TaxTMI 
TaxTMI 
2013 (5) TMI 32
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.... 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:- (I) Facts (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 Acc....
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....roduct, 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 ex....
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....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 th....
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....ust 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 attache....
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....e 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 ....
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....t 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 A....
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.... 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 ....
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....tes 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.....
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....o 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....
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.... 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 de....
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....f 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 & 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 ....
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....6 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....
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....e 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....
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.... 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 ....
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....e. 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....
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....ers 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....
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....ion'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 ....
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....t. 286. Restrictions as to imposition of tax on the sale or purchase of goods.- (1) No law of a State shall impose, or authorise 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. * * * * * Deleted Before 11.9.56 After 11.9.56 goods the property in the goods has by reason of such sale or purchase passed in another Sate. (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 form....
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....ade 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 busine....
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....t 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 ther....
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.... 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....
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.... 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 pla....
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....tion 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 Consti....
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....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. ....
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....d 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 ....
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.... 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 commencemen....
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....o 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 newspap....
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....ess 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" ....
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....titioner 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 p....
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....le 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....
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....ods. 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 ....
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....ion 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 ....
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....anded 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 truck....
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....al Power Corporation Ltd. & 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 movem....
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....e 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 St....
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....gislative 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....
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.... 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 & 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....
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....s 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 be....
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....n 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....
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....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 vi....
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....ion 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 ....
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....uyer 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 petitione....
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.... 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. TheManagement 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 aresubject to the receipt and continued effectiveness of all requisite approvals required under laws and regulations and the....
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.... gas is pumped into gas pipeline of the transporter, i.e., RGTIL after due processing and measurement at Gadimoga. GSPA makes it mandatory to transfer the risk and complete the sale in favour of buyer at the delivery point. The same has been complied with under the different conditions contained in GSPA. 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....
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....erein (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....
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....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." "Conditions Precedent (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....
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.... 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 (a) Measurement: (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. (b) Quality: (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....
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....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 o....
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....rded 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 oth....
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....s 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 Abh....
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....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 ....
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....y 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 acknowledge....
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....ities 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 th....
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....slation. 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 equipment....
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....ween 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 ....
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....ller, 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....
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....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 co....
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....ivery 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 contr....
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....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 & 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 Wi....
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....ditions 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[13](e), 12 U.SC.A. # 1823 (e)- In re Beitzell & 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, ....
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....ng 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 P....
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....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 b....
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.... 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 ....
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....w vs. M/S. Tarapore & 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 great....
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....f 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 possessio....
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..... 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....
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....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.....
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.... 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 u....
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....e 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. & 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 ....
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....f 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 an....
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.... 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 & Sons reported in AIR 1966 SC 1342, Hon'ble Supreme Court held: The maxim generalia spcialibus non derogant, means that when there is a confli....
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....he 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. Afor....
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.... 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 Indi....
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....yer (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 st....
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....010, 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 ....
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....ional 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 s....
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....angements 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 prop....
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....r 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 deli....
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....ol 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....
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....d 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....
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....ased 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 shal....
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....e 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 & 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 & 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 O....
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....8 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 a....
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....e 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 achie....
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....r 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. & others Versus Bakhtawar Lal Kailash Chandra Arthi & 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 th....
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....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 i....
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....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. XXII-AMERICAN LAW 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 t....
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.... 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;....
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.... 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 the....
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....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 chal....
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.... 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. Pipe....
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.... 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 t....
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.... 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 s....
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....ssing 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 see....
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....ason 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....