TaxTMI 
TaxTMI 
2022 (8) TMI 224
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.... be relevant to set out the facts very briefly: The petitioner is a Government of India undertaking engaged in exploring Crude Oil in the Cauvery Basin in the State of Tamil Nadu. The crude oil pumped out from the oil wells at Nannilam and Narimanam was transported to the oil storage point of the petitioner at Nagapattinam through pipelines. The oil is transported to the storing point of the petitioner at Tondiarpet in Chennai through trucks by road or in railway wagons. Thereafter, in terms of the directions given by the Ministry of Petroleum and Natural Gas, the Crude Oil was pumped through pipelines to the storage tank of MRL to whom the crude oil was sold. It is pertinent to mention here that the petitioner was under an obligation to sell the entire stock of crude oil only to MRL. The quantum of crude oil pumped through pipelines into the storage tank of MRL was acknowledged/ ascertained after removal of Base Sediment and Water (BS & W) and the certificate was issued by MRL only for the quantity so acknowledged/ ascertained. The Central Excise Officers stationed at MRL would certify the quantity delivered to MRL and CESS was payable only on the acknowledged quantity i.e., af....
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....il was transported to Tondiarpet storing point at the appellant's risk and the Central Excise Authorities took the quantum of crude oil supplied to Tvl.MRL at Tondiarpet storing point when it is pumped into the storing tank of Tondiarpet. 8. The crude oil cannot be considered to have become the property of the buyers at Narimanam in that the appellant had undertaken to transport the crude oil through railway wagons or lorry to the Tondiarpet storing point and it was practically at Tondiarpet did the crude oil pass on the buyers Tvl.MRL and therefore the transportation of crude oil from Narimanam/ Nagapattinam to Tondiarpet has to be held as that of the appellant in connection with the ultimate sale of goods." 5. With the above findings, the Tribunal upheld the orders passed by the Assessing Officer as well as the First Appellate Authority on the premise that the sale took place at the point of time, when the crude oil was delivered into the tank of MRL and not at Narimanam as claimed by the petitioner and thus, the transport charges were liable to tax under the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as the "TNGST Act, 1959"). 6. Aggrieved....
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....ments were taken after removal of Base Sediments and Water (BS & W) at the storage point of MRL which is indicative that the property and the risk continued to remain with the petitioner until then. It is also submitted that the MRL cannot take delivery at the oil well at Narimanam or Nannilam and by the very nature of the goods involved in the transaction, it was necessary for the petitioner to deliver the goods at the storage point of MRL. The petitioner's submission on the basis of Explanation 3 to Section 2(n) of the TNGST Act, 1959 is wholly misplaced and that appropriation by itself would not result in completed sale and thus, the same is liable to be rejected. 9. Heard both sides. 10. It appears to us that the writ petitions must fail for the following reasons: Failure to challenge the orders of assessment for the earlier period: The submission of the petitioner that for the assessment years 1988-89 to 1991-92, the appeals have been allowed excluding freight charges and the same has attained finality and thus, it is not permissible for the Revenue to take a contrary view, needs to be rejected for two reasons: a. There is no res-judicata in tax matter....
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....the goods have been identified / earmarked / appropriated, but the goods are destroyed before the property in the goods passes to the buyer, there cannot be any levy in such circumstances for there is no completed sale. (ii) At this juncture, it may also be relevant to refer to the definition of "sale" under Section 2(n) of the TNGST Act, 1959. "Section 2(n) "sale" with all its grammatical variations and cognate expressions means every transfer of the property in goods (other than by way of mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration and includes - (i)...... " (iii) A reading of the above provision would show that to constitute "sale", the following ingredients must be present and satisfied: a. There must be transfer of property in goods. b. Such transfer must be from one person to another. c. It must be in the course of business. d. It must be for cash, deferred payment or other valuable consideration. (iv) It would thus be clear that in the absence of transfer of property in goods, there cannot be a completed s....
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....ent in two respects. First with regard to the definition of "sale" for the purposes of the Constitution in general and for the purposes of Entry 54 of List II in particular except to the extent that the clauses in Article 366(29-A) operate. By introducing separate categories of "deemed sales", the meaning of the word "goods" was not altered. Thus the definitions of the composite elements of a sale such as intention of the parties, goods, delivery, etc. would continue to be defined according to known legal connotations. This does not mean that the content of the concepts remain static. The courts must move with the times. [See Attorney General v. Edison Telephone Co. of London Ltd., (1880) 6 QBD 244 : 43 LT 697] But the Forty-sixth Amendment does not give a licence, for example, to assume that a transaction is a sale and then to look around for what could be the goods. The word "goods" has not been altered by the Forty-sixth Amendment. That ingredient of a sale continues to have the same definition. The second respect in which Gannon Dunkerley [State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] has survived is with reference t....
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....stitution of India, had introduced Section 4 of the CST Act, 1956 formulating the principles, as to when a sale or purchase is said to take place outside a State. Importantly, Section 4 of the CST Act, 1956 has been incorporated by almost every State Legislature including the State of Tamil Nadu in its law providing for levy of tax on sale or purchase of goods, as would be clear from a reading of Explanation 3 to Section 2(n) of the TNGST Act, 1959. The relevant sections are tabulated hereunder: Section 4 of the CST Act, 1956 Explanation 3 to Section 2(n) of the TNGST Act, 1959 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 ....
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.... the time of their appropriation to the contract of sale......... The term "appropriation" has not been defined and in the primary sense "to appropriate" is to set apart a thing with common consent as the property of a buyer and where a person is entitled to goods which form part of a larger quantity and are not earmarked and afterwards, the rest and set apart for him, they are said to be appropriated. In the other sense, it may mean a final appropriation of the goods to the contract so as to pass the property therein to the buyer. Consequently, when goods are selected with the common consent of the parties there may be appropriation of the goods to the contract even though the property has not passed. The scheme of the Sales Tax Act goes to show that the Parliament left out of account the element of passing of property as of any relevance in determining the situs of sale and the question of appropriation of goods has to be decided irrespective of the passing of property. 9. In other words, the appropriation referred to in Section 4(2)(b) connotes the setting apart of goods as specific goods to be delivered under the contract of sale and not an appropriation linked with pa....
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....d necessarily lead one to the question as to when the sale was completed, for which, the consistent view taken is that the expenses incurred for making the goods available to the purchaser or pre-sale expenses, would be liable to tax. The said test is also applicable, while examining the claim of deduction of freight from turnover while arriving at taxable turnover. The expenditure incurred by way of freight upto the place of sale, would form part of the price of the goods sold. If the seller is under an obligation to transport/ carry the goods to the destination of the purchaser, and if it is shown that the risk is borne by the seller until the goods are delivered at the buyers premises in discharging his obligation to the purchaser under the contract of sale and such obligation is not discharged in the capacity of an agent of the purchaser after completion of sale, it appears that the freight would form part of the price and then irrespective of whether the same is shown separately or otherwise, the same would form part of taxable turnover liable to tax. b. Price Ex- Factory or Works - Not conclusive delivery Ex-Factory: In the present case, the Price is Ex-Factory at Narim....
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....ation to pay the freight was clearly on the appellant as there was no sale at all, unless the goods were delivered at the premises of the buyer and in order to so deliver, the assessee necessarily had to incur freight charges. The transfer of title to the goods as provided in Clause 10 read with Clause 6 of the agreement was to be at the place of delivery in the premises of the buyer. Though the contract mentioned the price of the electric meters as ex-factory price, the delivery was not at the factory gate. The specification of what the price would be at the factory gate, therefore, does not in the context of the term subject to which the sale was agreed to be effected, render it the point or the location at which the sale can be said to have been completed. Had the sale been completed at the factory gate, the expenses incurred thereafter by way of freight charges would then be capable of being regarded as expenditure which was in the nature of a post-sale expenditure and, if paid by the seller, regarded as an amount paid by such seller on behalf of the buyer. ....... 18. When the transfer of the property or the goods is to be at the place of the buyer to which t....
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.... is again prima facie indicative that the property does not pass until and unless it is shown that risk was borne by the seller in the capacity of an agent. In this regard, it may be useful to refer to the judgment of the Hon'ble Supreme Court in the case of Hindustan Sugar Mills v. State of Rajasthan [(1978) 4 SCC 271], the relevant passage of which may be extracted below: "9. We may now take another example which is very much near to the one which we have already discussed. The dealer may, instead of transporting the goods from his factory or his place of business and selling them there, enter into a contract of sale FOR destination railway station. Where such a contract is made, the seller undertakes an obligation to put the goods on rail and arrange to have them carried to the destination railway station at his expense. The delivery of the goods to the purchaser in such a case is complete at the destination railway station and till then the risk continues to remain with the dealer. The freight is payable by the dealer since he has to arrange for the goods to be carried by rail to the destination railway station at his expense and there is no obligation on the purch....
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....ll be at the risk of the purchaser. Such a stipulation would make the railway agent of the purchaser for taking delivery of the goods. (emphasis supplied) (iii) Now, applying the above legal principles to the facts of the present case, it appears that the petitioner was under an obligation to transport the crude oil to the tank of MRL and the transfer of property in favour of MRL occurs only when the crude oil is pumped into the storage tank/ point of the MRL. The fact that the quantity, quality and the price is determined at that point after removal of Base Sediment and Water (BS & W) would indicate that the property stood transferred only then. Secondly, though not conclusive, one cannot turn a blind eye to the fact that the crude oil is transported by way of pipelines belonging to the petitioner to the oil storage point at Narimanam and thereafter through railway wagons or lorry to Tondiarpet to the storing point of the petitioner and then through pipelines belonging to the petitioners is delivered at MRL. The very fact that the pipelines, when transportation of oil commences and culminates, belongs to the petitioner, appears to be indicative of the fact that in the circum....
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.... Rs./MT - Basic Price : Rs.1506 - Cess : Rs. 900 - Royalty : Rs. 314 2. Henceforth the applicable sales tax on the above price will be paid by the refining companies to the producers of oil viz., ONGC and OIL and thereafter the refining companies shall claim from the OCC Pool Account. 3. The increase in the price of indigenous crude oil on account of increase in the basic rate of crude of Rs.538315/MT (i.e., Rs.1506-967.85) will be adjusted by the refineries in the cope Account on the same basis as hither to. 4. The crude oil producers will arrange to take the inventory as at midnight of 15th/16th September, 1992 of the quantity of crude in storage tank/ pipeline fills representing the crude oil ready for despatch but not actually sold to the refining companies. The adventitious gas consequent to the revised price of crude oil that accrued to the crude oil producers on such inventories will be computed and credited to the Pool Account of OCC under intimation to the Ministry. 5. The price noted above will be on the base grevity of 340 API and the existing gravity adjustments of 16 paise per barrel fo....