TaxTMI 
TaxTMI 
2010 (1) TMI 1129
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....1998 which alone survives for adjudication. W.P. No. 9357 of 1998 The petitioner seeks a writ of prohibition to prohibit the first respondent from imposing sales tax in respect of loan transactions effected by it on the basis of the instructions of the Oil Co-ordination Committee constituted by the Government of India. Background facts The petitioner is a Government of India undertaking established for the purpose of carrying on business of refining of crude petroleum oil and manufacturing and marketing of petroleum products. The Government of India with a view to coordinate import and allocation of crude oil, formulated a scheme to be implemented by the Oil Co-ordination Committee, Mumbai. The Oil Co-ordination Committee, the fourth respondent in the writ petition, formulated a scheme whereby and whereunder, the Indian Oil Corporation, Mumbai, the fifth respondent herein was appointed as a canalizing agent. The scheme primarily consists of the imported oil being loaned from one oil company to another under the auspices of the Oil Co-ordination Committee and Indian Oil Corporation. As per the scheme, crude oil that is imported into the country is apportioned be....
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.... a return, the security deposit made by the allottee oil company would be returned back to them by the bill of lading holder company. The import and the allocation of imported crude oil would be monitored by the Oil Co-ordination Committee at its monthly meeting. The Oil Co-ordination Committee at its meeting would nominate the oil tanker and the quantity of oil that has to be imported into the country. Thereafter, one of the oil companies would be nominated the bill of lading holder company and the quantum of oil imported would be allocated to either the bill of lading holder company in full or in part with the other part being allocated to some other oil company. The instructions in that regard would be issued by the Indian Oil Corporation Ltd., in view of their position as the canalizing agent. The transaction was considered as a loan transaction at all points of time. The sales tax authorities in all the other States exempted the transaction as it was only a loan transaction. But a different interpretation was given to the transaction by the sales tax authorities in the State of Tamil Nadu. While matters stood thus, the first respondent as per the assessment order dated M....
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....ion of the appellate authority. The said notice was challenged in W.P. No. 11301 of 2008. The writ petition was disposed of as per order dated April 30, 2008 whereby and whereunder, the assessing authority was permitted to go ahead with the assessment proceedings and to pass final orders, but not to give effect to the same pending appeals. Supporting counter-affidavits M/s. Hindustan Petroleum Corporation Ltd. The sixth respondent, M/s. Hindustan Petroleum Corporation Ltd., in their detailed counter demonstrated that the transaction was nothing but a loan transaction outside the purview of local sales tax or Central sales tax. The material averments in the counter-affidavit would read thus: (a) The Central Government was empowered to direct oil marketing companies to supply one or more petroleum products at any place in India as per the provision of the Essential Commodities Act, 1955, which also gives power to the Government of India to regulate the import and supply of petroleum products. (b) The Government of India constituted the Oil Co-ordination Committee as a wing of the Ministry of Petroleum and Chemicals to regulate the price, supply and distribution of p....
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....t of the crude cost, the same would be reimbursed by the Oil Co-ordination Committee to the respective refineries. (f) The Indian Oil Corporation was nominated by the Government of India for procurement of crude on behalf of all the other public sector oil companies in India. Accordingly, IOC places purchase order with State oil marketing companies of the respective countries with whom term contracts have been entered into by the Government of India. In respect of spot purchases, tenders would be floated by Indian Oil Corporation and based on the lowest tenders, orders would be placed for purchase of crude. Tankers belonging to the Shipping Corporation of India would be sent to different foreign load ports of the countries to whom purchase orders have been placed by the Indian Oil Corporation on the loading dates specified in consultation with the foreign supplier. The bill of lading would be prepared in the names of various oil companies including Indian Oil Corporation at the load port as per the decisions taken in the monthly crude slate meeting for different oil companies as bill of lading holder. However, the invoices would be made only on Indian Oil Corporation. The nam....
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....l Prices Committee. The said committee recommended that an Oil Co-ordination Committee should be set up for administering the pool account, to decide on allocation of crude oil and monthly production patterns and to coordinate transportation arrangements for crude oil imports and coastal movements. The report was accepted by the Government and as per resolution dated July 14, 1975, Oil Co-ordination Committee was constituted. (c) The Oil Co-ordination Committee was a prominent mechanism consisting of the Secretary to the Government, Ministry of Petroleum, a representative of the Ministry of Finance (Department of Expenditure), Chairman, Indian Oil Corporation, Chairman and Managing Director, HPCL, Chief Executives of Burmah Shell, Caltex, MRL, CRL, IBP and AOC and with the Joint Secretary, Department of Petroleum as Member Secretary. The Secretariat would have the full time services of the experts of refineries, marketing and distribution, including transportation. The oil pool account was meant to maintain uniform ex-storage selling price of petroleum products at all refinery locations in the country. The Petroleum Products (Supply and Distribution) Order, 1972 and the Essentia....
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....ge. No other State in the country was imposing tax on loan transaction except the State of Tamil Nadu. Submissions The learned senior counsel for the petitioner made submissions extensively with facts and figures to justify the contention that the transaction was nothing but barter or loan transaction and there was no element of sale. The principal contentions are as follows: (i) The petitioner is a Government owned corporation and is a "State" within the meaning of article 12 of the Constitution of India. The administered pricing mechanism was performed only by the Government of India and the petitioner has no role in any of the decisions. It was only the Indian Oil Corporation who acted as the canalizing agent and the allocation was made only by the Oil Co-ordination Committee. The petitioner was acting only as per the direction of the Oil Co-ordination Committee. The allocation of crude oil was decided by the Oil Co-ordination Committee and in case the petitioner was appointed as the bill of lading company, they were bound to import crude oil, and to give on loan basis to another company as per the direction of the Oil Co-ordination Committee. Therefore, the pe....
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....ale invoices issued by various suppliers of crude oil clearly indicate the way in which the allocation and re-allocation were made by the Oil Co-ordination Committee. The invoice also shows the cancellation of previous allocation and the factum of re-allocation made to a different refinery. Therefore, at no point of time, the ship with the crude oil entered the customs barrier so as to treat the same as one under the local sales tax or under the Central sales tax. The transactions happened in high seas and at times even before the ship leaves the port of origin. The learned senior counsel took me through various documents to substantiate the contention that the transaction was purely a loan transaction not subject to local as well as Central sales tax. The learned Additional Solicitor General made extensive submissions explaining the constitution of the Oil Co-ordination Committee and the procedure adopted for allocation as well as re-allocation of crude oil. The learned Additional Solicitor General would submit that the Government took a conscious decision in the interest of general public to procure crude oil by a particular machinery so as to ensure uniform distribution of....
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....ory corporation and as such, the matter has to be placed before the High Power Committee to arrive at an amicable solution. The learned judge also found that in similar circumstances, Division Bench of Kerala High Court as per order in W.A. Nos. 1557, 1637, 1395 and 1734 of 2002, directed the Cabinet Secretary of the Government of India to constitute a committee to work out a solution between the Government organizations. Accordingly, the learned judge passed the following order: "5. The present case is more similar to the direction issued by the Kerala High Court. While this court is not hesitant to decide the legal issues involved in these writ petitions, in view of the fact that all the respondents including the petitioner are all various statutory corporations and wings of the Government, this court is of the view that the subject-matter of the writ petitions should be first discussed in the meeting convened by the parties to the dispute and then depending upon the consensus or difference arrived at such meeting, this court shall finally dispose of the matter. 6.. In that view of the matter, this court hereby directs the Cabinet Secretary of the Government of India ....
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....n August 7, 2008 as a follow up action. The said meeting was attended by the Secretary and other officials of the Department of Commercial Tax as well as the representatives of the oil companies. It was decided to constitute a technical team of six officers three from the Commercial Taxes Department and the three from the Chennai Petroleum Corporation Ltd., to scrutinize the records relating to the transaction of oil which are said to be available with the Corporation and which were not produced earlier. The technical team were directed to scrutinize the records within ten days commencing from August 18, 2008. The petitioner as per their letter dated August 21, 2008, produced the required documents before the technical team. The further details sought for by the technical team were furnished subsequently as per correspondence dated September 11, 2008 and October 7, 2008. The Cabinet Secretary convened second meeting on October 10, 2008 at New Delhi. The said meeting was attended by the Secretary to the Government, Commercial Tax Department, Chennai and other officials of the Ministry of Petroleum and Natural Gas, Ministry of Legal Affairs as well as higher officials represent....
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....import of petroleum. The Government of India constituted a committee known Oil Prices Committee as per resolution dated March 16, 1974 under the Chairmanship of Dr. K.S. Krishnaswamy, Executive Director, Reserve Bank of India, Bombay. The committee was asked to study the pricing policy of petroleum products and related matters and to recommend general principles of pricing policy of petroleum products and other connected matters. The committee conducted an extensive study of the petroleum market and submitted their detailed report. The Government of India considered the report submitted by the expert committee and passed a resolution on July 14, 1975, the main points of which read thus: (i) The price of indigenous crude oil should be based on the long run social marginal cost of crude. (ii) The refinery should be the primary pricing points and the prices at upcountry depots or installations should be determined on the basis of the prices at the nearest refinery plus the cost of transportation by the cheapest means of transport. (iii) The Oil Co-ordination Committee should be set up to administer the pool account for the purpose of deciding the allocation of crude oil an....
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....all on the basis of advices received from the earlier party of call will put up the claim on the carrier for the net loss. (iv) The f.o.b. value as per the bill of lading rounded off to the nearest 1000 should be deposited by the receiving company with the company in whose name the bill of lading stands, one day before the due date of payment. All relevant details in this regard should be provided by the loaning company. (v) The company in whose name the bill of lading stands should insure for the cargo for the complete voyage. The receiving company should deposit the freight rounded off to the nearest 100 at the COA rate applicable to each port of discharge as per bill of lading within three days from the date of discharge. Penalty duty for ocean loss in excess of permissible limit would be the responsibility of the carriers. (vi) The companies concerned should settle loan/repayments between themselves on the lines suggested in the scheme. Any differentials in the f.o.b. and freight should be adjusted in the Crude Oil Price Equalization Account (COPE) accounts as per the norms and C & F pool account, respectively. (vii) The practice of issuing separate memorandum....
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.... (i) a transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (iii) a delivery of goods on hire-purchase or any system of payment by instalments; (iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (v) a supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (vi) a supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delive....
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....s to constitute a statutory committee to monitor the import of crude oil and allocation of the same between the oil refineries. The Central Government was committed to maintain uniform ex-storage selling price of petroleum products at all refinery locations in the country. In case the individual oil refineries were permitted to import crude oil into India, there would be no uniform price in India with respect to the petroleum products. The price of petroleum products sold by a particular company would depend upon the actual price incurred by it for procurement of crude oil and to refine the same for the purpose of distribution. The individual import of crude oil by individual oil companies would also result in unequal distribution of petroleum products. It would so happen that one oil company would be in possession of excess stock and on the other hand, another oil company situated in a less distant place would be short of petroleum products. All these vital factors were taken note of by the Government of India and it was only in the said background, the Oil Co-ordination Committee was constituted and that too after an in-depth study of the matter by the expert committee. The Oi....
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....pping Corporation of India would be entered into by the Oil Co-ordination Committee and this contract is known as contract of affreightment. It was only in pursuance of this contract, the Oil Coordination Committee charters the oil tankers of the Shipping Corporation of India. The freight and demurrage rates for the oil tankers were worked out by the Oil Co-ordination Committee and communicated to all the refineries. Upon payment of the freight and demurrage charges by the respective refineries as part of the crude cost, the same was reimbursed by the Oil Co-ordination Committee to the respective refineries. As a canalizing agent, Indian Oil Corporation was placing purchase orders with the State oil marketing companies of the respective countries with whom term contracts had been entered into by the Government of India. So far as spot purchases are concerned, tenders were floated by Indian Oil Corporation and based on the lowest tenders, orders were placed for purchase of crude. Once tenders were finalized, tankers owned by the Shipping Corporation of India were sent to different foreign load ports of the countries to whom purchase orders had been placed by the Indian Oil Corpor....
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.... features of the crude loan account are the following: (i) Before the arrival of the tanker at port, the receiving company (either bill of lading holder or other than bill of lading holder) used to get the delivery order from the shipping company for the quantity to be received as per the earlier allocation at the crude slate meeting of the Oil Co-ordination Committee. The shipping company would file import manifest with customs for the quantity to be delivered. On the basis of the delivery order received from the Shipping Corporation of India and the import manifest filed by the Shipping Corporation of India, the clearing agent of the individual oil companies used to file the bill of entry with customs and import applications with port authorities for the quantity to be delivered from the concerned tanker. Customs duty and wharfage amount were paid by the receiving company at the respective ports on the import manifested quantity. If the tanker discharged the entire crude at one disport, then the tanker sailed for the next load port for loading future cargo. If the tanker discharge was only a part crude cargo, then it would sail for the next disport to discharge the balance cru....
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.... It ensures that crude oil loan adjustments among oil company take place on quantity to quantity basis irrespective of the value or the type of the crude oil given or taken on loan basis. Variations in values, including differential in f. o. b. and freight were adjusted as per the norms in the Crude Oil Price Equalization Account (COPE) and C&F pool account, respectively, maintained by the Oil Co-ordination Committee. In case the company returning crude oil incurred higher cost of purchase on acquiring the quantity, that company was required to make a claim on the COPE account for the differential value. The crude oil issued on loan accounts appears to have more than one advantage. In case the bill of lading company gives a certain percentage of concession to another oil refinery by charging at a particular price and while returning the said quantity, the cost of import of the crude oil by the loanee refinery was more, it would increase the cost of the crude oil. Because of this loan transaction, it would enable the company returning the crude oil to claim the differential value from the Oil Co-ordination Committee by making a claim on the crude oil. Therefore, there would be....
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....of import as the documents of title and the bill of entry were entered into by the bill of lading company. The products were delivered directly by oceangoing vessels into the refineries of the bill of lading company and the documents like bill of lading were transferred under section 5(2) of the Central Sales Tax Act, 1956. In such event, there would be no sale or purchase within the State of Tamil Nadu. When the crude was returned to settle a loan or was delivered on loan, there was also a direct shipment from an overseas port of shipment to the receiving refinery transferring documents. Even in such cases, the transaction was by way of movement from an overseas port into the discharging port in any part of the country not even touching the Territory of Tamil Nadu. In case the oil refinery situated in the State of Tamil Nadu delivered crude oil by repayment of loan to another oil company situated in another State by shipment, even then it was not a sale and by no stretch of imagination, it could be treated as a sale in the State of Tamil Nadu. When the oil refinery at Chennai receives crude oil after this particular discharge at ports in other States, still there wo....
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....of India Limited as the actual user. Minerals and Metals Trading Corporation of India Ltd. [1998] 111 STC 434 (SC) was functioning as a canalizing agent for import and export of minerals and metals. SAIL requested MMTC on 31 March, 1991 to register the import of 15,000 m.t. of tin mill black plate coils for production of electrolytic tin plates. SAIL opened a letter of credit directly in favour of the exporter. SAIL was shown as the consignee. On August 2, 1991, MMTC placed a purchase order with the foreign company for and on behalf of SAIL. MMTC then wrote to SAIL enclosing a copy of its purchase order and informed about the delivery of material by high seas by endorsement and transfer of shipping documents in favour of SAIL. It was also informed that SAIL has to make arrangements for clearing the cargo, including arrangements for clearance thereof from customs and that the responsibility for payment of import duties, port charges and other expenses subsequent to sale on high seas also would be on SAIL's account. Subsequently, the appellant forwarded the documents with due endorsement thereon to SAIL to get the goods cleared. The vessel arrived at Paradeep port on November ....
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....on from one Valliappa Textiles who had imported the cotton under the actual user's licence. The borrowing was permitted by the Textile Commissioner who directed that the loan should be returned in the shape of cotton and that neither of the transactions should be treated as sale. The plea of loan transaction was rejected by the assessing authority and the transaction was treated as sale. However, the Sales Tax Appellate Tribunal found that it was only a loan transaction. The Division Bench on a consideration of the transaction confirmed the findings rendered by the Tribunal holding that the transaction does not amount to sale. In State of Tamil Nadu v. McDowell and Co. Ltd. [1997] 105 STC 172, the issue before the Supreme Court was as to whether the deposit made by the distributor for the purpose of safe custody of bottles and refund of the same while returning the bottles amount to sale so as to include in the turnover for the purpose of sales tax. The assessee before the Supreme Court was a distributor of liquor for the principal (brewer). It was customary for the principal to show in the bills issued to the assessee, separately the price, the tax payable thereon and th....
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....ell their cinema theatre for certain money consideration. Document was executed purporting to be a deed of exchange. In pursuance of the agreement to sell the cinema house with all its equipment and machinery, fittings, etc., for a consideration of Rs. 1,20,000, the assessee-company executed a deed in favour of the vendee and consideration for the same was received by the assesseecompany in the shape of transfer of five per cent tax-free cumulative preference shares held by the vendee. The deed recited separate valuations for the immovable property, movable property and the goodwill of the business. The ultimate question for decision was whether the transaction in question was a "sale" within the meaning of the second proviso to section 10(2)(vii), Income-tax Act so that the amount by which the written down value exceeded the amount for which the assets were actually sold could be included in the taxable profits of the assessee. The Supreme Court considered the issue in the light of the definition as contained under section 10(2)(vii) of the Income-tax Act and section 54 of the transfer of property Act and held that the transaction was in essence one of exchange and it was not sale....
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....efinery Ltd., Madras, and HPC-Vizag. The ship involved in the said transaction was SAMCO Europe and the load port was Kharg Island and the port of discharge was shown as Bombay, Madras, Cochin, Vizag and Haldia. The invoice shows that even before the ship entered the territorial waters of India, allocation and re-allocation were made by the statutory authority. Therefore, there was no question of sale or purchase within the territory of the State of Tamil Nadu. Even if the assessing authority considers this as a purchase, it would only be in the course of import. Article 286 of the Constitution of India places restriction as to imposition of tax on sale or purchase of goods. Article 286 reads thus: "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. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of....
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....essing authority to be incomplete or incorrect, it would be open to the assessing authority to assess the dealer to the best of its judgment. Therefore, the entire matter was at large before the assessing authority. The jurisdiction of the authority to make an assessment flows from the provisions of the Tamil Nadu General Sales Tax Act as well as under the provisions of the Central Sales Tax Act, 1956. Even in cases wherein sale was exempted, from the purview of sales tax there is a requirement for furnishing return. The issue has to be decided only by the assessing authority and he has to decide as to whether the sale was exempted. The petitioner essentially challenges the decision taken by the assessing authority to treat the transaction as one of sale instead of loan. The petitioner is an assessee on the file of the first respondent. It was not only the so called sale in the name of loan which was the subject-matter of assessment proceedings before the first respondent. The entire transaction pertaining to the petitioner for the assessment year was the subject-matter of assessment proceedings before the first respondent. The assessment order impugned in W.P. No. 9356 of 1998 ....
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....t has to be corrected as it relates to the merits of the order, and by no stretch of imagination it could be said to be a writ under article 226 of the Constitution of India. In S. Govinda Menon v. Union of India AIR 1967 SC 1274, the Supreme Court considered the nature of a writ of prohibition and the legal position was indicated thus: "5. The jurisdiction for grant of a writ of prohibition is primarily supervisory and the object of that writ is to restrain courts or inferior Tribunals from exercising a jurisdiction which they do not possess at all or else to prevent them from exceeding the limits of their jurisdiction. In other words, the object is to confine courts or Tribunals of inferior or limited jurisdiction within their bounds. It is well-settled that the writ of prohibition lies not only for excess of jurisdiction or for absence of jurisdiction but the writ also lies in a case of departure from the rules of natural justice. (See Halsbury's Laws of England, 3rd Edn. Vol. 11, P. 114). It was held for instance by the court of appeal in King v. North [1927] 1 KB 491, that as the order of the judge of the consistory court of July 24, 1925 was made without givin....
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....iate relief. The observation reads thus: "26. . . . The High Court, under article 226 of the Constitution, has the discretion to frame a proper order and appropriate relief which would suit the exigencies of the case and the court cannot dismiss the petition on a mere ground that proper relief has not been asked for." In Dwarka Nath v. Income-tax Officer [1965] 57 ITR 349; AIR 1966 SC 81, the Supreme Court indicated the jurisdiction under article 226 thus (at page 354 of 57 ITR): "4. This article is couched in comprehensive phraseology and it ex facie confers a wide power on the High Courts to reach injustice wherever it is found. The Constitution designedly used a wide language in describing the nature of the power, the purpose for which and the person or authority against whom it can be exercised. It can issue writs in the nature of prerogative writs as understood in England; but the scope of those writs also is widened by the use of the expression "nature", for the said expression does not equate the writs that can be issued in India with those in England, but only draws an analogy from them. That apart, High Courts can also issue directions, orders or writs other than ....
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....n and the ultimate goal is to render substantive justice. It is not the form but only the substance which is material. Therefore, the writ court has got a duty to mould the relief in an appropriate manner without driving the litigants from pillar to post. The next question is as to what should be the appropriate writ which could be issued in this matter. The factual matrix demonstrated in this writ petition clearly shows that the transaction in question was only a loan or barter and it was never intended to be a sale. There was no seller as well as purchaser and the transaction was not proceeded by a contract. There was also no transfer of property involved in the matter on the basis of a contract. Therefore, the assessing authority was clearly in error in concluding that the transaction was one of sale. There is no necessity to scan the factual materials further in this case in view of the clear stand taken by the Government of India. The petitioner and other oil companies are all public owned oil corporations. There is no private motive involved in this transaction. The Government has spelt out its policy and the idea behind the constitution of the Oil Co-ordination Comm....
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....eting convened by the Cabinet Secretariat and the decision taken at the meeting to resolve the dispute through court process, I am of the view that appropriate declaration has to be issued by this court with respect to the transaction in question. In P.J. Irani v. State of Madras AIR 1961 SC 1731, the Supreme Court observed that the power of the High Court under article 226 is not limited to the issue of writs falling under particular groupings such as the certiorari, mandamus, etc., as these writs have been understood in England, but the power is general to issue any direction to the authorities, viz., for enforcement of fundamental rights as well as for other purposes. The Supreme Court in V.S. Menon v. Union of India AIR 1963 SC 1160 held that it was open to a Government servant to seek a declaration under article 226 of the Constitution of India that his compulsory retirement is tantamount to removal from service by way of penalty. In S.R. Tewari v. District Board, Agra AIR 1964 SC 1680, one of the issues before the Supreme Court was as to whether the court would be justified in granting a declaration about the invalidity of the action taken by the statutory body....