Case: Indian Oil Corporation Limited and Another Vs. Union of India and Others

3 SCR 797 , Balabhagas Hulaschand v. State of Orissa [1976] 2 SCR 939 and Union of India and Anr. v. K. G. Khosla &Co. (P) Ltd. &Ors. [1979] 3 SCR 453. In our opinion the terms of the agreement dated February 9, 1970 summarized above make it quite clear that the sales of naphtha to the 5th respondent were inter-state sales. Under clause 4 of the agreement seller is "to make the supply of naphtha to the buyer from its refinery at Barauni". The source of supply is thus the sellers refinery at Barauni in Bihar and the destination is the buyers factory at Kanpur. This one clause alone is sufficient to prove that the sales in question were interstate sales. 7. However, on behalf of the petitioners and the State of U.P. it is contended that the sales were not inter-state sales and were local sales within the State of Uttar Pradesh. It is pointed out from clause 3(iii) that supplies of naphtha are made on the buyers indents in writing addressed to the seller at their Kanpur installation and not at their refinery at Barauni which, it is contended, shows that the supplies are made from IOCs storage at Kanpur to the 5th respondents factory also at Kanpur. It is also contended that the supply of naphtha to the buyers factory at Kanpur involves two movements, one from Barauni to Kanpur for storage at the sellers depot, and the other from the depot to the buyers factory. This contention is based on clause 7(i) of the agreement which states that naphtha shall be supplied at the fence of the buyers factory through a pipeline between the buyers and the sellers fences constructed at the buyers expense. It is argued that this stipulation shows that the movement of naphtha from Barauni is arrested at the sellers Kanpur depot and is followed by another movement from there to the buyers factory which proves that the sales are local sales and not inter-state because in an inter-state sale the movement of goods is the immediate and direct result of the contract of sale. 8. Clause 3(iii) of the agreement which says that the naphtha shall be supplied against indents in writing addressed to the seller at their installation at Kanpur cannot be read in isolation. Sub-clause (iv) of clause 3 sets out the details of the buyers requirement for the first four years and thereafter. Under clause 8 IOC are bound not only to bring the contractual quantity of naphtha from Barauni to the sellers Kanpur installation but also to provide at their own cost storage facilities at Kanpur of a capacity equivalent to not less than 30 days requirement of the buyer. The indents are therefore not outside the agreement but are relatable to the buyers requirements under the agreement. It is obvious that the sales under the agreement are not possible without interstate movement of naphtha. Clause 3 read with clause 8 also proves that really thare are no two movements but only one movement from Barauni to Kanpur pursuant to the contract of sale and the agreement regarding storage facilities provided in clause 8 is only for operational convenience, it is only a mechanism devised to facilitate the transfer of naphtha through the sellers pipeline to their depot at Kanpur and from there to the Buyers factory at Kanpur through the pipeline constructed at the buyers cost. It is relevant in this connection to note that under clause 7(ii) the cost of transferring naphtha from Barauni to the buyers fence is to be borne by the buyer. 9. Each case turns on its own facts and the question is whether applying the settled principle which we have mentioned above to the facts of the present case the sales can be said to be inter-state sales. An attempt to show that some of the factors present in the instant case are present or absent in some case or other in which this Court held the sale to be a local sale or inter-state sale hardly serves any useful purpose. On the facts of the present case the sales are clearly inter-state sales and the State of U.P. had therefore no jurisdiction to assess the petitioners to sales tax under the State Act. As the movement of naphtha commences from Barauni in Bihar, the sales tax payable on the sales of naphtha under the agreement dated February 9, 1970 can be assessed and collected only by the authorities in the State of Bihar on behalf of the Government of India in view of section 9 of the Central Sales Tax Act. 10. On behalf of the State of Bihar a point was taken that the present petition under Article 32 of the Constitution of India complaining of violation of the fundamental right guaranteed by Article 31 of the Constitution was not maintainable after the repeal of Article 31 by the Forty-Fourth Amendment of the Constitution with effect from June 20, 1979. The petition however complains also of infringement of Article 19 and therefore does not cease to be maintainable. Counsel for the 5th respondent sought to raise a question regarding the justification of treating freight as part of the sale price, but that is not a matter that arises for consideration on the present writ petition filed by IOC. 11. In the result the alternative prayer made in the writ petition succeeds, the assessment orders for the assessment years 1970-71, 1973-74 and 1974-75 passed by the Sales Tax Officer, U.P. and the revision proceedings initiated by the Commissioner of Sales Tax, U.P. for the assessment years 1971-72 and 1972-73 are quashed and respondent No. 4, the State of Uttar Pradesh, is directed to refund to IOC the sales tax collected from them on the sales of naphtha to the 5th respondent under the agreement dated February 9, 1970 and, further, not to levy sales tax on the sales under the said agreement under the U.P. Sales Tax Act. 12.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]In our opinion the terms of the agreement dated February 9, 1970 summarized above make it quite clear that the sales of naphtha to the 5th respondent were inter-statesales.Under clause 4 of the agreement seller is "to make the supply of naphtha to the buyer from its refinery at Barauni". The source of supply is thus the sellers refinery at Barauni in Biharandthe destination is the buyers factory at Kanpur. This one clause alone is sufficient to prove that the sales in question wereThe indents are therefore not outside the agreement but are relatable to the buyers requirements under the agreement. It is obvious that the sales under the agreement are not possible withoutinterstatemovement of naphtha. Clause 3 read with clause 8 also proves that really thare are no two movements but only one movement from Barauni to Kanpur pursuant to the contract of saleandthe agreement regarding storage facilities provided in clause 8 is only for operational convenience, it is only a mechanism devised to facilitate the transfer of naphtha through the sellers pipeline to their depot at Kanpurandfrom there to the Buyers factory at Kanpur through the pipeline constructed at the buyers cost. It is relevant in this connection to note that under clause 7(ii) the cost of transferring naphtha from Barauni to the buyers fence is to be borne by the buyerEach case turns on its own factsandthe question is whether applying the settled principle which we have mentioned above to the facts of the present case the sales can be said to be inter-statesales.An attempt to show that some of the factors present in the instant case are present or absent in some case or other in which this Court held the sale to be a local sale or inter-state sale hardly serves any useful purpose. On the facts of the present case the sales are clearly inter-state salesandthe State of U.P.hadtherefore no jurisdiction to assess the petitioners to sales tax under the State Act. As the movement of naphtha commences from Barauni in Bihar, the sales tax payable on the sales of naphtha under the agreement dated February 9, 1970 can be assessedandcollected only by the authorities in the State of Bihar on behalf of the Government of India in view of section 9 of the Central Sales Taxn behalf of the State of Bihar a point was taken that the present petition under Article 32 of the Constitution of India complaining of violation of the fundamental right guaranteed by Article 31 of the Constitution was not maintainable after the repeal of Article 31 by theh Amendment of the Constitution with effect from June 20, 1979.The petition however complains also of infringement of Article 19andtherefore does not cease to be maintainable.Counsel for the 5th respondent sought to raise a question regarding the justification of treating freight as part of the sale price, but that is not a matter that arises for consideration on the present writ petition filed by IOCIn the result the alternative prayer made in the writ petition succeeds, the assessment orders for the assessment years, 1973-74and1974-75 passed by the Sales Tax Officer, U.P.andthe revision proceedings initiated by the Commissioner of Sales Tax, U.P. for the assessment years 1971-72and1972-73 are quashedandrespondent No. 4, the State of Uttar Pradesh, is directed to refund to IOC the sales tax collected from them on the sales of naphtha to the 5th respondent under the agreement dated February 9, 1970, further, not to levy sales tax on the sales under the said agreement underthe U.P. Sales Tax ActThe petition however complains also of infringement of Article 19andtherefore does not cease to be maintainable.