Case: Oil &amp; Natural Gas Commission Vs. State of Bihar &amp; Others

the principle that all of its crude was being sold to Barauni refinery. 4. The Commission is described by the Solicitor-General to be a statutory body which has no option either with regard to the production or supply and the directions and decisions of the Government leave no choice with the Commission in regard to supplies. 5. This court in Salar Jung Sugar Mills Ltd. v. State of Mysore [[1972] 29 S.T.C. 246 (S.C.); [1972] 2 S.C.R. 228] 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 absolutely impinge 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 person who has to carry out these directions. In such cases it cannot be said that compulsive directions rob the transactions of the character of agreement. The 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 a 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 : 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 the assent when there is transfer of goods from one to the other. Fourth, a sale may not require the consensual element and that there may, in truth, be a compulsory sale of property with which the owner is compelled to part for a price against his will and the effect of the statute in such a case is to say that the absence of the transferors 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 transactions are all within the area of individual freedom of contract with limited choice by reason of ensuring the greatest good for the greatest number 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 the outgoing of the business and the price would come into the computation of profits. 6. Judged by the principles laid down by this court in Salar Jung Sugar Mills case [[1972] 29 S.T.C. 246 (S.C.); [1972] 2 S.C.R. 228], which is a decision by a seven-Judge Bench, there is no doubt that the transactions in the present case amounted to a sale of crude oil by the Commission to the Corporation. It is true that the Government decided and directed the Commission to supply to the Indian Oil Corporation at a price to be fixed, but the transaction is in the course of business conducted by the Commission.It is the business of the petitioner under the statute to plan, promote, organise and implement programmes for the development of petroleum resources 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 Commission. These are the functions of the Commission under section 14 of the Oil and 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 fax or fee accordingly". Section 31 contemplates power of the Central Government to make rules 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 and Natural Gas Commission Act show that the Commission is engaged in the business of producing crude oil in Assam and the supply of crude oil. The supply to the Corporation is a sale transaction fulfilling all the 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. 7. 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 not 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 Assam 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 Commission to make applications for refund, if any, in accordance with the sales tax law. 8.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]This court in Salar Jung Sugar Mills Ltd. v. State of Mysore [[1972] 29 S.T.C. 246 (S.C.); [1972] 2 S.C.R. 228] 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 absolutely impinge 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 person who has to carry out these directions. In such cases it cannot be said that compulsive directions rob the transactions of the character of agreement. The 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 a 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 : 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 the assent when there is transfer of goods from one to the other. Fourth, a sale may not require the consensual element and that there may, in truth, be a compulsory sale of property with which the owner is compelled to part for a price against his will and the effect of the statute in such a case is to say that the absence of the transferors 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 transactions are all within the area of individual freedom of contract with limited choice by reason of ensuring the greatest good for the greatest number 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 the outgoing of the business and the price would come into the computation of profitsThe 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 not 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 Assam 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 Commission to make applications for refund, if any, in accordance with the sales tax law.