PETITIONER:
OIL AND NATURAL GAS COMMISSION
Vs.
RESPONDENT:
STATE OF BIHAR AND OTHERS
DATE OF JUDGMENT24/08/1976
BENCH:
RAY, A.N. (CJ)
UNTWALIA, N.L.
SHINGAL, P.N.
CITATION:
1976 AIR 2478 1977 SCR (1) 354
1976 SCC (4) 42
ACT
Sales Tax--Supply of crude oil by Oil and Natural Gas
Commission from Assam to refinery of Indian Oil Corporation
in Bihar--Supply under directions of Government at price
fixed by Government--If inter-state sale liable to Central
Sales Tax.
HEADNOTE
Under the Oil and Natural Gas Commission Act, 1959, it
is the business of the Oil and Natural Gas Commission to
plan, promote, organise and implement programmes for the
development of petroleum resources and the production and
sale of petroleum products produced by it and to perform
such functions as the Central Government may, from time to
time, assign to it. Under s. 29 of the Act, the Commission
shall be deemed to be a Company, liable for any tax or fee
levied by the Central or State Government. Section 31
empowers the Central Government to make rules prescribing
the conditions subject to which, and the mode in which,
contracts may be entered into by or on behalf of the Commis-
sion. The Commission is engaged in the business of produc-
ing crude oil in Assam and supplying it to the refineries of
the Indian Oil Corporation at Gauhati in Assam and Barauni
in Bihar. It was decided by the Government of India and
agreed to by the Commission; that the crude is deemed no-
tionally to be delivered only to Barauni Refinery and not to
Gauhati Refinery, and that payment of Sales-tax by the
Commission is to be on the same principle.
The Commission however challenged, in a petition to this
Court, its liability to pay any sates-tax either under the
Central Sales Tax Act to the State of Assam or the State
Sales Tax to the .State of Bihar, on the ground, that, in
supplying crude oil to the Corporation there was no contract
of sale between the Commission and the Corporation, because,
the supply was pursuant to. directions and orders of the
Central Government and the Commission had no volition or
freedom in the matter. The Commission also contended that
assuming that they are sates they are inter-state sales,
under the Central Sales Tax Act, 1956, and the State of
Bihar was not competent to levy any State sales tax.
HELD: (1) The supplies of crude oil by the Commission to
the Brauni Refinery of the Corporation satisfy all the
ingredients of a sale and amount to sales by the Commission
to the Corporation. [356 A]
(a) Statutory orders regulating the supply and distribu-
tion of goods by and between the parties under Control
Orders do not absolutely impinge on the freedom to enter
into contract. [357 C]
(b) Directions, decisions and orders of agencies of
the Government to control production and supply of commod-
ities, may fix the person who has to carry them out, the
parties to whom the goods are to be supplied, and he price
at which, and the time during which they are to be supplied.
In much cases it cannot be said that compulsive. directions
rob the transactions of the character of agreement. There
is privity of contract between the parties, he statute
supplying the consensus and the modality of consensus. [357
D--E]
(c) Such a transaction is a valid transfer of, property
for consideration and he law presumes assent when there is
transfer of goods from one to the other. [357 F]
(d) Also, a sale may not require the consensual element and
there may compulsory sale of property under a statute for a
price fixed against the owner’s will. [357 F]
355
(e) Delimiting areas for transactions or denoting par-
ties or price for transactions are all within the area of
individual freedom of contract with limited choice by reason
of ensuring the greatest good for the greatest number by
achieving proper supply as standard or fair price. [357
G] .
(f) The transactions in substance represent the outgoing
of the business and the price would come into computation of
profits. [357 G]
Salar Jung Sugar Mills Ltd. Etc. v, State of Mysore &
Ors. [1972] 2 S.C.R. 228 followed.
(2) The movement of crude oil from Assam to Barauni in
Bihar is pursuant to and as an incident to the contract for,
sale between the Commission and the Corporation. The Sales
are therefore inter-state sales. and under the Central
Sales-tax Act only the. State of Assam is entitled to levy
central sales tax on the Commission. [358 G]
JUDGMENT
ORIGINAL JURISDICTION: Writ Petition No. 74 of 1975.
L.N. Sinha, Sol. General of India and B. Datta, for the
Petitioner.
A. K. Sen, B. P. Singh, Shambhu Nath Jha and U.P. Singh
for the Respondents (For State of Bihar) R-1 and R-2.
D. Mookherjee, and S.K. Nandy, for the Respondent (State
of Assam) R-3 and R-4.
The Judgment of the Court was delivered by
RAY, C.J.--The Petitioner in this Writ Petition raises
the question that the supplies of crude oil made by the
Petitioner Oil and Natural Gas Commission, referred to as
the Commission to Indian Oil Corporation Limited, referred
to as the Corporation are not exigible to Salestax either by
the State of Assam or the State of Bihar under the Central
Sales Tax Act or the Bihar Sales Tax Act respectively. The
petitioner contends that the supplies by the Commission to
the Corporation are pursuant to directions/orders of the
Central Government, and, therefore, there is no Contract of
sale. The petitioner in particular contends that the Com-
mission is obliged to supply to the Corporation and the
petitioner has no volition or freedom in the matter. The
petitioner, therefore, contends that there is no contract of
sale between the Commission and the Corporation.
The second contention of the petitioner is that if it be
held to be sales these are inter-state sales under section
3(a) of the Central Sales Tax Act, 1956 and the State of
Bihar is not competent to levy Sales-tax under section 16(5)
of the Bihar Sales Tax Act.
In order to find out as to whether the transactions
between the Commission and the Corporation amounted to a
Sale, it is necessary to ascertain the correct facts.
The letter dated 15 June 1968 is important. It is
written by the Corporation to the Commission. The Corpora-
tion States as follows
"I am writing to confirm that Indian Oil Corporation
would be in a position to receive 300 tonnes a day of Lakwa
crude via the Oil Pipeline any time from today. We would
also wish you to augment the supplies so as to reach about a
356
million tonnes per annum as soon as possible. The above 300
tomes ’will be in addition to the’ supplies that we are
receiving currently from OIL (Oil India Ltd.) and by rail
from Rudrasagar. Kindly arrange to supply full analytical
data regarding the crude that you would be sending from
Lakwa. I would also suggest that the pricing arrangement
may also be worked out regarding the supply and intimated to
us, if necessary, after consulting OIL."
The next important document relates to the Minutes of
the meeting held at the Office of the Chairman of the Corpo-
ration at New Delhi on 8 August, 1968. The representatives
of the Corporation, the Commission and Oil India Limited
were present.
Crude oil supplied both by the Commission and Oil India
Limited come through the pipeline belonging to Oil India
Limited to refineries at Gauhati and Barauni belonging to
the Corporation. The manner of measurement and of payment
for crude is ascertained by the Corporation from the Commis-
sion and Oil India Limited.
At the meeting held on 18 October 1968, the Central
Government representatives and representatives of the peti-
tioner, Oil India Limited and the Corporation were present.
It was decided that crude oil which was being delivered to
the refineries of the Corporation at Gauhati and Barauni is
a mixture of Oil India Limited crude and the Commission
crude. Oil India Limited would send the bills-for the
entire quantities of crude, so delivered, giving the bifur-
cation of crude belonging to Oil India Limited and the
Commission with API gravity of each.
The document dated 23 February, 1968 records the price
of crude oil purchased by the Corporation from the Commis-
sion and the basis on which payment should be made.
Another document dated 17 February, 1969 written by the
Central Government to Oil India Ltd., shows that crude oil
would be supplied to the Barauni, Gauhati and Digboi refin-
eries as mentioned therein. For the Barauni Refinery, Oil’
India would supply a certain quantity and the Commission the
balance.. In case the Commission’s supply fell short, it
would be made good by Oil India Limited. For the Gauhati
Refinery, certain quantity would be supplied by Oil India
Limited and the remainder would be deemed to have been
supplied by the Commission. The requirements of Digboi
refinery would be met by Oil India Limited.
The next document is dated 7 August 1973 incorpo-
rating the Minutes of the meeting held on that day at the
Ministry of Petroleum & Chemicals to discuss the Sales Tax
liability of the Commission crude Sold to the Corporation.
The representatives of the Ministries of Petroleum & Chemi-
cals and of Finance, the Commission and Oil India Limited
were present. After discussion, it unanimously decided
that whatever principle had been adopted in the past for
computation of pipeline tariff payable by the Commission
should also be adopted
357
for payment of Sales-tax by the Commission. Since for
tariff computation all of Commission’s crude is deemed
notionally to be delivered to Barauni Refinery and none to
Gauhati Refinery, the Sales-tax liability of the Commission
would also accrue on the principle that all of its crude was
being sold to Barauni Refinery.
The Commission is described by the Solicitor General to
be a statutory body which has no option either with regard
to the production or supply and the directions and decisions
of the Government leave no choice with the Commission in
regard to supplies.
This Court in Salar Jung Sugar Mills Ltd. Etc. v.
State of MysOre & Ors. C) laid down the following proposi-
tions: First, statutory orders regulating the supply and
distribution of goods by and between the parties under
Control Orders in a State do not absolutely impinge on the
freedom to enter into contract. Second, directions, deci-
sions and orders of agencies of the Government to control
production and supply of commodities, may fix the parties to
whom the goods are to be supplied, the price at which these
are to be supplied, the time during which these are to be
supplied and the persons who has to carry out these direc-
tions. In such cases it cannot be said that compulsive
directions rob the transactions of the character of agree-
ment. The reason is that the transfer of property which
constitutes the agreement in spite of the compulsion of law
is neither void nor voidable. It is not as result of coer-
cion. The statute supplies the consensus and the modality
of consensus is furnished by the statute. There is privity
of contract between the parties.
The other third, fourth, fifth and sixth propositions
are these. Third, such a transaction is neither a gift nor
an exchange nor a hypothecation nor a loan. It is a trans-
fer of property from one person to another. There is con-
sideration for the transfer. There is assent. The law
presumes the assent when there is transfer of goods from one
to the other. Fourth, a sale may not require the consensual
element and that there may, in truth, be a compulsory sale
of property with which the owner is compelled to part for a
price against his will and the effect of the statute in such
a case is to say that the absence of the transferor’s con-
sent does not matter and the sale is to proceed without it.
In truth, transfer, is brought into being which ex facie in
all its essential characteristics is a transfer of sale.
Fifth, delimiting areas for transactions or denoting parties
or denoting price for transactions are all within the area
of individual freedom of contract with limited choice by
reason of ensuring the greatest good for the greatest number
of achieving proper supply at standard or fair price to
eliminate the evils of hoarding and scarcity on the one hand
and ensuring availability on the other. Sixth, after all
the transactions in substance represent the out-going of the
business and the price would come into computation of prof-
its.
Judged by the principles laid down by this Court in
Salar Jung Sugar Mills’ case, which is a decision by a
seven-Judge Bench, there
(1) [1972] 2 S.C.R. 228.
358
is no doubt that the transactions in the present case
amounted to a sale of crude oil by the Commission to the
Corporation. It is true that the Government decided and
directed the Commission to supply to the Indian Oil Corpora-
tion at a price to be fixed, but the transaction is in
course of business conducted by the Commission.
It is the business of the petitioner under the statute
to plan, promote, organise and implement programmes for the
development of petroleum resources and the production and
sale of petroleum products produced by it and to perform
such functions as the Central Government may, from time to
time, assign to the Commission. These are the functions of
the Commission under section 14 of the Oil & Natural Gas
Commission Act, 1959. Further, section 29 of the Act states
that "the Commission shall be deemed to be a Company within
the meaning of any enactment for the time being in force
providing for the levy of any’ tax or fee by the Central
Government or a State Government and shall be liable to pay
such tax or fee accordingly". Section 31 contemplates power
of the Central Government to make rules inter alia prescrib-
ing the conditions subject to which, and the mode in which,
contracts may be entered into by or on behalf of the Commis-
sion. The provisions of the Oil & Natural Gas Commission
Act show that the Commission is engaged in the business of
producing crude oil in Assam and the supply of the crude
oil. The supply to the Corporation is a sale transaction
fulfilling all the ingredients of a sale. The supply of
crude oil by the Commission to the Barauni Refinery of the
Corporation is also a sale in the course of inter-state
trade. The movement of crude oil from Assam to Barauni is
pursuant to the Contract for sale of crude oil.
The directions given by the Government are because of
the character and constitution of the Commission. Direc-
tions and decisions do not detract from the sale of crude
oil by the Commission to the Corporation. These statutory
Corporations work in collaboration with the Central Govern-
ment particularly the Ministries of Petroleum and Finance
for policy and planning.
The State of Bihar raised a feeble contention that it
was not an inter-State sale. The delivery may be in Assam
or in Bihar at Barauni but the movement of goods is the
result of contract and as an incident to the agreement
between the Commission and the Corporation. The State of
Assam has lawfully levied the Central Sales Tax on the
petitioner. The State of Assam is entitled to levy Central
Sales Tax on the petitioner. The Commission has been paying
Sales Tax since the commencement of sales. It is made clear
that it is open to the Commission to make applications for
refund, if any, in accordance with the Sales Tax Law.
For the foregoing reasons the Writ Petition is dis-
missed. Parties will pay and bear their own costs.
V.P.S. Petition dis-
missed.
359