TaxTMI 
TaxTMI 
2004 (3) TMI 758
X X X X Extracts X X X X
X X X X Extracts X X X X
.... gaseous state which predominantly consists of methane." 2. The State legislature passed the said enactment by tracing its legislative competence under Entry No. 25 of List II of the Seventh Schedule of the Constitution. The Parliament has passed various enactments under Entry No. 53 of List I dealing with the matters of petroleum and petroleum products. The Entry No. 53 of List I of the Seventh Schedule reads as follows:- "Regulation and development of oilfields and mineral oil resources; petroleum and petroleum products; other liquids and substances declared by Parliament by law to be dangerously inflammable." 3. Entry No. 25 of List II reads as follows:- "Gas and gas works" 4. Article 248 of the Constitution lays down the principle that the Parliament alone has exclusive powers to make laws with respect to any of the matters enumerated in List I of the Seventh Schedule. As regards entries in List II, the legislature of the State has exclusive power to make laws subject, of course, to Clause (i) and (ii) of Article 246. Article 246 reads as follows:- "246, Subject matter of laws made by Parliament and by the Legislature of States: (1) Notwithstanding anything....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Constitution of India: (1) Whether natural gas in whatever physical form 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) Whether States have legislative competence to make laws on the subject of natural gas and Liquefied Natural Gas under Entry 25 of List II of the Seventh Schedule to the Constitution. (3) Whether the State of Gujarat had legislative competence to enact Gujarat Gas (Regulation of Transmission, Supply and Distribution) Act 2001. 6. After the receipt of the Reference, notices were served on the States and the Union Territories. The learned Attorney General for India appeared for the Union of India and all the States were represented through various Counsel. We heard learned Attorney General for India and the learned Senior Counsel who appeared for various States and Union Territories. 7. The learned Attorney General contended that the various definitions in different enactments indicate that 'petroleum and petroleum product' include 'natural gas' and it was urged that 'natural gas' is a Union subject cover....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a vires of the legislative competence of the State. 8. The learned Counsel for the State of Gujarat, Shri Ashok Desai contended that the expression "gas" used in Entry 25 of List II would include all types of gases and, therefore, any legislation related to "gas and gas works" is perfectly within the legislative competence of the State. It was submitted that in Calcutta Gas Company (Proprietary) Ltd. v. State of West Bengal and Ors. , the scope and ambit of Entry 25 of List II had been authoritatively pronounced by this Court and this Court held that the field of entire industry, dealing with "gas and gas works" would fall under Entry 25 of List II. It was further submitted that the entries in the three Lists were only legislative heads or fields of legislation and they demarcated the area over which the appropriate Legislature could operate and the widest amplitude should be given to the language of the entries. It was submitted by the learned Counsel for the State that when there is a conflict between two entries, the Court should reconcile the entries and attempt should be made to harmonise the apparently conflicting entries and the State should not be denuded of its power to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the non obstante clause in Section 100 of the Government of India Act, and in applying that principle the Court may restrict the general words of the Federal list so as not to nullify a particular power contained in the Provincial list. 11. Learned senior Counsel Mr. P. Chidambaram appearing for the Common Carriers Company contended that any industrial activities connected to "gas and gas works" are beneficial to the State and the State must be given power to legislate on the subject. The expression "gas" mentioned in Entry 25 of List II takes within its ambit 'natural gas' which is to be considered as equivalent to electricity and water. It was argued that "natural gas" is defined as a naturally occurring mixture of hydrocarbon and nonhydrocarbon gases found in the porous geologic formations beneath earth's surface and is used principally as a source of heat in residential, commercial and industrial service because of its clean burning quality, convenience of utilisation, low cost and abundance. In other words, 'natural gas' is widely used as a energy source. It was submitted that the States alone would be in a position to exploit the resources and distrib....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a civil court. Chapter VI of the Act specifically says that no person other than a specified company and a person referred to in Sub-section (1) of Section 55 shall carry on the business of transmission in the State and that subject to the rules, if any, a specified company shall carry on the business of transmission in the State. Section 25(2) says that no person shall lay pipelines for distribution in the State unless he is a licensee. Chapter IX of the Act deals with offences and penalties and Section 34(1) and (2) states that whoever Carries on business of transmission in contravention of Clause (a) of Sub-section (1) of Section 23 or of Clause (a) or (b) of Sub-section (2) of Section 55 or whoever carries on business of distribution or lays pipelines for such distribution without a licence in contravention of Section 25, shall on conviction, be punished with imprisonment which may extend to six months or with fine not exceeding five lakhs of rupees or with both and in the case of a continuing offence an additional fine not exceeding twenty thousand rupees for every day after the first, during which the offence continues. 13. Apart from the pre-constitutional laws, the Unio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of the other. If indeed such a reconciliation should prove impossible, then, and only then, will the non-obstante clause operate and the federal power prevail." 17. Although Parliament cannot legislate on any of the Entries in the State List, it may do so incidentally while essentially dealing with the subject coming within the purview of the Entry in the Union list. Conversely, State Legislature also while making legislation may incidentally trench upon the subject covered in the Union List. Such incidental encroachment in either event need not make the legislation ultra vires of the Constitution. The doctrine of pith and substance is sometimes invoked to find out the nature and content of the legislation. However, when there is an irreconcilable conflict between the two legislations, the Central legislation shall prevail. However, every attempt would be made to reconcile the conflict. 18. In Prafulla Kumar Mukherjee and Ors. v. Bank of Commerce Limited, Khulna , which was an appeal from the Federal Court of India, the question arose regarding the validity of the provisions of Bengal Money Lenders Act, 1940. The main attack by the respondent therein was that the Provincial....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for the said purpose. A firm carrying a business in India purchased 98 per cent of the shares of the said Oriental Gas Company and floated a limited liability company named the Calcutta Gas Company (Proprietary) Limited. By an agreement, the Calcutta Gas Company was appointed as the Manager of the Oriental Gas Company, The West Bengal Legislature passed an Act whereby the State Government took over for a period of five years the management and control of the Oriental Gas Company. The appellant Calcutta Gas Company (Proprietary) Limited filed a petition under Article 226 of the Constitution challenging the constitutional validity of the said Act. The State Government contended that by virtue of Entry 25 of List II, the West Bengal Legislature was competent to make laws effecting the gas industry. Speaking for the Bench, Subba Rao, J., as he then was, observed thus: "Entry 24 in the List II in its widest amplitude takes in all industries, including that of gas and gas-works. So too, entry 25 of the said List comprehends gas industry. There is, therefore, an apparent conflict between the two entries and they overlap each other. In such a contingency, the doctrine of harmonious cons....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y methane, with small amounts of ethane, propane butane, pentane, carbon dioxide and nitrogen. This gas can easily be transported from the producing areas to the market in underground pipelines under pressure or liquefied at low temperatures and transported in specially designed ocean-going tankers. 25. 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. These sediments contain the organic source materials from which natural gas and petroleum were produced. Gas and petroleum, being less dense than the water present in the rocks, tended to migrate upward until contained under impervious rock barriers. 26. On page 634 of the above Encyclopedia, Natural gas is classified in several broad categories based on the chemical composition, which are : (1) wet gas contains condensable hydrocarbons such as propane, butane, and pentane; (2) lean gas denotes an absence of condensable hydrocarbons; (3) dry gas is a gas whose water content has been reduced by dehydration process; (4....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9;s crust moved. Gradually they were converted into layers of sedimentary rock. The plant and animal remains contained within them were transformed into petroleum and natural gas. The details of this transformation are not quite clear. 33. Gas and oil are found in huge subterranean caverns. They both occur in minute pores of such rocks as sandstone and limestone. They are held captive under great pressure by surrounding rock formations that are impervious to seepage. Finally they are released when the shifting of the earth's surface cracks the cap rock. 34. 'Natural gas' has been defined in the Webster's new 20th Century dictionary, unabridged second edition, as follows : "Natural Gas : A mixture of gaseous hydrocarbons, chiefly methane, occurring naturally in the earth in certain place, from which it is piped to cities etc., to be used as a fuel." (p-756). 35. In Ballantine's Law Dictionary, 3rd Edn., 1969, 'Natural Gas' has been Refined as "A mineral in the form of a vapor." A gas characterized by hydrocarbons in mixture, occurring naturally in the crust of the earth, obtained by drilling, and piped to cities and villages, industrial and co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....did not abrogate or limit the powers of the respondent. The second respondent had direct grant of petroleum whereas the appellant had merely such residual rights as remained in him subject to the grant to the respondents and it was held that respondents were under no obligation to conserve the free gas within the appellant's land with the consequent denial of their right to recover the petroleum In the usual way. 37. In that case, the question was whether the lease-holder had the right to extract petroleum without causing loss of the natural gas embedded in the earth's crust. That question arose because of the nature of conveyance obtained by the lease-holder and the specific lease granted to the lease-holder. Therefore, the decision in Borys' case (supra) is of no assistance. 38. All the materials produced before us would only show that the natural gas is a petroleum product. It is also important to note that in various legislations covering the field of petroleum and petroleum products, either the word 'petroleum' or 'petroleum products' has been defined in an inclusive way, so as to include natural gas. In Encyclopaedia Britannica, 15 th Edn. Vo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m products' has been given a wide meaning to include natural gas and other similar products. 41. In the Pipelines Act, 1962 of the United Kingdom, 'petroleum' has been defined as follows : "Petroleum includes any mineral oil or relative hydrocarbon and natural gas existing in its natural condition in strata, whether or not it has undergone any processing; but does not include coal or bituminous shales or other stratified deposits from which oil can be extracted by destructive distillation." 42. Petroleum has been variously defined in different Acts, noted hereinbelow: Petroleum (Production) Act 1934 (UK) "Petroleum includes any mineral oil or relative hydro-carbon and natural gas existing in its natural condition in strata, but does not include coal or bituminous shales or other shales or other stratified deposits from which oil can be extracted by destructive distillation." Petroleum Act, 2000 (Sec. 4), Australia "Petroleum" means a naturally occurring substance consisting of a hydrocarbon or mixture of hydrocarbons in gaseous, liquid or solid state but does not include coal or shale unless occurring in circumstances in which the use of techniques for co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m product" means any commodity made from petroleum or natural gas and includes refined crude oil, processed crude petroleum, residuum from crude petroleum, cracking stock, uncracked fuel oil, fuel oil, treated crude "oil residuum, casing head gasoline, natural gas, gasoline, naphtha, distillate gasoline, kerosene, bitumen, asphalt and tar, waste oil, blended gasoline, lubricating oil, blends or mixture of oil with one or more liquid products or by products derived from oil or gas and blends or mixtures of two or more liquid products or byproducts derived from oil condensate and gas or petroleum hydrocarbons not specified hereinbefore." 44. Under Entry 53 of List I, Parliament has got power to make legislation for regulation and development of oil fields, mineral oil resources; petroleum, petroleum products, other liquids and substances declared by Parliament by law to be dangerously inflammable. Natural gas product extracted from oil wells is predominantly comprising of methane. Production of natural gas is not independent of the production of other petroleum products; though from some wells the natural gas alone would emanate, other products may emanate from subterranean chambe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tmentally interpreted. The word 'gas' in the Entry will take colour from other words 'gasworks'. In Ballantine's Law Dictionary, 3rd edition, 1969 'Gas Works' is defined as "a plant for the manufacture of artificial gas". Similarly in Webster's New 20th Century dictionary, it is defined as "an establishment in which gas for heating and lighting is manufactured". In the www.freedictionary.com 'gas works' is explained as "a manufactory of gas, with all the machinery and appurtenances; a place where gas is generated." The meaning of the term 'gas works' is well understood in the sense that the place where the gas is manufactured. So it is difficult to accept the proposition that 'gas' in Entry 25 of List II includes Natural Gas, which is fundamentally different from manufactured gas in gas works. Therefore, Entry 25 of List II could only cover manufactured gas and does not cover Natural Gas within its ambit. This will negative the argument of States that only they have exclusive powers to make laws dealing with Natural Gas and Liquefied Natural Gas. Entry 25 of List II only covers manufactured gas. This is the clear intention of ....