
(14) To make rules for the Government and regulations of the land and naval forces.
(15) To provide for calling forth the militia to execute the laws of the Union, suppress insurrections, and repel invasions.
(16) To provide for organizing, arming and disciplining the militia, and for governing such part of them as may be employed in the services of the United States, reserving to the States respectively, the appointment of the officers, and the authority of training the militia according to the discipline prescribed by Congress.
(17) To exercise exclusive legislation in all cases whatsoever over such district (not exceeding ten miles square) as may, by cession of particular States and the acceptance of Congress, become the seat of government of the United States, and to exercise like authority over all places purchased by the consent of the Legislature of the State in which the same shall be, for the erection of forts, magazines, arsenals, dock-yards, and other needful buildings;-and
(18) To make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the Government of the United States, or in any department or officer thereof."
267. Section 10 of the American constitution contains prohibitory provision with regard to States which is as under;.
Section 10. (1) No State shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills or credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.
(2) No State shall, without the consent of the Congress, lay any imposts or duties on imports or exports, except what may be absolutely necessary or executing its inspection law, and the net produce of all duties and imposts, laid by any State on imports or exports, shall be for the use of Treasury of the Unites States; and all such laws shall be subject to the revision and control of the Congress.
(3) No State shall, without the consent of the Congress, lay any duty on tonnage, keep troops, or ships of war in time of peace, enter into any agreement or compact with another State, or with a foreign power, or engage in war, unless actually invaded, or in such imminent danger as will not admit of delay."
268. A combined reading of Sections 8 and 10 of Article 1 reveals that the Congress has been given power to impose duty and collect tax to regulate commerce with foreign nations but under sub-section 2 of Section 10, in certain circumstances, State has been empowered to impose tax.
269. It is not necessary to deal with American Constitution in detail but there appears to be difference between the power conferred on the State Legislature and power conferred on the Congress. In America, State Legislature seems to have been conferred power to some extent to interfere with inter-state commerce. So far as inter-state trade is concerned, the basic feature as defined by American Supreme Court is, "it has occasioned the movement of goods from one state to other State." Shri Sunil Gupta, learned counsel referred certain cases of American Supreme Court and Canadian Court of Appeal. It shall be appropriate to consider some cases.
270. When the State of Oklahoma restricted the rights with regard to purchase and distribution of natural gas to consumers through pipeline, the American Supreme Court declared the Oklahoma law as unconstitutional vide 221 U.S. 229 (1911) West vs. Kansas Natural Gas Co. Supreme Court ruled that the natural gas is a natural resource of national importance. It is not a commercial product when it is in the earth, but becomes so when brought to the surface and placed in pipe lines for transportation. If one State possesses natural gas, then it shall be presumed that all states have possessed the same. Any embargo should be retaliated and commerce will be halted at state lines.
271. However, in Heisler vs. Thomas Collery Co. (1922) 260 U.S. 245, MCKENNA J, observed as under:.
"If the possibility or, indeed certainty, of exportation of a product or article from a State, determines it to be in inter-State commerce before the commencement of its movement from the State, it would seem to follow that it is in such commerce from the instant of its growth or production; an in the case of coals, as they lie on the ground;"
Neither the Law Commission nor the Indian Supreme Court followed the aforesaid proposition (supra ) and ruled that the inter-state trade shall be deemed to commence only when there is movement of goods from one State to the other.
272. In (1923) 262 US 553 Commonwealth of Pennsylvania vs. State of West Virginia, American Supreme Court interfered when the State of Pennsylvania and Ohio claimed right over natural gas on the ground that many of the users of natural gas, including public institutions, schools and private consumers were inhabitants located in their territory and they would be deprived of the resources, hence interfered on the ground that Commerce Clause of the Constitution have been violated. The American Supreme Court declared West Virginia law as unconstitutional and held that in the matter of inter-state commerce, America is one nation comprising same people.
273. In (1926) 270 US 550 People's Natural Gas Co. vs. Public Service Commission, Pennsylvania, the controversy before the American Supreme Court arose on account of commingling of gas in Pennsylvania with the gas coming from West Virginia while transporting through pipeline. American Supreme Court held as under:.
"As respects the Pennsylvania gas, we think it must be held to be in intrastate commerce only. Feeding it into the same pipelines with the West Virginia gas works no change in this regard. Of course, after the commingling, the two are undistinguishable. But the proportions of both in the mixture are known, and that of either readily may be withdrawn without affecting the transportation or sale of the rest. So, or all practical purpose the two are separable, and neither affects the character of the business as to the other."
274. Aforesaid proposition has been reiterated by American Courts in the cases reported in (1947) 331 U.S. 682 Interstate Natural Gas Co. vs. Federal Power Com'n, (1954) 347 U.S. 672 Phillips Petroleum Co. vs. Wisconsin, (1983) 463 U.S. 319 PSC vs. Mid-Louisiana Gas Co., (1986) 806 F. 2d 275 Consolidated Oil and Gas, Inc. vs. Federal Energy Regulatory Commission.
275. The controversy with regard to fungible goods and commingling of gas was the subject-matter of consideration in one other case reported in 2008 WL 4648 330 (Okla, October 21, 2008) In re: Assessment of Personal Property Taxes Against Missouri Gas Energy.
276. In brief, the fact in dispute was with regard to gas distribution company which purchased natural gas from different suppliers located in Kansas, Taxas and Oklahoma and contracted with Panhandle pipeline company for transportation of gas to its customers located in the State of Missouri. Panhandle had a storage facility at North Hopeton in Woods County in the State of Oklahoma. During transportation some natural gas was removed from the pipeline and placed in the said storage facility of Panhandle.
On demand being made by the Assessor of Woods County, Panhandle gave information to the Assessor of a list of its shippers. The Shipper allocated to each shipper a portion of the gas stored in the storage at North Hopeton. On this information, the Assessor levied personal property tax on on MGE in respect of the portion of gas stored at North Hopeton which was allocated by Panhandle to MGE.
277. It was challenged on the ground that multiple shippers who purchase natural gas from different suppliers use the pipeline of Panhandle simultaneously and all of their gas are commingled and once individual molecules of natural gas enter the pipeline at the supplier's facility, neither Panhandle nor the Shippers attempt to trace the same to individual shippers nor it is physically possible to do so. In the pipeline itself, all gas in the storage facility of Panhandle was also commingled and was incapable of being traced to a particular shipper.
278. Natural gas transaction are executed by means of a computarised scheduling system in which nominations are made. There is not always a direct correlation between the particular molecules of gas injected on behalf of a shipper into the pipeline or deposited in the storage facility and the gas finally delivered to the shipper.
While challenging the Assessors levy of tax, it was pleaded that on account of commingling of gases belonging to different shippers in pipeline and storage facility, it was not possible to identify a particular volume of gas in the storage facility of Panhandle as being owned by MGE.
279. The Court agreed with the Assessors on the ground that MGE took title to purchased gas at the wellhead and was deemed to be the owner of delivered gas at the point of ultimate consumption. At no point in the transportation or storage process MGE tansfers title to the gas to Panhandle. It is further held that as general rule where fungible goods belonging to different persons are so intermingled as to be undistinguishable, whether by consent of the owners or by someone's wrongful act, the owner becomes tenants in common of the mass. The commingling of a fungible commodity does not affect ownership unless the parties intend to transfer title. The way the system works, each shipper is simply entitled to a volume of gas thermally equivalent to that which it placed into storage regardless of where it was placed when stored or from where it is taken when removed from storage. However, it is held that it shall be inter-state commerce vide (1977) 430 US 274 Complete Auto Transit vs. Brady.
280. In case the present controversy is considered in the light of aforesaid case, then because of transfer of title of gas by the petitioner in favour of shipper/buyer in terms of GSPA, PSA and GTA, the ownership shall be transferred to the respondents (shipper) and being transferred out of state, it shall be inter-state trade.
281. Again in 270 S.W. 3d 208 (Tax appl. 2008) Peoples Gas, Light and Coke Co. vs. Harrison Central Appraisal District, the buyers and sellers conduct at commercial points was taken into account while holding that fungible and ethereal nature of natural gas makes it possible to ascertain the physical location of a given portion of natural gas at any moment. Pipeline cannot identify particular volume of gas as belonging to a particular customer when physically transporting or storing natural gas.
282. In 2007 FCA 223 The Ministry of Public Safety and Emergency Preparedness (Canada) vs. Tenaska Marketing Canada, the assessee was involved in business of trading natural gas in Canada. It purchased natural gas in western Canada and then transported to its customer at eastern Canada via the Great Lakes Pipelines located in the USA. Under the sale contract, Tenaska transferred the title to natural gas to a US affiliate when the gas crossed the border into the US. Title was transferred back to the applicant when the natural gas re-entered Canada. The Canada Federal Court of Appeal held that the assessee was entitled to exemption from GST regardless of the commingling of gas with the following observation:.
"Due to its unique physical properties, large volumes of natural gas can only be transported in a continuous stream. Once delivered into a pipeline for transportation, it becomes commingled with other natural gas. Individual molecules are not separately identifiable, and cannot be accurately tracked or traced. As a result, natural gas is sold and purchased on a "quality and quantity basis", and treated as a fungible goods, with title taken on a quality and quantity basis.
Accordingly, and at the ultimate point of delivery, what the purchaser would actually receive is the same general volume and quality of natural gas (less any fuel consumed in transport), and having the same effective heat content that was delivered at the upstream point.
Pipeline transportation contracts generally provide for the commingling of the natural gas delivered to the pipeline with other natural gas, and require specified quality standards for natural gas being delivered to or by the pipeline.
Given the fundamental properties of natural as (i.e., it is a fungible commodity, commingled with the contents of the pipeline on delivery, and therefore not separately identifiable once delivered), all of Tenaska's shipments of the Canadian natural gas via the TCPL/GLGC Pipeline were commingled with like natural gas and lost their separate identities once delivered to th at pipeline. Furthermore, and when transported through the U.S, the Canadian natural gas would likely have been further commingled with U.S. produced natural gas, being delivered to the GLPS at various points in the U.S.
In the end, the change of ownership of the Canadian natural gas during its transit through the U.S. and the commingling of Canadian and American gas on the American part of the pipeline are not relevant to determine the purpose of the delivery from one place in Canada to another place in Canada. These facts form an intrinsic part of the economic reality of transporting natural gas via pipeline through the United States. This economic reality was very much in the mind of the drafter of the legislation and found its way in the terms used by Parliament."
283. Now, considering the various judgments of American Supreme Court and Federal Court of Appeal, Canada with regard to inter-state sale of fungible goods, i.e., natural gas in commingled form, there appears to be no room of doubt that the movement of gas in pursuance of covenant outside the State makes it an inter-state sale. In India, it occasioned only after movement of lean gas or natural gas in pursuance to covenant by transfer of property to the shipper but in America it may be earlier to it.
284. A large number of cases and Dictionaries have been cited by Shri Sunil Gupta with regard to law on the subject laid down by American Supreme Court and court of appeal but they need not be discussed because of no ambiguity or doubt over the proposition of law with regard to inter-state sale. Emphasis given by the learned Senior Counsel representing the State of U.P. with regard to commingling of gas and in consequence thereof, right to impose VAT seems to be misconceived argument.
285. It shall be appropriate to refer to the observation made by the Hon'ble Chief Justice Chagla in the case reported in (1955) 28 ITR 811 (Bom) Elphinstone Spg. and Wvg. Mills Co. Ltd. vs. CIT, to quote relevant portion:.
"...But if life is not logic, income tax is much less so, and it is clear that we cannot impose tax upon a subject by implication or because we think that the objection of the legislature was a particular object. In order to carry out the object the legislature must use appropriate language and if the legislature fails to use appropriate language then this would be one of the many sad instances where the legislature, to use the famous language of a Law Lord, has misfired and however much we may regret the misfiring it would be our duty to relieve the subject from taxation if the language of the statute does not support the contention of the Income Tax Department...where the language is clear and not capable of any other construction, then however illogical the position, however, absurd the result, however, much the construction put may defeat the object of the legislature, the statute must be construed according to the plain language used by the legislature and the more so if that plain language supports the subject against the taxing department."
286. In view of above, findings of the Court in respect of the controversy involved in the present writ petition and proposition of law are summarized as under:.
"(1) In exercise of its legislative power to impose tax on sale or purchase of goods under Entry 54 of the State List read with Article 366(29-A)(b), the State Legislature, while imposing a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract is not competent to impose a tax on such a transfer (deemed sale) which constitutes a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import or export.
(2)The provisions of Sections 3, 4 and 5 and Sections 14 and 15 of the Central Sales Tax Act, 1956 are applicable to a transfer of property in goods involved in the execution of a works contract covered by Article 366(29-A)(b).
(3) While defining the expression 'sale' in the sales tax legislation it is open to the State Legislature to fix the situs of a deemed sale resulting from a transfer falling within the ambit of Article 366(29-A)(b) but it is not permissible for the State Legislature to define the expression "sale in a way as to bring within the ambit of the taxing power a sale in the course of interstate trade or commerce, or a sale outside the State or a sale in the course of import and export.
(4) The inter-state sale shall be either governed by Section 3(a) of the Act where it has occasioned the movement of goods from one State to other or under Section 3(b) if it is affected by transfer of document of title after such movement has started and before the goods are actually delivered to make a transaction taxable under CST Act. The transaction must be a sale as defined in Section 2 (g) of CST Act taking place in the course of inter-state trade or commerce in any of the manner provided in clause (a) and clause (b) of Section 3.
(5) where situs of sale has not been fixed or covered by any legal fiction created by the appropriate legislature, the location of sale would be the place where the property in goods passes, it is the passing of property within the State, intended to be fastened on for the purpose of determining whether sale is inside or outside the State.
(6) In a inter-state sale or commerce, movement of goods springs from the terms of contract of sale or purchase or is incidental thereto. The movement of goods need not necessarily be preceded by an agreement of sale or purchase but may be part of or incidental to it or arise out of it.
(7) Sale may be intra-state sale only in case keeping in view the Explanation 2 of Section 3 of CST Act, the movement of goods commences and terminates in the same State. For inter-state sale the movement of goods commences in one State but terminates in other State.
(8) Sub-Section (2) of Section 4 has no bearing on intra-state sale. Under the garb of sub-section (2) of Section 4, State has got no right to impose VAT. Question with regard to inter-state sale should be decided independently by the construction of section 3 of the Act.
(9) In the present case, admittedly the natural gas is handed over to bailee or transporter in terms of agreement at Gadimoga and after travelling a long distance it reaches State of U.P. Movement of lean gas from Gadimoga itself is indicative of the fact that the sale in question of inter-state sale.
(10) Minor variation in the quantity or shortfall of natural gas in terms of quantity shall not empower the State of U.P. to impose VAT since it is the State of Andhra Pradesh, which is beneficiary under sub-section (3) of Section 9 of the CST Act. There is no material on record with regard to payment made by the seller or buyer in lieu of alleged processing done at the plant of GAIL. The processing done because of mixture of natural gas extracted from the offshore of Gujrat does not affect the nature of sale or purchase to the extent it relates to the petitioner and respondents.
(11) Under Regulation 2008 readwith Guidelines of 2006, it is permissible of the buyer (respondent) to take the delivery of gas from the common carrier of RGTIL and delivery of lean gas shall be deemed to be made to buyer at Gadimoga and not at Orai in State of U.P. in terms of GSPA, RGTIL, GTA and Regulation 2008.
(12) There is no material on record with regard to sale consideration or payment of gas to the petitioner in lieu of processing in Gujrat or on account of alleged variation in the volume of gas at Orai. Hence, it shall not be intra-state sale. GSPA and GTA being executed in terms of 2008 Regulation to meet the constitutional requirements suffers from no infirmity or illegality. There is no material on record and no material has been discussed or finding has been recorded by the assessing authority that GSPA and GTA were executed in violation of any statutory provision or on unfounded ground or are farce to avoid the tax rather; they are in tune with 2008 Regulation and PSA. The assessing authority had not considered the constitutional provision as well as various provisions of Central Sales Tax Act, 2008 Regulation and guidelines of 2006 issued by the Government of India (supra). Hence the judgement suffers from perversity and vice of arbitrariness and is an instance of non-application of mind to the statutory provision.
(13) The GSPA and GTA being executed in pursuance to statutory provisions (supra) and PSA cannot held to be irrelevant. They cannot be ignored while adjudicating the present controversy with regard to inter-State sale, unless they are held to be farce or sham. Since their genuineness has not been doubted, keeping in view the terms of the agreement (supra) and the statutory provisions, the sale in question is a inter-State sale. GSPA is an agreement and not an agreement to sale. The Assessing Authority has failed to exercise jurisdiction vested in it.
(14) Neither there is any material on record nor there is any substance in the argument advanced on behalf of the State of U.P. that they have jurisdiction or statutory right to impose VAT ignoring statutory mandate of Central Sales Tax Act,1956 read with constitutional provisions (supra) and 2008 Regulation.
Hence, the sale transaction which is the subject matter of the instant case is not an intra-state sale but is an inter-state sale and State of U.P. lacks jurisdiction to impose tax (VAT).
287. Learned counsel for the State had invited attention towards Section 43 of the VAT Act and submits that tax realised upon by the State of U.P. can not be refunded. He further submits that in case, the tax paid by the assessee has been passed on to the consumer then also they have no right to seek refund from the State Government.
Section 43 of the VAT Act provides that the amount deposited by assessee which is not due as a tax be held by the State Government as a trustee and in case claimed, should be refunded. Thus, in case, tax realised is not passed on the consumer then under the statutory mandate assesse seems to have got right to seek refund but if it is passed on to the consumer then it may be refunded to consumer in such a manner as may be prescribed in the statute for the purpose. It has been submitted by the petitioner's counsel that it has not been passed on to the consumer while selling the fertilizers but reliance has recovered from the respondents no. 4 to 10 who are also assessee. Accordingly, there appears to be no reason to held that state is not liable to refund the tax which has been charged without jurisdiction.
288. Reliance placed by learned senior counsel on the cases reported in 1992 UPTC 593 (SC), Amrit Banaspati Co. Ltd. Vs. State of Punjab; 2002 (1) SCC 480, S.R.F. Ltd. Vs. Assistant Collector of Central Excise, Trichy; 1997 (5) SCC 744, Assistant Collector of Customs and others Vs. Anam Electricals Mfg. Company and others; 2010 (10) SCC 687, Jay Vee Rice and General Mills VS. State of Haryana;2009 (8) SCC 235, State of Maharashtra Vs Swanstone Multiplex Cinema Pvt Ltd and 1999 (9) SCC 620, Belsund sugar company ltd. Vs. State of Bihar, does not create any hurdle in the way of assessee to claim refund of taxes claimed by him. In Swanstone Multiplex (supra) while considering unjust enrichment their Lordships held that doctrine may be invoked even if there is no statutory provision. State is not entitled to unjustly enrich itself with the huge amount of illegally collected duty.
289. It would be travesty of justice in case the tax realised under the garb of VAT Act is not refunded to the assessee by the State Government. There appears to be blatant abuse of power by the State authorities while imposing the VAT. In Swanstone multiplex (supra) their Lordship of Hon'ble Supreme Court observed as under:.
"The statute must be interpreted reasonably. It must be so interpreted so that it becomes workable. Interpretation of a statute must subserve a constitutional goal. A statute of this nature, in our considered opinion, cannot be interpreted in such a manner so as to enable an entrepreneur to get undue advantage to the effect that he would collect tax from the cinema-goers and appropriate the same. When a person collects tax illegally, he has to refund it to the taxpayers. If the tax payers cannot be found, the court would either direct the same to be paid and/or appropriate by the State."
290. In view of above, there appears to be no reason to accept the arguments of learned Senior Counsel of the State of U.P. that the state may not be directed to refund the tax realise from the assessee.
While parting with the judgment, it shall be appropriate to consider one material fact brought to the notice of the Court by Shri Sunil Gupta submitted through compilation. In this fast changing economy and to keep the pace with time for the socio economic development of country as well as to strengthen the national integrity, inter-state trade are necessity. Export and import are part of present commercial set up. Attention has been invited to the fact that the Government of India is proposing for import of natural gas through the pipelines from abroad. Economically, the India is fast expanding country and installing the pipeline to meet out the requirement of the country. Pipeline is proposed under common carrier system from Iran to New Delhi and from Turkmenistan, Persian Gulf to India. Infrastructure may be developed with other countries. Such pipeline may be based on common carrier basis to involve the private sector. Narrow construction of CST Act or the Constitutional Provision shall adversely affect not only the inter-state trade but import or export of natural gas from India and abroad through common carrier pipeline.
291. Nani Palkhivala while writing the preface of his most celebrated book on Income Tax Act, 1961 (8th Edition) observed:.
"Every Government has a right to levy taxes. But no Government has the right, in the process of extracting tax, to cause misery and harassment to the taxpayer and the gnawing feeling that he is made the victim of palpable injustice."
Central Government or the State Government must exercise their taxing powers in a just and fair manner, bonafidely and within four corner of law to avoid tax evasion by the tax payer.
292. Multiple taxation shall hamper the free movement of goods (natural gas) during interstate trade, and would be prejudicial to the freedom of trade, commerce and intercourse throughout the territory of India and the unity and integrity of the country. Like Army and Judiciary, interstate trade is also a mean or measure to strengthen National Integrity. It also helps the states to meet out their industrial requirements or 'public demand' with regard to goods at reasonable price.
293. We place on record our appreciation with regard to assistance provided by Shri R.N.Trivedi, Shri Bharat Ji Agarwal, Shri Abhishek Manu Singhvi, Shri Sunil Gupta, Shri S.M.K.Choudhary, Shri Vivek Tankha, Shri J.N.Mathur and Shri Prashant Chandra as well as learned Senior Advocates assisting their counsels who have rendered great help to resolve the present controversy with their valuable arguments.
294. In view of above, writ petition deserves to be allowed. Accordingly, a writ in the nature of certiorari is issued quashing the impugned order dated 11.6.2010 passed by Additional Commissioner Grade II, Commercial Tax Lucknow as contained in Annexure-5 to the writ petition with all consequential benefits. All consequential orders passed or notices issued by the respondents State of U.P. on account of order dated 11.6.2010 are also set aside.
A writ in the nature of mandamus is issued directing the State Government to refund the tax realised in pursuance to order dated 11.6.2010 forthwith to the assessees expeditiously.
Writ petition is allowed accordingly. No order as to costs.