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

The letter dated June 15, 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 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 consultinge next important document relates to the minutes of the meeting held at the office of the Chairman of the Corporation at New Delhi on August 8, 1968. The representatives of the Corporation, the Commission and Oil India Limited were presentCrude oil supplied both by the Commission 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 LimitedAt the meeting held on October 18, 1968, the Central Government representatives and the representatives 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 of eachThe document dated February 23, 1968, records the price of crude oil purchased by the Corporation from the Commission and the basis on which payment should be madeAnother document dated February 17, 1969, written by the Central 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 Commission the balance. In case the Commissions 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 by the Commission. The requirements of Digboi refinery would be met by Oil India Limited.The next document is dated August 7, 1973, incorporating the minutes of the meeting held on that day at the Ministry of Petroleum and Chemicals to discuss the sales tax liability of the Commission crude sold to the Corporation. The representatives of the Ministries of Petroleum and Chemicals and of Finance, the Commission and Oil India Limited were present. After discussion, it was unanimously decided that whatever principle had been adopted in the past for computation of pipeline tariff payable by the Commission should also be adopted for payment of sales tax by the Commission. Since for tariff computation all of Commissions 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.

Reasoning: 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.