Crude oil loan and barter arrangement was not a taxable sale; declaratory relief was appropriate, not prohibition.

A government-regulated crude oil allotment, loan and re-allotment mechanism under the Oil Co-ordination Committee scheme was treated as a loan or barter arrangement, not a taxable sale, because it lacked buyer-seller consensus, money consideration and the essential incidents of sale. The Court also noted that the movement and adjustment of crude oil formed part of import transactions before the customs barrier, attracting constitutional limits on State taxation. On remedy, the assessing authority could examine the turnover and the nature of the transaction, so prohibition was not appropriate; however, declaratory relief could be moulded under Article 226 where the transaction's true character required judicial determination.

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Issues: (i) Whether the crude oil allotment, loan and re-allotment arrangement under the Oil Co-ordination Committee scheme constituted a taxable sale under the Tamil Nadu General Sales Tax Act, 1959 and the Central Sales Tax Act, 1956, or only a loan or barter transaction without sale consideration; (ii) whether the assessing authority had jurisdiction to levy sales tax on the transaction so as to justify a writ of prohibition, and whether the relief could be moulded into a declaration.

Issue (i): Whether the crude oil allotment, loan and re-allotment arrangement under the Oil Co-ordination Committee scheme constituted a taxable sale under the Tamil Nadu General Sales Tax Act, 1959 and the Central Sales Tax Act, 1956, or only a loan or barter transaction without sale consideration.

Analysis: The transaction was undertaken pursuant to a government-controlled import and allocation mechanism for maintaining uniform petroleum prices and regulating crude oil distribution. Allocation and re-allocation were made by the Oil Co-ordination Committee through the canalising agency, and the oil companies acted only under those directions. The Court found that the arrangement operated on a quantity-to-quantity basis, with security deposits and subsequent return of equivalent crude, and did not exhibit the essential ingredients of sale, namely a buyer and seller, transfer under a contract, and price as money consideration. The movement and adjustment of crude oil were made before the vessel crossed the customs barrier and, in any event, were part of import transactions protected by the constitutional restriction on State taxation.

Conclusion: The transaction was not a sale; it was a loan or barter arrangement, and the levy of sales tax on that basis was unsustainable.

Issue (ii): Whether the assessing authority had jurisdiction to levy sales tax on the transaction so as to justify a writ of prohibition, and whether the relief could be moulded into a declaration.

Analysis: The assessing authority had jurisdiction to examine the turnover and decide the nature of the transaction, so the alleged error went to the merits of the decision and not to the existence of jurisdiction. A writ of prohibition was therefore not the proper remedy. However, the constitutional power under Article 226 enabled the Court to mould relief to meet the exigencies of the case, and in view of the government-level reconsideration and the failure of administrative resolution, a declaratory relief was appropriate.

Conclusion: A writ of prohibition was not warranted, but declaratory relief was granted in favour of the petitioner.

Final Conclusion: The crude oil loan mechanism was held to be a simple barter or loan transaction without the element of sale, and the assessment treating it as taxable sale was set aside in substance by the declaration issued by the Court.

Ratio Decidendi: Where a government-regulated commodity allocation scheme merely transfers goods on loan or barter basis for equivalent return without money consideration or contractual sale, the transaction is not a sale and cannot be taxed as such, particularly when the movement occurs in the course of import.

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