2020 (6) TMI 56 - HC - VAT and Sales Tax

Court dismisses writ petitions, orders assessment officer to resolve jurisdiction & tax liability issues. Petitioners to reply, officer to decide.

Hindustan Oil Exploration Company Ltd., Chennai Petroleum Corporation Limited Versus The Assistant Commissioner (CT), The State of Tamilnadu, Chennai Petroleum Corporation Ltd. And Others

The court dismissed the writ petitions, directing the assessing officer to determine the factual issues related to jurisdiction and tax liability. The ... Recovery of VAT - supply of petroleum crude - TNVAT Act - It is the case of the respective petitioners that the exploration and supply of petroleum crude oil has taken place outside the State of Tamil Nadu and in the Exclusive Economic Zone of India as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 and therefore no VAT can be levied - HELD THAT:- Petroleum products are liable to pay tax under Entry 41, Part B to the 1st Schedule being declared goods within the meaning of Section 14 of the CST Act, 1956. Therefore, if the sale had taken place within the state, it would be liable to tax under Section 3 of the Tamil Nadu VAT Act, 2006. There is no doubt there was sale between the petitioners and other co-explorers of petroleum crude oil under the “Crude Oil Sale Agreement”dated 26.9.2003 for the Sale and Purchase of Crude Oil - Whether the sale had taken place within the State of Tamil nadu or not and whether the liability to pay tax would be on the seller and on the buyer under section 3 of the Tamil Nadu VAT Act, 2006 would require determination by the Assessing Officer. There is no mechanism provided for payment of tax on the recipient of good on reverse charge basis under the Tamil Nadu VAT Act, 2006 except in the case of works contract under the Rules made thereunder. An agreement cannot shift the burden of tax on the buyer. It would not be correct to infer that the liability to pay tax can be shifted to the buyer namely Chennai Petroleum Corporation Ltd. However, Chennai Petroleum Corporation Ltd had agreed to pay tax from and on behalf of the suppliers. Each of the oil-producing companies where liable to pay proportionate tax on the crude oil explored and sold to Chennai Petroleum Corporation Ltd provided. However, tax is payable only if the sale had taken place within the State of Tamil Nadu. Whether or not the delivery of crude oil from the development area to the delivery point fell within the territorial jurisdiction of the State of Tamil Nadu or outside is a question of fact which require to be determined before the respondent - as the case involves disputed questions of fact based on the agreements signed between the parties, the present writ petitions are liable to be dismissed. Petition dismissed. Issues Involved:1. Jurisdiction to levy VAT on petroleum crude oil supplied from the Exclusive Economic Zone.2. Liability of the buyer or seller to pay VAT under the Tamil Nadu VAT Act, 2006.3. Discrimination in issuing show cause notices to only one of the crude oil-producing companies.4. Applicability of Section 12 of the Tamil Nadu VAT Act, 2006 to the transactions.Issue-wise Detailed Analysis:1. Jurisdiction to levy VAT on petroleum crude oil supplied from the Exclusive Economic Zone:The petitioners argued that the exploration and supply of petroleum crude oil occurred outside the State of Tamil Nadu and within the Exclusive Economic Zone of India. They contended that no VAT could be levied as the transaction took place outside the state's jurisdiction. They referenced Article 285 and Article 297 of the Constitution of India, asserting that minerals on the seabed belong to the Union of India, and thus, the concept of sale was incompatible. The court noted that whether the sale occurred within Tamil Nadu's jurisdiction or outside is a factual question requiring determination by the assessing officer.2. Liability of the buyer or seller to pay VAT under the Tamil Nadu VAT Act, 2006:The petitioners claimed that under the Crude Oil Sale Agreement, the buyer (Chennai Petroleum Corporation Ltd) was responsible for paying all taxes, including VAT. However, the court observed that the agreement cannot shift the tax burden from the seller to the buyer under the Tamil Nadu VAT Act, 2006. The court emphasized that the sellers were liable to pay taxes on the crude oil sold to Chennai Petroleum Corporation Ltd, provided the sale occurred within Tamil Nadu. The court directed the assessing officer to determine the factual aspects of the sale's location.3. Discrimination in issuing show cause notices to only one of the crude oil-producing companies:Hindustan Oil Exploration Company Ltd argued that the state discriminated against them by issuing show cause notices only to them and not to other crude oil-producing companies. The court did not specifically address this issue in the judgment, focusing instead on the broader questions of tax liability and jurisdiction.4. Applicability of Section 12 of the Tamil Nadu VAT Act, 2006 to the transactions:The court noted that the issue of whether Chennai Petroleum Corporation Ltd was required to pay purchase tax under Section 12 of the Tamil Nadu VAT Act, 2006 also needed factual determination. The court stated that these disputed questions of fact could not be resolved in a writ proceeding and directed the assessing officer to make the necessary determinations based on the available records.Conclusion:The court dismissed the writ petitions, stating that the assessing officer must determine the factual issues related to the jurisdiction and tax liability. The petitioners were directed to file their replies with the assessing officer within 30 days, and the assessing officer was instructed to pass appropriate orders within three months. All issues were left open for the assessing officer to decide, and the court emphasized that the petitioners should be heard during the proceedings. Consequently, the connected miscellaneous petitions were closed, and no costs were awarded.