IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 22.01.2010 CORAM: THE HONOURABLE MR.JUSTICE K.K.SASIDHARAN W.P. Nos.9356 & 9357/1998 M/s.Madras Refineries Ltd., Manali, Chennai. ... Petitioner in both writ petitions Vs. 1.The Asst. Commissioner Central Assessment Circle IV, IV Floor, PAPJM Building, Greams Road, Chennai 600 006. 2.The State of Tamil Nadu, rep. By its Secretary, Commercial Taxes and Religious Endowments Department, Fort St.George, Chennai-9. 3.The Union of India rep. By its Secretary to Government, Ministry of Finance, New Delhi 4.The Oil Coordination Committee, Makers Chamber IV, Nariman Point, Mumbai. 5.M/s.Indian Oil Corporation, G-9, Ali Yavar Jung Marg, Bandra East, Mumbai 400 051. 6.M/s. Hindustan Petroleum Corporation Ltd., Corridor Road, Mahul, Mumbai. 7.M/s.Hindustan Petroleum Corporation Ltd., 17, Jamshedji Tata Road, Mumbai 400 020. 8.M/s.Bharat Petroleum Corporation Ltd., Bharat Bhavan 4 & 6, Currimbhoy Road, Balard Estate, Bombai 400 038. https://hcservices.ecourts.gov.in/hcservices/ 9.M/s.Cochin Refineries Ltd., P.B.No.2, Ambalamugai, Ernakulam District, Kerala 682 302. 10.The Union of India, rep. By Secretary to Government, Ministry of Petroleum and Natural Gas, Shastri Bhavan, New Delhi. ... Respondents in both writ petitions W.P.No.9356/1998 filed under Art.226 of the Constitution of India praying for a Writ of Certiorarified Mandamus calling for the records of the first respondent in CST 2087/92-93 and quash the order dated 30.03.1998 and direct the first respondent not to impose any sales tax in respect of the loan transactions effected by the petitioner on the basis of the instructions of fourth respondent constituted by the 10th respondent inasmuch as there is no element of sale involved in such transactions so as to bring them within the purview of the sales tax laws. W.P.No.9357/1998 filed under Art.226 of the Constitution of India praying for a Writ of Prohibition prohibiting the first respondent from imposing any sales tax in respect of the loan transactions effected by the petitioner on the basis of the instructions of the fourth respondent constituted by the tenth respondent inasmuch as there is no element of sale involved in such transactions so as to bring them within the purview of the sales tax laws. For petitioner : Mr.R.L.Ramani, Senior counsel for M/s.Chandran, Karuppiah and Ramani For Respondents : Mr.Haja Nazirudeen, Spl. G.P. (Taxes) for respondents 1 and 2. Mr.M.Ravindran, Additional Solicitor General, for Mr.J.Ravindran, Asst. Solicitor General, for respondents 3, 4, and 10. Mr.C.Natarajan, Senior Counsel, for Mr.N.Inbarajan, for respondents 5 to 9. COMMON ORDER The dispute relating to the taxability of the transaction regarding import of crude oil and the related loan transactions by a Public Sector Organization as per the directions of the Oil Coordination Committee is the issue involved in this writ petition. https://hcservices.ecourts.gov.in/hcservices/ W.P.No.9356/1998 :- 2. W.P.No.9356/1998 is directed against the proceedings of the Assistant Commissioner Central Assessment Circle IV, Chennai, in CST 2087/92-93 dated 30.03.1998, levying sales tax on the loan transaction involving the petitioner company and the other oil Companies. Since the very assessment order impugned in this writ petition has been set aside subsequently by remitting the matter to the Original Authority, the said writ petition has become infructuous. Therefore, it is the substantive writ petition in W.P.No.9357/1998 which alone survives for adjudication. W.P.No.9357/1998 :- 3. The petitioner seeks a Writ of Prohibition to prohibit the first respondent from imposing sales tax in respect of loan transactions effected by it on the basis of the instructions of the Oil Coordination Committee constituted by the Government of India. Background facts :- 4. The petitioner is a Government of India undertaking established for the purpose of carrying on business of refining of crude petroleum oil and manufacturing and marketing of petroleum products. 5. The Government of India with a view to coordinate import and allocation of crude oil, formulated a scheme to be implemented by the Oil Coordination Committee, Mumbai. The Oil Coordination Committee, the fourth respondent in the writ petition, formulated a scheme whereby and whereunder, the Indian Oil Corporation, Mumbai, the fifth respondent herein was appointed as a Canalizing Agent. The scheme primarily consists of the imported oil being loaned from one oil Company to another under the auspices of the Oil Coordination Committee and Indian Oil Corporation. As per the scheme, crude oil that is imported into the country is apportioned between various refineries which includes the petitioner, Cochin Refineries Limited, Hindustan Petroleum Corporation Ltd., Indian Oil Corporation Ltd. and Bharat Petroleum Corporation Ltd. The scheme was conceived by the Oil Coordination Committee and the entire procedure regarding the import and lending the same to the oil Companies in proportionate to the orders were devised meticulously with a view to keep the petroleum prices uniform throughout the country. 6. The scheme provides that all imports of crude oil into the country should be in the account name of M/s.Indian Oil Corporation Ltd. Bill of Lading will be prepared in the name of the individual oil Companies indicating the principal account of Indian Oil Corporation. The consignment of crude oil would be received by the importing Company or it will be allocated to any other oil Company subject to the allocations made by the Oil Coordination Committee from time to time. Some times, it would so happen that the entire https://hcservices.ecourts.gov.in/hcservices/ cargo would be allotted to the bill of lading holder or in part to the bill of lading holder with the reminder being allotted to some other oil Company or in the alternative the entire cargo may at times be allocated to any other oil Company as per the direction of the Oil Coordination Committee. After such import, the bill of lading Company has to pay the FOB Value in Indian currency to the Canalizing Agent viz., the Indian Oil Corporation Ltd. within thirty days from the bill of lading and the said period is known as the "due date". In the event the cargo was received in part or in full, by or allocated to an oil Company other than the bill of lading holder, the said oil Company would be required to deposit with the bill of lading holder Company an amount equivalent to the value of cargo received by them. This transaction partakes the character of a loan of crude oil against a security deposit from the bill of lading holder to the actual receiver/allottee of the crude oil. The cargo so received by the allottee oil Company is thereafter returned to the bill of lading holder once a fresh cargo of crude oil is imported with the bill of lading in their name. Therefore, in case the oil Corporation takes crude oil on loan from a bill of lading holder, such quantity has to be returned to the bill of lading Company from whom the oil was taken on loan basis. When there was such a return, the security deposit made by the allottee oil Company would be returned back to them by the bill of lading holder Company. The import and the allocation of imported crude oil would be monitored by the Oil Coordination Committee at its monthly meeting. The Oil Coordination Committee at its meeting would nominate the oil tanker and the quantity of oil that has to be imported into the country. Thereafter, one of the oil Companies would be nominated the bill of lading holder Company and the quantum of oil imported would be allocated to either the bill of lading holder Company in full or in part with the other part being allocated to some other oil Company. The instructions in that regard would be issued by the Indian Oil Corporation ltd., in view of their position as the Canalizing Agent. 7. The transaction was considered as a loan transaction at all point of time. The Sales Tax Authorities in all the other States exempted the transaction as it was only a loan transaction. But a different interpretation was given to the transaction by the Sales Tax Authorities in the State of Tamil Nadu. 8. While the matters stood thus, the first respondent as per the assessment order dated 30.03.1990, overruled the objection filed by the petitioner against imposition of tax on loan transaction and passed an assessment order on 30.03.1990. The petitioner has filed an appeal against the said assessment order. According to the petitioner, the first respondent has no jurisdiction to assess the transaction as sale and as such, filed this writ petition to prohibit the authorities from proceeding with the assessment in respect of loan transaction. The Defence :- https://hcservices.ecourts.gov.in/hcservices/ 9. The first respondent filed a counter in answer to the contentions raised in the affidavit filed in support of the Writ Petition. The attack was mainly on the ground of availability of alternative remedy. The principal contentions raised in the counter affidavit of the first Respondent reads thus :- (a) The petitioner is an assessee on the file of the Central Assessment Circle IV, at Chennai. During the assessment year 1992-93, the Assessing Officer passed an Order of assessment on 30.03.1998 by treating the alleged crude oil loan transactions of the petitioners, totalling Rs.14,08,90,30,185/- as Inter-state taxable sales not covered by "C" forms, and levied tax at 8% and penalty at 150% under Section 9(2)(A) of the CST Act, 1956 read with Section 12(5)(iii) of the TNGST Act, 1959. (b) Petitioner has filed the instant Writ Petitions during July 1998. However, even before initiating the Writ proceedings they have filed a statutory appeal on 30.04.1998 itself before the Deputy Commissioner (CT) Appeals. The Appellate Authority as per Order dated 30.03.2000, remanded the matter to the first Respondent for fresh consideration and to decide the taxability of the loan transactions. (c) Since the petitioner has already availed the alternative remedy provided under statute, W.P.No.9356/1998 is not maintainable. Since the assessment Order has already been set aside and the matter was remanded to the Assessing Authority, the very Writ Petition in W.P.No.9356/1998 has become infructuous. (d) There is no case made out for a writ of prohibition. The assessment Order has already been set aside to consider the taxability of the loan transaction afresh. (e) The first Respondent as per proceedings dated 01.02.2009, called upon the petitioner to furnish documents for the purpose of deciding the matter afresh as per the direction of the Appellate Authority. The said notice was challenged in W.P.No.11301/2008. The writ petition was disposed of as per order dated 30.04.2008 whereby and whereunder, the Assessing Authority was permitted to go ahead with the assessment proceedings and to pass final orders, but not to give effect to the same pending appeals. Supporting counter affidavits M/s. Hindustan Petroleum Corporation Ltd. :- 10. Sixth respondent – Ms.Hindustan Petroleum Corporation Ltd., in their detailed counter demonstrated that the transaction was nothing but a loan transaction outside the purview of local sales tax https://hcservices.ecourts.gov.in/hcservices/ or Central Sales Tax. The material averments in the counter affidavit would read thus :- (a) The Central Government was empowered to direct oil Marketing Companies to supply one or more petroleum products at any place in India as per the provision of the Essential Commodities Act, 1955, which also gives power to the Government of India to regulate the import and supply of petroleum products. (b) The Government of India constituted Oil Coordination Committee as a wing of the Ministry of Petroleum and Chemicals to regulate the price, supply and distribution of petroleum products. The Government Order was published in the gazette on 14.07.1975. (c) The scheme evolved by the Oil Coordination Committee provides for appointing M/s.Indian Oil Corporation as Canalizing Agent. However, the power to allocate petroleum products as well as its re-allocation vested only with the Oil Coordination Committee. The said committee in its meeting would assess the requirement of the concerned oil Company and allocate crude oil. The procedure was evolved also on account of the fact that the allocation of crude oil may not necessarily correlate to the actual requirement, due to delay in shipment, or force majeure or unforeseen circumstances. Therefore, the Oil Coordination Committee evolved this procedure for diversion of crude from one refinery to another and for its return from allottee refinery to another as a loan transaction and for its return of loan from the allottee refinery to the lending refinery. Allottments and diversions by way of loan were made by the Oil Coordination Committee exercising statutory power. (d) Every month, a crude slate meeting would take place at the office of the Oil Coordination Committee, Bombay. In the crude slate meeting, the total requirement of crude for each and every refinery for the ensuing month would be ascertained after taking into account the stock of crude with each refinery at the beginning of the month and production for that month. Most of the crude requirement of the country is procured under term contract entered into by the Government of India on Government to Government basis. The rest of the crude requirement of the country is procured on spot purchase basis. Under the term contract basis, crude is uniformly supplied by the foreign supplier to various refineries located in India as decided by Oil Coordination Committee at the crude slate meetings. (e) The Oil Coordination Committee would enter into an agreement called "Contract of Affreightment " (COA) with Shipping Corporation of India under which all the oil tankers https://hcservices.ecourts.gov.in/hcservices/ of Shipping Corporation of India would be chartered by Oil Coordination Committee. The freight and demurrage rates for all the oil tankers also would be worked out by the Oil Coordination Committee and it would be communicated to the refineries. Upon payment of the freight and demurrage charges by the respective refineries as part of the crude cost, the same would be reimbursed by the Oil Coordination Committee to the respective refineries. (f) The Indian Oil Corporation was nominated by the Government of India for procurement of crude on behalf of all the other public sector oil Companies in India. Accordingly, IOC places purchase order with State Oil Marketing Companies of the respective countries with whom term contracts have been entered into by the Government of India. In respect of spot purchases, tenders would be floated by Indian Oil Corporation and based on the lowest tenders, orders would be placed for purchase of crude. Tankers belonging to the Shipping Corporation of India would be sent to different foreign load ports of the countries to whom purchase orders have been placed by the Indian Oil Corporation on the loading dates specified in consultation with the foreign supplier. Bill of lading would be prepared in the names of various oil Companies including Indian Oil Corporation at the load port as per the decisions taken in the monthly crude slate meeting for different oil Companies as bill of lading holder. However, the invoices would be made only on Indian Oil Corporation. The names of the bill of lading holder would be advised by Indian Oil Corporation shipping Department to the foreign supplier immediately after the crude slate meeting conducted by Oil Coordination Committee. On the basis of the decision taken in the crude slate meeting, individual oil Companies would arrange for provisional insurance cover for the crude for which they are nominated as bill of lading holder. (g) Once the tanker is loaded at foreign load port, details with regard to quantity, supplier's name, load port, grade etc. would be received by Indian Oil Corporation Shipping Department from the foreign supplier. Indian Oil Corporation in turn would forward the above details to the bill of lading holder Company or to the bill of lading holder and the crude receiving Companies in case crude was shared by more than one Company besides bill of lading holder as per the allocations made at the crude slate meeting. There are cases where the entire crude load was received by another oil Company instead of bill of lading holder in which case the oil tanker would not touch the bill of lading holder port at all. This would still be treated as loan from bill of lading holder to the receiving Company. (h) The Oil Coordination Committee has formulated the scheme in such a way that the transactions would be adjusted https://hcservices.ecourts.gov.in/hcservices/ subsequently whenever fresh allotment was made to a particular oil Company. Therefore, the transaction was devised only in public interest and there was no allotment of sale in the said transaction warranting imposition of Local as well as Central Sales Tax. Views of the Government of India :- 11. The Government of India through the Ministry of Petroleum and Natural Gas filed a detailed counter affidavit indicating the reasons for creating a body in the name and style of "Oil Coordination Committee" and the nature of transactions relating to import of crude oil. 12. The counter affidavit reads thus :- (a) The Oil Coordination Committee was constituted by the Government of India as per resolution dated 14.07.1975. Consequent to the dismantling of the Administered Pricing Mechanism (APM), the Oil Coordination Committee has been wound up by the Government with effect from 01.04.2002 vide Government of India Gazette Notification dated 28.02.2002. (b) Government of India considered the interim report filed by the Oil Prices Committee. The said committee recommended that an Oil Coordination Committee should be set up for administering the Pool Account, to decide on allocation of crude oil and monthly production patterns and to coordinate transportation arrangements for crude oil imports and coastal movements. The report was accepted by the Government and as per resolution dated 14.07.1975, Oil Coordination Committee was constituted. (c) The Oil Coordination Committee was a prominent mechanism consisting of the Secretary to the Government, Ministry of Petroleum, a representative of the Ministry of Finance (Department of Expenditure), Chairman, Indian Oil Corporation, Chairman and Managing Director, HPCL, Chief Executives of Burmah Shell, Caltex, MRL, CRL, IBP and AOC and with the Joint Secretary, Department of Petroleum as Member Secretary. The Secretariat would have the full time services of the experts of refineries, marketing and distribution, including transportation. The Oil Pool Account was meant to maintain uniform ex-storage selling price of petroleum products at all refinery locations in the country. The Petroleum Products (Supply and Distribution) Order, 1972 and the Essential Commodities Act empowered the Central Government to issue appropriate directions in respect of supply of petroleum products throughout India. (d) Indian Oil Corporation Ltd. was appointed as Canalizing Agent to import crude oil and to effect the https://hcservices.ecourts.gov.in/hcservices/ allocation as per the decision taken by the Oil Coordination Committee. The Oil Coordination Committee as per its decision taken on 16.10.1979 and 03.04.1980, had set down the procedure to be followed for Loan Transactions of Crude Oil between the Oil Companies. It was only the Oil Coordination Committee which allocated crude oil. It was provided that the value itself would be subject to adjustment in the Crude Oil Price Equalization Account (COPE) which was part of the overall Oil Pool Account. (e) The mechanism and procedure for loan transactions of crude oil ensured that crude oil loan adjustments among oil Companies took place on quantity to quantity basis irrespective of the value or the type of crude oil given or taken on loan basis. The principal accounts were (i) Crude oil received on loan account and its return, and (ii) An account for security deposit and operation of a pool account. Variations in values, including differential in FOB and freight, were adjusted as per the norms in the Crude Oil Price Equalization Account (COPE) and C&F pool account respectively maintained by Oil Coordination Committee. (f) The transactions were neither sale within the meaning of Local Sales Tax Act nor an inter-state sale within the meaning of the Central Sales Tax Act. The allocations were made beyond the customs barrier and there was no occasion for the vessels to touch the Tamil Nadu Port so as to tax the transaction, treating it as a local sale or a sale in the course of inter-state trade. (g) Individual Oil Companies had no say in these transactions and the loan transactions were in vogue for nearly two decades upto March 1998. Oil Companies acted only as per the direction of the Oil Coordination Committee. The main purpose underlying the coordination of the import of crude oil was to take advantage of the price and to conserve precious Foreign Exchange reserve of the Country. The entire chain of transactions under the crude oil loan transaction scheme as a whole, was only to preserve and maintain uniform price for petroleum products and to save considerable foreign exchange. No other State in the country was imposing tax on loan transaction except the State of Tamil Nadu. Submissions :- 13. The learned Senior Counsel for the petitioner made submissions extensively with facts and figures to justify the contention that the transaction was nothing but barter or loan transaction and there was no element of sale. The principal contentions are as follows :- https://hcservices.ecourts.gov.in/hcservices/ (i) The petitioner is a Government owned Corporation and is a State within the meaning of Article 12 of the Constitution of India. The Administered Pricing mechanism was performed only by the Government of India and the petitioner has no role in any of the decisions. It was only the Indian Oil Corporation who acted as the canalizing agent and the allocation was made only by the Oil Coordination Committee. The petitioner was acting only as per the direction of the Oil Coordination Committee. The allocation of crude oil was decided by the Oil Coordination Committee and in case the petitioner was appointed as the bill of lading Company, they were bound to import crude oil, and to give on loan basis to another Company as per the direction of the Oil Coordination Committee. Therefore, the petitioner has no choice in the matter. (ii) The transaction in question was only a loan transaction. There was no element of sale. The petitioner never took delivery of the crude oil for the purpose of lending the same to another oil Company on the basis of the allocation and re-allocation made by the Oil Coordination Committee. As per the guideline issued by the Oil Coordination Committee, each allotted oil Company would receive the allotted quantity of oil from the tanker upon clearance by payment of relevant customs duties, wharfage etc. effected by the respective oil Companies at their respective ports by surrendering the bill of entry available with them. At times it may so happen that the ship would have delivered crude to the co-allottee Company, even before the petitioner Company, as the bill of lading holder Company, which loans the crude, took delivery of the crude. Therefore, there was no question of treating the transaction as a sale in the State of Tamil Nadu. (iii) The sale is also not liable under the Central Sales Tax, treating it as an inter-State sale. The allocation and re- allocation by way of loan transactions were all done and materialized beyond the customs barrier and as such, there was no element of inter-State sale. 14. The learned Senior Counsel appearing for the respondents 5 to 8 supported the case of the petitioner. According to the learned Senior Counsel, both under common law and Statute Law, to constitute a transaction of sale there should be an agreement, express or implied, relating to goods to be completed by passing of title in those goods. The transaction in question has no characteristics of a sale and in fact, it was a simple loan transaction between two oil Companies and that too as per the direction of the statutory body appointed by the Government of India. 15. Transaction was not between two private Companies. It was only the Oil Coordination Committee who decides at all point of time to allocate and re-allocate the crude oil to the oil refineries. Therefore, it was not possible for one refinery to give crude oil to https://hcservices.ecourts.gov.in/hcservices/ another refinery. The individual oil refineries have no say in the matter and they were acting only as per the dictate of the Oil Coordination Committee. Therefore, there was no question of one Company entering into a sale transaction with another Company with respect