# [1975] 3 S.C.R. 797

- **Citation:** [1975] 3 S.C.R. 797
- **Court:** Supreme Court of India
- **Decided:** 1975-03-03
- **Bench:** K. K. Mathew, P. K. Goswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1975-3-s-c-r-797-6385
- **Pages:** 5

## Headnote

797
Central Sales Tax Act-Sect1°on 3-lnterstate Sale.:..-Sale in the course of
tnterstatc trade-If movement of goods as a result of covenant or an incident·
of the contract of sale-Must sale precede the movement of goods.
By an agreement entered into betwC'Cn the petitioner, the Government' of
India, Burma Oil Company Limited and Assam Oil Company Limited, it was
agreed that all crude oil produced by the petitioner (except Assam Oil Com·
pany's entitlement) be sold to and purchased by the Government of Jndia.
Tho exact clause reads as under :
,
·
"All crude oil produced by Oil India excluding Assam Oil Com·
pany's entitlement in respect of Oil India's existing areas under clause
20 of tho Promotion Agreement wilI (subject as hereinafter provided)
bo sold to and purchased by tho Government of India PROVIDED
that after meeting as a first call on such oil the joint annual requirements upto 2t million tons of Indian Refineries Limited'li Barauni
and Nunmati Refineries Assam Oil Companys Digboi refinery shall
have the next call thereon up to a maximum of 435,000 tons per
annum to the extent that it cannot be economically met from Assam
Oil Company's le11Sed areas."
-
The petitioner pursuant to the provisions of the said clause 7 ~upplied crude
oil to Banmni Refinery of Indian Oil Corporation situated in Bihar through
pipeline constructed and owned by the petitioner Company. At Barauni Refinery the crude oil which flows through tho pipes from the oil fields of Assam
is pumped into tho Indian Oil Corporation's tanks and thereafter it is measured.
After the measurement is agreed upon, the Indian Oil Corporation takes delivery
on behalf of the Government of India. The petitioner Company bas been
filing Jegular sales tax returns uncher the Bihar Sales Tax Act and was being
~ed under that Act for the supply of
crude oil to tbo
Refinery at
Barauni treating the supply as intra-State 11ales.
Thereafter. the Sale11 Tax
Authority in Assam issued notice to the petitioner on the ground that the
C'.cntral sales tax was payable under the Oentral Sales Tax Act on the supply
of crude oil to the Refinery at Barauni as the •ales were in the course
of
inter-State trade. The Assessing Authority held that the supply of crude oil
to tho Refinery at Barauni by tho petitioner attracted Central Sales Tax. In
tho present petition, tho petitioner seeks a writ of mandamus direeting the
Assam Sales Tax Authorities not to levy tho sales tax under tho Central Sale•
Tax Act on the supply of crude oil to tht' refinery at Barauni. In the alternative, tbe petitioner prayed for a direction to the Bihar Tax Authorities to
refund the taxes collected.
HELD : Under Section 3 of the Central Sal~ Tax Act a sale or purchase
of goods shall be deemed to have taken place ia the course of inter-State trade
or commerce if the sale or purchase occasions mo~ment of goods from one
State to another. This Court has held in a number of cases that if the movement of goods from one State to another is the result of a covenant or an
incident of the contract of sale then the sale is an inter-State •ale. In thi•
case tho crude oil was carrieC: from Assam through pipeline to Barauni in
Biha~. Clause 12 of the agreement prov~es that the petitioner shall _ arrange
for the construction of pipe-line or such other related facilitiea &9 the Company shall consider necessary for . tm, transport of crude oil to be prodnced
by it to the refinery at Baraui:ii. This would i~dicate that the construction of .
the pipeline was underaken by the petitioner m pursuance of t~ agreement
798
SUPREME COURT REPORTS
[19751 3 s.c.n.
:and that was for the specific puipo5e of transporting crude oil to Barauni from · A
Assam. This can only_ point to the conclusion that the parties contemplated
that there should be movement of good11 from the State of Assam to the State
cf Bihar in pursuance to the contract 6f sale. It is immaterial as to in wbi'ch
state the property in the goods' passes. It is not necessary that the s

## Text

A
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OIL INDIA LTD.
"·
THE SUPERINTENDENT OF TAXES & OTHERS
March 3, 1975
(K. K. MATHEW AND P. K. GOSWAMI, JJ.]
797
Central Sales Tax Act-Sect1°on 3-lnterstate Sale.:..-Sale in the course of
tnterstatc trade-If movement of goods as a result of covenant or an incident·
of the contract of sale-Must sale precede the movement of goods.
By an agreement entered into betwC'Cn the petitioner, the Government' of
India, Burma Oil Company Limited and Assam Oil Company Limited, it was
agreed that all crude oil produced by the petitioner (except Assam Oil Com·
pany's entitlement) be sold to and purchased by the Government of Jndia.
Tho exact clause reads as under :
,
·
"All crude oil produced by Oil India excluding Assam Oil Com·
pany's entitlement in respect of Oil India's existing areas under clause
20 of tho Promotion Agreement wilI (subject as hereinafter provided)
bo sold to and purchased by tho Government of India PROVIDED
that after meeting as a first call on such oil the joint annual requirements upto 2t million tons of Indian Refineries Limited'li Barauni
and Nunmati Refineries Assam Oil Companys Digboi refinery shall
have the next call thereon up to a maximum of 435,000 tons per
annum to the extent that it cannot be economically met from Assam
Oil Company's le11Sed areas."
-
The petitioner pursuant to the provisions of the said clause 7 ~upplied crude
oil to Banmni Refinery of Indian Oil Corporation situated in Bihar through
pipeline constructed and owned by the petitioner Company. At Barauni Refinery the crude oil which flows through tho pipes from the oil fields of Assam
is pumped into tho Indian Oil Corporation's tanks and thereafter it is measured.
After the measurement is agreed upon, the Indian Oil Corporation takes delivery
on behalf of the Government of India. The petitioner Company bas been
filing Jegular sales tax returns uncher the Bihar Sales Tax Act and was being
~ed under that Act for the supply of
crude oil to tbo
Refinery at
Barauni treating the supply as intra-State 11ales.
Thereafter. the Sale11 Tax
Authority in Assam issued notice to the petitioner on the ground that the
C'.cntral sales tax was payable under the Oentral Sales Tax Act on the supply
of crude oil to the Refinery at Barauni as the •ales were in the course
of
inter-State trade. The Assessing Authority held that the supply of crude oil
to tho Refinery at Barauni by tho petitioner attracted Central Sales Tax. In
tho present petition, tho petitioner seeks a writ of mandamus direeting the
Assam Sales Tax Authorities not to levy tho sales tax under tho Central Sale•
Tax Act on the supply of crude oil to tht' refinery at Barauni. In the alternative, tbe petitioner prayed for a direction to the Bihar Tax Authorities to
refund the taxes collected.
HELD : Under Section 3 of the Central Sal~ Tax Act a sale or purchase
of goods shall be deemed to have taken place ia the course of inter-State trade
or commerce if the sale or purchase occasions mo~ment of goods from one
State to another. This Court has held in a number of cases that if the movement of goods from one State to another is the result of a covenant or an
incident of the contract of sale then the sale is an inter-State •ale. In thi•
case tho crude oil was carrieC: from Assam through pipeline to Barauni in
Biha~. Clause 12 of the agreement prov~es that the petitioner shall _ arrange
for the construction of pipe-line or such other related facilitiea &9 the Company shall consider necessary for . tm, transport of crude oil to be prodnced
by it to the refinery at Baraui:ii. This would i~dicate that the construction of .
the pipeline was underaken by the petitioner m pursuance of t~ agreement
798
SUPREME COURT REPORTS
[19751 3 s.c.n.
:and that was for the specific puipo5e of transporting crude oil to Barauni from · A
Assam. This can only_ point to the conclusion that the parties contemplated
that there should be movement of good11 from the State of Assam to the State
cf Bihar in pursuance to the contract 6f sale. It is immaterial as to in wbi'ch
state the property in the goods' passes. It is not necessary that the sale must
precede the inter-State movement in order that the sale may be deemed to have
occasioned such movement. The sales were, .therefore, in the course of inter·
State trade and the Bihar Government bad no jurisdiction to tax, the sales
under the Sales Tax Laws of the State. The Bihar Sales Tax Authorities wc~re
directed not to impose sales tax . under the provisions of Bihar Sales Tax Act
and were directed to refund the sales tax already collected. [800D-G; 801A·C]
ORIGINAL APPELLATE JURISDICTlON : Writ Petitions Nos.
641- ·
642 of 1970.
Petition Under Article 32 of the Constitution.
L. N. Sinha, Solicitor General of India, K. K. Jain, Bishamber Lal
and S. K. Gupta, for the Petitioner.
D. Mukherjee and S. N. Choudhury, for the Respondems 1-3.
L. M. Singhvi and U. P. Singh, for Respondents No. 4-6.
The Judgment of the Court was delivered by
MATHEW, J. An agreement dated 14-1-1958 was executed by
and between the Government of India, the Burmah Oil Company Ltd.
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and the Assam Oil Company Ltd. for the promotion of a new company
inter alia with the object of obtaining mining lease for the p;oduction
·of petroleum and crude oil.
The promotion agreement was later on
modified by a supplemental agreement dated 15-2-1959. The pellE
tioner company was incorporated in accordance with the promotion
agreement as modified by the aforesaid supplemental agreement.
By
an adoption agret~ment dated 14-3-1959, the petitioner adopted the
promotion agreement of 1958 as modified by tbe said supplemental
agreement.
The petitioner has its head office in the State of Assa11n
and is engaged in the business of prospecting petroleum and also prodm:ing and transporting crude oil. from the State of Assam pursuant
F
to the prospecting licence and mining lease granted by the State of '
Ass11m.
By a second supplemental agreement dated 27-7-1961 executed between the Government of India, Burmah Oil Company Ltd.
and Assam Oil Company Ltd. and the petitioner, certain provisions of
the promotion agreement dated 14-1-1958 were modified. Clause 7
of the second supplemental agreement reads as follows :
"7. All crude oil produced by Oil India excluding Assam
Oil Company's entitlement in respect of Oil India's existing
areas under clause 2u of the Promotion Agreement 'VIil (subject as hereinafter provided) be sold to and purchased by-the
Government of India PROVIDBD that after meeting as a first
call on such oil the joint annual requirements upto 2i million
tons of Indian Refineries Limited's Barauni and Nunmati
Refineries Assam Oil Company'.s Digboi Refinery shall have
the next call thereon up to a maximum of 435,000 tons per
G
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OIL INDIA LTD. V. SUI'DT. OF TAxES (Mathew,!,)
799
annum to the extent that it cannot be economically met from
Assam Oil Company's leased areas."
The petitioner in pursuance to the provisions of clause 7 supplied
crude oil to Barauni and Nunmati Refineries of Indian Oil Corporation (previously Indian Oil Refineries Ltd.) and to Digboi Refinery of Assam Oil Company Ltd. through pipe-lines constructed and
owned by the petitioner company.
The Barauni Refinery .is situated
m ,Bihar while the other two refineries are situated in the State of Assam.
At Barauni Refinery the crude oil which flows through the pipes from
the oil fields of Assam is pumped into the Indian Oil Corporation's
tanks and thereafter it is measured.
After the measp.rements are agreed
to by both the parties, namely, the petitioner and the Indian Oil Corporation, the crude oil is taken delivery of by the Indian Oil Corporation
on behalf of the Government of India.
The petitioner company has been filing regular sales tax returns
before the Bihar Sales-tax authorities under the Bihar Sales Tax Act and
was being assessed under that Act for the supply of crude oil to the
refinery at Barauni treating the supply as intra-state sales.
For the
period ending 31 September 1964, the petitioner company sold crude
oil worth Rs. 49,26,813.06 to the refinery at Barauni and the same wa~
subjected to sales tax under the Bihar Sales Tax Act.
In the year 1966,
sales tax authorities in Assam issued notice to the petitioner stating that
Sales Tax was payable on the supply of crude oil to the refinery at
Barauni under the Central Sales Tax Act as according to them the sales
were in the course of inter-state trade.
The petitioner contended that
sales were intra-State and not subject to tax under the Central Sales Tax
Act.
By the assessment order dated 31-3-1966, respondent No. 1
negatived the contention raised by the petitioner and held that by supplying crude oil to the refinery at Barauni the petitioner effected sales
of oil to the Indian Oil Company and that they were sales in the course
of inter-State trade and assessed the petitioner-company to pay a tax of
Rs. 4,47,892.10 (Annexure J). By another order dated 31-3-1966,
the petitioner was assessed to sales tax under Central Sales Tax Act to
Rs. 12,23,072.90 by r-espondent No. 1 (Annexure K).
;f n these writ petitions the· petitioner prays for quashing Annexures
J-and K and for a mandamus directing respondents 1 to 3 not to levy
sales ,tax under the Central Sales Tax Act on the sale of crude oH suppJied/by the petitioner to the refinery at Barauni.
Jn the alternati\·e, the. petitioner prays for :
l . the issue of a writ, order or direction in the nature of
. mandamus directing respondents 4, 5 and 6 not to levy
tax under the Bihar Sales Tax Act on . the ·sales of crude
oil made by the petitioner to the refinery at Barauni;
H
2. A writ, order or direction in the · nature of certiorari
quashing the various assessment· orders passed by respondent No. 4 on the sales of crude oil made by the petitioner-company to the refinery at Barauni; and ·
800
SUPREMB COURT REPORTS
ll975J 3 s.c.R.
3. A writ, order or direction in the nature of a mandamus
directing the respondents 4 to 6 to refund the various
amounts collected as sales tax from the petitioner company.
The question for consideration in these writ petitions is whether the
sales made by the petitioner m pursuance to clause 7 of the second supplemental agreement to Government of India through the agency of
fndian Oil Corporation were sales in the course of inter-state trade and
were therefore liable to sales tax under the Central Sales · Tax Act.
Section 3 of the Central Sales Tax Act provides :
"3. A sale or purchase of goods shall be deemed to take
place in the course of inter-State trade or commerce if the sale
or purchase--
( a) occasions the movement of goods from one State to
another; or
(b) is effected by a transfer of documents of title to the
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goods during their movement from
one State to
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another."
This Court has held in a number of cases that if the movement ·of
goods from one State to another is the result of a covenant or an incident of the Contract of Sale, then the sale is an inter-state sale.
St~e
Tata Iron & Steel Co. Ltd. v. S. R. Sarkar( 1) and The State of Jarnmu
& Kashmir & Ors. v. Caltex (India) Ltd.(2). Here, the crude otl w:'IS
E
carried from Assam through the pipelines specially constructed by the
petitioner to the refinery at Barauni in Bihar and there the oil was pumped and delivered to the Indian Oil Corporation. Clause 12 of the
agreement dated 14-1-1958 provides that the petitioner shall arrani~e
for the construction of pipeline Or such other related facilities as tl1e
company shall consider necessary for the transport . of crude oil to be
produced by it to the refinery at Barauni. This would indicate that tile
F
construction of pipeline was under-taken by the petitioner in pursuance
of the agreement and that that was for the specific purpose of transporting crude oil to Barauni from Assam. This can only point to the conclusion that the parties contemplated that there should be movement of
goods.from the State of Assam to the State of Bihar in pursUAnce to tbe
contract of sale.
Clause 7 of the 1961 agreement must needs be read with its
pn~
cursory clause 12 of the 1958 agreement since all the contracting parties
were well aware of their respective obligations in the transactions arismg out of the several agreements-not one of which can be left out of
consideration.
G
Even though clause 7 of the supplemental agreement does not
H
etpressly provide for movement of the goods, it is clear that the parties
~nvisaged the movement of crude oil in ptrrsu?:ice to the contract from
(I) [1961] I S.C.R. 379 at 391.
(2) 17 S.T.C. 61 ~
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OIL INDIA LTD. v. SUPDT. OF TAXES (Mathew, J.)
801
llie State of Assam to rhe State of Bihar.
In other words, the movement of crude oil from the State of Assam to the State of Bihar was an
incident of the contract of sale. · No matter in which State tbc property
m the goods passes, a sale which occasions "movement of goods from
om: State to another is a sale in the course or inter-state trade".
The
inkr-·Statc mov:'!ment must be the result of a cownant express or implied in the contract of sale or an incident of the contract. · It is nm
ne.::cssary that the sale must precede the inter-State movement in order
ll1at the sale mav be deemed to have occasioned such movement.
It is
dlSv not ne,·essa.ry for a sale to be deemed to have taken place in the
rnurs~ of inter-State trade or commerce, that the covenant regarding
iina-~tate movement must he specified in the contract itself.
[t would
be enough if the movcmi::nt was m purs11ance of and incidental to
rhc
rnntrnc1 of sale.
See State Trading Corporation v. State of Mysore( 1).
Therefore, we think that the sales in question were sales in the course
of inter State trade and that the Bihar Government had no jurisdiction
to tax the sales under the Sales Tax Jaw of the State.
The petitiOner is,
therefore, entitled to the alternative reliefs prayed for in the writ petit1on5. namely, that respondents 4 to 6 in each of the petitions should be
enjoined not to impose saks tax under the provi>ions of the Bihar Sales
Tax Act in respect of sales made in pursuance of clause 7 and that they
s11ould be directed to refund to the petitioner the sales tax collected
from the petitioner hy way of sales tax as the various assessment orders
made by respondent Np. 4 stand quashed.
The writ petitions are allowed to the extent indicated and they are dismissed in other resp~cts. In
the 1:in:umstances. we make no order as to costs.
P.H.P.
(IJ 14 S.T.C. 188.
5-5t4SCl/75
Petitions allowed in part.