TaxTMI 
TaxTMI 
2026 (5) TMI 973
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....mar, AOR, Ms. Nidhi Mohan Parashar, AOR, Mr. Shailendra Swarup, AOR, Mr. Kavin Gulati, Sr. Adv., Ms. Ruby Singh Ahuja, Adv., Ms. Ravneet Kaur Malik, Adv., Mr. Devang Kumar, Adv., Mr. Abhyuday Mishra, Adv., M/S. Karanjawala & Co., AOR, Dr. N. Visakamurthy, AOR, Ms. Devina Sehgal, AOR, Mr. Sahil Bhalaik, AOR. JUDGMENT PER J.K. MAHESHWARI, J. CIVIL APPEAL NO. 3910 OF 2016 1. India is a Union of States. Reality is that all States are not endowed equally. There is stark disparity in the economic scenario among various States in India. Each State has its unique contributions and products. It is the free flow of trade and commerce that seeks to nullify some effects of inequality with just exceptions. But for the Union, generally it is observed that federating units would want to cut corners by instituting protectionist measures to augment their resources over others. It is in this context that the framers of the Constitution have laid down a road map to ensure that the Union Government takes over fiscal policies touching upon inter-state or international trade and commerce. This avowed purpose, we are here to secure. 2. On the same lines, Alexander Hamilton, one of the foun....
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....red by the Respondent No. 1 herein and quashed the order of assessment dated 11.06.2010 passed by the Additional Commissioner Grade-II, Commercial Tax Lucknow along with all consequential orders/notices passed by the State of Uttar Pradesh. The High Court further directed the State Government to refund to the assesses the tax realised in pursuance to order dated 11.06.2010. I. FACTS 4. At the outset, it is necessary to discuss the facts in brief. Respondent No. 1 herein is a company engaged in the business of extracting and refining Petroleum and Petro-chemical products. 5. In the year 1999, the Government of India announced a New Exploration and Licensing Policy (hereinafter referred as "NELP") wherein it was provided that various petroleum blocks were awarded to private players for exploration, development and production of Petroleum, etc. This policy initiative was in line with the opening of markets by Indian Government to attract and felicitate technology transfer, increase in foreign investment, etc. 6. The Respondent No. 1 herein (Reliance Industries Limited) formed an international consortium (hereinafter referred as "International Consortium") with Niko Limited....
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....d Development) Act, 1948; the Petroleum and Natural Gas Rules, 1959; the Territorial Waters, the Continental Shelf and Exclusive Economic Zone and Other Maritime Zones Act, 1976 and also the gas utilisation policy. (vi) Article 27(1) deals with title to petroleum under the contract areas as well as natural gas produced and saved from the contract area vests with the Government unless such title has passed in terms of PSC. As per Clause (2), title remains with the Government till the time the natural gas reaches the delivery point as defined in the PSC." (Emphasis supplied) 9. Further the nature and operation of this PSC as an international commercial contract is adumbrated in detail by this Court in the case of Reliance Industries Ltd. v. Union of India (2014) 11 SCC 576, which is applicable herein is as under: "2. Petitioner 1 is a company incorporated and registered under the provisions of the Companies Act, 1956; Petitioner 2 is a company incorporated in Cayman Islands, British Virgin Islands; Petitioner 3 is a company incorporated according to the laws of England and Wales. The respondent herein is the Union of India (hereinafter referred to as "th....
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....ia. A perusal of some of the provisions of PSC would make it clear that all three entities are parties to PSC. All three entities have rights and obligations under PSC [see Article 28.1(a)], including with respect to the cost petroleum, profit petroleum and contract costs (see Article 2.2), all of which are fundamental issues in the underlying dispute. Where RIL acts under PSC, including by commencing arbitration, it does so not only on behalf of itself, but also "on behalf of all constituents of the contractors" including Niko and BP. I am inclined to accept the submission of Mr Salve that there is a significant and broad-ranging dispute between RIL, Niko and BP on the one hand and the UoI on the other hand, that goes to the heart of the main contractual rights and obligations under PSC. Furthermore, it is a matter of record that in the correspondence leading to the filing of the earlier petition being AP No. 8 of 2012, no such objection about Niko and BP not being a party to the dispute had been taken. In fact, the petition was disposed of on a joint request made by the parties that two arbitrators having been nominated, no further orders were required. Therefore, there seems to ....
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....e of Sellers' Obligations: Sellers shall sell and deliver Gas from the Gas Fields at the Delivery Point on an as-available basis, at the Sales Price and subject to the terms and conditions set forth herein. Sellers shall deliver the Gas to Buyer or Buyer's designee for onward transmission to Buyer's Facilities. Clause 6 - Sales Price (a) The price of Gas at the Delivery Point ("Sales Price") shall be the sum of the Gas Price in US$/MMBtu (NHV) and the Marketing Margin in US$/MMBtu (NHV) as set out in Exhibit 2. "Gas Price" means the price in US$/MMBtu (NHV) determined in accordance with the formula set out in Exhibit 2. (b) Sales Price shall be exclusive of Taxes for which Buyer is responsible under Clause 22. (c) SI Sellers shall bear any royalty on Gas sold to Buyer under this Agreement. Clause 7 - Transfer of Property and Transfer of Risk (a) Sellers shall make all Gas supplied 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 Facilitie....
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....nd continued .effectiveness of all requisite approvals required under laws and regulations and the PSC and approvals of the Gas Price formula in Exhibit 2 as the Gas price formula to be used for cost recovery, profit sharing, and all other purposes under the PSC in respect of Gas sold under this Agreement." 12. Pursuant to the GSPA, various customers in the State of U.P. entered into separate Gas Transportation Agreement (hereinafter referred as "GTA") with Reliance Gas Transportation Infrastructure Ltd. (hereinafter referred as "RGTIL") and Gas Authority of India Limited (hereinafter referred as "GAIL") for transportation of gas from delivery point to their respective plants. 13. It is relevant to mention here that, the gas is extracted off shore and brought to Gadimoga in the State of Andhra Pradesh. At Gadimoga, RIL (Respondent No. 1) delivers the natural gas to its customers through a meter installed there to measure the quality and quantity of the gas supplied to the buyers. The gas is thereafter transported from Gadimoga (Andhra Pradesh) to Hajira in Gujarat through pipeline operated by RGTIL, and further transported from Hajira (Gujarat) to Auraiya District in Uttar Pr....
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....y Section 3 of the CST Act: under clause (a), where the sale occasions the movement of goods from one State to another; or under clause (b), where the transfer of documents of title occurs after such movement has commenced but before delivery. In either case, the transaction must qualify as a "sale" within Section 2(g) of the Act, taking place in the course of inter-State trade or commerce. v. Where no statutory fiction fixes situs, the location of sale is where property in goods passes. vi. In inter-State sales, movement of goods arises from the contract of sale or is incidental thereto. Prior agreement is not essential precedent for movement of goods. vii. In view of Explanation 2 of Section 3 of CST Act, a sale is intra-State only if movement commences and terminates within the same State; if it terminates in another State, it is inter-State. viii. 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. ix. In the present cas....
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....de. A writ in the nature of mandamus is issued directing the State; Government to refund the tax realised in pursuance to order dated 11.6.2010 forthwith to the assesses expeditiously. Writ petition is allowed accordingly. No order as to costs." 20. Aggrieved by the aforesaid Order, appellants have filed this civil appeal. II. ARGUMENTS 21. Before us, the learned Senior Counsel appearing for the Appellants, Dr. Dinesh Dwivedi, submitted that: a. RIL extracts natural gas from the KG-D6 basin situated in the State of Andhra Pradesh and effects delivery at the designated point at Gadimoga, Andhra Pradesh. From Gadimoga, the gas is transported to Hazira in the State of Gujarat through pipelines owned and operated by RGTIL. Thereafter, the gas is carried from Hazira to Pata, District Auraiya, Uttar Pradesh, through the pipeline network of GAIL. At Pata, the gas undergoes processing, whereby hydrocarbons are removed and the remaining product, being predominantly lean gas comprising about 90% methane, is channelled into different pipelines emanating from Auraiya. It was further urged that these pipelines at Auraiya belong to the respective purchasers or....
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....commerce, and to empower it to prescribe the principles determining when such transactions take place. f. The GSPA between RIL and its buyers were executed even before the extraction of natural gas, when the goods were neither in existence nor in saleable form. Consequently, the GSPA was not a contract of sale of goods but merely an agreement for the sale of future and unascertained goods, enforceable only once the gas was extracted and Reliance acquired authority to sell. g. The GSPA reflected only the intention of the parties to enter into a contract of sale and did not in itself evidence a completed sale of natural gas. Hence, the tax authorities were neither bound by nor estopped from examining the true nature of the transaction to determine the point at which the property in goods passed. h. Further, under Article 265 of the Constitution of India, no tax can be levied except by the authority of law, and therefore the point of taxation must be determined strictly by statute, not by contractual stipulation. An agreement between parties declaring transfer at Gadimoga cannot bind the tax authorities to treat the transaction as an inter-state sale. ....
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....act of sale between Respondent No. 1 and its buyers, thereby satisfying all the essential requirements of an inter-State sale. To support his contentions, the Learned Senior Counsel for the Respondent No. 1 relied on the judgements of this court in State of Andhra Pradesh v. NTPC (2002) 5 SCC 203 and Hyderabad Engineering Industries v. State of A.P. (2011) 4 SCC 705. g. The learned Senior Counsel for Respondent No. 1 submitted that, in terms of Article 269 of the Constitution of India and Sections 9(1) and 9(3) of the CST Act, the Central Sales Tax is collected through the machinery of the State from which the movement of goods commences, with the proceeds assigned to that State. h. Respondent No. 1 is registered with the Andhra Pradesh authorities and has consistently deposited CST there, while under both the PSC and GSPA, the liability for sales tax rests with the buyers. Any attempt by Uttar Pradesh to levy VAT on these transactions would encroach upon Parliament's jurisdiction. i. It is further submitted that even if during transportation, natural gas is co-mingled with supplies meant for other buyers, such co-mingling occurs only after identification....
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....y States. The Union and States are co-equals in their respective fields under the Indian federal structure. Framers of our Constitution created a unique federal structure which cannot be abridged in a sentence or two. The nature of Indian federalism can only be ascertained from a study of various provisions of the Constitution of India. The confirmation of the Union and the States authority as co-equals can be found in the speeches of Hon'ble P.S. Deshmukh, Shri TT Krishnamachari and Hon'ble Dr. BR Ambedkar before the constituent assembly as follows: "There is only one point of constitutional import to which I propose to make a reference. A serious complaint is made on the ground that there is too much of centralisation and that the States have been reduced to municipalities. It is clear that this view is not only an exaggeration, but is also founded on a misunderstanding of what exactly the Constitution contrives to do. As to the relation between the Centre and the States, it is necessary to bear in mind the fundamental principle on which it rests. The basic principle of federalism is that the legislative and executive authority is partitioned between the Centre and the S....
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....on is conferred in the widest terms on the Dominion, and a power of direction taxation within the province to raise revenue for provincial purposes is conferred on the provinces. Thus the taxing powers are independent but as regards direct taxation they cover an overlapping field. In Australia "The Federal power over customs and excise duties is exclusive (s. 90), but as regards other taxation the Commonwealth and State Parliaments have separate rather than concurrent powers." 79 These overlapping powers of taxation covering the same field, for example, the power to impose an income tax, have given rise to much litigation and have raised the question whether the federal power can be so exercised as to nullify the State's power of taxation. The lists contained in the Sch. VII to the G.I. Act, 35, provided for distinct and separate fields of taxation, and it is not without significance that the concurrent legislative list contains no entry relating to taxation but provides only for "fees" in respect of matters contained in the list but not including fees taken in any court. List I and List II of Sch. 7 thus avoid overlapping powers of taxation and proceed on the basis of allocating a....
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....nd ensure that taxation do not overlap and thereby avoiding double taxation. 31. Under our Constitutional framework, the sovereign power to tax is limited by division of powers between the Centre and States. A Constitution Bench of this Court Synthetics and Chemicals Ltd. v. State of U.P. (1990) 1 SCC 109, recognized that under Indian federal setup, both Centre and State enjoy this sovereign power to tax only to the extent allowed by the Constitution. In this context, this Court held as under: "56 We would not like, however, to embark upon any theory of police power because the Indian Constitution does not recognise police power as such. But we must recognise the exercise of sovereign power which gives the States sufficient authority to enact any law subject to the limitations of the Constitution to discharge its functions. Hence, the Indian Constitution as a sovereign State has power to legislate on all branches except to the limitation as to the division of powers between the Centre and the States and also subject to the fundamental rights guaranteed under the Constitution. The Indian State, between the Centre and the States, has sovereign power. The sovereign power i....
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.... 37. Third source of restriction on legislative power of the State is in the form of limitation provided by Articles 286(3), 366(29-A) etc. of the Constitution of India. Further, any law made by the Parliament or the State legislature is to be compliant with Part III as declared under Article 13 of the Constitution of India. There is no gainsaying, that the power to enact laws has been conferred upon the Parliament or the State legislature to the above constitutional limitation that levy of any tax ought not to fall foul of Part III as adumbrated in Jindal Stainless Limited and Another v. State of Haryana and Others (2017) 12 SCC 1. 38. After alluding to certain first principles, it necessary to understand constitutional scheme. Under the federal scheme, Article 248 empowers the Parliament with residuary power to impose tax which is not otherwise provided in the concurrent, union or the state list. The power of State and Union to legislate on a particular taxation are clearly demarcated. 39. Article 249 of the Constitution of India empowers the Parliament to legislate on a matter in the State list for national interest provided the council of the State has passed a resolutio....
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....of Magna Carta as taxation was a major issue between then Steward Kings and the Parliament. Similarly, Article I, Section 8(1) of the Constitution of United States of America also echoes the same sentiments. 45. Explaining the fiscal federalism under the Indian Constitution, this Court by a 9-Judge Bench in Jindal (supra), interpreted Article 265 of the Constitution of India as under - "21. We shall presently turn to the constitutional limitations on the sovereign power to tax but before we do so we need to point out that while the power to levy taxes is an attribute of sovereignty, exercise of that power is controlled by the Constitution. This is evident from the provisions of Article 265 which forbids levy or recovery of any tax except by the authority of law.....The authority of law referred to above must be traceable to a provision in the Constitution especially where the legislative powers are shared by the Centre and the States as is the case with our Constitution which provides for what has been described as quasi-federal system of governance." 46. Therefore, three things that are clear under Article 265 of the Constitution of India are as thus: i. Th....
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....es mentioned under Article 269 is provided in the explanation which includes sale and purchase of goods that takes place in the course of inter-state trade or commerce other than newspapers or taxes on consignment of goods which takes place in the course of inter-state trade or commerce. 49. It is pertinent to also note that the power of State legislature to levy sales tax under the constitutional scheme. In this context it is relevant to reproduce Article 286 of the Constitution of India (as it exists today) as below: "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 on2 the supply of goods or of services or both, where such supply takes place- (a) outside the State; or (b) in the course of the import of the goods or services or both into, or export of the goods or services or both out of, the territory of India. (2) Parliament may by law formulate principles for determining when a supply of goods or of services or both in any of the ways mentioned in clause (1)." 50. Entry 54 of list II of Seventh Schedule to the Constitution of India as ....
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.... this Court in State of Bombay v. United Motors (India) Ltd. (1953) 1 SCC 514. 53. This Court in United Motors (supra), while examining whether the State of Bombay has enacted a law imposing, or authorising the imposition of, a tax on sales or purchases of goods in disregard of the constitutional limitations on its legislative competence, observed as under: "16. We are therefore of opinion that Article 286(1)(a) read with the Explanation prohibits taxation of sales or purchases involving inter-State elements by all States except the State in which the goods are delivered for the purpose of consumption therein in the wider sense explained above. The latter State is left free to tax such sales or purchases, which power it derives not by virtue of the Explanation but under Article 246(3) read with entry 54 of List II." 54. The correctness of the above ruling was subsequently doubted, and the matter was reconsidered by a Seven Judge Bench of this Court in Bengal Immunity (supra). The above case arose from the fact that Bihar Commercial Taxes Department issued a notice to a company based in West Bengal, raising a demand under West Bengal Sales Tax as the sale of products ....
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....ake our foreign trade free from any interference by the States by way of a tax impost. In clause (2) they looked at sales or purchases in their inter-State character and imposed another ban in the interest of the freedom of internal trade. Finally, in clause (3) the Constitution makers' attention was rivetted on the character and quality of the goods themselves and they placed a fourth restriction on the States' power of imposing tax on sales or purchases of goods declared to be essential for the life of the community. These several bans may overlap in some cases but in their respective scope and operation they are separate and independent. They deal with different phases of a sale or purchase but, nevertheless, they are distinct and one has nothing to do with and is not dependent on the other or others. The States' legislative power with respect to a sale or purchase may be hit by one or more of these bans. Thus, take the case of a sale of goods declared by Parliament as essential by a seller in West Bengal to a purchaser in Bihar in which goods are actually delivered as a direct result of such sale for consumption in the State of Bihar. A law made by West Bengal witho....
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....he goods have actually been delivered for the purpose of consumption in another State, notwithstanding the fact; etc. etc." then none of the difficulties would have arisen at all. But why, it is asked, did the Constitution makers seek to explain what was an outside sale or purchase by saying that a sale or purchase was to be deemed to take place inside the particular State mentioned in the Explanation? Was the purpose of the Explanation only to explain what was an outside sale or purchase or was it also its purpose to allot or assign a particular class of sales or purchases of the kind mentioned therein to a particular State so as to put the question of situs of the sales or purchases of that description beyond the pale of controversy? These are questions which arise and are raised because of the somewhat involved language of the Explanation... *** *** *** 40. If, therefore, the Explanation cannot be read into clause (2) because of the express language of the Explanation and also because of the difference in the subject-matter of the operative provisions of the two clauses, then it must follow that, except insofar as Parliament may by law provide otherwise, no Sta....
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....he purview of clause (2), not because the fiction created by the Explanation was used for the purpose of clause (2), but because such sale or purchase became, in the eye of the law, a purely local transaction. In his own inimitable language the learned Chief Justice, who wrote and delivered the majority judgment, concluded the discussion on this point by saying that the statutory fiction completely masked the inter-State character of the sale or purchase which, as a collateral result of such masking, fell outside the scope of clause (2). In spite of the great respect we always entertain for the opinions of the then learned Chief Justice and the other learned Judges who constituted the majority we are unable to accept the aforesaid arguments or the conclusions as correct for the reasons we now proceed to state. 42. The situs of an intangible concept like a sale can only be fixed notionally by the application of artificial rules invented either by Judges as part of the Judge-made law of the land, or by some legislative authority. But as far as we know, no fixed rule of universal application has yet been definitely and finally evolved for determining this for all purposes. Th....
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....n one place by judicial fiction i.e. a fiction enunciated by judicial decision, the inter-State character of the transaction must cease. The majority hold that this is the result when the situs is placed in only one State, namely, the delivery State, because of the fiction which the Explanation creates. The same result would have to follow logically if the situs were to be established by judicial fiction instead of by a constitutional one. The reasoning of the majority, pushed to its logical conclusion, will inevitably lead us to hold that all inter-State transactions must eventually be converted into intra-State transactions and, therefore, become amenable to the taxing power of the State within whose territories they are, by the constitutional or judicial fiction, to be deemed to take place. In this view there will remain no inter-State transaction on which clause (2) may possibly operate. The argument which leads to this astounding conclusion has only to be stated to be rejected. The truth is that what is an inter-State sale or purchase continues to be so irrespective of the State where the sale is to be located either under the general law when it is finally determined what the....
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....ion does not conclude the matter. It has yet to be ascertained whether that sale or purchase which by virtue of the Explanation has taken place in the delivery State was made in the course of inter-State trade or commerce. For this purpose the Explanation can have no relevancy or application at all. 43. Another argument adumbrated in the majority judgment in State of Bombay v. United Motors (India) Ltd. [State of Bombay v. United Motors (India) Ltd., (1953) 1 SCC 514 : 1953 SCR 1069] at SCC pp. 530-31 and 534-35 : SCR pp. 1081 and 1086-1087 and elaborated before us is that just as the freedom of trade referred to in Article 301 has been made to give way to the States' power of imposing non-discriminatory taxes by Article 304 so must Article 286(2) be regarded as subject to the States' taxing power, for the protection of Article 286(2) could not have been intended to be larger. This argument was refuted by the dissenting judgment in that Bombay case [State of Bombay v. United Motors (India) Ltd., (1953) 1 SCC 514 : 1953 SCR 1069] at SCC pp. 543-45 and 559-60 : SCR pp. 1102-1103 and 1127 and also by the dissenting judgment in State of Travancore-Cochin v. Shanmugha V....
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....otherwise, no State can impose or authorise the imposition of any tax on sales or purchases of goods when such sales or purchases take place in the course of inter-State trade or commerce and the majority decision in State of Bombay v. United Motors (India) Ltd. [State of Bombay v. United Motors (India) Ltd., (1953) 1 SCC 514 : 1953 SCR 1069] insofar as it decides to the contrary cannot be accepted as well founded on principle or authority." (emphasis supplied) 55. After the said decision in Bengal Immunity (supra), the Taxation Enquiry Commission recommended certain constitutional amendments to clarify the scope of the State's power to levy sales tax. These recommendations were accepted, and Parliament accordingly enacted the Constitution (Sixth Amendment) Act, 1956, whereby Entry 92-A was inserted in List I of the Seventh Schedule, Entry 54 in List II was substituted, and Sub-clause (g) was added to clause (1) and clause (3) was added to Article 269 of the Constitution of India. 56. By virtue of the amendment to Article 269 of the Constitution of India, Parliament was vested with the exclusive power to levy and collect tax on the sale or purchase of goods taking place in....
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.... as "more than five years" and as "more than four years" in the same paragraph for the period subsequent to November 1, 1986. It is not the duty of the court either to enlarge the scope of the legislation or the intention of the legislature when the language of the provision is plain and unambiguous. The court cannot rewrite, recast or reframe the legislation for the very good reason that it has no power to legislate. The power to legislate has not been conferred on the courts. The court cannot add words to a statute or read words into it which are not there. Assuming there is a defect or an omission in the words used by the legislature the court could not go to its aid to correct or make up the deficiency. Courts shall decide what the law is and not what it should be. The court of course adopts a construction which will carry out the obvious intention of the legislature but could not legislate itself. But to invoke judicial activism to set at naught legislative judgment is subversive of the constitutional harmony and comity of instrumentalities..." 60. Having alluded to the rules of interpretation, it is relevant to notice few provisions of the CST Act herein. The statutory reg....
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....e prospectively and does not cover the situation as it existed before 2016. On the contrary, the learned senior counsel for the Respondent No. 1 submitted that the explanation was added ex abundunti catula to explain what was the position earlier. We have given our consideration towards the explanation which necessarily points to a clarificatory attempt by the Union Parliament. 63. An explanation ordinarily cannot enlarge the scope of the section appended to it, but if it does, the effect must be to give legislative intent to the same. [Pioneer Urban Land and Infrastructure Limited v. Union of India, 2019 (8) SCC 416, at para 97]. 64. In this backdrop, it is essential to refer to the Office Memorandum dated 21.07.2015 of the Ministry of Finance in respect of Section 3 of CST Act, which reads as thus: "OFFICE MEMORANDUM Subject:- Clarification under section 3 of the Central Sales Tax Act 1956 - Reg. Pursuant to the decision of the Cabinet Committee on ; Economic Affairs (CCEA) in its meeting held on 25.03.2015, the following clarification is made with regard to section 3 of the Central Sales Tax Act, 1956: Where the gas sold or purchased is transported ....
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....man Das v. CIT, (1997) 1 SCC 352, 354; CIT v. Podar Cement (P) Ltd., (1997) 5 SCC 482, 506]. But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are "it is declared" or "for the removal of doubts." 66. Likewise, this Court in Sree Sankaracharya University of Sanskrit & Ors. v. Dr. Manu & Another (2023) 19 SCC 30, while determining the issue of two advance increments in favour of respondent was called upon to determine whether the order dated 29.03.2001 was a clarification of Clauses 6.16 to 6.19 of G.O. dated 21.12.1999 or whether it amended or modified the same. It observed as thus: "31. It is trite that any legislation or instrument having the force of law, which is clarificatory or explanatory in nature and purport and which seeks to clear doubts or correct an obvious omission in a statute, would generally be retrospective in operation, vide Ramesh Prasad Verma [State of Bihar v. Ramesh Prasad Verma, (2017) 5 SCC 665]. Therefore, in order to determine whether the Government Order dated 29-3-2001 may be made applicable retrospectively, it is necessary to consider whether the said order was a clarification or....
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....or alter the scope of the original provision. 38.4. Merely because a provision is described as a clarification/explanation, the Court is not bound by the said statement in the statute itself, but must proceed to analyse the nature of the amendment and then conclude whether it is in reality a clarificatory or declaratory provision or whether it is a substantive amendment which is intended to change the law and which would apply prospectively." Viewed from this perspective, it is luculent that the explanation to Section 3 of CST Act was added pursuant to the Cabinet Decision vide Act 28 of 2016 (w.e.f. 14.05.2016). The office memorandum dated 03.05.2015 in clear terms states that it was a clarification which was discussed by the Cabinet Committee and later incorporated as explanation in Section 3 of CST Act. The amendment to Section 3 of CST Act by way of Explanation 3 does not effectively alter its scope, rather simply reflects the statutory intent to clarify inter-state transactions. Furthermore, considering its clarificatory nature, unless expressly provided to be prospective in nature, it has to be read to effective from the date the main provision came into force. Th....
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....s "outside" all other States. Furthermore, being subject to Section 3, it provides that if the transaction causes goods to cross state borders, the host State cannot apply its own local taxes, but must instead levy the unified Central Sales Tax. 69. Now, adverting to the inter-play between Section 3 and Section 4 of CST Act. Before the CST Act, multiple States frequently claimed the right to tax a single transaction based on different territorial nexus. For example - one State used to claim jurisdiction to levy tax because the contract was signed there and another because the goods were manufactured there. The interplay of Sections 3 and 4 permanently resolves this. 70. Section 3 defines when a sale or purchase takes place in the course of inter-State trade or commerce. It focuses entirely on the movement of goods. If a sale occasions the movement of goods from one State to another, or if it is effected by a transfer of documents of title during such movement, Section 3 of CST Act colours the transaction as an "inter-State sale". On the other hand, Section 4 of CST Act provides that subject to Section 3, a sale determined to take place "inside" one State is deemed to occur "o....
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....s of this Act, sections 3, 4 and 5 of the Central Sales Tax Act, 1956, shall apply respectively for determining whether or not a particular sale or purchase of any goods falls under any of the sub-clauses (i), (ii) and (iii) of clause (a). A plain reading of the aforesaid provision makes it evident that the State legislature, in enacting Section 7 of the VAT Act, has done no more than to give statutory expression within the framework of the enactment, to what the Constitution of India and the CST Act had already ordained. The exclusion of inter-State trade from the levy of State tax under Section 7 is, in substance, a legislative acknowledgment of the constitutional boundaries within which the State's power of taxation must necessarily operate. Section 7, in that view, is not the source of these limitations but a reflection of them. 73. At this juncture, we can profitably refer to judgment of this Court in State of Kerala v. Attesee (1989) Supp. 1 SCC 733, wherein the issue was regarding the interconnection of the three Acts: the CST Act, the Additional Duties of Excise (Goods of Special Importance) Act, 1957 and the State Sales Tax Act. Paragraph 6 of the said decision reads....
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....vement 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 movement of goods, obviously the movement cannot be attributed to the contract of sale. Similarly, if the transaction of sale stands completed within the State and the movement of goods takes place thereafter, it would obviously be independently of the contract of sale and necessarily by or on behalf of the purchaser alone and, therefore, the transaction would not be having an inter-State element. Precedents are legion; we may briefly refer to some of them. In English Electric Co. of India Ltd. v. CTO [(1976) 4 SCC 460 : 1977 SCC (Tax) 23 : (1977) 1 SCR 631] this Court held that when the movement of the goods from one State to another is an incident of ....
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....hich is imposed by Article 286(1) of the Constitution is independent of the legislative entries in the Seventh Schedule. After the decision of the larger Bench in Bengal Immunity Co. Ltd. [AIR 1955 SC 661 : (1955) 2 SCR 603] and the Constitution Bench decision in Ram Narain Sons Ltd. v. CST [AIR 1955 SC 765 : (1955) 2 SCR 483] there is no manner of doubt that the bans imposed by Articles 286 and 269 on the taxation powers of the State are independent and separate and must be got over before a State Legislature can impose tax on transactions of sale or purchase of goods. Needless to say, such ban would operate by its own force and irrespective of the language in which an entry in List II of the Seventh Schedule has been couched. The dimension given to the field of legislation by the language of an entry in List II of the Seventh Schedule shall always remain subject to the limits of constitutional empowerment to legislate and can never afford to spill over the barriers created by the Constitution. The power of the State Legislature to enact law to levy tax by reference to List II of the Seventh Schedule has two limitations : one, arising out of the entry itself, and the other, flowin....
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.... to legislate in the field not specifically excluded, more so, when there is available a specific provision in the Constitution prohibiting such legislation. 28. It is by reference to the ambit or limits of territory by which the legislative powers vested in Parliament and the State Legislatures are divided in Article 245. Generally speaking, a legislation having extraterritorial operation can be enacted only by Parliament and not by any State Legislature; possibly the only exception being one where extraterritorial operation of a State legislation is sustainable on the ground of territorial nexus. Such territorial nexus, when pleaded, must be sufficient and real and not illusory. In Burmah Shell Oil Storage & Distributing Co. of India Ltd. [AIR 1963 SC 906 : 1963 Supp (2) SCR 216] which we have noticed, it was held that sale for use or consumption would mean the goods being brought inside the area for sale to an ultimate consumer i.e. the one who consumes. In Entry 53, "sale for consumption" (the meaning which we have placed on the word "sale") would mean a sale for consumption within the State so as to bring a State legislation within the field of Entry 53. If sale and c....
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....when the generation takes place in one State wherefrom it is supplied and it is received in another State where it is consumed, the entire transaction is one and can be nothing else excepting an inter-State sale on account of instantaneous movement of goods from one State to another occasioned by the sale or purchase of goods, squarely covered by Section 3 of the CST Act. Sale of electricity by NTPCL 30. In both the cases before us, contracts have been entered into between parties to the transaction, that is, the sellers and the buyers (in other States) prior to the generation of electricity. NTPCL generates electricity and pursuant to these contracts, supplies the same from its power stations situated in the State of A.P. or M.P. to the buyers in other States where it is received and consumed. There is no hiatus between generation, sale, supply, transmission, delivery and consumption. The inter-State movement of electricity is pursuant to contracts of sale. Such sales can be held only as inter-State sales. 31. 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....
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....n, by relying on the theory of territorial nexus. Such a situation would be the one which was obtaining in the country with respect to sales tax prior to coming into force of the Constitution and which led to complications and difficulties in administration of sales tax legislation and therefore, was taken care of by the Sixth Amendment. Such multiple taxation would result in hampering free movement of electricity between the States, and therefore, would be prejudicial to freedom of trade, commerce and intercourse throughout the territory of India, and for the unity and integrity of the country. That would give rise to the same situation which was sought to be remedied by the Constitution and the Sixth Amendment." 75. In Hyderabad Engineering Industries (supra), the question before this court was whether the turnover under dispute for Assessment year 1981-1982 is an "branch transfer" or an "inter-state sale" and thereby eligible to tax under the CST Act. This Court while dealing with the above question, interpreted the provisions of CST Act, concerning inter-state sale and observed as under: "17. To make a sale as one in the course of inter-State trade or commerce, ther....
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.... movement of goods from one State to another, an inter-State sale would ensue and would result in exigibility (sic) of tax under Section 3(a) of the Central Act on the turnover 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." 76. From the above discussion, following aspects are clear: (i.) As per Article 269(1) of the Constitution of India, the Union Government has the competence to levy and collect tax on sale and purchase of goods in the course of inter-State trade or commerce. (ii.) Article 286(1) of the Constitution of India further clarifies the position that the State legislature cannot impose a tax on supply of goods or services where the supply takes place outside the State. (iii.) The Constitution (Sixth Amendment) Act, 1956 clarified the scope and competence of State Legislature to impose tax under Entry 54 of List II, Seventh Schedule, which cannot include any tax in the course of inter-State trade and commerce or international trade or commerce. (iv.) Consequently, clarificatory statutory provisi....
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....iate to reproduce relevant portion from Exhibit 5 which is as under:- *** *** *** 131. From the aforesaid reading of contractual obligation an terms of 1 GSPA, there appears to be no reason to disagree with the petitioner's contention that the delivery point of the natural gas to the buyer is at Gadimoga. The quantity of gas delivered to the buyer is measured an accordance to MMBtu Scale at delivery point and according to GSPA, it is the buyer who owes responsibility with regard to damage or loss caused, if any. However, an case quantity of gas made available by the seller during contractual period is less than the adjusted monthly supply quantity, then it shall be shortfall quantity, which may be supplied by the seller. Supply of natural gas by the petitioner is subject to execution of gas transportation agreement requiring the transporter to transport gas from delivery point to the inlet of buyer. It is for the buyer to make necessary arrangement for supply of gas from delivery point to buyer's facility. Delivery of gas from one pipeline to other an the course of transportation of gas to buyer's facility according to GSPA is for the purpose of making integrated ....
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....dhra Pradesh but the sale an terms of Section 3 takes place an the State of Andhra Pradesh at Gadimoga an pursuance to the conditions contained an GSPA. An view of Section 7 of the VAT Act, the State Government may not impose tax to an sale or purchase taking place outside its territory. 142. The agreement with RGTIL which is an common format reveals that the RGTIL i.e. transporter operates gas pipeline system an India from Kakinada an the State of Andhra Pradesh to Bharuch (Gujarat), referred as East-West pipeline. The buyer, i.e., Shipper secured transportation services from transporter for transportation of natural gas through East-West pipeline from entry point to exit point for onward transportation an downstream pipeline to consumer's facilities. The Gas Transport Agreement (an short GTA) reveals that the Shipper or buyer has executed GSPA (supra) or shall execute GSPA (supra) and for downstream transportation, GTA was executed. *** *** *** XIV - Common Carrier - OPEN ACCESS SYSTEM 154. Accordingly, an 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 responde....
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.... record, which may indicate that the petitioner or the seller is concerned as to where the re-processing of gas takes place. The payment to seller is made on the basis of measurement done at the delivery point an terms of GSPA. Under Section 3 of CST Act read with Section 7 of the VAT Act, natural gas is delivered at delivery 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. An 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 an 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 read with Section 7 of the VAT Act even if it is carried forward an commingled ....
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....that, even the State of Uttar Pradesh acknowledges that the above sale transaction was inter-State transaction and accordingly has issued Form-C to the buyers in terms of Rule 12 of the CST Rules. There is no doubt that Rule 12 read with Section 8(4) of CST Act provides that a declaration be made under the prescribed form in regard to the inter-state trade (Form-C). Having recognised inter-State sale by providing Form-C to the buyer, it is not appropriate for the State of Uttar Pradesh to approbate and reprobate in characterizing the nature of transaction. Further, the State of Uttar Pradesh heavily relies on the Section 4 of CST Act to contend that the goods were unascertained and came to be ascertained only at Uttar Pradesh, therefore, the sale took place within the State. The aforesaid argument is completely misplaced, as it tries to over amplify Section 4 of the CST Act, whereas, the aforesaid provision is clearly subjected to Section 3 of the CST Act. A Constitution Bench of this Court in Tata Iron and Steel Co. Limited vs. S.R. Sarkar & Ors. 1960 SCC OnLine SC 106 while determining as to the correct place in which the sale could be said to have taken place, interpreted Sectio....
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....delivered, and therefore the State of Madhya Pradesh had no jurisdiction to levy tax under the Central Sales Tax Act. The same arguments were applied to Categories II and III on the ground that if the sales comprised in Categories II and III were not sales in the course of export they also were not inter-State sales, because the goods which moved from the State of Madhya Pradesh were not actually the goods which were sought to be sold to the buyers in other States in India. The High Court has considered this matter at great length and has relied on a number of authorities. In a recent judgment of this Court in Balabhgas Hulaschand v. State of Orissa [(1976) 2 SCC 44 : 1976 SCC (Tax) 164] after review of all the authorities on the point, this Court held as follows: "That the following conditions must be satisfied before a sale can be said to take place in the course of inter-State trade or commerce: (i) that there is an agreement to sell which contains a stipulation express or implied regarding the movement of the goods from one State to another; (ii) that in pursuance of the said contract the goods in fact moved from one State to another; and (ii....
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.... the transaction, and that the subsequent feeding of gas into a common pipeline, including its inevitable physical commingling with gas from other sources, does not alter or relocate the character of the sale already concluded. Applying this principle to the facts of the present case, the gas having been metered, delivered, and title having passed at Gadimoga in the State of Andhra Pradesh in terms of the GSPA, the sale stood concluded at that point. The subsequent commingling of the gas and the re-metering at Auraiya in the State of Uttar Pradesh were mere incidents of transportation, attendant upon a sale already fully completed in another State, and cannot create a fresh occasion for the levy of tax under the VAT Act. Therefore, the movement of gas via common carrier, does not change the nature of sale to disentitle the benefit of Section 3 of the CST Act. Further, even the Clause 2.6(a) of the GTA stipulates that the transporter shall not receive any title and is merely transporting and delivering the gas on behalf of the buyer. 86. Moreover, the State of Uttar Pradesh has contended that the gas which is delivered by GAIL, after carrying out the processing in the transmissio....
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....recorded by the learned Tribunal while holding that the transactions in question can be said to be Branch Transfer and cannot be said to be inter-State sale, on facts the decisions relied upon by the learned Counsel appearing on behalf of the petitioner referred to herein above shall not be applicable to the facts of the case on hand. [8.10] Learned Tribunal has given cogent reasons and has given the specific finding after long drawn reasoning and therefore, the same are not required to be interfered by this Court in exercise of powers under Article 226/227 of the Constitution of India." From the reading of the above judgment, it is evident that the reliance by the State of Uttar Pradesh on the aforementioned judgment is distinguishable on the facts of the present case. In fact, the very same judgment relied upon by the State of Uttar Pradesh categorically differentiates the facts of the present case. In the case cited before us, GAIL was acting in the capacity of the seller itself, whereas in the present case, as observed herein above, GAIL is merely an transporter. Therefore, the said judgment has no application in this Appeal. 88. Lastly, the State of Uttar Prades....