TaxTMI 
TaxTMI 
2018 (12) TMI 34
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....OL") of its share of crude oil extracted from the Rajasthan Block RJ-0N-90/1 (for short "Rajasthan Block"), to the extent not lifted by the second respondent (Union Petroleum Ministry-hereafter "UOI") or its nominee Public Sector Undertakings (for short "PSUs"). 2. Vedanta had alleged that it invested more than thirty thousand crores rupees in the Rajasthan Block and have brought world class technology to India. According to it, approximately sixty to seventy per cent of the price realized from the Rajasthan Block production of crude oil production flows back to the public exchequer in the form of profit petroleum, inter alia through a share of the Government's nominee, royalty (paid to the State Government) and cess. It claimed that every additional US$ 1 per barrel of Rajasthan Block Crude Oil realized would fetch the public exchequer an additional US$ 41 million/Rs. 258 crores (Rs. 63/ per US$) on account of the Union's share of profit from petroleum, share of its nominee, royalty and cess. 3. Vedanta claimed that the Central Government's Foreign trade policy permits canalized export of crude oil through IOL or direct export with the approval of DGFT. In this respect S....
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....the price of crude oil to be produced from the Rajasthan Block and sold to UOI's nominees. This request was reiterated by CEIL letter dated 26.11.2008, where it was also requested to discuss the volume allocations to Government nominees. It is stated that the IOL, HPCL and MRPL were nominated by the Union for lifting the Rajasthan Block Crude Oil. Pricing, in terms of the mechanism stipulated in the PSC, came to be agreed only with IOCL, while MRPL and HPCL sought additional discounts due to transportation costs. Accordingly, the Union was requested to advise further course of action as production could not start till crude offtake was agreed with the buyers/nominees. Vedanta complained that PSUs were not forthcoming and the Union could not arrange for lifting of the entire production of 30,000 bpd by its nominated PSUs, CEIL issued a letter dated 22.07.2009 to the Union requesting for unfettered free marketing rights, so as not to curtail production by supplying Crude Oil to private buyers in India and to export smaller parcels through Kandla. The petitioner claimed that nominations had fallen short, i.e. there was requirement of additional nomination of 1.9 MMT for 2009-10, 4....
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.... in the South-East Asian refineries, which was bound to lead to the best price realization. It is alleged that in line with the Union's decision to allow marketing freedom to the Operator to sell balance crude oil (beyond that allocated to the Union's Nominees) to domestic private refineries, pending the grant of approval for direct export. The appellants arrived at an in-principle agreement with domestic private refineries for a cumulative quantity of 0.3 MMT at pricing levels agreed with MRPL and IOCL. This was intimated to the Union by letter dated 12.11.2009. It was pointed out that that even if purchase by the private domestic refineries were taken into consideration, 0.2 MMT of the Rajasthan Block Crude Oil would still remain unsold. 8. It is submitted that Vedanta had at the relevant time received several spot enquiries from international buyers on terms better than the PSC pricing agreed to with the PSUs (MRPL and IOL), as also with the private domestic refineries. It sought permission for export of the Rajasthan Block Crude Oil to avoid production constraints, and with a view to enable it to realize the best price for the said crude oil, which would be in the nation&....
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....-today basis. It is stated that CEIL is also duly experienced in moving and handling Rajasthan Block Crude Oil which is waxy in nature with a high pour point and which requires a specialized transportation system with requisite heating facilities and that CEIL is in the best position to negotiate commercial terms with buyers, and that it had already established an effective system for selling Crude Oil, subject to various internal /external audits under the PSC for sharing of revenue with the UOI and other JV partners. Apparently CEIL addressed a letter dated 19.07.2011 to IOL seeking NOC (no objection certificate) for export of Rajasthan Block Crude Oil to an SEZ refinery. The rationale for effecting direct supply rather than through IOL was explained. It was emphasized that commercial contracts for supply to an SEZ refinery had been negotiated and finalized by CEIL and it would be in the best position to ascertain volumes available for the SEZ refinery on a day-to-day basis. The commercial terms for supply to the SEZ refinery were also likely to be similar to a DTA refinery. Therefore, CEIL would be in a better position to directly supply the Rajasthan Block Crude Oil to the SEZ ....
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....he learned single judge are as follows: "45. Keeping in view the aforesaid Articles, this Court is of the view that petitioners get the right to lift and export their Participating Interest share of Crude Oil and condensate only when a notice regarding attainment of self-sufficiency by India is given by Government to the petitioners and that too, subject to Government exercising an option under Article 18.4 to purchase the entire production in a particular year. Article 18.7 itself makes it explicit that it is only when the Government has elected not to purchase, the petitioners shall be entitled to freely lift, sell and export any Crude Oil and Condensate. Consequently, attaining self-sufficiency is a precursor to trigger the right of the petitioners to seek permission to export their participating interest/share of crude oil and condensate. 46. Moreover, Articles 18.10 and 18.11 provide that if the Union of India fails to lift or does not exercise its option to lift the petitioners entire Participating Interest share of Crude Oil and condensate, the petitioners have a right to seek compensation. In the present case, in absence of any notice of India attaining self-sufficiency, ....
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....-sufficiency. 50. This Court is also of the view that the Empowered Committee of Secretaries in its meeting dated 17th August, 2009, did not give the right to the petitioners to export crude oil. In fact, in the said meeting the petitioners, themselves, proposed to the respondents to approve the delivery point at the outlet flanges of the delivery facilities being established for sale to private refineries viz., Essar and Reliance." 14. Mr. C.A. Sundaram, learned senior counsel argued that the learned single judge fell into error in overlooking that despite the UOI and its nominated PSUs being unable to lift beyond 30% of the annual Rajasthan Block Crude Oil production (Respondent No. 2 has been able to lift only 16.2% (approximately) of the entire Rajasthan Block crude oil produced till November 2011), DGFT and IOL in failing to take any action on the petitioners' applications for canalized export through IOL or direct export overlooked the substantial loss running into several hundred crores per annum to the public exchequer. Counsel also stated that the learned single judge overlooked that the UOI, had as far back as on 17.08.2009, dispensed with the requirement of notifying s....
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....ort refined products. It is particularly highlighted that in a market scenario where the global crude oil prices are as low as US $ 40-45 per barrel, the inaction on the part of the DGFT and IOL is constraining the appellants to continue selling their share of the Rajasthan Block Crude Oil at a price lower by US$3-4/barrel than that which theycan fetch in the international market, and is thus in violation of their fundamental rights. 18. Learned senior counsel for petitioners submitted that though Article 18.1 of the PSC provides that until India attains self-sufficiency, the contractor is obliged to sell to the UOI or its nominee, the entire share of crude oil, yet Article 18.7 of the PSC entitles it to freely lift, sell and export any portion of its share of the Rajasthan Block Crude Oil which the UOI or its nominee PSUs are unable to lift. He argued that as UOI, and its nominee PSUs were unable to lift the entire quantity, Article 18.7 of the PSC operates and the appellants have the unfettered right to lift and export the Rajasthan Block Crude Oil to the said extent. Furthermore, urged Mr. Sundaram, Article 18.7 (of the PSC) is independent of Article 18.1.Therefore, that India ....
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....try would be deprived from enjoying the benefits of such oil. The grant or refusal of permission to export is to be seen from the fact that there is vast mismatch between indigenously produced oil and the energy demands within the country. It was submitted that the domestic requirement of crude oil is presently met partly with domestic production including Rajasthan Block Crude Oil and mainly from import. 22. The learned Solicitor General stressed that the Empowered Committee of Secretaries was of the view that permitting export of crude oil, apart from being not intended under the PSC was also against the national policy of zero per cent export till India attain self-sufficiency. It was stated that the "energy security" would be adversely affected in light of the fact, firstly that allowing crude oil exports would lower the domestic supply available to meet demand. It would also reduce India's energy security by increasing its dependence on foreign oil, which is still susceptible to recurrent supply disruptions which may occur for a variety of reasons, including conflicts, natural disasters as well as technical difficulties. It was argued, secondly that declining trends have ....
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....rade Policy 2015-2020 are relevant to the present case; that paragraph and chapter are reproduced hereinbelow:- "Import/Export Through State Trading Enterprise: 2.20 State Trading Enterprises (STEs) (a) State Trading Enterprise (STEs) are governmental and nongovernmental enterprises, including marketing boards, which deal with goods for export and/or import. Any good, import or export of which is governed through exclusive or special privilege granted to State Trading Enterprise (STE), may be imported or exported by the concerned STE as per conditions specified in ITC (HS). The list of STEs notified by DGFT is in Appendix 2J. (b) Such STE (s) shall make any such purchases or sales involving imports or exports solely in accordance with commercial considerations, including price, quality, availability, marketability, transportation and other conditions of purchase or sale in a non discriminatory manner and shall afford enterprises of other countries adequate opportunity, in accordance with customary business practices, to compete for participation in such purchases or sales. (c) DGFT may, however, grant an authorisation to any other person to import or export any of the goods no....
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....reafter, but in no event later than the end of the first Quarter of the following Year, so advise the Contractor by the written notice. In such event, as from the end of the following Year, or such earlier date as the Parties may mutually agree, Government's obligation to purchase shall be suspended and the Contractor shall have the right to lift and export its Participating Interest Share of Crude Oil and Condensate, subject to the Government's option to purchase by giving notice to the Contractor as provided in Article 18.4. 18.4 Following the service of notice under Article 18.3 that India has attained self-sufficiency, the Government shall have the option but not the obligation to purchase all the production in a particular year of crude oil and condensate from a Development Area representing the Contractor's Participating Interest share of Cost Oil and profit Oil. The Government shall indicate whether or not it intends to exercise its said option to purchase, in writing, not later than ninety days [90] prior to the commencement of the year in respect of which the sale is to be made. Failure by the Government to give such notice within the period specified shall be....
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....date the said payment was due, to receive and sell (including sale for export) the Government's share of Profit Oil until such time as either the value of the Government's share of Profit Oil so sold by the Contractor determined by applying the price calculated in accordance with Article 19.3 is equal to all amounts due in accordance with Article 18.5 plus the transport costs as referred to in Article 18.6 b) of any Crude Oil and Condensate (whether forming part of the Government's or the Contractor's share) together with interest in accordance with Article 18.6, or the Government has paid all such amounts, whichever first occurs; provided, however, that if the Government makes a payment after the Contractor has commenced the sale of Government's share of Profit Oil and such payment together with the value of Government's share of Profit Oil sold, determined as aforesaid, exceeds all such amounts including interest, the necessary adjustment shall be carried out to refund to the Government forthwith the excess amount received by the Contractor. 18.7 The Contractor shall be entitled to freely lift, sell and export any crude oil and condensate which the Govern....
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....Area. Such lifting procedure shall include, but not necessarily be limited to: a) a procedure for notification by the Operator to the Government, and to each Party constituting the Contractor, of projected production of Crude Oil and Condensate; b) a procedure for notification by the Government, and by each Party constituting the Contractor, to the Operator, of its expected of take and consequences of inability or failure to off take. xxxxxxxxxxxxxxxx ARTICLE 27- TITLE TO PETROLEUM, DATA AND ASSETS 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 or Gas the title whereof has passed to the Contractor or any other person in accordance with the provisions of this Contract." 28. As is evident, the parties to the PSC agreed on certain terms. Clause 1.63 defined "self-sufficiency" in crude oil as the situation whereby "the volume of Crude Oil and Crude Oil equivalent of Petroleum products exported from India during that Year either equals or exceeds the volume of Crude Oil and Crude Oil equivalent of Petroleum ....
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....hich the sale is to be made. Failure by the Government to give such notice within the period specified shall be conclusively deemed an election to continue the election made in respect of the current year or if no election has been made, to take all of the crude oil and condensate produced in the ensuring year. The Government shall be obliged to take and pay for the crude oil and condensate in respect of which it has or is deemed to have elected to exercise its option to purchase.." 30. Articles 18.5 and 18.6 are the mechanism for payments - to the contractor, and consequence of the failure to pay. In case of the default event- i.e omission to pay in accordance with Article 18.5, the contractor has the option to sell or condensate quantities produced and even export, by virtue of Article 18.6. Then comes Article 18.7; it states that "The Contractor shall be entitled to freely lift, sell and export any crude oil and condensate which the Government has elected not to purchase pursuant to this Article 18" subject to destination restrictions. 31. A joint reading of Articles 18.3 to 18.7 would show that: (a) self-sufficiency is to be declared by the UOI, in a given year having regard....
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....s to fail. 33. The second point which requires consideration is whether under the FTP, the appellant could legitimately claim the entitlement they sought to enforce through writ proceedings. 34. The appellants argue that the right to export the crude oil is clearly governed by the FTP and, in particular Clause 2.11 of the FTP (27 August 2009 - 31 March 2014) and Clause 2.20 of the FTP (1 April 2015 - 31 March 2020) permits the free export of crude oil, subject to its being done through a canalizing agent which in terms of Chapter 27 S.No.87 of the FTP (1 April 2015 - 31 March 2020) is the IOL. It is therefore argued that IOL as the canalizing agent was bound in law to facilitate the export of crude by the appellants, and failure on its part obliged DGFT, the authority under the FTP, to direct it to do so. The appellants consequently point out that the learned single judge fell into error in assuming that merely because export of crude oil was through a canalizing agency, i.e. the third respondent, its export would be restricted, when in fact, the nomination of a canalizing agent was only a form of regulating the export and not restricting it. The learned single judge, however, we....
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....other countries adequate opportunity, in accordance with customary business practices, to compete for participation in such purchases or sales. (c) DGFT may, however, grant an authorisation to any other person to import or export any of the goods notified for exclusive trading through STEs." Chapter 27 of Schedule I which defines mineral oils, also provides for item 87, tariff description 270.900 w.r.t. "Crude oil" only that "STE Export through Indian Oil Corporation Limited" was permissible. 37. Now, it is not as though a private entity has unrestricted right to export or import articles. It would be relevant here, to notice that in the context of whether any individual or entity can carry on international trade when it is regulated, the Supreme Court held as follows, in D. Navinchandra & Co. Bombay & Anr. Etc. v. Union of India &Ors, [1987] 2 S.C.R. 989, wherein this Court has observed: "Analysing the said order, it is apparent, (1) that the importation that was permissible was of goods which were not specifically banned, (2) such banning must be under the prevalent import policy at the time of import, and (3) whether items which were canalised or uncanalised would be importe....
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....dustries and even on the political policies of the country but rival theories and views may be held on such policies. If the Government decides an economic policy that import or export should be by a selected channel or through selected agencies the 'court would Proceed on the assumption that the decision is in the interest of the general public unless the contrary is shown." 39. Given this position in law, in this case, the court notices that there is no right to export crude oil, per se. What the FTP enables is that if a case for export of crude oil is to be made, the canalizing agency, the IOL has to give the "no objection" certificate. The appellant's position therefore, that 'crude oil' is mentioned as STE Export through IOL, supports that no entitlement for anyone else to export crude oil is created. The relevant chapter in FTP provides that if STE itself wants to export/import, it can do so and if 'any other person' intends to import/export, it will have to apply to the STE, which can enable exports. The Central Government in this case, states that permission to export cannot be given, because the Empowered Committee of Secretaries in its letter dated 27....