# OIL AND NATURAL GAS COMMISSION v. STATE OF BIHAR AND OTHERS

- **Citation:** [1977] 1 S.C.R. 354
- **Court:** Supreme Court of India
- **Decided:** 1976-08-24
- **Case number:** Writ Petition No. 74 of 1975
- **Bench:** A. N. Ray, N. L. Untwalia, P. N. Shinghal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/oil-and-natural-gas-commission-v-state-of-bihar-and-others-6918
- **Pages:** 5

## Headnote

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Sales Tax-~11pply of crude di/ by Oil and Nc•rura/ Gas Commission from
Assam to refinery of Indian Oil Corpom1:ion in Bihar--Supp/y under directions
of Goremment at price fixed by Gover11111e11t-Jf inter-.<tatc sale liable to
\..
Ccnlral Sales Tax.
'I
Under the Oil and N•:·'.ural Gas Commission Act, 195§, it is the business
of the Oil and Natural Gas Commission to plan, promo:e, orga·nise and impfe.
ment programmes for the development of petroleum resources and the produofon and sale of petroleum produ:ts produced by it and \O perform rnch functions
as the Centrnl Government may, from time to time, assi'.,ln to it.
Under s. 29'
of the Act, the Commissio·n shall be deemed to be a Company, liable for any
tax or fee. levied by the Central or State Government.
S·ection 31 empowers
the Central Government to make rules prescribing the conditions subject to
which, and the mode ini which, contracts may be entered .into by or on b~half
of the Commissio·n.
The Commission is engaged in the b119iness of producing
crude oil in Assam and supplying it 101 the refineries of the Indian Oil Cof]ilOration at Gauhati in Assam and Barauni in Bihar.
I~ was deddeid by the .Government of India and agreed to by the CoQ1111.ission,, that the crude is deemed
hot'onally to.be delivered only to Barauni Refinery and not to Gauhati Refinery,
and tlrnt payment of Sales-tax by the Commission is to be on the ·same principle.
The Commission however chall~nged, in u petition to this Court, its liability to pay any sales.tax either under the Central Sales Tax Act to the State
of Assam or the State Sales Tax to the State of Bihar, on the ground,
that,
in supplying crude oil to the Corporation 'there was no contract of safe between
the Commission and the Corporation, because, the supply was pursuant to
directions and orders of the Central Government and the Commission had no
volition or freedom in the matter.
The Commlssioh also contend•,d that
assum'.ng that they are sales they are inte11-state sales, under the Cen'.ral Sales
Tax Act, 1956, and the State of Bihar was not competent to levy any Statei
sales-tax.
HELD : ( 1) The supplies of crude oil by the Commission to the Barauni
Refinery of the Corporation satisfy all the ingredients· of a sale a·nJ amount
to sales by the Commission to the Corporation. [356 A]
(a) Statutory order'1 regulating the s·i1ppl.y and distribuf.on of goods by "nd
between the pz·rties under Control Orders do not absolutely impinge on the
freedom to enter into contract. [357 CJ
( b) Directions, decisions and orders• of ag1encies of the Government to
control production and supp1y of· commodities, may fix the person who has
to carry them out, the parties to whom the goods are to be supplied, . and
the price at which, and the time during which they are to be supplied.
Jn
such cases it cannot be said that compulsive directioh9 rob the transactions of
the ch~rnder of agreement.
There is privity of contract between the parties.
the statute supplying the rnnsensus and the modality of consensus. [357 D-E]
( c) Such a transaction is a valid transfer of. property for consideration ahd
the Jaw presumes assent when there is transfer of goods from one to the
other. [357 Fl
(d) Also. a sale may not require the consensual element and there may
be a compulsory sale of property under a statute for a price fixed against the
owner's will. (357 Fl
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A_
OIL & NATURAL GAS COMMISSION V. BIHAR (Ray, C.J.)
355
(e) Delim:ting areas for transactions or denoting parties or price for' .transactions are all within the area of individual freedom of contract wilh 11m1ted
choice by reason of ensuring the greatec.t good for the greatest number by
achieving proper supply as standard or fair price. [357. G]
(f) The tra'nsact'ons in substance represent the, outgoing of the business . ·
and the price would come into computation of profits. [357 G]
A
Solar J1111g Sugar Mills Li{/ .. Etc. v. State of Mysore & Ors. [1972] 2 S.C.R.
228 followed.
B
(2) The move

## Text

354
A
OIL AND NATURAL GAS COMMISSION
v.
STATE OF BIHAR AND OTHERS
August 24, 1976.
B
[A. N. RAY, C.J., N. L. UNTWALIA AND P. N. SHINGHAL, JJ.]
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Sales Tax-~11pply of crude di/ by Oil and Nc•rura/ Gas Commission from
Assam to refinery of Indian Oil Corpom1:ion in Bihar--Supp/y under directions
of Goremment at price fixed by Gover11111e11t-Jf inter-.<tatc sale liable to
\..
Ccnlral Sales Tax.
'I
Under the Oil and N•:·'.ural Gas Commission Act, 195§, it is the business
of the Oil and Natural Gas Commission to plan, promo:e, orga·nise and impfe.
ment programmes for the development of petroleum resources and the produofon and sale of petroleum produ:ts produced by it and \O perform rnch functions
as the Centrnl Government may, from time to time, assi'.,ln to it.
Under s. 29'
of the Act, the Commissio·n shall be deemed to be a Company, liable for any
tax or fee. levied by the Central or State Government.
S·ection 31 empowers
the Central Government to make rules prescribing the conditions subject to
which, and the mode ini which, contracts may be entered .into by or on b~half
of the Commissio·n.
The Commission is engaged in the b119iness of producing
crude oil in Assam and supplying it 101 the refineries of the Indian Oil Cof]ilOration at Gauhati in Assam and Barauni in Bihar.
I~ was deddeid by the .Government of India and agreed to by the CoQ1111.ission,, that the crude is deemed
hot'onally to.be delivered only to Barauni Refinery and not to Gauhati Refinery,
and tlrnt payment of Sales-tax by the Commission is to be on the ·same principle.
The Commission however chall~nged, in u petition to this Court, its liability to pay any sales.tax either under the Central Sales Tax Act to the State
of Assam or the State Sales Tax to the State of Bihar, on the ground,
that,
in supplying crude oil to the Corporation 'there was no contract of safe between
the Commission and the Corporation, because, the supply was pursuant to
directions and orders of the Central Government and the Commission had no
volition or freedom in the matter.
The Commlssioh also contend•,d that
assum'.ng that they are sales they are inte11-state sales, under the Cen'.ral Sales
Tax Act, 1956, and the State of Bihar was not competent to levy any Statei
sales-tax.
HELD : ( 1) The supplies of crude oil by the Commission to the Barauni
Refinery of the Corporation satisfy all the ingredients· of a sale a·nJ amount
to sales by the Commission to the Corporation. [356 A]
(a) Statutory order'1 regulating the s·i1ppl.y and distribuf.on of goods by "nd
between the pz·rties under Control Orders do not absolutely impinge on the
freedom to enter into contract. [357 CJ
( b) Directions, decisions and orders• of ag1encies of the Government to
control production and supp1y of· commodities, may fix the person who has
to carry them out, the parties to whom the goods are to be supplied, . and
the price at which, and the time during which they are to be supplied.
Jn
such cases it cannot be said that compulsive directioh9 rob the transactions of
the ch~rnder of agreement.
There is privity of contract between the parties.
the statute supplying the rnnsensus and the modality of consensus. [357 D-E]
( c) Such a transaction is a valid transfer of. property for consideration ahd
the Jaw presumes assent when there is transfer of goods from one to the
other. [357 Fl
(d) Also. a sale may not require the consensual element and there may
be a compulsory sale of property under a statute for a price fixed against the
owner's will. (357 Fl
f
' •
..
A_
OIL & NATURAL GAS COMMISSION V. BIHAR (Ray, C.J.)
355
(e) Delim:ting areas for transactions or denoting parties or price for' .transactions are all within the area of individual freedom of contract wilh 11m1ted
choice by reason of ensuring the greatec.t good for the greatest number by
achieving proper supply as standard or fair price. [357. G]
(f) The tra'nsact'ons in substance represent the, outgoing of the business . ·
and the price would come into computation of profits. [357 G]
A
Solar J1111g Sugar Mills Li{/ .. Etc. v. State of Mysore & Ors. [1972] 2 S.C.R.
228 followed.
B
(2) The movement of crude oil from Assam to Barauni in Bi'har is pursuant
to and as an incident to the contract fat. sa'le between the Commiss'o'n and the
Corporation.
The sales are the.ref'ore inter-state sales and under the Central
Sales-tax Act only the State of Assam i9 entitled to levy central sales 1ax on
the Commission. [3 58 G] ·
ORIGINAL JURISDICTION : Writ Petition No. 74 of 1975.
L. N. Sinha, Sol. General of India and B. Datta, for the Petitioner.
A. K. Sen, B. P. Singh, Shambhu Nath Jha and U. P. Singh for
the Respondents (For State of Bihar) R-1 and R·2.
·
D: Mookherjee, and S. K. Nandy, for the Respondent (State of
Assam) R-3 and R-4.
The Judgment of the Court was delivered by
RAY, C.J.-The Petitioner in this Writ Petition raises the question
that the supplies of crude oil made by the Petitioner Oil and Natural
Gas Commission, referred to as the Commission to Indian Oil Corporation Limited, referred to a;s the Corporation are not exigible to Salesc
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tax either by the State of Assam. or the State of Bihar under the Central
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Sales Tax Act or the Bihar. Sales Tax Act respectively.
The petitioner
contends that the supplies by the Commission to the Corporation are
pursuant to directions/orders of the Central Government, and, therefore, there is no Contract of sale.
The petitioner in particular conteuds that the Commission is obliged to supply to the Corporation and
the petitioner has no volition or freedom in the matter. The petitioner,
therefore, contends that there is no contract of sale between the ComF
mission and the Corporation.
The second contention of the petitioner is that if. it be held to be
sales these are inter-state sales under section 3 (a) · of the Central
Sales Tax Act, 1956 and the State of Bihar is not competent to levy
Sales-tax under section 16 ( 5) of the Bihar Sales Tax .Act.
In order to find out as to whether the transactions between
the
Commission and the Corporation amounted to a Sale, it is necessary
to ascertain the correct facts.
·
.
The letter dated 15 June 1968 is important. It is written by the
Corporation to the Commission.
The Corporation States as follows :
"I am writing to confirm that Indian Oil Corporation
would be in a position to receive 300 tonnes a day of Lakwa
crude via the Oil Pipeline any time from today.
We would
also wish you to augment the supplies so as to reach about a
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356
SUPREME COURT REPORTS
[1977] 1 S.C.R.
million tonnes per annum as soon as possible.
The above
300 tonnes will be in addition to the supplies that we are
receiving currently from OIL (Oil India Ltd.) and by rail
from Rudrasagar.
Kindly arrange to supply full analytical
data regarding the .crude that you would be sending from
Lakwa.
I would also suggest that the pricing arrangement
may also be worked out regarding the supply and intimated
to us, if necessary, after consulting OIL."
The next important document relates to the Minutes of the meeting held at the Office of the Chairman of the Corporation at New
\
Delhi on 8 August, 1968. The representatives of the Corporation,
the Commission and Oil India Limited were present.
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Crude oil supplied both by the Commirnion and Oil India Limited
come through the pipeline belonging to Oil India Limited to refineries
at Gauhati and Barauni belonging to the Corporation.
The manner
of measurement and of payment for crude is ascertained by the Corporation from the Commission and Oil India Limited.
At the meeting held on 18 October 1968, the Central Government
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representatives and repre~entatives of the petitioner, Oil India Limited
and the Corporation were present. It was decided that crude oil which
was being delivered to the refineries of the Corporation at Gauhati
and Barauni is a mixture of Oil India Limited crude and the Commission crude.
Oil India Limited would send the bills· for
the
entire quantities of crude, so delivered, giving the bifurcation of crude
belonging to Oil India Limited and the Commission with API gravity
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of each.
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The document dated 23 February, 1968 records the price of crude
oil purchased by the Corporation from the Commission and the basis
on which payment should be made.
A..
Another document dated 17 February, 1969 written by the Central
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Government to Oil India Ltd., shows that crude oil would be supplied
/""-
to the Barauni, Gauhati and Digboi refineries as mentioned therein.
For the Barauni Refinery, Oil India would supply a certain quantity
and the Commisgion the balance.
In case the Commission's supply
fell short, it would be made good by Oil India Limited.
For the
Gauhati Refinery, certain quantity would be supplied by Oil India
Limited and the remainder would be deemed to have been supplied l]y
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the Commission.
The requirements of Digboi refinery would be met
by Oil India Limited.
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The next document is dated 7 August 1973 incorporating the
Minutes of the meeting held on that day at the Ministry of Petrolel!lm
& Claemicals to discuss the Sales Tax liability of the Commission crude
sold to the Corpo!!ation.
The representatives of the Ministries 0£
Petroleum & Chemicals and of Finance, the Commission and Oil
India Limited were present. After discussion, it unanimously decided
that whatever principle had been adopted in the past for computation
of piIJeline tariff payable by the Commission should also be adopted
OIL & NATURAL GAS COMMISSION V. BIHAR (Ray, C.J.)
357
for payment of Sales-tax by the Commission.
Since for tariff comA
putation all of Commission's crude is deemed notionally to be delivered
to Barauni Refinery and none to Gauhati Refinery, the Sales-tax liability
of the Commission would also accrue on the principle that all of its
crude was being sold to. Barauni Refinery.
The Commission is described by the Solicitor General to be a natutory body which has no option either with reganl to the production
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or supply and the directions and decisions of the Government leave
no choice with the Commission in regard to supplies.
This Court in Salar
Jung Sugar
Mills Ltd. Etc. v. State of
Mysore & Ors.(') laid down the following propositions: First, statutory
orders regulating the supply and distribution of goods by and between
the parties under Control Orders in a State do not abwlutely impinge c
on the freedom to enter into contract.
Second, directions, decisions
and orders of agencies of the Government to control production and
supply of commodities, may fix the parties to whom the goods are to
be supplied, the price at which these are to be supplied, the time during which these are to be supplied and the pers0i1s who has to carry
out these directions.
In such cases it cannot be said thafcompulsive
directions rob the transactions of the character of agreement.
The
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reason is that the transfer of property which constitutes the agreement
in spite of the compulsion of law is neither void nor voidable.
It is
not as result of coercion.
The statute supplies the consensus and the
modality of consensus is furnished by the statute.
There is privity of
contract between the parties.
The other third, fourth, fifth and sixth propositions
are these.
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Third, such a transaction is neither a gift nor an exchange nor a
hypothecation nor a loan. It is a transfer of property from one person
to another.
There is consideration for the transfer.
There is assent.
The law presumes t:Lle assent when there is transfer of goods from one
to the other.
Fourth, a sale may not require the consensual element
an<l that there may, in truth, be a compulsory sale of property with
whieh the owner is compelled to part for a price against his will and
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the effect of the statute in such a case is to say that the absence of the
transferor's consent does not matter and the sale is to proceed without
it.
In truth, transfer, is brought into being which ex facie in all its
essential characteristics is a transfer of sale.
Fifth, delimiting areas
for transactions· or denoting parties or denoting price for transactionl>
are ali within the area of individual freedom of contract with limited
choice by reason of ensuring the greatest good for the greatest number
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of achieving proper supply at standard or fair price to eliminate the
evils _of hoarding and scarcity on the one hand and ensuring availability
on the other.
Sixth, after· all the transactions in substance represent
th.e out-going of the business and the price would come into computation of profits.
Judged by the principles laid down by this Court ia Salar Jun:
H
Sugar Mills' case, which is a decision by a seven-Judge Bench, there
(1) [ 1972] 2 S.C.R. 228.
B
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358
SUPREME COURT REPORTS
( 1977] 1 S.C. R.
is no doubt that the transactions in the present case amounted to a sale
of crude oil by the Commission to the Corooration. It is true that
the Government decic!ed and directed the Commission to supply to the
Indian Oil Corporation at a price to be fixed, b1~t the transaction is in
course of busine_ss conducted by the Commission.
It is the business of the petitioner under the statute to plan, promote,
,)rganise and implement programmes for the development of petroleum
rtsources and the production and sale of petroleum products produced
by it and to perform such functions as the Central Government may,
from time to time, assign to the Commis~ion. These are the functions of the Commission under section 14 of the Oil & Natural Gas
Commission Act, 1959.
Further, section 29 of the Act states that
"the Commission shall be deemed to be a Company within the meaning . of any enactment for the time being in force providing for
the
levy of any· tax or fee by the Central Government or a State Government and shall be liable to pay such tax or fee accordingly".
Section 31 contemplates power of the Central Government to make rnles
inter alia prescribing the conditions subject to which, and the mode in.
which, contracts may be entered into by or on behalf of the Commission.
The provisions of the Oil & Natural Gas Commission
Act
show that the Commission is engaged in the business of producing
crude oil in Assam and the supply of the crude oil.
The supply to
'the Corporation is a sale transaction fulfilling all lhe ingredients
of
a sale.
The supply of crude oil by the Commission to the Barauni
Refinery of the Corporation is also a sale in the course of inter-state
trade.
The movement of crude oil from Assam to Barauni is pursuant to the Contract for sale of crude oil.
The directions given by the Government are because of
the
character and constitution of
the
Commission.
Directions
and
decisions do not detract from the sale of crude oil by the Commission
. to the Corporation.
These statutory Corporations work in collaboration with the Central Government particularly the Ministries of
Petroleum and Finance for policy and planning.
The State of Bihar raised a feeble contention that it was uot an
inter-State. sale.
The delivery may be in Assam or'in Bihar at ·Barauni
but the movement of goods is the result of contract and as an incident
to the agreement between the Commission and the Corporation,
The
State of Assam has lawfully levied the Central Sales Tax on the petitioner.
The State of A1Ssam is entitled to levy Central Sales Tax on
the petitioner. The Commission has been paying Sales Tax since. the
commencement of sales. It is made clear that it is open to the Commisslon to make applications for refund, i( any, in accordance with
the Sales Tax Law.
For the foregoing reasons the Writ Petition is dismissed. Parties
will pay and bear their own costs.
V. P. S.
Petition dismissed.
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