Harsha Devani, J.@mdashAll these petitions involve similar questions of fact and law and the parties are also common, and hence, the same were taken up for hearing together and are decided by this common judgment. In all, there are three petitioners, viz., British Gas Exploration and Production India Limited, Reliance Industries Limited, and the Oil and Natural Gas Corporation Limited, who are collectively known as "the contractor". All the three petitioners have filed individual petitions challenging orders passed by the Sales Tax Department against them. For the sake of convenience, reference is made to the facts as stated in Special Civil Application No. 2084 of 2004 which has been filed by British Gas Exploration and Production India Limited. Wherever the facts are different, reference shall be made to the same at an appropriate stage. The petitioner-British Gas Exploration and Production India Limited (hereinafter referred to as "BGEPIL") is engaged in the business of exploration and production of oil and gas. On December 22, 1994, the Government of India, BGEPIL, Reliance Industries Limited (hereinafter referred to as "RIL") and Oil and Natural Gas Corporation Limited (hereinafter referred to as "ONGCL") agreed and executed two Production Sharing Contracts for development and exploration of Panna-Mukta and Mid-South Tapti Oil and Gas fields, in the west-coast off shore, India. Under the terms of the Production Sharing Contract (hereinafter referred to as "the PSC"), ONGCL, RIL and BGEPIL are collectively called "the contractor". The Panna-Mukta gas production started from February, 1998 onwards.
2. In accordance with the terms and conditions of the production sharing contract for pursuing activities relating to exploration and exploiting oil and gas in Panna-Mukta oil/gas fields in the economic zone, the Union of India granted a licence to the joint venture. The terms of this grant are recorded in the PSC for Panna-Mukta oil/gas fields dated December 22, 1994. Under the terms of the contract, the ONGCL is entitled to share 40 per cent of production of the minerals extracted and BGEPIL and RIL are to share 30 per cent each of such production. The Panna-Mukta oil/gas fields are located in the area of economic zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (hereinafter referred to as "the Maritime Act"). Thus, the location of the said oil/gas fields is beyond the territorial waters of India.
3. It is the case of the petitioners that under the PSC, the contractor or any constituent thereof has no right to dispose of the natural gas produced by them. The entire production is the property of the Union of India, but, for the sake of providing adequate compensation to the contractor, certain terms have been arrived at. Article 27 of the PSC clearly shows the title to the petroleum data and assets belongs to the Government of India and specifies that the Government is the sole owner of the petroleum products. The joint venture is merely a contract for exploration and production of natural gas as is clear from article 27.1 of the PSC. Under the contract, the joint venture consisting of BGEPIL, RIL and ONGCL has a limited right of extraction and limited title to supply to the Government as more specifically set out therein. The entire production of natural gas goes to the Government of India and the contractor or any constituent thereof have no control and no independence or volition to dispose of any mineral and are bound to hand over the production of natural gas to the Government of India. The PSC, therefore, is a contract arrived at for acquisition and disposal of minerals by the Government of India, who in public interest and the interest of consumers, controls the production, prices and distribution of natural gas.
4. The Government of India appointed Gas Authority of India Limited (hereinafter referred to as "GAIL") as its nominee to take over the natural gas produced by the contractor on behalf of the Government of India. The contractor delivered the natural gas to ONGCL for transportation and redelivery of the same to GAIL. Natural gas is separated from condensates at the oil fields and also measured under sophisticated equipment at the oil fields itself. The delivery is thereafter taken by ONGCL from the contractor at the offshore tie-in point into the ONGCL pipeline itself for and on behalf of GAIL in terms of the final delivery point in the said PSC. ONGCL, therefore, takes delivery on behalf of GAIL and undertakes to transport the said natural gas to Hazira for handing over to GAIL. It is the case of the petitioners that in the nature of the peculiar transport arrangement under sea water and commercial expediency, ONGCL transports the natural gas again mixed with its own gas. The pipeline, therefore, contains natural gas of which ONGCL has taken delivery from the joint venture as also its own natural gas as also similar gas of others, there being no facilities to carry natural gas of particular ownership separately in a separate pipe.
5. It is further the case of the petitioners that the pipeline of ONGCL carrying natural gas of GAIL and others passes through a processing plant belonging to ONGCL at Hazira. Since there is no other way of physical transfer of gas by ONGCL to GAIL, the said pipeline passes through the processing plant of ONGCL at Hazira. The said processing plant functions to remove sulphur and other impurities from natural gas. GAIL, therefore, takes possession of the natural gas as processed in the processing plant of ONGCL from its transporter ONGCL. The pricing of the natural gas produced at the oil fields and delivered to GAIL depends on the international market of gas and oil and is a specialised job entrusted to experts for working out the said price on the basis of a complicated formula as provided in the provision about price of natural gas in the said chapter of the PSC.
6. The petitioner-BGEPIL had been submitting its sales tax returns to the respondent as well as tax officers from time to time. At the time of assessment, petitioner No. 1 disclosed all facts including balance sheet, the reports of the total production and the like. The natural gas production of Panna and Mukta also was separately recorded in a statement. It is the case of the petitioner-BGEPIL that though sales of natural gas produced from Panna-Mukta were disclosed by the petitioner, since the same were not amenable to sales tax, the petitioner had not shown the figures in the respective returns, but had submitted separately complete data in the course of assessment proceedings, which had been appreciated and no tax was levied. It is the case of the petitioner-BGEPIL that the respondent-Commissioner had examined the legal character of these transactions in the preceding years. The petitioner-BGEPIL had in several correspondences, personal visits, personal appearance, and otherwise, conveyed to the respondent-sales tax authorities that these transactions were protected by article 286 of the Constitution and could not be taxed. By a notice dated January 7, 2002, the Additional Commissioner of Sales Tax (Enforcement), Surat, called upon the petitioner-BGEPIL to explain why the sales should not be taxed, pursuant to which, the said petitioner submitted a detailed reply explaining as to why such sales should not be taxed. The Additional Commissioner, however, issued a notice purporting to be a show-cause notice calling upon the said petitioner to show cause why supply of natural gas from Panna-Mukta oil/gas fields to GAIL, should not be taxed. The petitioner submitted its reply by letters dated January 28, 2002 and March 4, 2002. It is alleged in the petition that the second respondent-Commissioner has, notwithstanding the clear position of law, adopted a resolute attitude to tax these transactions of the joint venture and has directed the respective assessing authorities to impose tax on these transactions by resorting to reassessments or provisional assessments as the case may be in case of each respective constituent of the joint venture. Pursuant to these directions, the fifth and sixth respondents issued notice for reassessment under section 44 of the Gujarat Sales Tax Act, 1969 (hereinafter referred to as "the GST Act"). Similar notices also came to be issued to RIL and ONGCL. In response to the notices, the first petitioner gave very specific and detailed reply and also pointed out that the sale of gas under the GST was liable to tax at the last stage, that is, when the gas is distributed to the actual consumer. Therefore, the supply to GAIL which is the sole distributor of the gas cannot be taxed. The first petitioner also appeared before the respective officers, submitted its written reply and got its objections recorded in the proceedings. The respondent-authorities, however, passed reassessment orders in the case of all the petitioners, namely, BGEPIL, ONGCL and RIL. It appears that the petitioner-BGEPIL had preferred appeal against the orders of reassessment before the Commissioner of Sales Tax with a request to direct the officers to desist from recovering the astronomical recoveries taken out by them. However, the petitioner came to learn that the authorities were directed not to grant any stay or pass any order on the stay application that had been filed by the said petitioner. Convinced that the appellate authority had no discretion to decide against the directions of the Commissioner to assess the disputed transactions, the said petitioner approached the Commissioner of Sales Tax, Ahmedabad and requested him not to enforce the demand. The petitioner thereafter learnt that its bank account with the State Bank of India, Bhavnagar was attached by the respondent-Sales Tax Officer on February 12, 2004. It is at this stage that the petitioners have approached this court challenging the reassessment orders and demand notices; seeking a declaration that the supplies of natural gas by the contractor to the Government of India cannot be taxed in terms of article 286 of the Constitution read with section 5 of the Central Sales Tax Act, 1956; and for permanently restraining the respondents Nos. 1 to 6 or their servants or agents from in any way levying tax on the transaction of supply of natural gas to the Government of India in terms of the provisions of the PSC.
7. The following substantive reliefs have been claimed in the individual petitions:
"Special Civil Application No. 5159 of 2010
(a) this honourable court may be pleased to issue an appropriate writ, direction or order under article 226 of the Constitution quashing and setting aside the assessment order dated March 25, 2010 passed by respondent No. 3 for the financial year 2005-06.
Special Civil Application No. 9871/2008
(a) this honourable court may be pleased to issue an appropriate writ, direction or order under article 226 of the Constitution quashing and setting aside the assessment order dated July 3, 2008 passed by respondent No. 3 for the financial year 2003-04.
Special Civil Application No. 11677 of 2007
(a) this honourable court may be pleased to issue an appropriate writ, direction or order under article 226 of the Constitution quashing and setting aside the assessment order dated March 30, 2007 passed by respondent No. 3 for the financial year 2002-03.
Special Civil Application No. 3119 of 2004
(a) that this honourable court be pleased to declare that in respect of sale of natural gas effected by the petitioner and the other joint venture partners under the production sharing contract dated December 22, 1994 with Government of India to Government of India and or its nominee GAIL, in view of sale of such natural gas taking place outside State of Gujarat, no sales tax is leviable or recoverable under the provisions of the Gujarat Sales Tax Act, from the petitioner.
(b) that this honourable court be pleased to issue writ of mandamus or any other appropriate writ, order or direction under article 226 of the Constitution of India, directing the respondents--
(i) to refrain from levying, assessing and recovering any sales tax under the provisions of the Gujarat Sales Tax Act from the petitioners in respect of sale of natural gas effected by the petitioner and the other joint venture partners under the production sharing contract dated December 22, 1994 with Government of India, in view of sale of such natural gas taking place outside the territorial waters of India and outside State of Gujarat.
(ii) to refrain in any manner taking any steps against the petitioners for recovery of sales tax either by coercive methods or otherwise in respect of sale of natural gas effected by the petitioner and the other joint venture partners under the production sharing contract dated December 22, 1994 with Government of India, in view of sale of such natural gas taking place outside the territorial waters of India and outside State of Gujarat.
(c) that this honourable court be pleased to issue writ of certiorari or any other writ order or direction under article 226 of the Constitution of India calling for the records and proceedings pertaining to (i) the five orders of provisional assessment passed by the Assistant Commissioner of Sales Tax on December 31, 2003 and five orders dated January 15, 2004 imposing penalty, (ii) notice dated March 3, 2004 issued by the Additional Commissioner, and (iii) after examining the validity, legality and propriety thereof, the same be quashed and/or set aside.
Special Civil Application No. 2071 of 2004
(A) Your Lordships may be pleased to issue a writ of mandamus or a writ in nature of mandamus or any other appropriate writ or order holding and declaring that the impugned action of the respondents of levying demanding and seeking to recover amounts towards Gujarat sales tax is unconstitutional, without authority in law, irrational, arbitrary, unreasonable, discriminatory and unsustainable in law as well as on facts and your Lordships may be further pleased to hold and declare that Gujarat sales tax is neither leviable nor recoverable under the provisions of the Gujarat Sales Tax Act, 1969 from the petitioner;
(B) Your Lordships be pleased to issue a writ of mandamus or a writ in nature of mandamus or any other appropriate writ, order or direction quashing and setting aside impugned orders dated January 15, 2004 (annexure F collectively) and the consequent impugned demand notices for payment of tax (annexure G collectively);
(C) Your Lordships be pleased to issue a writ of prohibition or a writ in nature of prohibition or any other appropriate writ, order or direction commanding the respondents not to levy/demand/collect any tax by treating the transaction between the petitioner and GAIL as sale eligible for payment of sales tax under the provisions of the Gujarat Sales Tax Act, 1969.
Special Civil Application No. 4022 of 2009
(a) this honourable court may be pleased to issue an appropriate writ, direction or order under article 226 of the Constitution quashing and setting aside the assessment order dated March 30, 2009 passed by respondent No. 3 for the financial year 2004-05."
8. Mr. P. Chidambaram, senior advocate, learned counsel for the petitioner-BG Exploration and Production India Ltd. assailed the impugned orders by submitting that such orders had been passed without any authority in law as the sales in question have not taken place within the State of Gujarat and, therefore, are not amenable to tax under the GST Act. It was submitted that there are limitations on the power of a State Government to impose sales tax. Under article 286 of the Constitution, a State cannot impose sales tax where the sale takes place--
"(a) outside the State; or
(b) in the course of import of goods into the territory of India. Under sub-article (2) of article 286 , it is only the Parliament which can formulate principles for determining when a sale can take place in any of the two ways mentioned above, which has been done by the Parliament by enacting the Central Sales Tax Act, 1956 (hereinafter referred to as "the CST Act"). Accordingly, section 4 of the CST Act states as to when a sale is said to take place outside a State and section 5 thereof states when a sale is said to take place in the course of import and section 87 of the GST Act also reflects the above position. Inviting attention to the Explanation to section 87 of the GST Act, it was pointed out that the same requires that for the purpose of the section, whether a sale takes place in the course of any inter-State trade or commerce, or outside the State of Gujarat or in the course of import of the goods into the territory of India or export of goods outside such territory shall be determined in accordance with the principles specified in sections 3 , 4 and 5 of the CST Act."
8.1 It was submitted that the power of the State Government to impose sales tax is only if the goods are within the State at a certain point of time. By virtue of section 4 of the CST Act, a sale shall be deemed to take place inside a State if the goods are within the State--
"(a) in the case of specific or ascertained goods, at the time the contract of sale is made; and
(b) in case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior upon subsequent to such appropriation."
It was submitted that it is this position that is reflected in the Explanation 1 to sub-section (28) of section 2 of the GST Act which defines "sale". The learned counsel further submitted that the principles contained in sub-section (2) of section 4 of the CST Act are very simple principles, namely:--
"(a) in case of specific or ascertained goods, the only relevant factor is the situs of the goods when the contract of sale is made; and
(b) in case of unascertained or future goods, the only relevant factor is the situs of the goods when they are appropriated to the contract of sale by the seller or by the buyer."
8.2 It was submitted that in the facts of the present case, the sale of the goods, namely, natural gas under the PSC took place outside the State of Gujarat since none of the conditions under section 4(2) of the CST Act are satisfied. It was pointed out that the territory of "India" has been defined in the Constitution of India in article 1(3) which states that the territory of India shall comprise of States and Union Territories and such other territories as may be acquired. There is, however, no reference to the territorial waters in article 1. "State" has been defined under article 1(2) of the Constitution of India to mean the territories that are specified in the First Schedule of the Constitution of India. The territory of Gujarat is stated to be the territories specified in section 3(1) of the Bombay State Reorganization Act, 1960 under entry 4 of the First Schedule. When read with section 3(1) of the Bombay State Reorganization Act, 1960, the territory of the State of Gujarat is extended to cover the following territories:
"(a) Banaskantha, Mehsana, Sabarkantha, Ahmedabad, Kaira, Panchmahals, Baroda, Broach, Surat, Dangs, Amreli, Surendranagar, Rajkot, Jamnagar, Junagadh, Bhavnagar and Kutch Districts, and
(b) the villages in Umbergaon Taluka of Thana District, the villages in Nawapur and Nandurbar Talukas of West Khandesh District and villages in Akkalkuwa and Taloda Talukas of West Khandesh district, respectively, specified in Parts I, II and III of the First Schedule."
It was submitted that the Panna-Mukta Gas Wells Offshore Platform and the location on the high seas where the petitioners'' pipeline from the offshore platform meets ONGC''s pipeline (laid from Bassein to Hazira) are not included within the territory of the State of Gujarat. Therefore, the gas wells, the offshore platform and the T-Junction are all outside the territory of the State of Gujarat. It was submitted that the only contract in the present case is the Production Sharing Contract (PSC) and the subject-matter of the contract is "Associated Natural Gas" (ANG) and excess ANG. Under article 21.4.1 of the PSC, ANG minus what is used by the contractor in accordance with article 21.2 of the PSC, is excess ANG. Under article 21.4.3, excess ANG shall first be offered for sale to the Government of India or its nominee and under article 21.4.4, the Government of India may exercise its option to purchase the excess ANG, and the contractor and the Government of India or its nominee shall agree on the terms for the sale. The price of ANG is governed by article 21.5.13. The price shall be specified in the gas sales contract, which shall be in accordance with the provisions of article 21.5.13. It was pointed out that article 21.5.13(a)(iii) defines "deliverability" which is in terms of volume of gas calculated as the lesser of two indices : (i) maximum aggregate of all wells, and (ii) maximum delivery capacity of the processing facility. This processing facility is the offshore processing platform of the contractor. It was submitted that the ONGC''s facility at Hazira is always referred to as the "separation and sweetening facility owned and operated by ONGC". Under the contract, specifically article 21.5.13(b) of the PSC, the seller has agreed to produce and deliver, on a daily basis, to the buyer 100 per cent of the deliverability of ANG and "Non Associated Natural Gas" (NANG) at the delivery point and the buyer has agreed to take and purchase, on a daily basis, 100 per cent of the deliverability of ANG and NANG. Accordingly, the gas was delivered at the delivery point in terms of article 21.5.13(b). It was further submitted that article 1.27 and article 21.5.13(a)(iv) define "delivery point" as the upstream weld at the underwater connection between the seller''s pipeline and ONGC''s underwater gas transmission line or lines which transport gas from Bassein field to the Hazira area. Actually, gas is delivered to one of the two parallel pipelines laid down by ONGC from the Bassein field to Hazira which is entirely consistent with article 1.27 of the PSC. It was submitted that for the purpose of article 21.5.13(c), the gas is measured at the offshore processing platform belonging to the petitioner. By virtue of article 27.2, title passes to the Government of India or its nominee at the delivery point. The price of gas is payable for each MMBTU of gas delivered. Under article 21.5.13(a)(vi), MMBTU means one million BTUs on a net heating value basis. The unit is based on "heat energy". There is a standard formula to convert a certain "volume" of gas into the equivalent "heat energy". Article 21.5.13(d) sets out the formula for calculating the price that will be paid by the buyer to the seller for the gas delivered under the contract. It was pointed out that while under article 21.5.13(b), the seller delivers the 100 per cent deliverability of gas at the delivery point, the contract (PSC) provides in article 21.5.13(e) that "gas is to be received by GAIL at Hazira downstream of separation and sweetening facilities owned and operated by ONGC". It was pointed out that this is the only place in the PSC where there is a reference to GAIL, to submit that GAIL referred to in this sub-clause, is the recipient of gas and not the nominee of the Government of India because when the PSC was entered into, the Government of India had not appointed GAIL as its nominee. The Government of India could very well have appointed someone other than GAIL as its nominee and that GAIL is named as the recipient because it has the largest network of pipelines to transport gas. Hence, it was convenient to name GAIL as the recipient of gas at Hazira. It was, accordingly, submitted that the contract of sale is the PSC; the subject-matter is gas (ANG and excess ANG); the quantity is the "deliverability" as defined; the gas is delivered at the "delivery point" as defined; the buyer is the Government of India and when the PSC was entered into, Government of India had not appointed its nominee; and the price is based on unit of equivalent "heat energy" measured in MMBTU.
8.3 Next it was submitted that the question that now arises for consideration is when does the title in the goods under the contract pass from the seller to the buyer. The attention of the section was invited to article 27.2 of the PSC to submit that the same makes it absolutely clear that the title to gas sold to the Government of India or its nominee shall pass to the Government of India or its nominee at the delivery point. It was submitted that the succeeding sentence, viz., "contractor shall be responsible for all costs and risks prior to the delivery point and each party shall be responsible for all costs and risks associated with such party''s share after the delivery point" places the matter beyond doubt. It was further submitted that the PSC is the sole contract between the parties. Under article 34 thereof, it is the "entire agreement". Referring to article 34.2, it was pointed out that the PSC cannot be amended, modified, varied or supplemented in any respect except by an instrument in writing signed by all the parties. It was submitted that GAIL is not a party to the contract and under article 21.5.14, any document between the contractor and GAIL shall not abrogate the obligation of the Government of India under the PSC. Hence, the Interim Sales Purchase Agreement (ISPA) cannot amount to an amendment or modification or variation of the PSC. Reliance was placed upon the decision of the Supreme Court in the case of
8.4 According to the learned counsel, the title to the goods passed from the seller to the buyer (Government of India or its nominee) at the delivery point as defined. The PSC is the sole contract between the seller and the Government. The goods were always specific or ascertained goods because the volume of gas to be produced, sold and delivered is captured in the word "deliverability" as defined in article 21.5.13(a)(iii) of the PSC and that all the gas that falls within "deliverability" must be sold on a daily basis to the Government of India or its nominee under article 21.5.13(b). It was submitted that applying section 4(2)(a) of the CST Act, the goods were outside the State of Gujarat (gas wells or offshore platform) when the contract of sale was made. Alternatively, it was submitted that assuming that the goods (gas) were unascertained or future goods, they were appropriated to the contract, on a daily basis, when they were delivered at the delivery point to ONGC''s Bassein-Hazira pipeline. There was appropriation on a daily basis and the seller and buyer assented to such appropriation. The goods were outside the State of Gujarat at the time of appropriation (at the delivery point). Therefore, whether section 4(2)(a) or section 4(2)(b) of the CST Act is applied to the case, the sale shall be deemed to have taken place outside the State of Gujarat. In support of such submission, reliance was placed upon the decision of the Supreme Court in the case of
8.5 Alternatively, Mr. Chidambaram submitted that the sales in the present case are sales of goods in the course of import into the territory of India. Article 1(3) of the Constitution defines the territory of India. The gas wells and the offshore platform are located at places outside the territory of India. Article 297(3) of the Constitution enables Parliament to specify the limits of the territorial waters, the Continental Shelf, the Exclusive Economic Zone and other Maritime Zones. Parliament has made the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (Maritime Zones Act). Section 3 thereof declares that the sovereignty of India extends and has always extended to the territorial waters of India. Section 5 defines "contiguous zone". Section 6 defines "Continental Shelf" and section 7 defines "the Exclusive Economic Zone". Under section 5(5) , section 6(6) and section 7(7) of the Maritime Zones Act, the Central Government, by notification, may extend any enactment for the time being in force in India to the Contiguous Zone or Continental Shelf or Exclusive Economic Zone, respectively. When so extended, the enactment concerned shall have effect as if the area to which the enactment was extended is a part of the territory of India. Reference was made to the decision of the Supreme Court in the case of
"... Sovereignty of India extends over the territorial waters but the position is different in the case of Continental Shelf and Exclusive Economic Zone of India... Thus, sub-section (6) of section 6 and sub-section (7) of section 7 create a fiction by which the Continental Shelf and the Exclusive Economic Zone deemed to be a part of India for the purposes of such enactments which are extended to those areas by the Central Government by issuing a notification."
(emphasis Here italicised supplied)
It was submitted that the gas wells where the gas originated, the offshore platform where the water and oil were separated from the gas and the delivery point are all beyond the territorial waters of India. Neither the CST Act nor the GST Act has been extended by notification to any area beyond the territorial waters of India. Hence, as far as these two Acts are concerned, the gas wells, the offshore platform and the delivery point are not within the territory of India. Since the CST Act and the GST Act have not been extended to and do not have force in those places, insofar as these two Acts are concerned, they are places outside India.
8.6 The learned counsel further submitted that under the PSC, which is the sole contract between the parties, gas produced outside India and delivered at the delivery point outside India is eventually brought through a pipeline to the mainland (Hazira), in other words, the gas is imported into the territory of India. The sale of gas has, therefore, occasioned such import. Alternatively, by applying the principles contained in section 4(2) of the CST Act, the title to the gas has been transferred at or before the delivery point, well before the gas via the pipeline, entered the territorial waters of India. Looked at in any way, section 5(2) of the CST Act is squarely attracted and hence, the sale of gas under the PSC "shall be deemed to take place in the course of the import of the goods into the territory of India" within the meaning of section 5(2) of the CST Act. According to the learned counsel, since the phrase "territory of India" is not defined in the CST Act, the meaning must be consistent with the Constitution of India and hence, the meaning of the phrase will be the same as in article 1(3) of the Constitution. Since the CST Act has not been extended to any area beyond the territorial waters, there is no question of a deemed territory of India for the purpose of the CST Act. Consequently, the State of Gujarat would not have jurisdiction to levy sales tax on the transaction which is a sale in the course of import into the territory of India. It was submitted that the gas wells, offshore platform and delivery point are located outside the territory of India. Any movement of goods from a place outside the territory of India (gas wells, offshore platform and delivery point) to a place within the territory of India (Hazira) will indeed be a movement in the course of import of the goods into the territory of India. Any sale which occasions such import would fall under section 5(2) of the CST Act and, therefore, be outside the purview of the GST Act. In support of his submission, the learned counsel placed reliance upon the decisions of the Supreme Court in
8.7 Mr. Chidambaram next submitted that the contract was for the sale and purchase of all the natural gas discovered and produced in the contract area as defined in the PSC. Under article 21.1 of the PSC, the Indian domestic market shall have the first call on the natural gas produced under the PSC. Reference was made to the decision of the Supreme Court in the case of
8.8 As regards the validity of the reopening of assessment, it was submitted that the show-cause notices are under section 44 of the GST Act to reopen the assessment and the consequent reassessment orders are without jurisdiction and are void ab initio. Referring to the record of the case, it was pointed out that in respect of five years, viz., 1997-98 to 2001-02, the original assessment was a nil assessment so far as Panna-Mukta gas was concerned. Notice of reassessment in respect of each of these five years was issued on October 20, 2003 and the petitioner filed its reply thereto on December 12, 2003. The reassessment orders were passed for one year on January 9, 2004 and for the other four years on January 20, 2004. It was pointed out that on September 3, 1999, the petitioner had written to the Additional Commissioner of Sales Tax enclosing a copy of the PSC and relying upon several articles thereof. On January 7, 2002, the Additional Commissioner, Sales Tax, issued a show-cause notice for the year 2001-02 in which he referred to the above letter dated September 3, 1999 and dealt with various aspects of the PSC according to his interpretation. On January 28, 2002, the petitioner submitted a reply relying on various clauses of the PSC wherein the petitioner specifically made reference to the ISPA. On March 4, 2002, the petitioner filed a supplementary reply clarifying some of the issues such as delivery point and also explaining the difference between sour gas and sweet gas and maintained that sour gas and sweet gas continue to remain the same commercial commodity. It was pointed out that, therefore, the assessing officer had before him, the PSC and the ISPA as well as detailed submissions made by the petitioner on various clauses of the PSC. After considering all the above material, the assessing officer passed a nil assessment order (insofar as Panna-Mukta gas was concerned) for the year 2001-02 on June 30, 2003 and on the same day, passed a nil assessment order for the year 2000-01. It was submitted that having regard to the fact that nil assessment orders were passed on June 30, 2003, there was no reason to believe that any turnover of Panna-Mukta gas had escaped assessment so as to invoke section 44 of the GST Act on October 20, 2003. It was submitted that between June 30, 2003 and October 20, 2003, the assessing officer had no new material before him nor had he discovered any new fact that was unknown to him earlier. The show-cause notice simply refers to the PSC and, without any disclosure of the "reason to believe" that turnover had escaped assessment, holds that the petitioner was liable to pay sales tax on sale of Panna-Mukta gas. Therefore, this is a case of mere change of opinion between June 30, 2003 and October 20, 2003, which is impermissible under law. In support of his submission, the learned counsel placed reliance upon the decisions of the Supreme Court in
8.9 Next, it was submitted that assuming that the petitioner is liable to pay sales tax under the GST Act for the period from 1997-98 to 2004-05, under the PSC, it is the Government of India or its nominee who has to pay sales tax, if any such tax is due. Referring to the pleadings of the parties, it was pointed out that the petitioner in its reply dated January 28, 2002 to the show-cause notice and in its pleadings has consistently stated that the tax on goods (natural gas) purchased from the petitioner, if any, has to be paid by GAIL. GAIL in its affidavit-in-reply to Special Civil Application No. 2084 of 2004 has not denied the petitioner''s averment that tax on sale of goods is payable by GAIL. Reference was made to article 21.5.15 of the PSC to submit that it is clearly stipulated therein that the Government and/or its nominee shall pay all sales tax payable on the sale of gas to the Government or its nominee. Reference was made to the provisions of ISPA to point out that in clause 4 thereof it is stated that "the buyer shall pay any and all sales tax payable on the sale of gas, in addition to the price of gas". It was argued that the petitioner is disputing the demand of sales tax as according to the petitioner, it is not liable and no sales tax is payable. It is only if the petitioner is held to be liable to pay sales tax, the liability would be crystallized and the tax would be payable. It is at that point of time alone that the petitioner can demand that the Government of India or its nominee should bear the burden of the tax and reimburse the petitioner. It was urged that since all the parties including the Government of India, GAIL and the State Government are before this court, in the event of the petitioner being held liable to pay sales tax for the period in question, in order to do complete justice between the parties and to avoid protracted litigation, it would be just for the court to direct that the sales tax liability cast on the petitioner should be reimbursed by the Government of India or its nominee, GAIL. It was further submitted that if the petitioner is liable to pay sales tax for the years in question, it would be just for this court to issue appropriate directions to GAIL to issue forms 17 and 17B as required under sections 12 and 13 of the GST Act. Lastly, it was submitted that even assuming that sales tax is payable, the imposition of penalty and interest is wholly unjustified. It was submitted that under section 45(2)(c) of the GST Act, penalty is levied only if there is "concealment" or "deliberately furnishing inaccurate particulars". In the present case, there was neither concealment nor deliberate furnishing of inaccurate particulars. This is a case where the issue is a constitutional and legal issue namely, whether the sale is a local sale within the State of Gujarat or not and hence, in such a case, section 45(2)(c) of the GST Act is not attracted and no penalty can be levied thereunder. It was submitted that under section 45(6) of the GST Act, penalty is leviable if the reassessed amount of tax exceeds the original amount of tax by 25 per cent. In the present case, the original assessment was made only in respect of tapti gas. If sales tax is leviable on Panna-Mukta gas also, the reassessed amount will naturally exceed the original assessed amount. If the difference exceeds 25 per cent, the assessee is, under section 45(5) , deemed to have failed to pay tax. Based on such a deeming provision, another penalty is leviable under section 45(6) of the GST Act. It was urged that in the present case, the failure to pay the tax on the Panna-Mukta gas is solely because of the dispute whether the sale of Panna-Mukta gas is a local sale within the State of Gujarat. Since the question is purely a constitutional and legal issue, there is no justification to deem a failure to pay tax and levy penalty on the basis of such deemed failure. It was, accordingly, urged that the petitions deserve to be allowed in terms of the reliefs claimed therein.
9. Adopting the submissions made by Mr. P. Chidambaram, Mr. S.N. Soparkar, senior advocate, learned counsel for Reliance Industries Limited, the petitioner in Special Civil Application No. 3119 of 2004 and connected matters submitted that the only question that arises in this batch of petitions is as to whether the sale has taken place within the State of Gujarat. In addition to the submissions advanced by Mr. Chidambaram, Mr. Soparkar submitted that section 5(2) of the CST Act provides that a sale or purchase of goods shall be deemed to take place in the course of the import of goods into the territory of India in two independent situations : (i) if the sale or purchase occasions such import; or (ii) if the sale or purchase is effected by a transfer of documents of title to the goods, before the goods have crossed the customs frontier of India. According to the learned counsel, the instant case falls in situation (i) as undisputedly, in the instant case sale is not effected by transfer of documents. The words "customs frontier of India" and section 2(ab) of the CST Act, 1956 are, therefore, irrelevant for the present purpose. Alternatively and without prejudice to the other submissions, it was submitted that since the sale in the instant case has occasioned the import, viz., bringing of goods into India from a place outside India, section 5(2) of the CST Act would apply even if it is held that sale took place at Hazira, within the State of Gujarat. It was submitted that the State where the title has passed is irrelevant; the only relevant consideration being that the sale must have occasioned movement of goods from one State to another (from outside India into India). The GST Act, under the circumstances, would not apply to such a sale. In support of his submission, the learned counsel placed reliance upon the decision of the Supreme Court in the case of
9.1 It was submitted in the case of Reliance Industries Limited, all the assessments are provisional and in case of ONGC barring one, all are provisional assessments and that this is not a fit case where provisional assessments can be made. It was argued that the impugned assessment orders are passed without jurisdiction and are void ab initio, inasmuch, as an order can be passed under section 41(b) of the GST Act where the Commissioner has reason to believe that the dealer has evaded tax. In the instant case, at no point of time, the assessing officer had any reason to believe that the dealer had evaded tax and that there did not exist any facts, circumstances or grounds, for the assessing officer to invoke the power of making provisional assessment under section 41(b) of the Act. It was contended that apart from the fact that there is no evasion of tax, the impugned order is not passed on the premise that the dealer has evaded the tax. Reliance was placed upon the decision of this court in the case of
10. Opposing the petitions, Mr. S.N. Shelat, senior advocate, learned counsel for first respondent-State of Gujarat, submitted that the sale in question has taken place within the State of Gujarat and hence, the provisions of the GST Act would be applicable to the sale of natural gas by the petitioners to GAIL. It was submitted that on behalf of the petitioners two-fold submissions have been made. Firstly, that the sale of goods has not taken place within the State of Gujarat and secondly, that the sale has taken place in the course of import into the territory of India. Dealing with the second limb of submissions advanced by the learned counsel for the petitioners, it was contended that the sales in question have not taken place in the course of import into the territory of India. The attention of the court was invited to the provisions of sub-section (2) of section 5 of the CST Act to submit that the word "import" is not defined under the said Act. "Customs frontier" is not defined under the CST Act and, therefore, section 2(22) of the Customs Act has to be imported into section 5(2) of the CST Act. It was submitted that section 5(2) of the CST Act is not applicable because the sale does not occasion import from a foreign destination. According to the learned counsel, in view of the provisions of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zone Act, 1956 and notification issued thereunder, the customs frontier is extended. The provisions of the Customs Act are imported into the provisions of the CST Act for determining whether the sale is in the course of import. It was submitted that the movement of goods from the Continental Shelf or Exclusive Economic Zone to Hazira onshore being within the customs frontier, is not import into the territory of India and the sales, in question are, therefore, chargeable to sales tax under the GST Act. Reliance was placed upon the decision of the Supreme Court in the case of
10.1 Mr. Shelat next submitted that it is the case of the contractor that the sale is of specific/ascertained goods; however, such contention is not borne out from the production sharing contract which is for future goods, that is, unascertained goods. It was submitted that when the contractor entered into the production sharing contract, they were not aware while undertaking petroleum operations in the contract area, as to what quantity/quality of natural gas could be received. Moreover, the contracting parties are not ad idem about the delivery point for the appropriation to the contract of sale. The attention of the court was invited to the provisions of section 4 of the CST Act to submit that clause (b) of sub-section (2) thereof provides that in case of unascertained or future goods, a sale of goods is deemed to be inside a State if the goods are within the State at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation. It was pointed out that according to the Union of India and GAIL, appropriation takes place at Hazira downstream of the separation and sweetening facility owned and operated by ONGC when the sweetened gas is received by the buyer (delivery to the buyer) whereas the constituents of the contractor contend that the delivery point is offshore at upstream-weld. Therefore, the contractor, the Union of India and its nominee GAIL are not ad idem as to the delivery point where appropriation is effected. It was submitted that the Union of India and GAIL have exchanged correspondence with the constituents of the contractor which reflect that the Union of India which is a party to the production sharing contract, interprets the contract to mean that the delivery point is at onshore Hazira for the purpose of appropriation. It was submitted that the constituents of the contractor rely on article 21.5.13(a)(iv) read with articles 21.5.13(c) and 27.2 to hold that appropriation is effected offshore; however, the above clauses in article 21.5.13 cannot be read in compartment and in isolation. The terms of the agreement have to be read as a whole to find out the delivery point where the goods are appropriated. It was submitted that articles 21.3, 21.5.13(iii), 21.5.13(c) and 21.5.13(e) are to be read with contents of the Panna-Mukta sales and purchase agreement. The agreement has to be read so as not to render the above clauses otiose or redundant. According to the learned counsel, one of the essential considerations is that the assent of the other party (GAIL) is to be obtained prior or subsequent to such appropriation, whereas, the buyer, viz., the nominee of Government of India-GAIL has never given its assent for the appropriation to the contract as is being contended by the contractor.
10.2 As regards the contention of the contractor that assent is given in the agreement under article 27.2, the learned counsel submitted that this contention is wholly erroneous in view of the fact that: (a) in view of section 4(2)(b) , the article dealing with passing of title, that is, article 27.2 is not decisive, and (b) article 27.2 refers to delivery point. It was submitted that article 27.2 refers to the delivery point offshore which contention negates the contents of article 21.5.13(e) where it is categorically asserted that GAIL, nominee of Union of India will receive gas at Hazira downstream of the separation and sweetening facility owned and operated by ONGC. It was submitted that, therefore, no assent is given for appropriation by the Union of India or its nominee. The delivery point, according to the Union of India and its nominee is onshore Hazira in view of articles 21.5.13(iii), 21.5.13(c) and 21.5.13(e). Therefore, in view of the provisions of clause (b) of sub-section (2) of section 4 of the CST Act, the sale of goods in the instant case is deemed to have taken place inside the State of Gujarat.
10.3 It was submitted that when article 21.3 of the PSC refers to the domestic market, the Government of India has contemplated domestic market to serve through its nominee GAIL and GAIL has to comply with the directions of the Union of India. Article 21.3, therefore, has to be read conjointly with other clauses. According to the learned counsel, reliance placed by the petitioners upon the decision of the Supreme Court in
10.4 According to the learned counsel, the normal understanding of the term "appropriation" would require the following elements:
"(i) goods should conform to the description as per the agreement;
(ii) goods must be in a deliverable State; and
(iii) there has to be acceptance by the other party, even subsequent to the appropriation by the seller, in the absence of such assent, appropriation is not effected."
10.5 It was submitted that, therefore, the following factors become relevant for consideration:
"(i) The goods at the offshore are neither ascertained nor ascertainable nor are they in deliverable state as they are commingled with other gases.
(ii) The gas is transmitted to the ONGC underwater gas transmission line which transports gas from Bassein to Hazira onshore.
(iii) It is only ascertained after the condensed gas is separated and sweetened at Hazira onshore and it is at this stage that there is an appropriation by the buyer. Unilateral appropriation by the seller at the up-stream-weld would not render valid the appropriation unless subsequent assent is given by the buyer.
It was urged that the above interpretation is further fortified because the transportation cost is borne by the contractor and the risk is also borne by the contractor till delivery is effected at Hazira onshore. The buyer is at Hazira onshore. Sweetened gas is received by the buyer at the delivery point onshore Hazira. Even the liability of the payment of sales tax has been determined as both the parties understood that sales tax is payable under the contract when the gas is sold at Hazira to GAIL. It is GAIL which bears the liability to pay tax, though under the Sales Tax Act, it is the seller who has to pay the tax to the State of Gujarat. Reference was made to Halsbury''s Laws of England, Fourth Edition, 2005 Reissue, Volume 41, paragraph 109, wherein it has been stated that "Like all contracts, a contract of sale must be construed as a whole. Accordingly, the property in the goods passes where the terms of the contract show a clear intention that it will pass notwithstanding that there may be an express provision in the contract to the contrary". Reference was also made to Halsbury''s Laws of England, Volume 13 paragraph 174, wherein it has been stated that "It is a rule of construction applicable to all written instruments that the instrument must be constructed as a whole in order to ascertain the true meaning of several clauses. The best construction of deeds is to make one part of the deed expound the other so as to make all other parts agree. Effect must, as far as possible, be given to every word and every clause. It has been said that the court in a case of patent satisfaction (though the dictum may have a more general application) must adopt a purposive construction rather than a purely literal one derived from applying to it the kind of meticulous verbal analysis in which lawyers are so often tempted by their training to indulge. The fact that a particular construction leads to a very unreasonable result is a relevant consideration."
10.6 In support of his submissions, the learned counsel placed reliance upon the decision of the Supreme Court in the case of
10.7 The next submission advanced by Mr. Shelat was that article 21.3 of the production sharing contract refers to gas sale contract between the contractor and GAIL. The contracts are separate, one by the contractor and Union of India and another by the contractor and GAIL, but the Union of India has nominated GAIL for serving the domestic market. The subsequent price agreement is complimentary to the production sharing contract and has to be projected while construing the appropriation of goods by GAIL at onshore Hazira. It was submitted that it is well-settled that if one document refers to another, it has to be read as a part of the contract. In support of such submission, the learned counsel placed reliance upon paragraph 46 of the Commentaries on Law of Contract, P.C. Markanda, Volume I, section 1-72. It was submitted that though the word "receive" has been used in article 21.5.13(e), the words "receive" and "delivery" are synonyms. Reference was also made to meaning of the word "deliver" in the Great Dictionary English Language as well as the Chambers Dictionary.
10.8 Reliance was also placed upon the decision of the Karnataka High Court in the case of
"Section 18 of the Sale of Goods Act provides that where there is a contract for sale of unascertained goods, no property in goods is transferred to the buyer unless and until the goods are ascertained. That would be so even where price of goods is agreed and paid in advance, because neither seller nor the buyer could say which of such unascertained goods is sold or purchased..."
10.9 Reference was made to the decision of the Allahabad High Court in the case of
"... There is a distinction between a case where something remains to be done by the vendor to the goods for the purpose of putting them into a State in which the vendee is to take them and a case where the vendee for his own satisfaction wants to get the goods weighed for the purpose of ascertaining the amount of the price. This distinction has been recognized in a number of cases and appears to be well founded : Annan v. Dubar Sheikh AIR 1923 Oudh 15 (at page 41 of 26 O. C.) and
They are two fold : the first is that where, by the agreement, the seller is to do anything to the goods for the purpose of putting them into that state in which the buyer is to be bound to accept them, or, as it is sometimes worded, into a deliverable state, the performance of those things shall (in the absence of circumstances indicating a contrary intention) be taken to be a condition precedent to the vesting of the property.
The second is, that where anything remains to be done to the goods for the purpose of ascertaining the price, as by weighing, measuring, or testing the goods where the price is to depend on the quantity or quality of the goods; the performance of these things, also shall be a condition precedent to the transfer of the property, although the individual goods be ascertained, and they are in the state in which they ought to be accepted''."
10.10 The decision of the Nagpur High Court in the case of
"Approaching these situations a priori common sense dictates that the buyer cannot acquire title until it is known to what goods the title relates. Whether the property then passes will depend upon the intention of the parties and in particular on whether there has been a consensual appropriation of particular goods to the contract..."
10.11 Reliance was placed upon the decision of the Supreme Court in the case of
10.12 On the question as to whether the sweetening of gas is a process leading to new marketable gas, the learned counsel submitted that what has been agreed upon by the production sharing agreement is delivery of sweetened gas onshore at Hazira. It was submitted that the petitioners have contended that under the production sharing contract, the sale is of natural gas delivered at the upstream weld, but such gas delivered at the upstream weld is not the same as agreed by the Union of India and GAIL. The sour gas becomes a product which is marketable only after it is sweetened by processing and it is this marketable product that the buyer had agreed to purchase. Therefore, the sweetening of the natural gas results in making the sour gas a marketable product. In support of his submission, the learned counsel placed reliance upon the decision of the Supreme Court in the case of Association of Natural Gas v. Union of India AIR 2004 SC 2647, wherein it has been observed that to obtain a marketable product, the raw material gas flowing from gas or oil wells must be processed to remove water vapour, inert or poisonous constituents and condensable hydrocarbons. The processed gas is principally methane, with small amounts of ethane, propane, butane, pentane, carbon dioxide and nitrogen. This gas can easily be transported from the producing areas to the market in underground pipelines under pressure or liquefied at low temperatures and transported in specially designed ocean-going tankers. The composition of natural gas at the wellhead varies from field to field. Many undesirable components may be present that must be removed by processing before delivery to the pipeline. It was submitted that, therefore, the sour and unsweetened gas can only be marketable after undergoing the sweetening process. No further authenticated statement is required in this regard.
10.13 Reliance was also placed upon the decision of the Supreme Court in the case of
"2(e1) ''manufacture'' means producing, making, mining, collecting, extracting, altering, ornamenting, finishing or otherwise processing, treating or adapting any goods but does not include such manufacturer or manufacturing processes as may be prescribed :"
It was submitted that the above definition of ''manufacture'' is similar to the definition of ''manufacture'' in section 2(16) of the GST Act which reads as under:
"manufacture : with all its grammatical variations and cognate expressions, means producing, making, extracting, collecting, altering, ornamenting, finishing or otherwise processing, treating or adapting any goods, but does not include such manufacturers or manufacturing processes as may be prescribed:"
It was submitted that the court in the said case has held that the definition of "manufacture" in section 2(el) of the U.P. Trade Tax Act is very wide which includes processing, treating or adapting any goods. The court was of the opinion that the expression "manufacture" covers within its sweep not only such activities which bring into existence a new commercial commodity different from the articles on which that activity was carried on, but also such activities which do not necessarily result in bringing into existence an article different from the articles on which such activity was carried on. The decision of the Supreme Court in the case of
"... The term ''manufacture'' implies a change, but, every change is not a manufacture, despite the fact that every change in an article is the result of a treatment of labour and manipulation. However, this test of manufacture needs to be seen in the context of the above process. If an operation/process renders a commodity or article fit for use for which it is otherwise not fit, the operation/process falls within the meaning of the word ''manufacture''..."
After examining various decisions, the court in paragraph 22 of the decision held as under (pages 601 and 602 in 147 STC):
"22. We may mention that, as noted above, decisions construing the word ''manufacture'' in other statutes are not necessarily applicable when interpreting section 2(el) of the U.P. Trade Tax Act. As stated above, the definition of ''manufacture'' in section 2(el) of the U.P. Trade Tax Act is very wide, which includes processing treating or adapting any goods. Hence, in our opinion, the expression ''manufacture'' covers within its sweep not only such activities which bring into existence a new commercial commodity different from the articles on which that activity was carried on, but also such activities which do not necessarily result in bringing into existence an article different from the articles on which such activity was carried on..."
10.14 Mr. Shelat submitted that the principles laid down by the apex court have to be applied to the facts of the present case. The apex court has held that if an operation/process renders a commodity or article fit for use for which it was otherwise not fit, the operation/process falls within the meaning of the word "manufacture". It was pointed out that the apex court has approved of the decision in United States v. International Paint Co. 35 C.C.P.A. 87, C.A.D. 76. It was, accordingly, submitted that in view of the above referred decision of the Supreme Court, the precedents cited on behalf of the petitioners that a new product does not emerge after the sweetening process and that there is no manufacturing activity by the sweetening process is erroneous and unjustified. Though sweetened gas or unsweetened gas is known to the market as natural gas, unsweetened gas could not be made marketable till the sweetening process is undertaken. That in the light of the above decision of the apex court, there need not be a resultant new product but the article must be made fit for use.
10.15 As regards the decision of the Supreme Court in the case of
11. Vehemently opposing the petitions, Mr. P.K. Jani, learned Additional Advocate General for the respondent-State authorities submitted that the question as to whether the goods are sold and manufactured within the State of Gujarat has to be dealt with in the light of section 4(2)(b) of the CST Act, viz., that the goods were within the State of Gujarat when the sale took place so as to attract the GST Act and that the said goods were future unascertained goods. Reference was made to the provisions of clause (b) of sub-section (2) of section 4 of the CST Act to submit that if the said section is read with the provisions of the Sale of Goods Act, it would specify that the goods are sold within the State of Gujarat on the same being ascertained by processing the gas so as to make it a domestic and marketable commodity and accordingly, section 3 of the GST Act would come into play and the contention raised by the petitioners that the sale is outside the State of Gujarat would not hold good. It was submitted that the production sharing contract is between the Government of India and three petitioners. The PSC is executed on December 22, 1994 at which point of time the Government of India had authorised the petitioners to carry out petroleum operations in the area off-shore identified as Panna-Mukta fields. Therefore, the relevant clauses in the PSC insofar as the same pertain to the delivery point for the goods are for future and unascertained goods. No goods, in terms of gas, were in existence when the PSC was executed. According to the learned counsel, the PSC is only a document especially in relation to authorizing the grant of mining lease to carry out petroleum operations in off-shore area identified as Panna-Mukta fields and other subjects. Under the PSC, the gas is to be received by GAIL at Hazira downstream of separation and sweetening facilities owned and operated by ONGC. Under the interim sale and purchase agreement, the petitioners were required to supply the gas of such nature and category which may be utilised by consumers or buyer. The consumers of GAIL would require sweetened gas only. It was submitted that the different definitions of "delivery point" have to be read in an harmonious way and the delivery point referred to in different clauses of the articles of PSC are for different purposes. It was emphatically argued that the PSC is not an agreement for sale of goods but is only a declaration of intention of the parties to the agreement and the ISPA dated June 1, 1998 is the agreement for sale of goods between the Government of India''s nominee GAIL and the petitioners. The ISPA is dated June 1, 1998 and is an agreement which is subsequent to the PSC which is dated December 22, 1994. The ISPA describes the agreement as a sales and purchase agreement. Therefore, the sale has to be considered in the context of ISPA dated June 1, 1998.
11.1 It was submitted that under the Contract Act, the agreements are between the parties and are required to be entered into with the consent of the parties on specific issues. Reference was made to the affidavit-in-reply dated April 15, 2004 filed on behalf of the Government of India who is a signatory to the PSC, to point out that it has been stated therein that according to the Union of India, insofar as interpretation of the PSCs and interim gas sales and purchase contract is concerned, its stand is that in the facts and circumstances of the present case, the delivery point is on-shore at Hazira and the contention of the petitioners that the delivery point is off-shore at Panna-Mukta oil fields has been denied. In view of the specific terms of the PSCs executed between the petitioner No. 1 RIL and ONGC and the Union of India and the interim gas sales and purchase agreement executed between petitioner No. 1-RIL and ONGC and GAIL-respondent No. 7 as also the fact that the gas produced at Panna-Mukta oil fields is incapable of being consumed till it is subjected to a sweetening process onshore at Hazira and the quantity of gas becomes ascertainable on-shore at Hazira, the delivery point is onshore at Hazira. The liability of sales tax, if any, has to be determined on the above basis. It was submitted that when the Government of India, who is a signatory to the PSC, has specifically stated that the sale has taken place on-shore, that is, at Hazira, a unilateral assertion made by the petitioners that the sale has taken place on the high seas cannot be accepted. According to the learned counsel, there is no acceptance by the contracting party, viz., the Government of India that the sale of goods has taken place on the high seas outside India and hence, when the Union of India and GAIL, both dispute that the goods are sold offshore, a unilateral assertion by one party to the contract that the goods are sold offshore cannot be accepted. It was submitted that the petitioners have taken the responsibility of transporting the goods from off-shore, that is, the T-junction to the Hazira plant and there is no clause in the PSC which puts this liability upon the petitioners to transport the goods for the buyer (GAIL, the nominee of Government of India) from T-junction to ONGC''s Hazira plant at Surat. The petitioners have been paying transportation charges to ONGC and the petitioners take the risk of the goods. The petitioners also pay the conversion charges to ONGC''s Hazira plant for converting sour gas into sweetened gas. GAIL, the nominee of the Government of India accepts the delivery of gas/sweetened gas only after ONGC sweetens the gas at its Hazira plant. Therefore, the goods are appropriated/ascertained and identified by purchasers, that is, GAIL the nominee of Government of India only after the sour gas is sweetened at Hazira plant of ONGC and that the goods at offshore T-Junction are unascertained future goods. It was also submitted, that the goods of the petitioners get co-mingled with Tapti gas at T-junction and, therefore, remain unascertained and are not in a deliverable state and, therefore, incapable of being appropriated at T-junction, i.e., offshore. It was contended that the Government of India''s nominee GAIL has not appropriated the goods at T-junction, i.e., off-shore and there is no implied or express act or consent by Government of India''s nominee GAIL to have appropriated the goods at off-shore. It was submitted that there is no facility with the petitioners to sweeten the gas from sour gas off-shore and that the petitioners have not shown or asserted that they have any facility off-shore to sweeten the gas. It was submitted that after bringing the sour gas at Hazira, the petitioners have processed/manufactured the goods at Hazira. By the said process of manufacture, a different and distinct product in the form of sweetened gas has emerged which is liable to be taxed under the provisions of section 3 of the Gujarat Sales Tax Act read with rule 3 of the Gujarat Sales Tax Rules, 1990. It was, accordingly, submitted that the say of the petitioners that the goods are appropriated by the purchasers, that is, GAIL is contrary to the provisions of the Contract Act, the Sale of Goods Act as well as terms of the PSC and the ISPA.
11.2 Next, it was submitted that in terms of the expression "delivery point", the terms "upstream" or "downstream" are of great significance. The term "upstream" is that stage of the production process that involves searching for and extracting raw materials. This part of the production process does not do anything with the material, such as processing it. It only deals with the finding and extraction of the raw material. The term "downstream" means the stage in the production process that involves processing the materials collected during the upstream stage into a finished product. Further, the downstream stage includes the actual sale of that product to other businesses, Government or private individuals. The downstream process also has a direct contact with the customers through the finished product. In the present case, in terms of the PSC and the ISPA, GAIL is to be given sweetened gas and not sour gas which is processed onshore at Hazira, Surat and thus, falls within the purview of the term "downstream". It was submitted that the production sharing contract is a combined contract amongst the constituents of the contractor for exploration, supply and sale of gas and thus, contains other terms which govern the contract on royalty, profit sharing, natural gas, price, title, etc., whereas ISPA is an agreement between the contractor of the PSC and GAIL as the purchaser and defines that gas, which is domestically marketable is to be delivered to GAIL at Surat as per the price mentioned in clause 21.5.13(b). Referring to the contents of clause 21.5.13(c) of the PSC, it was submitted that this clause would have relevance to deny the contention of the petitioners that the gas is processed first by the petitioners at the off-shore processing where it is separated from oil. At the off-shore facility, the gas is removed from water to make the gas suitable for pipeline conditions. It was submitted that this contention of the petitioners is wholly incorrect in view of the provisions of clause 21.5.13(c) which reads as under:
"The gas and condensate sold herein shall be separated into gas and condensate at the off-shore processing facility, measured separately and recombined and delivered at the ''delivery point� at the operating pressure of the buyer owned or contracted pipeline up to a maximum pressure (maximum delivery pressure) of one thousand (1,000) PSIG."
11.3 It was submitted that if the clause is carefully perused, it would mean that at the off-shore processing platform which is Parma, gas and condensate are separated into gas and condensate, measured separately and recombined and delivered at the delivery point. To be more precise, it would mean that at the Panna platform, the component which is explored is combined in nature, being gas and condensate which would also include crude oil. Thereafter, they are separated and then measured and again recombined. This would mean that the goods would not be ascertainable. Thus, from Panna platform after the gas and condensate are measured, they are recombined and it is this recombined gas and condensate which reaches the T-Junction. Therefore at the T-junction in the ONGC pipeline both NANG and ANG is in a combined state. Mr. Jani further submitted that the contention that the title of goods passes at T-junction because the goods in question acquire the characteristic of ascertained goods is incorrect and that reliance placed upon clause 21.5.13(a)(ii) has no relevance and in fact, the production sharing contract refers to 100 per cent deliverability. Referring to clause 21.5.13(e), it was submitted that the parties have acknowledged that Gas Authority of India shall receive the gas at Hazira. Simultaneously, clause 3 of the ISPA also is very clear on the situs. Thus, it is clear that the parties have time and again acknowledged that the delivery point shall be Hazira.
11.4 Mr. Jani next contended that the sale has not taken place in the course of import into the territory of India. According to the learned counsel, the provisions of the Customs Act have been made applicable to the area of Panna and Mukta and by virtue of the notification issued by the Union of India, the customs frontiers have been extended to Panna-Mukta area and, therefore, for the purpose of the Customs Act, Panna-Mukta is a part of India. Anything sent to Panna-Mukta from anywhere in the country will not be subject to customs duty as also anything brought from Panna-Mukta to land area of India will also not be subjected to customs duty Therefore, the crude and oil produced at Panna-Mukta is considered to have been produced in India. It was submitted that in the light of the decision of the Bombay High Court in the case of
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
11.5 The next submission advanced by Mr. Jani was that it is necessary to consider the definition of "manufacture" under section 2(16) of the Gujarat Sales Tax Act so as to appreciate the fact that the processing which takes place at the ONGC plant at Hazira does not merely involve removal of impurities as contended by the petitioners. The processing makes the gas a domestically marketable commodity. It was submitted that natural gas from wells contains significant amounts of sulphur, carbon dioxide and other organic compounds. The natural gas, due to the presence of high content of hydrogen sulphide has a rotten smell and is commonly known as sour gas. The presence of hydrogen sulphide is undesirable because it makes the gas extremely harmful and lethal to breathe and can be extremely corrosive. The gas is considered sour if the content of hydrogen sulphide exceeds 5.7 mg. per cubic metre of natural gas. The process of removing hydrogen sulphide and other organic compounds from sour gas is commonly referred to as sweetening and the gas is known as sweetened gas. The attention of the court was invited to the process known as "amine process" or alternatively, "girdler process" whereby hydrogen sulphide is removed from natural gas. It was submitted that in the present case, it is only after the completion of the said process of converting the natural gas/sour gas into sweetened gas that GAIL takes delivery of the same which can be appreciated from article 21.5.13(e) of the production sharing contract and the interim sales and purchase agreement. It was submitted that the processing of natural gas is a very detailed and complex procedure. Once the product is processed and manufactured, a new product comes into existence. Therefore, what is in essence sold by the petitioners to the Government''s nominee is sweetened gas, processing of which is done at Hazira and, therefore, a new product is sold at Hazira. In support of his submissions, the learned counsel placed reliance upon the following decisions:
(i)
(ii)
(iii)
(iv)
(v)
(vi) Special Ref. No. 1 of 2001.
11.6 Mr. Jani further submitted that the aspect of ascertainment also plays a significant and vital role in the contract. Reference was made to the provisions of sections 18 , 19 , 21 and 22 of the Sale of Goods Act to submit that where there is a contract for sale of ascertained goods, what has to be first considered under section 19 of the said Act is the intention of the parties. Thus, the intention of the parties can be very clearly understood from clause 21.5.13(e) of the PSC as well as clause 3 of the ISPA. The second provision which has to be taken into consideration is section 21 of the Sale of Goods Act which makes it very clear that where there is a contract for ascertained goods, the title passes on putting the goods into a deliverable state. According to the learned counsel, in the instant case, the title would pass at Hazira for the reason that processing of natural gas whereby the impurities are removed and the said gas is converted into sweetened gas is what GAIL is receiving. The goods are not ascertained goods prior to such processing at Hazira because there is no processing unit which ascertains the goods at the off-shore T-Junction nor can the act which is done at Panna processing platform be termed to be ascertainment for the reason that on exploration of gas and condensate, though they are separately measured, they are recombined and sent to the T-junction for further transport. Therefore also, it cannot be said that ascertainment takes place at the off-shore processing Panna platform. It was emphatically argued that the most important word which requires due consideration is the word "recombine" used in clause 21.5.13(c) which means "reunite". Therefore, on recombining, it loses the characteristic of being ascertained even if it were to be assumed that the contention of the petitioner is accepted. It was submitted that it is thus relevant to consider the provisions of section 22 of the Sale of Goods Act which clearly mention that where there is a contract of ascertained goods in the deliverable state, but the seller is bound to weigh, measure, test or do something for the purpose of ascertaining the price, the title of the goods shall not pass, till the time such act is done. Therefore, if all the three provisions as well as articles 21.5.13(e) and clause 3 of ISPA are read in a conjoint manner and applied to the present case, it would simply mean that Hazira, Surat is the place where ascertainment of goods takes place and on ascertaining only, the price gets fixed which is the specific intention of the parties to the contract. Therefore, the definition of "delivery point" is not relevant at this juncture. In support of his submissions, the learned counsel placed reliance upon the following decisions:
"(1)
(2) Usha Beltron Ltd. v. State of Punjab , [2005] 7 SCC 58, paragraphs 5,6,7,
(3)
(4)
(5)
(6)
11.7 As regards the action taken by the respondent-authorities under section 44 of the GST Act, it was submitted that the respondent-authorities were required to carry out the reassessment for the reason that the petitioners in their returns did not show the transaction of Panna-Mukta and thus, evaded tax. It was after a search operation being carried out that the respondent-authority issued show-cause notices and statutory notices for reassessment under section 44 of the GST Act. The petitioners gave their replies to the same and after considering the same, the reassessment orders were passed, which are subject-matter of challenge in the petitions. In support of his submission, the learned counsel placed reliance upon the decision of this court in the case of Asian Paints India Ltd. v. Deputy Commissioner of Sales Tax, Circle 2(6) [2006] 148 STC 532 (Guj), for the proposition that when an assessee files return, it is his duty firstly, to disclose facts; secondly, those which are material; thirdly, the disclosure must be full; and fourthly, true. Assessment can be reopened on assessing officer''s reason to believe regarding, based on specific reliable and relevant information, subsequently received by him which tends to expose untruthfulness or inadequacy of the material disclosed by the assessee on the basis of which original assessment was made. Sufficiency of assessing officer''s belief is not justiciable though the belief can be questioned by the assessee on the ground of lack of bona fides and irrelevancy.
11.8 Lastly, it was submitted that it would be necessary for the court to first deal with the preliminary contention that the petitions are not maintainable as the petitioners have an efficacious alternative remedy by way of appeal before the appellate authority and in the facts of the present case, the petitioners have already availed of such alternative statutory remedy under section 65 of the Gujarat Sales Tax Act by preferring appeals before the appellate authority, which are pending for final adjudication. It was submitted that the petitioners have simultaneously preferred these petitions by challenging the very jurisdiction of the sales tax authorities in levying sales tax on the ground that the sales have taken place beyond the territorial waters of India and thus, the State of Gujarat has no jurisdiction to levy sales tax as delivery of natural gas in the light of clause 21.5.13(a)(iv) has taken place at upstream-weld underwater connection. Therefore, the court may first deal with the primary objection as regards the maintainability of the petitions on the ground that the petitioners have already availed of the alternative remedy and that they should be directed to first exhaust the statutory remedy so availed. In support of such submission, the learned counsel placed reliance upon the following decisions:
"(1)
(2)
(3)
(4)
(5)
(6)
(7)
12. Mr. Mihir Thakore, senior advocate, learned counsel for the respondent GAIL advanced the following propositions : Firstly, when natural gas comes to Hazira from Panna-Mukta gas field, there is no import. As there is no import, it cannot be said that the production sharing contract read with the interim sales and purchase agreement occasions the import of natural gas and it cannot be said that the sale or purchase of gas has taken place in the course of import of goods into the territory of India in terms of the principles laid down in section 5 of the Central Sales Tax Act. Consequently, article 286 of the Constitution of India does not prohibit the tax authorities under the Gujarat Sales Tax Act to impose tax on the sale transaction between the petitioner and GAIL provided the sale takes place in Gujarat. Secondly, since Panna-Mukta oil fields are in the Exclusive Economic Zone, they are not in the territory of India or for that matter, in any State or Union Territory. Whilst the Customs Act, 1962 has been extended by notifications under the Territorial Waters, Continental Shelf/Exclusive Economic Zone and Other Maritime Zones Act, 1976 to the said area, no such notification extending Central sales tax to the said area has been issued by the Central Government. Consequently, transportation of gas from Panna-Mukta to Hazira pursuant to the PSC read with ISPA and the sale thereof to GAIL cannot be said to be a sale of goods in the course of any such trade or commerce and it cannot be said that the sale or purchase has occasioned the movement of goods from one State to another as envisaged in section 3 of the CST Act. Consequently, article 286 of the Constitution of India does not prohibit tax authorities under the GST Act to impose tax on the sale transaction between the petitioner and GAIL provided the sale takes place in Gujarat. It was submitted that in view of the above propositions, the decisions cited by Mr. Chidambaram and Mr. Soparkar on the interpretation of the phrase "occasions such import" under section 5 of the CST Act and "occasions the movement of goods from one State to another" under section 3 of the CST Act are irrelevant. It was submitted that in view of the fact that neither has the sale of gas taken place in the course of import of goods into the territory of India nor has such sale been occasioned by the movement of goods from one State to another, the decisions cited by the learned counsel on the issue as to what is "manufacture" and whether sweetened natural gas is different from sour natural gas, are irrelevant.
12.1 It was submitted that in the absence of the applicability of sections 3 and 5 of the CST Act, the court will have to determine whether the sale of gas has been made within the State of Gujarat as per section 2(28) of the GST Act read with section 4(2) of the CST Act read with the provisions of the Sale of Goods Act, 1930 to the extent applicable. It was submitted that for determining whether sale has been made in Gujarat, it would be pertinent to appreciate that the production sharing contract read with the interim sales and purchase agreement is not a contract of sale of specific goods but is an agreement to sell future goods, namely, natural gas to be extracted from the well at Panna-Mukta oil fields and sweetened. Since it is an agreement to sell future goods which had to be extracted and sweetened, section 19 of the Sale of Goods Act which deals with sale of specific or ascertained goods has no application. Similarly, sections 20 to 22 , which also deal with specific goods, will have no application. According to the learned counsel, it is not necessary to determine the intention of the parties as to when the property in gas is intended to be transferred to GAIL because, the situs of the sale has to be determined in terms of section 4(2) of the CST Act, section 23 of the Sale of Goods Act being only a guide. The terms of the contract, conduct of the parties and the circumstances are, therefore, irrelevant.
12.2 According to the learned counsel, the only provision which is relevant to determine whether or not the sale or purchase of gas has taken place inside the State of Gujarat for the purpose of sales tax is section 4(2) of the CST Act which reads as under:
"(2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State,--
(a) In the case of specific or ascertained goods, at the time of the contract of sale is made; and
(b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation.
Explanation : Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this subsection shall apply as if there were separate contracts in respect of the goods at each of such places."
It was submitted that this section has to be interpreted in the light of the provisions of section 23 of the Sale of Goods Act. The PSC read with ISPA as well as the subsequent gas sales contract clearly provide that what has to be delivered is sweetened gas. Irrespective of the fact whether sweetened gas and sour gas are different commodities or not under the Sales Tax Act and irrespective of the fact whether sweetening of gas is manufacturing or not, what is agreed to be sold is sweetened gas and consequently, the sale of such goods would be deemed to take place at the time of their appropriation to the contract of sale by the seller or the buyer. Such appropriation would be feasible only when the goods as agreed to be sold come into existence which is possible only after sweetening. The appropriation, therefore, takes place post sweetening. The appropriation of future goods would only take place when the goods are completed and ready for delivery. In view of section 4(2)(b) of the CST Act, the sale of gas is deemed to take place inside the State of Gujarat and consequently, such sales is liable to sales tax under the GST Act.
12.3 Elaborating upon the above propositions as well as dealing with the contentions raised on behalf of the petitioners, Mr. Thakore submitted that GAIL is in substantial agreement with what is submitted by the petitioner-BG Exploration in respect of the limitation on the power of the State Government to impose sales tax. Reference was made to the provisions of article 286 of the Constitution of India read with the CST Act, 1956 to submit that there are limitations on the power of the State to impose sales tax. It was submitted that however, GAIL does not agree with the proposition that no recourse can be had to the Sale of Goods Act which is a pre-constitutional law governing the sale of goods. While it is true that the principles contained in the CST Act alone have to be considered for interpreting the provisions of the Act and in particular, in interpreting section 4(2) of the CST Act, recourse will have to be had to the Sale of Goods Act, inasmuch as, the CST Act does not define "specific goods" or "future goods" and for understanding the meaning thereof, the Sale of Goods Act will have to be looked at. Similarly, for understanding the meaning of "ascertained" and "unascertained" goods, the meaning thereof given in the judgments under the Sale of Goods Act will have to be looked into. It was submitted that while there are differences in the language used in section 23 of the Sale of Goods Act and section 4(2)(b) of the CST Act, there are substantial similarities between the two and for proper appreciation of section 4(2)(b) , recourse can be had to the judgments delivered under section 23 of the Sale of Goods Act read with the definition of "future goods" and "specific goods" given under section 2(6) and 2(14) of the Sale of Goods Act read with section 6 thereof.
12.4 It was submitted that there can be no dispute with the proposition that the goods have to be within the State at a certain point of time for the State to impose sales tax. This is evident from Explanation (1) to section 2(28) of the GST Act read with section 87 thereof along with its Explanation read with sections 3 , 4 and 5 of the CST Act. It was submitted that there can also be no dispute that for the parties to determine the situs of sale, section 4(2) of the CST Act can be looked into. In fact, the provisions of the Sale of Goods Act, nowhere deal with the situs of sale. The provisions of the Sale of Goods Act which deal with relation between the buyer and seller only lay down the principles for determining when the title in property in goods passes. The CST Act on the other hand deals with the issue as to who can levy sales tax on a transaction of sale. Referring to sub-section (2) of section 4 of the CST Act, it was submitted that unlike the provisions of the Sale of Goods Act, for the purpose of section 4(2) of the CST Act, it is irrelevant where the title of the property in goods passes or has already passed or will pass. It was submitted that to illustrate, suppose specific goods such as a motorcar is situated in Ahmedabad. The owner of the motorcar agrees to sell his motorcar to the purchaser under a written contract signed by the owner-vendor and the purchaser at Calcutta on October 10, 2014 when the car was at Ahmedabad. The terms of contract provide that the property in car will pass to the purchaser when the full payment is made. The payment will be made in installments within six months. The title in the property would pass on the last installment being paid on July 1, 2014. By then the car is stationed in Calcutta. So far as the Sale of Goods Act is concerned, the intention of the parties is that the property will pass on July 1, 2014 and accordingly would actually pass on July 1, 2014 at Calcutta. Yet for the purposes of the GST Act, the Gujarat sales tax authorities would be entitled to levy sales tax because on the date of the contract, the car being specific goods was inside the State of Gujarat and that would be deemed to be situs of sale under section 4(2) of the CST Act. It was submitted that, therefore, it is irrelevant where and when the title passes.
12.5 Mr. Thakore next submitted that similarly in case of future goods where or when the title passes to the buyer under the agreement entered into between the buyer and the seller is irrelevant. It shall, for the purposes of section 4(2)(b) of the CST Act be considered to have been sold at the place where the goods are situated, when appropriated to the contract with the assent of the parties. It is irrelevant when they come into existence or where they come into existence or where the contract is entered into or where it is agreed that the title of the goods under the contract passes. The only factor relevant is where they are appropriated to the contract and for the purpose of it being appropriated to the contract with the assent of the parties, they have to become goods agreed to be sold between the parties. For the true and correct interpretation of section 4(2) of the CST Act, reliance was placed upon the decision of the Madras High Court in the case of Arcot Mills Limited v. State of Tamil Nadu [1984] 55 STC 536 (Mad) wherein the court had held that the special term in the contract between the seller and buyer cannot prevail over a fiscal statute, or bind the Taxing Department, whatever may be its binding force or merit as between the parties, as a term in the contract. The rules laid down by sections 20 to 24 of the Sale of Goods Act for ascertaining when the property in goods passes in a given transaction are to be applied only in cases where the intention of the parties cannot be clearly spelt out from the terms of their bargain. Under the Sale of Goods Act, therefore, the parties'' intention, if clearly expressed, will always prevail over the statute, for the very purpose of that Act is to regulate the inter se relationship between the sellers and purchasers of goods. Not so the rules laid down in Explanation (3) to section 2(n) of the Tamil Nadu General Sales Tax Act or section 4(2) of the Central Sales Tax Act. For, these rules are special and overriding rules for fixing the taxable event as between the public exchequer, on the one hand, and the taxpayers, on the other. While the sales tax law takes up sales or purchases as taxable events, and to that extent, goes along with the general law governing such transactions, the Legislature has not thereby lost the prerogative of bending the common law to the service of the revenue. The Legislature has laid down in the sales tax statutes clear-cut principles of determining the situs of sales and purchase in order to bring about uniformity, certainty, economy in collection, and efficiency in tax management, all of which are desiderata in all fiscal measures. These provisions, if they should serve their purpose at all, must, in reason, override any special terms in private contracts to the contrary. Reliance was also placed upon the decision of the Supreme Court in the case of
12.6 Dealing with the contention raised by the petitioners that the sale of goods took place outside the State of Gujarat, it was submitted that in this regard, it is important to determine whether the goods are specific goods/ascertained goods or future goods. If the goods are specific goods, then section 4(2)(a) will apply and the sale shall be deemed to take place inside the State, if the goods are within the State at the time the contract of sale is made. Assuming without admitting that the production sharing contract is a contract of sale, then, if the goods are specific goods, namely, those which can be identified on that date the property in the goods would pass where they are situated on the date of the PSC. As to whether mineral gas which is still to be extracted can be said to be identified goods, it was submitted that the answer would be in the negative because the gas has to be extracted from the mine and until it is extracted, it will remain future goods. Consequently, section 4(2)(a) of the CST Act will have no application to such goods. Reference was made to section 2(6) of the Sale of Goods Act which defines "future goods" to mean goods to be manufactured or produced or acquired by the seller after making the contract of sale. It was submitted that the gas which has to be extracted are goods to be produced, after making of the PSC and are, therefore, future goods. Reference was made to the following extract from "Benjamin on Sale of Goods" to submit that the same clearly establishes that the goods in question are future goods:
"Existing and future goods. Section 5(1) of the Act provides that ''the goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured or acquired by him after the making of the contract of sale, in this Act called future goods''. It is clear that goods which the seller neither owns nor possesses may be ''existing'' in an everyday sense and yet ''future goods'' for the purposes of the Act. For instance, the seller may agree to sell goods which at the time of the contract are in the ownership and possession of a third party, and which he expects or hopes to acquire before performance is due.
The statutory definition of ''future goods'' refers simply to goods to be ''manufactured or acquired'' by the seller. But a more elaborate classification may be made as follows : (a) goods to be manufactured by the seller, whether form materials which are now in existence or not; (b) goods which are to become, or may become, the property of the seller, whether by purchase, gift, succession, occupation or otherwise; (c) goods expected to come into existence as the property of the seller in the ordinary course of nature, e.g., the young to be borne of his livestock, or the milk to be produced by his cows; (d) things attached to or forming part of land (whether belonging to the seller or another) which are to be severed in the future, e.g., minerals to be won, timber to be cut, fixtures to be detached; and (e) crops in the category fructus industrials to be grown by the seller in future."
12.7 Dealing with the submission made on behalf of the petitioners relying on the definition of "deliverability" that since all that gas that falls within the deliverability must be sold on daily basis to the Government of India or its nominee under article 21.5.13(b), the goods are specific or ascertained goods, it was submitted that the same completely ignores the definition of "future goods" given under the Sale of Goods Act or in common law. It was submitted that the goods which are yet to be produced or extracted can never be specific goods or ascertained goods. They will always be future goods and only section 4(2)(b) of the CST Act would apply. In support of his submission, the learned counsel placed reliance upon the King''s Bench decision in the case of Underwood Ltd. v. Burgh Castle Brick & Cement Syndicate [1922] 1 KB 123 as well as the decision of the Andhra Pradesh High Court in the case of
12.8 It was submitted that the issue, therefore, is as to when such future goods can be said to be appropriated to the contract. For that limited purpose and only for that limited purpose, one has to see the terms of the PSC and the interim sales and purchase agreement as well as the long term gas sales contract entered into in 2008. It was submitted that according to the petitioners, the situs of sale is at the T-junction outside the State of Gujarat in respect of which reliance has been placed upon articles 27.1 and 27.2 of the PSC read with articles 1.27, 21.5.13(a)(iii) and (iv), 21.5.13(b) and 21.5.13(c); that the title passes to the Government of India at the delivery point as defined under article 21.5.13(a)(iv) which is outside the territory of the State of Gujarat; that clause 3 of the ISPA is not an agreement but article 21.5.13(a)(iv) which defines "delivery point" and that the word "delivered" therein must be understood as "received" which is the word used in article 21.5.13(e); that GAIL is not a party to the PSC and the use of the word "GAIL" in article 21.5.13(e) is not because GAIL is a nominee, but because GAIL''s pipeline is situated thereat and the nominee has to receive gas at that point; and that the emphasis of the petitioners is on the definition of "delivery point" and that the PSC contemplated that the title passes at the delivery point as stated in article 27.2. It was submitted that in this argument, the petitioners are contradicting themselves insofar as they are considering passing of title as a relevant aspect for determining the situs of sale under the CST Act. It was submitted that neither the intention of the parties under the agreement nor a clear understanding between the parties as to where and when the title passes are relevant for the purpose of deciding the situs of sale. Situs of sale has to be determined in terms of section 4(2)(b) of the CST Act for future goods. For the said purpose, only two requirements are necessary, namely, (i) where were the future goods situated at the time of their appropriation to the contract of sale; and (2) whether both the parties assented to such appropriation. It was submitted that irrespective of where the title passes and where the risk passes, GAIL was not bound to accept under the contract, sour gas. The assent which GAIL had given or for that matter, GAIL''s principal Union of India had given was for sweetened gas. There is no scope, therefore, of appropriation with assent of the parties till the gas is sweetened. It is in these circumstances that the goods were situated factually in the State of Gujarat on the date of its appropriation, which necessarily would take place post sweetening, at Hazira in Gujarat and, therefore, the sale is deemed to have taken place within the State of Gujarat. In support of such contention, the learned counsel placed reliance upon the following decisions:
"(1) Wilkins v. Bromhead and Hutton [1844] 6 M&G 963; 134 ER 1182-1189,
(2) Atkinson v. Bell [1828] 8 B&C 277; 108 ER 1046-1049,
(3) Mucklow v. Mangles [1808] 1 Taunt 318; 127 ER 856,
(4) Bellamy v. Davey [1891] 3 Ch 540,
(5)
12.9 Dealing with the decisions on which reliance had been placed by the learned counsel for the petitioners, it was submitted that reliance placed upon the decision of the Supreme Court in
"(i) The judgment deals with the assessment period 1952-1953 and interprets the provisions of article 286 of the Constitution of India as it then stood.
(ii) Article 286 underwent a substantial change and clause (2) was substituted in 1956. After substitution, clause (2) provides that Parliament may, by law, formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). Pursuant to this amendment in article 286 , the Central Sales Tax Act was enacted in 1956 and section 4 operates since then. The Supreme Court was concerned in that judgment with a period when there was no section 4 of the CST Act and was required to interpret the Explanation to clause (1) of article 286 , which was also omitted by the Constitution (Sixth Amendment) Act, 1956."
12.10 It was submitted that the decision of the Madras High Court in the case of
12.11 Mr. Thakore further submitted that insofar as the decision of the Delhi High Court in the case of
"It is to be borne in mind that the term ''appropriation'' may be used in two senses. It may either mean simply the identification of the goods by agreement of parties as the goods to which the contract of sale relates or it may mean the passing of the property in the goods from the seller to the buyer by such means as delivery to the carrier, etc. The scheme of the Act shows that the element of passing of property is not of relevance in determining the situs of the sale. The question of appropriation of goods has to be decided, therefore, irrespective of the passing of property. In other words, the appropriation referred to in section 4(2)(b) connotes the setting apart of goods as specific goods to be delivered under the contract of sale and not an appropriation linked with passing of property.
(emphasis Here italicised supplied)
In the facts of the present case, appropriation would be setting apart of the goods, namely, sweetened natural gas to be delivered which can only take place at Hazira. It was submitted that in
12.12 Dealing with the alternative submission that the sale in question is a sale in the course of import into the territory of India, it was submitted that such submission is based on the proposition that since the CST Act is not extended under section 7 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 to the designated area under the notification, the gas which comes to the mainland, has to be considered to be imported into the territory of India. It was submitted that the CST Act does not define the term "import" nor is the said term defined in the General Clauses Act. Reference was made to section 2(ab) of the CST Act which defines "crossing the customs frontiers of India" to mean crossing in the limits of the area of the customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities and the Explanation thereto says that for the purposes of that clause, "customs station" and "customs authorities" shall have the same meanings as in the Customs Act, 1962. Referring to section 5 of the CST Act, it was submitted that in both eventualities envisaged thereunder, it has to be seen as to what are the customs frontiers of India. It was submitted that when the designated area has been extended to include the high seas where the offshore platform is situated, that would be part of India for the purpose of import and hence, it cannot be said that the sale has taken place in the course of import. In support of his submission, the learned counsel placed reliance upon the decision of the Bombay High Court in the case of
"6.....We have, therefore, proceeded to examine the grievances of the petitioners on the basis of this conceded factual position, namely, that the title of the goods sold by the petitioners to ONGC passed at ONGC site at Bombay High and not at Hazira.
........
71.... It was contended that since the sale can fall in only one of the three categories, in the present case, the court must hold that it is either inter-State sale or a local sale since the contention that it was an export sale has not been pressed."
It was submitted that the only issue arising in
12.13 Dealing with the contention that the contract was for the sale and purchase of all the natural gas discovered and produced in the contract area as defined in the PSC and that sweetening of natural gas does not amount to manufacture nor does it bring about another product and that after sweetening, the goods remain natural gas, it was submitted that what has been agreed to be delivered and accepted or received is sweetened gas. Consequently, whether sweetening changes the nature of product or not, there can be no appropriation to the contract, unless the natural gas (sic) sweetened, which takes place at Hazira. In this context, it is irrelevant that the PSC provides for 100 per cent of the deliverability of the natural gas. It was submitted that the distinction sought to be drawn between appropriation and unconditionally appropriated in section 4(2)(b) of the CST Act and section 23 of the Sale of Goods Act is a distinction without merit for when the word "appropriation" is used, it cannot have a distinct meaning than "unconditionally appropriated". It was submitted that there is nothing in the PSC to indicate that appropriation takes place at the delivery point, particularly when what has to be received by GAIL is sweetened gas.
12.14 As regards the submission that in any event, the Government of India or its nominee is obliged to bear the burden of sales tax and if the petitioner is liable to pay sales tax, GAIL is obliged to furnish forms 17 and 17B, it was submitted that GAIL had vide letter dated November 24, 1999 categorically requested the petitioners-BG Exploration, ONGC and Reliance to pay sales tax and recover the same. The petitioners, however, opted not to do so. The petitioners are, therefore, not entitled to claim the same now in respect of the past period for GAIL would not be in a position to recover the said amount from its customers who are spread all over the country. It was submitted that the question of issuing form Nos. 17 and 17B in respect of that past period does not arise; however, subsequent to the order dated April 29, 2004 in Special Civil Application No. 2071/2004 with connected matters, GAIL has provided form Nos. 17 and 17B from the said date. It was urged that the petitioners are estopped from claiming any amount from GAIL, much less in the present proceedings.
13. Mr. Saurabh Amin, learned advocate appearing on behalf of the Union of India, adopted the submissions advanced on behalf of the respondent-GAIL and reiterated the averments made in the affidavit-in-reply dated April 15, 2004 filed on behalf of the respondent. The attention of the court was invited to the averments made in paragraph A(iii) of the petition to submit that insofar as the interpretation of the production sharing contract and the interim gas sales and purchase agreement is concerned, the stand of the Union of India is that in the facts and circumstances of the present case, the delivery point is on-shore at Hazira and the contention of the petitioner that the delivery point is off-shore at the Panna-Mukta oil fields is denied. It was submitted that further the case of Union of India that the two PSCs executed between the constituents of the contractor and the Union of India and the interim gas sales and purchase agreement executed between the contractor and respondent No. 7-GAIL, as also the fact that the gas produced at Panna-Mukta oil fields is incapable of being consumed till it is subjected to a sweetening process on-shore at Hazira and the quantity of gas becomes unascertainable at Hazira, the delivery point is onshore at Hazira and the liability of sales tax, if any, has to be determined on the above basis.
14. In rejoinder, Mr. P. Chidambaram, learned counsel for the petitioner-BG Exploration submitted that according to the respondents, the gas was produced in the deemed territory of India, the delivery point is in the deemed territory of India and Hazira is in the territory of India and hence, there can be no import into the territory of India. It was submitted that such argument is misconceived for the reason that the area in which the gas is produced is deemed to be part of territory of India only for the purpose of the Customs Act and the Customs Tariff Act which have been extended by notification under the Maritime Zones Act. The CST Act and the GST Act have not been so extended. For the purpose of CST Act, there is no deemed territory of India and no part of the Continental Shelf or the Exclusive Economic Zone can be deemed to be part of the territory of India. According to the learned counsel, the judgment of the Bombay High Court in
"... Export for the purposes of section 5(1) of the CST Act, 1956 cannot have a meaning which is divorced from the applicability of the Customs Act, 1962 to a territory in pursuance of a notification issued in exercise of the powers conferred upon the Union Government in the Maritime Zones Act, 1976."
It was submitted that the "export" in section 5(1) and "import" in section 5(2) of the CST Act can be given full meaning and effect if one understands the territory of India occurring in these two sub-sections as the territory of India to which the CST Act extends under section 1(2) of that Act. It was submitted that there is no deemed territory of India and there is no need to extend the CST Act to any deemed territory. It was submitted that the High Court of Bombay appears to have overlooked the fact that the CST Act could have been extended to the area but was not extended by the Union of India. It was only the Customs Act that was extended. Just because the Customs Act was extended, it does not mean that all other Acts would stand extended to where the gas wells, the offshore platform and the delivery point is located. Reference was made to paragraph 68 of the judgment of the Supreme Court in the case of
14.1 Mr. Chidambaram further submitted that the judgment that would be of relevance to the present case is the judgment of this court in
14.2 As regards the contention raised by the learned Additional Advocate-General regarding the maintainability of the petitions, it was submitted that since the assessment orders dated January 3, 2004 and January 9, 2004 for the five years are wholly without jurisdiction, the petitioners had filed the present writ petitions to quash the orders and to declare that the sale of natural gas by the petitioner to Government of India cannot be taxed in view of article 286 of the Constitution read with section 5 of the CST Act. It was submitted that the petitions are maintainable because the impugned assessment orders are without jurisdiction and because they were passed by reopening the assessments without having "reason to believe" that any turnover had escaped assessment. It was submitted that the petitioner is not obliged to avail of the alternative remedy but can maintain a writ petition under article 226 of the Constitution of India. In support of his submissions, the learned counsel placed reliance upon the decisions of the Supreme Court in the case of
14.3 It was further submitted that at the Bar, counsel for the respondents have made a number of statements and assertions that are not supported by pleadings or documents which are, inter alia, as under:
"� Customs frontiers have been extended to the Exclusive Economic Zone.
� The words export/import are not defined in the CST Act. Hence, for the purpose of sale in the course of import under section 5(2) of the CST Act, exclusive economic zone is a part of the territory of India.
� The PSC is not a contract of sale.
� The parties to the PSC, by their conduct, have agreed to replace the PSC with ISPA.
� The word "delivered" used in paragraph 3 of ISPA should be read as "delivery point".
� The PSC is a contract for the sale of sweetened gas.
� GAIL can refuse to take the gas if it is not according to specifications required by it. Hence, the gas has to be put into a "deliverable state".
� The petitioner lacks bona fides because it has not produced the ISPA or even the PSC."
It was submitted that these statements and assertions have no basis whatsoever and must be disregarded.
15. In the backdrop of the facts and contentions noted hereinabove, the moot question that arises for consideration is whether the sale of natural gas pursuant to the PSC executed between the petitioners and the Central Government and the ISPA executed between the petitioners and GAIL, the nominee of the Central Government, has taken place within the State of Gujarat. It is an admitted position, which even otherwise cannot be disputed that in view of the provisions of article 286 of the Constitution of India, a State Government cannot impose sales tax where the sale takes place outside the State or during the course of import of goods into the territory of India. Therefore, two questions are required to be determined. Firstly as to whether the sale of goods has taken place within the State of Gujarat; and secondly, whether such sale has taken place during the course of import of goods into the territory of India. Of course, if the first question is answered in the negative, the second question becomes redundant, inasmuch as, if the sale has not taken place within the State of Gujarat the question as to whether such sale has taken place during the course of import of goods into the territory of India pales into insignificance.
16. The petitioners claim that the sale of natural gas to GAIL as nominee of the Government of India does not fall within the ambit of the GST Act and as such the sales are not amenable to tax under the provisions of the said Act. Since, the case relates to the applicability or otherwise of the provisions of the GST Act, it may be germane to refer to section 87 of the said Act which reads thus:
"87. Certain sales and purchases not to be liable to tax.--Nothing in this Act or the rules made thereunder shall be deemed to impose or authorise the imposition of a tax on any sale or purchase of any goods, where such sale or purchase takes place,--
(i) in the course of inter-State trade or commerce, or
(ii) outside the State, or
(iii) in the course of import of the goods into the territory of India or the export of the goods out of such territory,
and the provisions of this Act and the said rules shall be read and construed accordingly.
Explanation.--For the purposes of this section whether a sale or purchase takes place--
(a) in the course of inter-State trade or commerce, or
(b) outside the State, or
(c) in the course of the import of the goods into the territory of India or export of goods out of such territory,
shall be determined in accordance with the principles specified in sections 3 , 4 and 5 of the Central Sales Tax Act, 1956."
17. On a plain reading of section 87 of the GST Act, it is clear that the same provides that it is not permissible for the State to impose any tax on sale or purchase of goods in three eventualities. Firstly, if such sale is in the course of inter-State trade or commerce; secondly, if such sale has taken place outside the State; and thirdly, if such sale has taken place in the course of import of goods into the territory of India or export of goods out of such territory. As to whether such sale has taken place in any of the above eventualities, has to be determined in accordance with the principles specified in sections 3 , 4 and 5 of the CST Act.
18. For the purpose of ascertaining as to whether a sale has taken place in the course of inter-State trade or commerce, one has to refer to the principles specified in section 3 of the CST Act which postulates as to when a sale or purchase of goods is said to take place in the course of inter-State trade. However, in the present case, it is an admitted position between the parties that sale of the goods in question is not in the course of inter-State trade or commerce. Consequently, it is not necessary to refer to the provisions of section 3 of the CST Act. Of course, the learned counsel for the respective parties have referred to several decisions on the interpretation of section 3 of the CST Act, but the same have been relied upon to contend that the purport of the words "in the course of" used in section 3 and section 5 of the CST Act is the same.
19. The next eventuality contemplated under section 87 of the GST Act is when such sale has taken place outside the State. For the purpose of determining this question the principles as specified in section 4 of the CST Act would be required to be applied. As to when a sale or purchase of goods can be said to take place outside a State is provided under section 4 of the CST Act, which reads thus:
"4. When is a sale or purchase of goods said to take place outside a State.--(1) Subject to the provisions contained in section 3 , when a sale or purchase of goods is determined in accordance with subsection (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States.
(2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State,--
(a) in the case of specific or ascertained goods, at the time the contract of sale is made; and
(b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation.
Explanation.--Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this subsection shall apply as if there were separate contracts in respect of the goods at each of such places."
Thus, under sub-section (1) of section 4 of the CST Act, if a sale or purchase of goods is determined in accordance with the provisions of subsection (2) of section 4 to have taken place inside a State, then subject to the provisions of section 3 , such sale or purchase of goods shall be deemed to have taken place outside all States. Therefore, for the purpose of determining whether the sale of goods in the instant case has taken place within the State of Gujarat, it would be necessary to examine the facts of the case in the light of sub-section (2) of section 4 of the Act.
20. In essence and substance, what has to be seen under sub-section (2) of section 4 of the CST Act is the situs of the goods, in the case of ascertained goods, at the time of the contract of sale and in the case of unascertained or future goods, at the time of their appropriation to the contract of sale.
21. On behalf of the petitioners, it has been contended that the goods in question were ascertained goods at the time of the contract of sale. According to the petitioners, the goods were always specific or ascertained goods because the volume of gas to be produced, sold and delivered is captured in the word "deliverability" as defined in article 21.5.13(a)(iii). All gas that falls within "deliverability" must be sold on a daily basis to the Government of India or its nominee under article 21.5.13(b) and that the goods were outside the State of Gujarat at the time when the contract of sale was made. The contention raised by the petitioners has been resisted by the respondents on the ground that the sale of goods is for unascertained and future goods and therefore, the first part of sub-section (2) of section 4 would not apply.
22. Before dealing with the rival contentions, reference may be made to the decisions on which reliance has been placed by the learned counsel for the respective parties.
22.1 In a pre-bifurcation decision of the Bombay High Court in the case of
22.2 In
"13. Section 18 of the Sale of Goods Act provides that where there is a contract for sale of unascertained goods, no property in goods is transferred to the buyer unless and until the goods are ascertained. That would be so even where price of goods is agreed and paid in advance, because neither seller nor the buyer could say which of such unascertained goods is sold or purchased. In the instant case, the company was permitted to remove bamboos from certain areas in Yellapur Forest Division. Under the agreement, the company had a standing licence to enter into the specified forest area to cut and severe bamboos which it wanted to appropriate towards the contract. The company''s servants had to go around the specified areas in the forest, select the bamboos for its use, extract and appropriate the same towards the agreement. In other words, unless and until the company chooses to severe and separate the bamboos standing on the forest land, the goods are not ascertained. When the company actually cuts and extricates the bamboos, the goods being ascertained and also being in deliverable state, the property in goods passes to the company...
14.... It will be seen from clause 8 that the bamboos extracted would remain at the sole risk of the company and the company had to make its own arrangement for preserving or protecting the same from accidental fire. Even if the extracted bamboos were destroyed by fire, the company would still be liable to pay the price and the sales tax in addition to fine that may be imposed by the competent authority. Since the company was required to preserve the extracted bamboos at its own risk, the intention of the parties would seem to suggest that the property in bamboos stood transferred to the company the moment it was severed and taken possession of by the company, because generally, though not always, the goods sold are at the seller''s risk until the property in them is transferred to the buyer and only when the property is transferred to the buyer, the goods are at the buyer''s risk, whether goods are actually delivered or not."
22.3 In Mucklow v. Mangles [1808] 1 Taunt 318; 127 ER 856, it was held that if a person contracts with another for a chattel which is not in existence at the time of the contract, though he pays him the whole value in advance, and the other proceeds to execute the order, the buyer acquires no property in the chattels till it is finished and delivered to him. The court held that if the thing be in existence at the time of the order, the property of it passes by the contract, but not so, where the subject is to be made.
22.4 In Atkinson v. Bell [1828] 8 B&C 277; 108 ER 1046-1049, the court held that where goods are ordered to be made, while they are in progress, the materials belong to the maker. The property does not vest in the party who gives the order until the thing ordered is completed. And although while the goods are in progress, the maker may intend them for the person ordering, still he may afterwards deliver them to another, and thereby vest the property in that other. The court further held thus:
"But if you employ another to work up his own materials in making a chattel, then he may appropriate the produce of that labour and materials to any other person. No right to maintain any action vests in him during the progress of the work; but when the chattel has assumed the character bargained for, and the employer accepted it, the party employed may maintain an action for goods sold and delivered; or if the employer refuses to accept, a special action on the case for such refusal. But he cannot maintain an action for work and labour, because his labour was bestowed on his own materials, and for himself, and not for the person who employed him. I think, that in this case the plaintiff cannot recover on the count for work and labour."
22.5 In
"4. But the true nature of the transaction appears to me to be a sale of future unascertained goods. Reference may now be made to some of the provisions of the Indian Sale of Goods Act. Under section 2(6) , ''future goods'' means goods to be manufactured or produced or acquired by the seller after the making of the contract of sale. Under section 6(1) , the goods which form the subject of a contact of sale may be either existing goods, owned or possessed by the seller, or future goods. Under section 6(2) there may be a contract for the sale of goods the acquisition of which by the seller depends upon a contingency which may or may not happen. Section 6(3) lays down that where by a contract of sale, the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods. As per section 23 , in the case of a sale of unascertained or future goods, the property in the goods passes to the buyer only when the goods are in a deliverable state and are unconditionally appropriated to the contract either by the seller with the consent of the buyer or by the buyer with the consent of the seller. Under section 26 , the goods remain at the seller''s risk until the property passes to the buyer. It is apparent from the foregoing provisions that the law permits the sale of future ascertained or contingent goods..."
23. For the purpose of deciding as to whether the goods in question were ascertained goods at the time when the contract of sale came to be made, it may be necessary to refer to certain recitals in the PSC. Article 9 refers to discovery, development and production. On a perusal of the contents thereof, it is apparent that the stage of entering into the contract was prior to the discovery within the contract area. In case of a new discovery having potential commercial interest an appraisal programme was required to be submitted by the contractor. Article 21 deals with natural gas and article 21.1 says that subject to article 21.2, the Indian domestic market shall have the first call on the utilisation of natural gas discovered pursuant to petroleum operations and produced from the contract area. Article 21 further provides for the eventualities in case where a new discovery of crude oil containing ANG and NANG is made. Therefore, at the stage when the PSC was entered, natural gas was not yet discovered and hence, the contention that the goods were ascertained goods because one hundred percent, of the deliverability had to be delivered to the buyer cannot be accepted. Merely because, 100 per cent of the deliverability of ANG and NANG and condensate was agreed to be produced and delivered, would not make the goods ascertained goods, while still in the wells and at a stage when they were not even discovered. Besides, a perusal of clauses 21.4.3, 21.4.4, 21.4.5, 21.4.6 and 21.4.7, reveals that in the event of discovery of crude oil containing ANG, if the contractor wishes to exploit the excess ANG for sale, such ANG is required to be offered for sale to the Government (or its nominee). If the Government exercises its option to purchase the excess ANG, a particular course of action is required to be adopted and in case it does not desire to exercise its option, another course of action is required to be adopted. Therefore, at the stage of entering into the PSC it is not even certain whether the Government or its nominee would purchase all the excess ANG. Similarly in respect of NANG the provisions of article 21.5.1 to 21.5.12 of the PSC are required to be complied with. It is only if the Government exercises its option to purchase the excess ANG and NANG, that resort would be required to be made to clause 21.5.13 of the PSC, which contains the clause about 100 per cent deliverability. Therefore, at the time when the PSC was executed, not only were the goods, future goods, it was not certain whether the Government would purchase all the excess ANG and NANG. Under the circumstances, the goods in question, viz., natural gas, cannot be said to be ascertained goods at the time when the contract was made, as claimed by the petitioners. Clause (a) of sub-section (2) of section 4 of the CST Act, therefore, would not be attracted. Having regard to the factual position as narrated hereinabove, it is not necessary to enter into any discussion in respect of the principles enunciated in the above decisions and their applicability or otherwise to the facts of the present case.
24. The next question that arises for consideration is as to whether the goods in question were within the State of Gujarat at the time of their appropriation to the contract of sale by the seller or by the buyer, whether the assent of the other party was prior or subsequent to such appropriation, so as to fall within the ambit of clause (b) of section 4(2) of the CST Act. On behalf of the petitioners, it has been alternatively submitted that if the goods are unascertained or future goods, they were appropriated to the contract on a daily basis when they were delivered at the delivery point to ONGC''s Bassein Hazira pipeline and that the seller and buyer assented to such appropriation. Whereas it is the case of the respondents that appropriation of the goods did not take place at the Bassein Hazira pipeline of ONGC but downstream of ONGC''s separation and sweetening facility at Hazira, within the State of Gujarat, as what was agreed to be purchased was sweetened gas and not sour gas. Therefore, the buyer did not assent to appropriation of the goods at the Bassein Hazira pipeline and hence, the sale of the goods in question falls within the ambit of clause (b) of sub-section (2) of section 4 of the CST Act and is a sale within the State of Gujarat. Thus, the crucial question that arises for consideration is the situs of the goods in question at the time of their appropriation to the contract of sale.
25. The learned counsel for the respective parties have placed reliance on the following decisions on the question as to when unascertained goods can be said to have been appropriated to the contract of sale.
25.1 In
"9. It has been found and it has not been disputed that the title to the goods in the present case passed at Fort Cochin. The purchase money was paid there and the purchaser obtained from the auctioneer delivery notes directing the godown keepers at Willingdon Island to deliver the goods and only the actual physical delivery of the goods took place at Willingdon Island. In these circumstances the question is whether the sale was ''outside sale'' or ''inside sale'' as the expressions have been compendiously used in various judgments to indicate sales taking place within a State or without it. The Explanation to article 286(1)(a) which has been set out above explains what a sale outside the State is. According to that Explanation a fiction is created as between two States, one where the goods are delivered for consumption in that State and the other where the title in the goods passed and the former is treated as the situs of the taxable event to the exclusion of the latter. Therefore where the Explanation applies the difficulty about the situs is resolved but in a case like the present one the difficulty still remains because the Explanation does not operate in the sense that the rival States claiming to tax the same taxable event are not the States of delivery for consumption in that State and those where the title in the goods passes. In somewhat similar circumstances this court in
''The conclusion reached therefore is that where the property in the goods passed within a State as a direct result of the sale, the sale transaction is not outside the State for the purpose of article 286(1)(a) , unless the Explanation operates.''
The majority decision in
10. In the present case, therefore, the sale was an ''outside sale'' and cannot be said to be an ''inside sale'' qua Travancore Cochin because the title passed at Port Cochin which is in the State of Madras. Apart from that, money was paid there and the delivery order was also received there even though the actual physical delivery of goods was made at Willingdon Island in the State of Travancore-Cochin. The fiction created by the Explanation to article 286(1)(a) is inapplicable because there was no delivery as a direct result of sale for the purpose of consumption in any particular State."
As is apparent on a plain reading of the above decision, the same was rendered in relation to a period when the Explanation to clause (1)(a) of article 286 was in force. The said Explanation, which was omitted by the Constitution (Sixth Amendment) Act, 1956, provided for the determination of the situs of the sale according to legal fiction, namely, that of actual delivery as a direct result of the sale for the purpose of consumption in a State. This resulted in a difference of opinion in the Supreme Court, as to what constituted "actual delivery" and "consumption" read with the Explanation.
25.2 In Arcot Mills Limited v. State of Tamil Nadu [1984] 55 STC 536 (Mad), the Madras High Court held that the special term in the contract cannot bind the fiscal statute or bind the Tax Department, whatever may be its binding force or merit as between the parties, as a term in the contract. The rules laid down by sections 20 to 24 of the Sale of Goods Act, 1930 for ascertaining when the property in goods passes in a given transaction are to be applied only in cases where the intention of the parties cannot be clearly spelt out from the terms of their bargain. Under the Sale of Goods Act, therefore, the parties'' intention, if clearly expressed, will always prevail over the statute, for the very purpose of that Act is to regulate the inter se relationship between the sellers and the purchasers of the goods. Not so the rules laid down in Explanation 3 to section 2(n) of the Tamil Nadu General Sales Tax Act, 1959 or section 4(2) of the Central Sales Tax Act. For, these rules are special and overriding rules for fixing the taxable event, as between the public exchequer, on the one hand and the taxpayers, on the other. While the sales tax law taxes up sales or purchases as taxable events, and to that extent, goes along with the general law governing such transactions, the Legislature has not thereby lost the prerogative of bending the rules of common law to the service of the revenue. The Legislature has laid down in the sales tax statutes clear-cut principles for determining the situs of sales and purchase in order to bring about uniformity, certainty, economy in collection, and efficiency in tax management, all of which are desiderata in all fiscal measures. These provisions, if they should service their purpose at all, must, in reason, override any special terms in private contracts to the contrary.
25.3 In
25.4 In Wilkins v. Bromhead and Hutton [1844] 6 M&G 963; 134 ER 1182-1189, the court held thus:
"As to the first point, there can be no doubt but that a contract for the making of a chattel, does not of itself vest the property in the chattel, when completed, in the person giving the order. But here, the question turns, not upon the original contract between the plaintiff and Smith and Bryant, but upon the circumstances which afterwards took place, viz., the payment by the plaintiff, after the greenhouse had been completed, of the stipulated price, the appropriation and setting apart by the bankrupts of the greenhouse for the plaintiff, and his assent to such appropriation. There was an appropriation on the one side, and an assent to such appropriation on the other; which, I think, was quite sufficient to pass the property to the plaintiff. It may be, that the original contract did not pass the property; but the parties may be said to have entered into a new contract. I cannot conceive why, under the circumstances of this case, the property in an article made to order should not pass upon its completion, as it would have done if it had been in existence at the time of the original contract. The objections raised upon this point were mainly founded upon Atkinson v. Bell (8 B. & C. 277, 2 Mann. & Ryl. 292)). But, if that case be examined, it will be found not to apply. The decision there turned entirely on the absence of assent on the part of the purchases to the appropriation of the machines by the vendor. It is said, by Bayley J., ''These were Sleddon''s goods, although they were intended for the defendants, and he had written to tell them so. If they had expressed their assent, then this case would have been within Rohde v. Thwaites [1827] 6 B. & C. 388; 9 Dowl. & Ryl. 293, and there would have been a complete appropriation, vesting the property in the defendants. But there was not any such assent to the appropriation made by the bankrupt; and, therefore, no action for goods bargained and sold was maintainable.'' Holroyd J. observes, ''I think the action will not lie for goods bargained and sold, because there was no specific appropriation of the machines assented to by the purchasers, and the property in the goods therefore remained in the maker.'' And Littledale J. adds, There could not be any sale in this case, unless there was an assent, by the defendants, to take the articles''. Looking as the facts of this case, it seems to me that there is complete evidence of assent on the part of the plaintiff, to the appropriation made by the vendors. The plaintiff was informed by letter that the greenhouse was finished, and was requested to remit the price. He did so, at the same time requesting the vendors to keep the greenhouse for him until he sent for it. It has been argued, that the letter of the plaintiff, desiring Smith and Bryant to keep the greenhouse for him, was written before the article was seen, and that it would be hard if it were held to be such an acceptance as would preclude him from rejecting the article if it afterwards turned out defective in its construction. If a purchaser''s assent to the appropriation was shown to have been obtained by misrepresentation, it seems to me it would probably be held to be no assent at all. But that is not the case here; and although the plaintiff thought proper to assent to the appropriation without seeing the greenhouse, the assent was not the less complete. Upon this point, therefore, I think that the property vested in the plaintiff, so as to enable him to maintain this action.
With respect to the second point, as the motion is to enter a non-suit only, the rule ought, in strictness, to be discharged, if there was any evidence to go to the jury. But perhaps it would be too strict, under the circumstances, to hold the defendants within that precise limit. If the court saw that there was any evidence which might make any difference in the finding of the jury, it would be but just and right to allow the defendants an opportunity to try the cause again. I confess, however, I cannot see any ground on which the jury could come to the conclusion that there was any reputed ownership in the bankrupts. I think, therefore, that this point also fails. Consequently, the rule must be discharged.
Erskine J. I also think that this rule should be discharged. With respect to the first point, I am of opinion, on the authority of the cases relied upon for the defendants, that the property in this greenhouse passed to the plaintiff. It is conceded, on all hands, that the rule laid down in Mucklow v. Mangles [1808] 1 Taunt 318 Vide post, 979 (a), is the correct one, viz., that, while the article remains unfinished, no property in it passes, notwithstanding the vendor may intend it for the purchaser, or may put his name upon it, or otherwise show an intention to appropriate it, and that a payment of money on account makes no difference. Here, however, the greenhouse was completed, and after it was so completed the makers appropriated it to the purchaser. The latter, before paying for it, might have required to see it; but, instead of doing so, he transmitted the price. But that is not all; he also requested the bankrupts to keep the greenhouse for him, thereby assenting to the appropriation which they had made. When the latter deposited it with Wait, they gave notice that it was the plaintiffs property, and requested wait to take care of it for him. The reason why it was held in Atkinson v. Bell (8B. & C. 277, Mann. & Ryl, 292); 108 ER 1046-1049 that the action for goods bargained and sold could not be maintained, was, that, although there had been an appropriation, no assent, on the part of the persons for whom the articles were made, had been shown. The language of the judges, as read by the Lord Chief Justice, shows that to have been the only ground on which the case was decided. ''If,'' says Baylej J., ''the defendants had expressed their assent, then this case would have been within Rohde v. Thwaites [1827] 6 B. & C. 388; 9 D. & R. 293, and there would have been a complete appropriation, vesting the property in the defendants''. What was the assent in Rohde v. Thwaites [1827] 6 B. & C. 388; 9 D. & R. 293, which was, in that learned judge''s opinion, sufficient to pass the property? There, the vendee never saw the sugar; but, having received a message from the seller that they were ready for him, he sent word back that he would take them away as soon as he could : and it was held to be such an assent that the property passed. Moreover, there is here a strong fact which did not appear in Rohde v. Thwaites [1827] 6 B. & C. 388; 9 D. & R. 293; for the purchaser paid the price, and requested the vendors to keep the greenhouse for him. It appears to me that the property completely passed to the plaintiff, and that if the article had been accidentally destroyed while in the possession of the bankrupts or of Wait, it would have been the plaintiffs loss."
25.5 In Wait and fames v. Midland Bank (Bristol Corporation Enter-Pleaders) [1926] Lloyd''s List Law Reports Volume 24-313, the King''s Bench Division held thus:
"The next point which is interposed against the claim of the bank is an objection that this method of ascertainment by exhaustion, as it was usefully expressed by Mr. Rayner Goddard, is not a method of ascertainment which does ascertain but that the only effective way of ascertaining the goods which are in bulk such as these and which are sold by weight, is by weighing; and I agree that the most usual and most natural way is to weigh. But I am not prepared to hold that this is the only way of ascertaining the goods dealt with, and that without such weighing there could be no ascertainment. It is not a case such as may arise under section 18 of the Sale of Goods Act, where weighing is required for the purpose of ascertaining the price. There is no such requirement in this case. On the contrary, there are in the rules of the Bristol Channel & West of England Corn Trade Association, which are made part of this contract, somewhat elaborate provisions such as those in rules 16, 17 and 18, for there being an excess or a deficiency in the quantity delivered. It seems to me that ascertainment might take place by any method which is satisfactory to the parties concerned. If the Dock Committee and the bank of Messrs Redlers chose to deal with this matter by measurement instead of by weight there would be nothing to prevent them."
25.6 In
25.7 In
25.8 In Re Goldcorp Exchange Ltd. (in receivership) , [1994] 2 All ER 806 , the Privy Council held thus:
"It is common ground that the contracts in question were for the sale of unascertained goods. For present purposes, two species of unascertained goods may be distinguished. First, there are ''generic goods''. These are sold on terms which preserve the seller''s freedom to decide for himself how and from what source he will obtain goods answering the contractual description. Secondly, there are ''goods sold ex-bulk''. By this expression their Lordships denote goods which are by express stipulation to be supplied from a fixed and a pre-deter-mined source, from within which the seller may make his own choice (unless the contract requires it to be made in some other way) but outside which he may not go. For example, ''I sell you 60 of the 100 sheep now on my farm''.
Approaching these situations a priori common sense dictates that the buyer cannot acquire title until it is known to what goods the title relates. Whether the property then passes will depend upon the intention of the parties and in particular on whether there has been a consensual appropriation of particular goods to the contract. On the latter question the law is not straightforward, and if it had been decisive of the present appeal it would have been necessary to examine cases such as Carlos Federspiel & Co SA v. Charles Twigg & Co Ltd. [1957] 1 Lloyd''s Rep 240 and other cases cited in argument. In fact, however, the case turns not on appropriation but on ascertainment, and on the latter the law has never been in doubt. It makes no difference what the parties intended if what they intend is impossible : as is the case with an immediate transfer of title to goods whose identity is not yet known..."
25.9 In
"In Seath v. Moore [1886] 11 A.C. 350; 55 LJPC 54; 5 Asp. M.C. 586; 54 L.T. 690 , at page 370, it has been held that it is a question of the construction of the contract in each case at what stage the property shall pass and it is a question of fact in each case whether that stage has been reached. It was held in
''They are two-fold : the first is that where, by the agreement, the seller is to do anything to the goods for the purpose of putting them into that State in which the buyer is to be bound to accept them, or, as it is sometimes worded, into a deliverable state, the performance of those things shall (in the absence of circumstances indicating a contrary intention) be taken to be a condition precedent to the vesting of the property.
The second is, that where anything remains to be done to the goods for the purpose of ascertaining the price, as by weighing, measuring, or testing the goods where the price is to depend on the quantity or quality of the goods; the performance of these things, also shall be a condition precedent to the transfer of the property, although the individual goods be ascertained, and they are in the state in which they ought to be accepted.''
In Simmons v. Swift [1826] 5 B. & C. 857; 5 L. J. (O. S.) K. B. 10; 8 D. L. R. 693 (at page 862) the rule has been enunciated as follows:
''Generally speaking, where a bargain is made for the purchase of goods and nothing is said about payment or delivery, the property passes immediately so as to cast upon the purchaser all future risks, if nothing further remains to be done to the goods : although he cannot take them away without paying the price. If anything remains to be done on the part of the seller, until that is done the property is not changed.''
The real question in all such cases is whether the parties did intend that property should pass : Turley v. Bates [1863] 2 H. & C 200 (at page 208) and Martineau v. Kitchin [1872] 7 Q. B. 436; 41 L. J. Q. B. 227; 20 W. R. 769; 26 L. T. 836.
The true test therefore is what was the intention of the parties..."
The court further observed that the word "ascertained" has not been defined or explained in the Indian Contract Act. According to Chitty (Law of Contracts, 17th Edition 1921, page 462) the expression means "goods which the parties have agreed upon as the goods to be appropriated to the contract".
25.10 In Underwood Limited v. Burgh Castle Brick and Cement Syndicate 1 K. B. 123, it was held thus:
"The sale was that of a specific chattel to be delivered by the plaintiffs, but the fact that it was to be delivered by them is not the test whether the property passed. The test is whether anything remained to be done to the engine by the sellers to put it into a deliverable state; and by that I understand a state in which the thing will be the article contracted for by the buyer; I do not mean deliverable in the sense that it is properly packed or anything of that kind. It must have everything done to it that the sellers had to do to it as an article."
25.11 In
25.12 In
25.13 In
"11. It is settled principle in law that a contract is interpreted according to its purpose. The purpose of a contract is the interests, objectives, values, policy that the contract is designed to actualize. It comprises joint intent of the parties. Every such contract expresses the autonomy of the contractual parties'' private will. It creates reasonable, legally protected expectations between the parties and reliance on its results. Consistent with the character of purposive interpretation, the court is required to determine the ultimate purpose of a contract primarily by the joint intent of the parties at the time the contract so formed. It is not the intent of a single party; it is the joint intent of both parties and the joint intent of the parties is to be discovered from the entirety of the contract and the circumstances surrounding its formation..."
25.14 In
25.15 In
26. The above decisions can be classified into three categories. The first category is the decisions which lay down principles in the context of section 4(2) of the CST Act; the second category is the decisions rendered in the context of the provisions of the Sale of Goods Act; and the third category is the decisions as regards how the contracts are required to be construed.
27. The principles enunciated in the above decisions can be briefly culled out thus:
"Category I:
(i) Under the Sale of Goods Act, the parties'' intention, if clearly expressed, will always prevail over the statute, for the very purpose of that Act is to regulate the inter se relationship between the sellers and the purchasers of the goods. Not so the rules laid down in the relevant State Sales Tax Act or section 4(2) of the Central Sales Tax Act. For, these rules are special and overriding rules for fixing the taxable event, as between the public exchequer, on the one hand and the taxpayers, on the other. In all the Sales Tax Acts, passing of property is not regarded as a nexus but the locale of the goods within the State either at the time of the contract of sale or later at the time of appropriation.
(ii) The scheme of the Sales Tax Act shows that the element of passing of property is not of relevance in determining the situs of the sale. The question of appropriation of goods has to be decided, therefore, irrespective of passing of the property. In other words, appropriation referred to in section 4(2)(b) connotes the setting apart of goods as specific goods to be delivered under the contract of sale and not an appropriation linked with passing of property.
(iii) The appropriation referred to in section 4(2)(b) connotes the setting apart of goods as specific goods to be delivered under the contract of sale and not an appropriation linked with passing of property. The term unconditional appropriation existed in the Sale of Goods Act, years before the enactment of the Central Sales Tax Act, and if the Parliament intended to convey the same idea, the Parliament would not have omitted the word "unconditionally" in section 4(2)(b) .
Category II:
(i) When there is an appropriation on the one side, and an assent to such appropriation on the other; it is sufficient to pass the property to the plaintiff.
(ii) Ascertainment might take place by any method which is satisfactory to the parties concerned.
(iii) The buyer cannot acquire title until it is known to what goods the title relates. Whether the property then passes will depend upon the intention of the parties and in particular on whether there has been a consensual appropriation of particular goods to the contract. It makes no difference what the parties intended if what they intend is impossible : as is the case with an immediate transfer of title to goods whose identity is not yet known.
(iv) Where a bargain is made for the purchase of goods and nothing is said about payment or delivery, this property passes immediately so as to cast upon the purchaser all future risks, if nothing further remains to be done to the goods, although he cannot take them away without paying the price. If anything remains to be done on the part of the seller, until that is done the property is not changed.
(v) The term deliverable means that everything must be done to the article that the sellers had to do to it as an article.
(vi) It is a condition precedent to the passing of property under a contract of sale that the goods are ascertained. The condition is not fulfilled where there is a contract for sale on a portion of a specific large stock. Till the portion is identified and appropriated to the contract, no property passes to the buyer.
(vii) Till appropriation takes place and goods are actually delivered, they are not ascertained.
Category III:
(i) The court is required to determine the ultimate purpose of a contract primarily by the joint intent of the parties at the time the contract so formed. It is not the intent of a single party; it is the joint intent of both parties and the joint intent of the parties is to be discovered from the entirety of the contract and the circumstances surrounding its formation.
(ii) If the transaction is contained in more than one document between the same parties, they must be read and interpreted together and they have the same legal effect for all purposes as if they are one document.
(iii) Where several deeds form a part of a transaction and are contemporaneously executed, they have the same effect for all purposes such as are relevant to that case as if they were one deed."
28. The vexed question that arises is as regards the situs of the goods at the time of appropriation to the contract. The sale of natural gas to GAIL is governed by two contracts, firstly the production sharing contract between the Government of India and the contractor, viz., ONGCL, RIL and BGEPIL and the Interim Sales Purchase Agreement (ISPA) between the contractor and GAIL. For the purpose of deciding the situs of the goods at the time of appropriation to the contract, it would be necessary to refer to certain recitals from the PSC as well as the ISPA to understand what the parties had agreed. Since the sale transaction is contained in two documents, as held by the Supreme Court in
29. A perusal of the recitals contained in the ISPA shows that what has been agreed to be sold is natural gas. The price clause says that the buyer shall pay to the Sellers at the rate of 90 per cent of gas price specified in article 21.5.13(d) of the PSC for the net MMBtu of gas delivered at the downstream of ONGC processing facility at Hazira (on account basis as directed by the Ministry of Petroleum and natural gas). The payment shall be made by the buyer within thirty days of receipt of each monthly invoice from sellers to be raised on the basis of quantity of gas delivered to the buyer downstream of the separation and sweetening facilities owned and operated by ONGC at Hazira as certified by ONGC.
30. On a reading of the ISPA as a whole, it emerges that there is no reference to sale of sweetened gas as is sought to be contended by the respondents. The respondents want to read the term "sweetened gas" into the ISPA, in view of the fact that gas has to be delivered to the buyer downstream of the separation and sweetening facilities owned and operated by ONGC at Hazira.
31. The covenants in respect of natural gas are contained in article 21 of the PSC. Reference may be made to the following sub-articles, which would be relevant for the purpose of deciding the controversy in issue:
"21.4.3 If the contractor wishes to exploit the excess ANG such ANG shall first be offered for sale to the Government or its nominee in writing in accordance with the terms of the contract. On receipt of such offer the Government or its nominee is required to exercise its option to purchase the excess ANG.
Thus, by virtue of article 21.4.3, the excess ANG has to be first offered for sale to the Government or its nominee in accordance with the terms of the contract.
21.4.4 If the Government exercises its option to purchase the excess ANG as provided in article 21.4.3:
(a) the Government shall indicate in the notice exercising the option, a date, within two (2) years of the date of the contractor''s offer, for commencement of purchase of the excess ANG;
(b) within six (6) months of the date of notification of the exercise of the Government''s option pursuant to article 21.4.3., the contractor and the Government (or its nominee) shall agree on the terms of the sale to the Government (or its nominee) of excess ANG."
Therefore, by virtue of clause (b) of article 21.4.4, the terms of sale are to be agreed after the Government (or its nominee) exercises its option to purchase the excess ANG. If the Government does not exercise its option, the contractor is free to explore markets for commercial exploitation of excess ANG. If the excess ANG cannot be commercially exploited or the contractor is not able to find a market, the Government is entitled to take and utilize such excess ANG. If the Government elects to take the excess ANG, the contractor is required to deliver such excess ANG to the Government or its nominee free of cost, at the downstream flange of the gas/oil separation facilities and the Government or its nominee shall bear all costs including gathering, treating, processing and transporting costs beyond the downstream flange of the gas/oil separation facilities.
31.1 Article 21.5.13 provides that the price of ANG and NANG produced from the oil or gas field for use in India shall be specified in the gas sales contract which shall be in accordance with the provisions of this article 21.5.13. Thus, the price of ANG and NANG has to be specified in the gas sales contract and has to be in accordance with the provisions of article 21.5.13.
31.2 Clause (a) of article 21.5.13 contains certain definitions which are for the purposes of that sub-article alone. The terms defined are:
"(i) British thermal unit, (ii) Buyer, (iii) Deliverability, (iv) Delivery point, (v) Maximum delivery pressure, (vi) MMBTU and (vii) Seller."
31.3 For the purpose of appreciating the controversy in issue, it may be necessary to refer to the following definitions:
"(i) "Buyer" means the Government of India or its nominee.
(ii) "Deliverability" means the lesser of the maximum aggregate rate of all wells in the contract area or the maximum delivery capacity of the processing facility, subject to generally accepted international petroleum industry prices.
(iii) "Delivery point"" means the upstream weld at the underwater connection between sellers'' pipeline and ONGC''s underwater gas transmission line or lines which transport gas from the Bassein Field to the Hazira area.
(iv) "Seller" means contractor."
The central question involved in the present case is whether the natural gas is appropriated to the contract at the delivery point as envisaged under the PSC or downstream of ONGCL''s sweetening and separation facility at Hazira as contended by the respondents.
31.4 Clause (b) of article 21.5.13 says that the seller agrees to produce and deliver, on a daily basis, to the buyer one hundred per cent of the deliverability of ANG and NANG and condensate delivered therewith at the delivery point and the buyer, provided the gas and condensate are made available and tendered for delivery by the seller, agrees to take and purchase, on a daily basis, one hundred per cent of the deliverability of ANG and NANG and condensate delivered therewith, provided, however, that seller, at the sellers'' sole discretion, subject to generally accepted operator practices in the international petroleum industry, may adjust deliveries to provide for necessary maintenance, service and testing. Buyer may request that seller vary deliveries to accommodate similar circumstances in the buyer''s operation and seller''s approval shall not be unreasonably withheld. Communications procedures shall be mutually agreed in the gas sales contract in accordance with internationally accepted industry standards.
31.5 Thus, by virtue of clause (b) of article 21.5.13 the parties, viz., the Government of India and the contractor have agreed that the seller shall produce and deliver, on a daily basis 100 per cent of the deliverability of ANG and NANG and Condensate to the buyer at the delivery point. The buyer, namely, the Government of India and its nominee has agreed to take and purchase, on a daily basis 100 per cent of the deliverability of ANG and NANG and condensate, provided the seller makes available the gas and condensate and tenders the same for delivery. On a plain reading of the above clause, the seller has to produce and deliver 100 per cent of the deliverability of ANG and NANG and condensate on a daily basis to the buyer at the delivery point and the buyer has to take and purchase the gas and condensate so delivered. The "delivery point" envisaged in this clause would be in terms of sub-clause (iv) of clause (a) inasmuch as clause (a) provides that unless the context otherwise requires the words and terms defined thereunder wherever used and appearing in article 21.5.13 shall have the meaning provided therein. Moreover, "delivery point" is not defined elsewhere in the PSC nor is it defined under the ISPA.
31.6 Clause (c) of article 21.5.13 of the PSC provides that the gas and condensate sold under the said agreement shall be separated into gas and condensate at the off-shore processing facility, measured separately, and recombined and delivered at the delivery point at the operating pressure of the buyer''s owned or contracted pipeline up to a maximum pressure of one thousand psig. Under this clause, the gas and condensate are first required to be separated at the off-shore processing facility, measured and recombined and then delivered at the delivery point. The expression "delivery point" in clause (c) would also mean "delivery point" as defined in clause (a)(iv) of article 21.5.13 and hence, as a natural corollary, reference to the offshore processing facility therein would be to the offshore processing facility of the contractor/sellers at Panna-Mukta.
31.7 Clause (d) of article 21.5.13 of the PSC is the price clause which sets out the manner in which the price is to be calculated.
31.8 Clause (e) of article 21.5.13 of the PSC which is relevant and falls for interpretation says that parties acknowledge that gas is to be received by GAIL at Hazira downstream of separation and sweetening facilities owned and operated by ONGC. The clause further provides that in order to compensate ONGC for the cost of ownership and operations of these facilities, contractor shall make payments to ONGC on the basis of the costs fixed on an incremental basis by an internationally recognised expert who shall be selected by two members of the operating committee from a panel of three internationally recognised experts selected by ONGC. In case there is no agreement between the companies and ONGC on the advice tendered, the matter shall be referred to Government. The decision of Government shall be final and binding on all the parties.
31.9 Article 34.2 of the PSC provides that this contract shall not be amended, modified, varied or supplemented in any respect except by an instrument in writing signed by all the parties, which shall state the date upon which the amendment or modification shall become effective. Thus, the PSC can be amended, modified or varied only by an instrument in writing by the parties to the PSC.
32. At the outset, it may be apposite to note that reference to GAIL in clause (e) of article 21.5.13 of the PSC is not in its capacity as a nominee of the Government of India, inasmuch as, at the stage when the PSC came to be executed, GAIL was not named as a nominee of the Government of India. What the clause provides is that the parties acknowledge that gas is to be received by GAIL at Hazira downstream of ONGC''s sweetening and separation facility. It may also be pertinent to note that the expression used is "acknowledge" and not "agree" and gas is to be received by GAIL and not delivered to it. Though the term "received" may be synonymous with the term "delivered", in the context in which the expression "received" is used, there is a clear distinction between the two, which shall be elaborated hereinafter.
33. The fact regarding reference to GAIL not being in its capacity as nominee of the Government of India has been pointed out by the petitioner to the respondent-Commissioner of Sales Tax in its letter dated September 3, 1999 wherein it has been stated that the delivery point of Panna-Mukta gas is off-shore underline connections at ONGC''s existing pipeline, where the title passed to Government of India (or its nominee GAIL) (Reference article 12.5.13(a)(iv) in 21.5.13(e) and article 27.2 of PSC). It has further been stated that this gas together with ONGC''s own gas, passes through ONGC owned sweetening facilities. As a matter of gesture of commercial co-operation and under commercial expediency, JV agreed to compensate ONGC for the incremental cost of ownership and operation of the sweetening facilities. This factor however, does not affect the delivery point and passing of title to the buyer at the offshore delivery point. In its letter dated September 23, 1999 (page 43) the petitioner has stated that compensation to ONGC for sweetening the associated natural gas from Panna was deliberated and agreed during production sharing contract negotiations. Installation of a sweetening facility at the Panna processing platform was determined not to be cost effective. In any case, the associated natural gas from Panna is commingled with ONGC gas in the ONGC pipeline and would require re-sweetening which would make the process redundant. The current arrangement is typical of most gas purchase and sales agreements in which commingling of gas takes place during transportation. In the letter dated January 28, 2002 (Exh C2) of Enron oil and gas (the predecessor of the petitioner-B.G. Exploration) addressed to the Additional Commissioner of Sales Tax, it has been, inter alia, stated that the company and similarly ONGC, RIL and Government of India for their respective share entitlements send invoices to GAIL for re-delivered quantity of gas (delivered quantity minus (-) 4 per cent (transportation and processing loss) which ONGC deducts while certifying quantity re-delivered to GAIL. The quantity of gas is measured at off-shore processing facility as per article 21.5.13(c) of the PSC. The sale is based on this measurement, and the carrier, i.e., ONGCL deducts the transportation and processing losses. No further measurement is taken after the sweetening process at Hazira. Under article 21.5.13(b), the JV has to sell 100 per cent of its gas deliverability to GAIL who is nominee of the Government of India. When the gas is handed over to the carrier, ONGCL for the purpose of transmission to the buyer, the JV does not reserve the right of disposal as the gas is fully appropriated for the sale to GAIL. In paragraph 14 of the said letter, it is stated that the sale of natural gas at Panna-Mukta oil/gas fields was as per agreement, and the goods were ascertained on and when measured at the offshore platform''s measuring unit called LACT (Lease Automated Custody Transfer Point). It was further the case of the petitioner that the contract is for sale of natural gas, its sweetening when the sale has taken place outside India is of no consequence. The sweetening process means the removal of some sediment or some non-hydrocarbons (sulphur) which does not change the character of gas. Sweetening is done by ONGC and it is by way of operational reasons, business expediency and goodwill that they bear the cost thereof. This in no way affects the relevant fact of the matter, which is that it is only the natural gas, which is sold in accordance with the agreement.
34. The question as regards the stage when appropriation of the goods has taken place has to be considered in the light of the peculiar nature of the goods, viz., natural gas, which cannot be transported in the manner in which ordinary goods are transported. The facts on record reveal that the gas and condensate sold under the PSC are, in terms of article 21.5.13(c), to be separated into gas and condensate at the off-shore processing facility, measured separately, and recombined and delivered at the delivery point at the operating pressure of the buyer''s owned or contracted pipeline up to a maximum pressure of one thousand psig. Under this clause, the gas and condensate are first required to be separated at the off-shore processing facility, measured and recombined and then delivered at the delivery point. Delivery point is defined in clause 21.5.13(a)(iv) as the upstream weld at the underwater connection between seller''s pipeline and ONGC''s underwater gas transmission line or lines which transport gas from Bassein Field to the Hazira area. Therefore, the natural gas produced by the contractor is delivered to the Government of India or its nominee at the delivery point as envisaged in article 21.5.13(a)(iv) of the PSC. At this juncture reference may also be made to article 27.2 of the PSC which provides that the title to crude oil and/or gas to which each constituent of the contractor is entitled to under the contract, and the crude oil and/or gas sold to Government or its nominee by the constituents of the Contractor shall pass to the relevant party, or as the case may be, to Government or its nominee at the delivery point. Contractor shall be responsible for all costs and risks prior to the delivery point, and each party shall be responsible for all costs and risks associated with such party''s share after the delivery point. Where the Government or its nominee purchases all or some of the contractor''s share of crude oil or condensate, the Government or its nominee shall be responsible for all costs and risks in respect of the amount purchased, after the delivery point. On a conjoint reading of clause 21.5.13(c) read with 21.5.13(a)(iv) and article 27.2, it is manifest that the intention of the parties is that the goods, viz., gas and condensate, shall be separated, measured and recombined and then delivered at the ONGC''s Bassein-Hazira pipeline at which point the title of the goods also passes to the Government or its nominee. Thus, the contract envisages delivery of goods as well as passing of title to the goods at the delivery point. Having regard to the nature of goods which cannot be delivered like ordinary goods, delivery of natural gas to GAIL is by injecting the gas into the pipeline of the carrier ONGC, which then emerges at ONGC''s separation and sweetening facility at Hazira, where it is received by GAIL which has its pipeline at that point. As noticed earlier, reference to GAIL in the PSC is not as the nominee of the Government but as a recipient of the gas which is injected into ONGC''s pipeline. The expression "deliver" and "receive" may be synonymous as contended by Mr. Shelat for the respondent-State Government. However, there is a distinction between the two expressions insofar as delivery and receipt of gas is concerned, inasmuch as, the gas which is delivered at one point is by the very nature of things received at another point.
35. According to the respondents, appropriation does not take place at the delivery point mentioned in article 21.5.13(a)(iv), because at that stage the goods, viz., natural gas, was not in a usable condition and that it was made fit for use only after it was subjected to processing at ONGC''s separation and sweetening facilities at Hazira. It has been vehemently contended on behalf of GAIL that what GAIL had agreed to purchase was sweetened gas and that the parties had agreed that the same would be received by GAIL at Hazira downstream. That sweetening is a duty imposed on the contractor and not the Union of India or GAIL. The cost of operating the sweetening facilities has to be borne by the contractor and since what was contracted to be received by them was sweetened gas they would not assent if any other gas is delivered to them. Therefore, there was no assent to delivery of gas at the delivery point prior to its sweetening. According to the learned counsel for GAIL, irrespective of the fact whether sweetened gas and sour gas are different commodities or not under the Sales Tax Act and irrespective of the fact as to whether sweetening of gas amounts to manufacture or not, what is agreed to be sold is sweetened gas and consequently the sale of such goods would be deemed to take place at the time of their appropriation to the contract of same by the seller or the buyer. Such appropriation would be feasible only when the goods as agreed to be sold come into existence, which is possible only after sweetening. Thus, the appropriation takes place post sweetening. It has been submitted that the appropriation of future goods would only take place when the goods are complete and ready for delivery. Therefore, in view of section 4(2)(b) of the CST Act, sale of gas is deemed to take place inside Gujarat and consequently, such sale is liable to sales tax under the GST Act. Reliance has been placed on article 21.3 of the PSC which says that for the purpose of sale to the domestic market, the delivery point shall be the delivery point set forth in the gas sales contract entered into by the contractor to submit that the PSC itself envisages a delivery point other than the delivery point mentioned therein and that clause 3 of the ISPA contemplates delivery of gas to the buyer at downstream of separation and sweetening facilities owned and operated by ONGC at Hazira. Therefore, when a different delivery point is provided for in the ISPA, which is the agreement between the contractor and GAIL, it is that delivery point which would prevail over the general provisions of the PSC.
36. In the aforesaid backdrop, what arises for determination is as to what were the goods that the parties had agreed to buy and sell and where were the goods required to be delivered. In this regard on reading the PSC as well as the ISPA in their entirety, it can be seen that there is no reference to sweetened gas or for that matter sour gas in either of the two agreements. Reference is made to the goods as natural gas, ANG and NANG and condensate. The contention that what was agreed upon was sweetened gas is based upon the fact that in the PSC, the parties have acknowledged that GAIL would receive the gas at the downstream of ONGC''s separation and sweetening facilities and in clause 3 of ISPA, it is provided that the buyer shall pay to the sellers at the rate of 90 per cent of gas price specified in article 21.5.13(d) of the PSC for the net MMBtu of gas delivered at the downstream of ONGC processing facility at Hazira (on account basis as directed by the Ministry of Petroleum and Natural Gas). The payment shall be made by the buyer within thirty days after receipt of each monthly invoice from sellers to be raised on the basis of quantity of gas delivered to the buyer at downstream of separation and sweetening facilities owned and operated by ONGC at Hazira as certified by ONGC.
37. To understand the intent of the parties, both the contracts, viz., the PSC as well as the ISPA have to be read together. Article 21.3 provides that for the purpose of sales to the domestic market pursuant to article 21, the delivery point shall be the delivery point set forth in the gas sales contract entered into by the contractor. In the opinion of this court, in the first place, sale to GAIL as nominee of the Government of India cannot be said to be a sale to the domestic market, because, the domestic market would include several players, whereas here the gas is sold to GAIL as a nominee of the Government of India. Therefore, insofar as sale of gas to the Government of India or its nominee is concerned, the same is governed by the PSC and the ISPA read together. Accordingly, the delivery point would be the delivery point as envisaged under the PSC, else, the said expression would be rendered redundant. Examining the case from another angle, assuming for the sake of argument that sale of natural gas to GAIL as nominee of the Government of India is a sale to the domestic market; in that case, the delivery point has to be such as set forth in the gas sales contract. It may, therefore, be apposite to refer to contents of the ISPA. Under the heading "recitals" it has been stated that the Government of India and sellers are parties to that certain production sharing contract dated December 22, 1994, with regard to Parma and Mukta fields. The PSC provides for sale of natural gas by sellers to GOI or a nominee of GOI. GAIL having been nominated by the Government of India to purchase gas sold pursuant to the PSC is therefore the buyer. The seller claims to have potential of 50 MMSCFD of natural gas available from wells covered by the PSC and they informed the buyer that they are now ready to supply gas for utilization by consumers of the buyer. The buyer and sellers desire to enter into an interim sales and purchase agreement providing for gas sales during the pendency of such negotiations, without prejudice of any kind in relation to their respective positions.
38. Various clauses have been set out under the heading "agreement", which to the extent the same are relevant for the present purpose read thus:
"1. Agreement to purchase and sell: Sellers agree to sell, and the buyer agrees to purchase natural gas from sellers for the period and upon the terms set forth herein.
2. Term : This agreement shall be and remain in effect until June 1, 1998, unless mutually extended in writing by all parties to the agreement.
3. Price; The buyer shall pay to seller at the rate of 90 per cent of gas price specified in article 21.5.13(d) of the PSC for the net MMBtu of gas delivered at the downstream of ONGC processing facility at Hazira (on account basis as directed by the Ministry to Petroleum and Gas). The payment shall be made by the buyer within thirty days after receipt of each monthly invoice from sellers to be raised on the basis of quantity of gas delivered to the buyer at downstream of separation and sweetening facilities owned and operated by ONGC as certified by ONGC.
4. Sales tax : The buyer shall pay any and all sales tax payable on the sale of gas, in addition to the price of gas.
5. Good faith negotiations :...
6. Law and resolution of disputes :...
7. Neither the signing of the agreement or any action taken with regard hereto shall (i) create a precedent with respect to the rights or obligations of the parties, (ii) be deemed an admission by any party as to the proper interpretation of the PSC or the rights and obligations of any party thereunder, or (iii) be a waiver of any rights of a party under the PSC."
39. From the recitals contained in the ISPA, it is manifest that the contract is for sale and purchase of natural gas to GAIL as nominee of the Government of India. Under the terms of the agreement (ISPA) the sellers have agreed to sell and the buyer has agreed to purchase natural gas for the period and upon the terms set forth therein. The period is specified in clause 2. The terms set forth are in respect of price of gas, liability to pay the sales tax, to continue negotiations in good faith, to resolve disputes in accordance with the laws in India, mutually by the parties, failing which to refer the matter to arbitration, and signing of the agreement shall not be deemed to be a waiver of any rights of a party under the PSC. On a reading of the ISPA in its entirety, there is no reference to any delivery point therein. On behalf of the respondents, reliance has been placed upon the price clause in the agreement, viz., clause 3 of ISPA for the purpose of contending that in terms thereof, the buyer has to pay to the seller price on the basis of gas delivered at the downstream of ONGC processing facility at Hazira and that the monthly invoice has to be raised on the basis of the quantity of gas delivered to the buyer at downstream of separation and sweetening facilities owned and operated by ONGC, and hence the delivery point in terms of the ISPA is downstream ONGC''s sweetening and separation facilities and that the gas delivered downstream of such facility would be sweetened gas and hence, the parties have agreed to sell and purchase sweetened gas.
40. As noted earlier, the PSC as well as the ISPA have to be ''read together to understand the true intent of the parties and not the stand of the respective parties. Both, the Government of India as well as GAIL have stated that what was agreed between the parties was sale and purchase of sweetened gas and that the delivery point is downstream of ONGC''s sweetening and separation facilities at Hazira and that unless sweetened gas was delivered, GAIL would not have assented to accept the same and hence, there is no question of appropriation of natural gas to the contract unless the same is delivered as sweetened gas. It may be noted at this stage that, the Supreme Court in
41. With a view to test the contention of the respondents, it would be necessary to examine the recitals contained in the ISPA to ascertain whether the parties have agreed anything to the contrary. On a plain reading of the ISPA, the relevant part whereof has been reproduced hereinabove, it is abundantly clear that the same does not provide for any delivery point, nor is there even a whisper about sweetened gas. The entire fulcrum of the respondents'' case hinges upon the price clause as contained in the ISPA for contending that the delivery point is downstream of ONGC''s sweetening and separation facilities at Hazira and that, therefore, what GAIL had agreed to purchase was sweetened gas. In the opinion of this court, clause 3 of the ISPA is merely a price clause and just because it provides for payment of the price based on the net MMBtu of gas delivered at downstream of ONGC processing facility at Hazira and the invoice is to be raised on the basis of quantity of gas delivered to the buyer at downstream and sweetening facilities owned and operated by ONGC at Hazira, it cannot be so construed as to override the specific provisions of the PSC which provide for delivery of the natural gas at the delivery point. Much emphasis is also laid on clause (e) of article 21.5.13 of the PSC whereby the parties have acknowledged that gas is to be received by GAIL at Hazira downstream of separation and sweetening facilities owned and operated by ONGC, to contend that even under the PSC it was agreed that GAIL would receive the gas at Hazira which is the delivery point. As noticed earlier, GAIL was not a party to the PSC and reference to GAIL in the PSC is as a carrier and not as the nominee of the Government of India. In the opinion of this court, the parties have intentionally employed the term "received" and not "delivered" in clause (e) inasmuch as, as noticed earlier, having regard to the nature of the goods, viz., natural gas, the same cannot be delivered like ordinary goods and can be delivered only through a gas pipeline. Therefore, once the gas is appropriated and delivered at the delivery point as defined in article 21.5.13 (a)(iv) of the PSC, namely, at the offshore T-Junction, it can only be received downstream of ONGC''s sweetening and separation facilities at Hazira along with all the other gas in the pipeline. Therefore, the natural gas which is delivered at the T-junction, when it is received at Hazira by GAIL, would be in the form of sweetened gas as the same along with all other gas would undergo the process of sweetening. Besides, as submitted by the petitioners, since it was not feasible to set up sweetening and separation facilities off-shore, though gas was to be delivered at the delivery point, viz., the off-shore T-junction and the property in goods passed at the T-Junction, it was agreed that the sweetening process was to be carried out at ONGC''s facility at Hazira. Therefore, the gas after being measured and set apart at the off-shore processing facility stands delivered at the delivery point as provided under sub-clause (iii) of clause (a) of article 21.5.13 of the PSC, viz., at the upstream weld at the underwater connection between seller''s pipeline and ONGC''s underwater gas transmission line or lines which transport gas from the Bassein Field to Hazira also known as the offshore T-Junction and the title to the goods also passes at the T-junction and post appropriation, in terms of the PSC, the goods, viz., natural gas so appropriated, is taken to the ONGC''s sweetening and separation facility at Hazira and after sweetening, it is received by GAIL at Hazira. Thus, the act of sweetening being post appropriation, after the goods are delivered and the title has passed to the buyer outside the State of Gujarat, it cannot be said that the sale of goods has taken place within the State of Gujarat merely because, post appropriation, the goods are subjected to some process within the State of Gujarat.
42. In other words, the parties agreed to sell and purchase natural gas and there is no express or implied agreement to purchase sweetened gas. The natural gas, which is in the nature of ascertained goods, is appropriated to the contract when it is separated and measured at the off-shore processing facility and is thereafter delivered at the delivery point, viz., the off-shore T-Junction and the title to the goods also passes there. Thus, appropriation, delivery and passing of title of the goods all take place off-shore, outside the State of Gujarat. Indubitably, under the Sales Tax Act, it is the situs of the goods at the time of their appropriation to the contract which is relevant and not the passing of property, nonetheless, in the present case apart from the fact that the goods were appropriated to the contract at the offshore processing facility and delivered at the delivery point, viz., the offshore T-junction, the title to the goods also passed to the buyer at the delivery point and the risk in the goods passed on to the buyer, namely, GAIL as nominee of the Government of India. In the opinion of this court, once the goods are appropriated to the contract and delivered at the delivery point outside the State of Gujarat, merely because the same undergo a process of sweetening having regard to the nature of the goods, it cannot be said that the goods were appropriated to the contract only post sweetening as is sought to be contended on behalf of the respondents.
43. Another aspect of the matter is that the reference to the goods in the PSC as well as in the ISPA is to natural gas/gas. In the price clause, the expression used is "natural gas" and "gas". Similarly, in the sales tax clause, the expression used is "gas" and in the clause regarding agreement to purchase and sale, the expression used is "natural gas". The ISPA does not define the expressions "gas" or "natural gas". "Gas" is defined under article 1.46 of the PSC to mean "natural gas". "Natural gas" is defined under article 1.54 of the PSC to mean wet gas, dry gas, all other gaseous hydrocarbons, and all substances contained therein, including sulphur and helium, which are produced from oil or gas wells, excluding those condensed or extracted liquid hydrocarbons that are liquefied at natural temperature and pressure conditions, and include the residue gas remaining after the condensation or extraction of liquid hydrocarbons from gas. Therefore, reference to "gas" or "natural gas" in the PSC and the ISPA have to be attributed the meaning as contained in the above definitions. The contention that the parties agreed to sell and purchase sweetened gas, therefore, is not reflected from the agreements. The mere fact that in the price clause contained in the ISPA, the buyer is required to pay to the sellers 90 per cent of the cost price of gas specified in article 21.5.13(d) of the PSC for the net MMBTU of gas delivered at the downstream of ONGC''s processing facility at Hazira, does not mean that the parties had agreed to sell and purchase sweetened gas. As discussed hereinabove, the gas which is injected at the T-junction can be received by GAIL only at downstream of ONGC''s processing facility at Hazira and hence, there is no option but for the gas to undergo processing at Hazira. The mere fact that the gas which is delivered at the T-Junction undergoes certain processing at ONGC''s sweetening and separating facility at Hazira would not detract from the fact that the gas was appropriated to the contract at the offshore processing facility and delivered at the delivery point as envisaged in article 21.5.13(a)(iv) of the PSC.
44. This court is of the view that merely because the sellers have decided to charge on the basis of what is ultimately received by the buyer cannot be determinative of the fact as to where the sale takes place. The price clause contained in the ISPA is only a mechanism by which the parties have decided the price of the goods and the same cannot decide the situs of the sale. Moreover, the ISPA cannot be relegated to the status of an agreement modifying the PSC or superseding the PSC to the extent of delivery point, inasmuch as, the ISPA is in continuation and not in derogation of the PSC. Besides, in terms of article 34.2 of the PSC, the contract cannot be amended, modified, varied or supplemented in any respect except by an instrument in writing signed by all the parties, which shall state the date upon which the amendment or modification shall become effective. Therefore, if at all any term of the PSC is to be amended, modified or varied or supplemented, it is to be by way of an instrument in writing signed by all the parties, namely, the constituents of the contractor and the Government of India. The ISPA executed between the constituents of the contractor and the GAIL, therefore, cannot amend, modify, vary or supplement the PSC. Under the circumstances, the price clause as contained in the ISPA which provides for payment at the rate of 90 per cent of the gas price specified in article 21.5.13(d) of the PSC for the net MMBtu of gas delivered at the downstream of ONGC facility at Hazira, would not modify the principal agreement between the parties, namely, that the gas is to be delivered at the delivery point as contemplated in clause (a)(iv) of article 21.5.13 of the PSC nor can the same be read to mean that the parties had agreed to sell and purchase sweetened gas.
45. Another contention which has been vehemently canvassed on behalf of the respondents is that the gas which is delivered at the offshore T-Junction is co-mingled with other gases and hence, it ceases to be ascertained. It is On-shore Hazira that the goods are ascertained, ascertainable or deliverable as they are co-mingled with other gases. In this regard, it may be germane to refer to the decision of the Allahabad High Court (Lucknow Bench) in
"The delivery point will ordinarily be the point at which title to, custody of and the risk of loss of or damage to the gas (or LNG) transfers from the seller to the buyer. The delivery point will also often be determinative in the allocation of tax liabilities between the parties (40-017). Modern contracts and commercial codes have successfully separated provisions for the transfer of custody, title and risk in arrangements for the sale of goods, such that these components can be considered and applied individually.
The GSA (or SPA) might seek to exclude certain implied conditions which would otherwise apply to define the transfers of title, custody and risk under GSA (or SPA). The GSA (or SPA) might also set up a regime whereby the seller indemnifies the buyer for claims and liabilities associated with the gas (or LNG) prior to the transfer of title and the buyer indemnifies the seller for claims and liabilities after the transfer of title.
In a cross-border pipeline gas sale, where the delivery point is within the buyer''s territory and the seller has to transport the gas to that delivery point, a formulation which is sometimes used is one where title to the gas will pass to the buyer at a defined border point and risk of loss of or damage to (and custody of) the gas will remain with the seller up to the delivery point:
The passing of title at the border point is intended to promote the suggestion that the seller is exporting gas to (but is not conducting business within) the buyer''s territory and that the buyer (not the seller) is importing gas, which may be important to either or both parties for tax reasons. That risk remains with the seller up to the delivery point, rather than also transferring at the border point, is a commercial point for the benefit of the buyer but it could jeopardise the intended operation of the earlier title transfer."
In the light of the above international practice with regard to delivery point, the court held that Gadimoga shall be the delivery point not only in terms of GSPA but in terms of international practice and all rights and liabilities and risk shall be transferred to the shipper at Gadimoga. The court, accordingly, held that keeping in view the recent technological development in the measurement of gas and its supply, the natural gas supplied to buyers at Gadimoga may not be termed as unascertained goods. The court referred to various decisions wherein the controversy with regard to fungible goods and co-mingling of gas was subject-matter of consideration. Reference was made to Complete Auto Transit v. Brady [1977] 430 US 274, wherein it was held that as a general rule, where fungible goods belonging to different persons are so intermingled as to be undistinguishable, whether by consent of the owners or by someone''s wrongful act, the owners become tenants in common of the mass. The co-mingling of a fungible commodity does not affect ownership unless the parties intend to transfer title. The way the system works, each shipper is simply entitled to a volume of gas thermally equivalent to that which is placed into storage regardless of where it was placed when stored or from where it is taken when removed from storage. The court also made reference to the Canada Federal Court of Appeal decision in Ministry of Public Safety and Emergency Preparedness (Canada) v. Tenaska Marketing Canada [2007] FCA 223, wherein the court held thus:
"Due to its unique physical properties, large volumes of natural gas can only be transported in a continuous stream. Once delivered into a pipeline for transportation, it becomes commingled with other natural gas. Individual molecules are not separately identifiable, and cannot be accurately tracked or traced. As a result, natural gas is sold and purchased on a ''quality and quantity basis'', and treated as a fungible goods, with title taken on a quality and quantity basis.
Accordingly, and at the ultimate point of delivery, what the purchaser would actually receive is the same general volume and quality of natural gas (less any fuel consumed in transport), and having the same effective heat content that was delivered at the upstream point.
Pipeline transportation contracts generally provide for the commingling of the natural gas delivered to the pipeline with other natural gas, and require specified quality standards for natural gas being delivered to or by the pipeline.
Given the fundamental properties of natural gas (i.e., it is a fungible commodity, commingled with the contents of the pipeline on delivery, and therefore not separately identifiable once delivered), all of Tenaska''s shipments of the Canadian natural gas via the TCPL/GLGC pipeline were commingled with like natural gas and lost their separate identities once delivered to that pipeline. Furthermore, and when transported through the U. S, the Canadian natural gas would likely have been further commingled with U. S. produced natural gas, being delivered to the GLPS at various points in the U. S.
In the end, the change of ownership of the Canadian natural gas during its transit through the U. S. and the commingling of Canadian and American gas on the American part of the pipeline are not relevant to determine the purpose of the delivery from one place in Canada to another place in Canada. These facts form an intrinsic part of the economic reality of transporting natural gas via pipeline through the United States. This economic reality was very much in the mind of the drafter of the legislation and found its way in the terms used by Parliament."
46. From the submissions made on behalf of the petitioners as well as the averments made in the memorandum of petition and the documents annexed therewith as well as from the above referred decision of the Allahabad High Court, it is apparent that due to its unique physical properties, large volumes of natural gas can only be transported in a continuous stream. Once delivered into a pipeline for transportation, it becomes co-mingled with other natural gas. Individual molecules are not separately identifiable and cannot be accurately tracked or traced. As a result, natural gas is sold and purchased on a "quality and quantity basis", and treated as a fungible goods, with title taken on a quality and quantity basis. As discussed hereinabove, once the gas is injected at the ONGC''s off-shore pipeline, the same is received downstream of ONGC''s sweetening and separation facilities at Hazira. However, merely because the gas which is delivered at the offshore T-junction is co-mingled with other gases, does not detract from the fact that prior thereto, the natural gas sold by the seller to the buyer, was ascertained at the off-shore processing facility and appropriated to the contract of sale and delivered at the delivery point. The subsequent sweetening of the gas post appropriation, does not change the situs of the sale in terms of clause (b) of section 4(2) of the CST Act, in view of the fact that the situs of the sale is at the off-shore processing facility where the ascertained goods were separated and measured and appropriated to the contract and delivered to the buyer at the delivery point, where the title of the goods also stood transferred to the buyer in terms of article 27.2 of the PSC. Under the circumstances, the appropriation of goods has taken place at the off-shore processing facility and the goods are delivered at the delivery point, namely, at the upstream weld at the underwater connection between the seller''s pipeline and ONGC''s underwater gas transmission line which transport gas from the Bassein Field to the Hazira area, that is, outside the State of Gujarat. Once it is held that the sale is not within the State of Gujarat, as a natural sequitur thereto, the State of Gujarat is not authorised or empowered to levy sales tax on such transaction.
47. As noticed earlier, it has been alternatively contended on behalf of the petitioners that if at all the sale is held to be not outside the State of Gujarat, the sale has taken place in the course of import of the goods into the territory of India, inasmuch as, the goods are imported from off-shore Panna-Mukta oil fields which are not situated within the territory of India and hence, the sale of goods is in the course of import of goods into the territory of India and therefore also, the provisions of the GST Act would not be attracted.
48. In the context of the controversy as to whether the sale of goods has taken place in the course of import, the learned counsel for the respective parties have placed reliance upon the decision of the Supreme Court in the case of
48.1 In
48.2 In
"73. A combined reading of sections 3 , 6 and 7 of the Maritime Zones Act, 1976 shows that territorial waters, the seabed and sub-soil underlying therein and the air space over such territorial waters form part of the territory of India. Sovereignty of India extends over the territorial waters but the position is different in the case of Continental Shelf and Exclusive Economic Zone of India. The Continental Shelf of India comprises of the seabed beyond the territorial waters to a distance of 200 nautical miles. The Exclusive Economic Zone represents the sea or waters over that Continental Shelf.
74. From the reading of sections 6 and 7 of the Maritime Zones Act, 1976, it is clear that in respect of the Continental Shelf and Exclusive Economic Zone, India has been given only certain limited sovereign rights and such limited sovereign rights conferred on India in respect of Continental Shelf and Exclusive Economic Zone cannot be equated to extending the sovereignty of India over the Continental Shelf and Exclusive Economic Zone as in the case of territorial waters. Sub-section (6) of section 6 and sub-section (7) of section 7 of the Maritime Zones Act, 1976 empower the Central Government by notification to extend any enactment in force in India with such restrictions and modifications which it thinks fit to the Continental Shelf and the Exclusive Economic Zone and further provides that an enactment so extended shall have effect as if the Continental Shelf or the Exclusive Economic Zone to which the enactment has been extended is a part of the territory of India. Thus, sub-section (6) of section 6 and sub-section (7) of section 7 create a fiction by which the Continental Shelf and the Exclusive Economic Zone are deemed to be a part of India for the purposes of such enactments which are extended to those areas by the Central Government by issuing a notification.
In exercise of the powers vested in the Central Government under sub-section (6) of section 6 and sub-section (7) of section 7 of the Maritime Zones Act, 1976, the Government extended the Customs Act, 1962 and the Customs Tariff Act, 1976 to the designated areas of the Continental Shelf and the Exclusive Economic Zone by notification published in the Official Gazette referred to and reproduced in paragraphs 29 to 32.
........
97.... The combined effect of these notifications is to extend the application of the Customs Act and the Customs Tariff Act to the aforesaid areas declared as ''designated areas'' under the Maritime Zones Act, 1976. The further effect of these notifications is that the designated areas of the Continental Shelf and the Exclusive Economic Zone become a part of the territory of India for limited purposes. The natural consequence of such declarations and the extension of the Customs Act and the Customs Tariff Act to these designated areas is to introduce the customs regime to such areas resulting in the levy and collection of customs duties on goods imported into these areas as if these areas are a part of the territory of India. In these circumstances, the definition of ''India'' as given in section 2(27) of the Customs Act gets extended by these provisions to cover areas declared as designated areas beyond the territorial waters and located the Continental Shelf and the Exclusive Economic Zone of India. If one reads the Customs Act without reading the Maritime Zones Act, 1976, then the oil rig located in the notified areas/designated areas constitute ''place outside India''. On the other hand, the very purpose of sections 5 , 6 and 7 of the Maritime Zones Act, 1976 is to declare an area of the Contiguous Zone/Continental Shelf/Exclusive Economic Zone as a designated area so that exploration, exploitation and protection of resources belonging to India could be carried out. Under the said Act, the Central Government can create artificial island, offshore terminals, etc. By the said Act, customs and other fiscal enactments have been extended. Therefore, the object is very clear that the revenue generated from exploration and exploitation should accrue to the coastal State, viz., India..."
48.3 In
48.4 In
"34. From the above provisions it can clearly be seen that though Union of India has certain rights over the Exclusive Economic Zone, the Indian Union does not have sovereignty over such an region Clause (a) to sub-section (7) of section 7 , for example provides that the Union has, over the Exclusive Economic Zone, sovereign rights for the purpose of exploration/exploitation, conservation and management of the natural resources. Sovereign rights are thus for the limited purposes provided therein.
Sub-section (4) of section 7 does not speak of unlimited sovereign rights much less sovereignty of the Union of India over the Exclusive Economic Zone. It is only by virtue of the notification in Official Gazette that the Central Government may declare any area of Exclusive Economic Zone to be a designated area and make such provision as it may deem necessary with respect to such area for different purposes including for the purpose of customs and other fiscal matters in relation to such designated area. Further sub-section (7) of section 7 empowers the Central Government to issue notification to extend certain laws to any part of the Exclusive Economic Zone and to make such provisions as are necessary for enforcement of such enactments. It is further provided that thereupon the enactments so extended shall have effect as if the Exclusive Economic Zone or the part thereof to which it has been extended is a part of the territory of India. The language used in clause (b) of sub-section (7) of section 7 to the Maritime Zones Act is significant as it does not provide that the designated area upon notification by the Union of India, shall be part of the territory of India. It provides that law so notified shall be extended as if the Exclusive Economic Zone or the part thereof is a part of the territory of India. The language is clear and gives rise to a deeming fiction for the limited purpose of extension and application of laws notified and for that limited purpose Exclusive Economic Zone shall be deemed to be a part of the territory of India. It is not the same thing as to suggest that Exclusive Economic Zone becomes part of the territory of India. It is not even the case of the respondents that the Exclusive Economic Zone is part of the territory of India as provided in article 1 of the Constitution of India. There is no claim of sovereignty over such an area, it is sovereign rights which are extended to such area by virtue of formation of Exclusive Economic Zone for the limited purposes envisaged under the statute. By virtue of clause (b) of sub-section (7) of section 7 of the Maritime Zones Act it becomes further clear that as and when Union of India issues notification extending any enactment over the Exclusive Economic Zone or part thereof such enactment extended is applicable as if the Exclusive Economic Zone or part thereof to which it has been extended is a part of the territory of India.
35. In view of the above discussion, it clearly emerges that when the sale of goods took place at Bombay High, for which the goods moved from Hazira to Bombay High, such movement does not get covered within the expression ''movement of goods from one State to another'' contained in clause (a) of section 3 of CST Act. It is clear that the goods had not been moved from one State to another since, in our opinion, Bombay High does not form part of any State of Union of India.
..........
40. By a notification dated February 27, 2010 provisions of Chapter V of Finance Act, 1994 (pertaining to service tax) have been extended to Continental Shelf and Exclusive Economic Zone as indicated for the purposes specified in the notification. It can thus be seen that the Central Government has been issuing notifications extending different taxing statutes to designated areas, Continental Shelf and Exclusive Economic Zone. Such notifications have been issued extending the Income-tax Act, 1961, Customs Act and the Customs Tariff Act, Central Excise Act and the Central Excise Tariff Act, the service tax and the provisions contained in the Finance Act, 1994. However, admittedly, no such notification has been issued extending all or any of the provisions of the CST Act to any of the designated areas, Continental Shelf or Exclusive Economic Zone. To our mind in absence of such notification, respondents could not have demanded tax under the CST Act from the petitioners on its sale of machinery, parts, etc., to respondent No. 5, which sale was completed at Bombay High.
42. The decision in the case of
In the present case, however, we are confronted with the situation where CST Act has not been extended by issuance of notification by the Central Government to the Continental Shelf of the Exclusive Economic Zone."
49. On behalf of the respondents, strong reliance had been placed upon the decision of the Bombay High Court in the case of
50. The facts are not in dispute. Pursuant to the contract of sale, namely the PSC and the ISPA, there has been a movement of goods from the Panna-Mukta oil fields to the State of Gujarat. The question that, therefore, arises is whether the sale of goods is in the course of import of goods into the territory of India. The Supreme Court in the case of
51. It may be noted that while a specific contention has been raised by the petitioners in the memorandum of petition that the Panna and Mukta oil/gas fields are located in the area of economic zone as defined in the Maritime Zones Act; the location of the said oil/gas fields is beyond the Territorial Waters of India; and since the natural gas has been imported by the joint venture from the gas field to Hazira, no tax can be levied on such transaction in terms of article 286 of the Constitution, on behalf of the respondents nothing has been pleaded on the basis of the notifications that find place in the above decisions to contend that by virtue of the deeming fiction, the Panna-Mukta oil/gas fields stand included within the territory of India and therefore, the sale is not in the course of import of goods into the territory of India. On behalf of the petitioners, it has been contended that the statements and assertions regarding Customs frontiers having been extended to the Exclusive Economic Zone which are not supported by any pleadings and documents must be disregarded. While it is true that the facts regarding issuance of the notifications which find reference in the above decisions do not form part of the pleadings in the present case, nonetheless, this court cannot be oblivious to the notifications which find reference in the above decisions. Besides, on behalf of the petitioners it has not been asserted during the course of arguments that the Panna-Mukta oil fields are not covered by the said notifications. From the above decisions, it is clear that by Notification No. 429(E) dated July 18, 1986 the Central Government in exercise of powers conferred by clause (a) of subsection (5) of section 6 and clause (a) of sub-section (6) of section 7 of the Maritime Zones Act, has declared the areas in the Continental Shelf or, as the case may be, in the Exclusive Economic Zone of India where the installations, structures and platforms, the coordinates of which are given in the Schedule below the same, are situated and the areas extending up to five hundred metres from the said installations, structures and platforms as designated areas for the purposes of the said sections. As per Notification No. 11/87-Customs dated January 14, 1987, issued in exercise of powers conferred by clause (a) of sub-section (5) of section 6 of and clause (a) of sub-section (6) of section 7 of the Maritime Zones Act, the provisions of the Customs Act, 1962 were extended to the areas in the Continental Shelf and the Exclusive Economic Zones of India. By Notification No. S. O. 643(E) dated September 19, 1996, the Central Government in exercise of powers conferred by clause (a) of sub-section (5) of section 6 and clause (a) of sub-section (6) of section 7 of the Maritime Zones Act, has declared the areas in the Continental Shelf or, as the case may be, in the Exclusive Economic Zone of India where the installations, structures and platforms, the coordinates of which are given in the Schedule below the same, are situated and the areas extending up to five hundred metres from the said installations, structures and platforms as designated areas for the purposes of the said sections. By Notification No. S. O. 189(E) issued on February 11, 2002, the Central Government in exercise of powers conferred by clause (a) of sub-section (5) of section 6 of and clause (a) of sub-section (6) of section 7 of the Maritime Zones Act, extended the provisions of the Customs Act, 1962 and Customs Tariff Act, 1975 to the Continental Shelf of India and the Exclusive Economic Zone of India for the purposes of:
"(a) the prospecting for extraction or production of mineral oils in the Continental Shelf of India or the Exclusive Economic Zone of India, and
(b) the supply of any goods as defined in clause (22) of section 2 of the Customs Act, 1962 in connection with any of the activities referred to in clause (a).
The Explanation thereto provides that for the purposes of that notification "mineral oils" include petroleum and natural gas."
52. The Supreme Court in
"73. A combined reading of sections 3 , 6 and 7 of the Maritime Zones Act, 1976 shows that territorial waters, the seabed and sub-soil underlying therein and the air space over such territorial waters form part of the territory of India. Sovereignty of India extends over the territorial waters but the position is different in the case of Continental Shelf and Exclusive Economic Zone of India. The Continental Shelf of India comprises of the seabed beyond the territorial waters to a distance of 200 nautical miles. The Exclusive Economic Zone represents the sea or waters over that Continental Shelf.
74. From the reading of sections 6 and 7 of the Maritime Zones Act, 1976, it is clear that in respect of the Continental Shelf and Exclusive Economic Zone, India has been given only, certain limited sovereign rights and such limited sovereign rights conferred on India in respect of Continental Shelf and Exclusive Economic Zone cannot be equated to extending the sovereignty of India over the Continental Shelf and Exclusive Economic Zone as in the case of territorial waters. Sub-section (6) of section 6 and sub-section (7) of section 7 of the Maritime Zones Act, 1976 empower the Central Government by notification to extend any enactment in force in India with such restrictions and modifications which it thinks fit to the Continental Shelf and the Exclusive Economic Zone and further provides that an enactment so extended shall have effect as if the Continental Shelf or the Exclusive Economic Zone to which the enactment has been extended is a part of the territory of India. Thus, sub-section (6) of section 6 and sub-section (7) of section 7 create a fiction by which the Continental Shelf and the Exclusive Economic Zone are deemed to be a part of India for the purposes of such enactments which are extended to those areas by the Central Government by issuing a notification.
75. In exercise of the powers vested in the Central Government under sub-section (6) of section 6 and sub-section (7) of section 7 of the Maritime Zones Act, 1976, the Government extended the Customs Act, 1962 and the Customs Tariff Act, 1976 to the designated areas of the Continental Shelf and the Exclusive Economic Zone by notification published in the Official Gazette referred to and reproduced in paras 29 to 32.
. ..........
85. Reading of sections 6 and 7 of the Maritime Zones Act, 1976 makes it clear that India''s jurisdiction over the Maritime Zones Act, 1976 extends to the Continental Shelf and Exclusive Economic Zone. Consequently, if mineral oil is extracted or produced in the Exclusive Economic Zone or Continental Shelf and is brought to the mainland, it will not be treated as import and, therefore, no customs duty would be leviable. Likewise, goods supplied to a place in the Exclusive Economic Zone or Continental Shelf will not be treated as export under the Customs Act and no export benefit can be availed of on such supply. Any mineral oil produced in the Exclusive Economic Zone or Continental Shelf will be chargeable to Central excise duty, as goods produced in India.
86. Implication of Notification No. S. O. 189(E) dated February 7, 2002 and its consequences have been clarified in Circular No. 17 of 2002-Customs , dated March 13, 2002 in following terms:
''3. The implication of the said notification is that mineral oils extracted or produced in the EEZ and Continental Shelf of India if brought to the mainland shall not be treated as import and therefore, no customs duty shall be leviable on such mineral oils. Likewise, the goods supplied from the mainland to a place in EEZ or Continental Shelf of India in connection with any activity related to mineral oil extraction or production shall not be treated as export under the Customs Act, 1962 and consequently, no export benefits can be availed of on such supplies. Another implication of the said notification is that bringing of any goods from any other country to any place in EEZ or Continental Shelf of India in connection with any activity related to extraction or production of mineral oils shall be treated as import under the Customs Act, 1962 and would be charged to duty accordingly. Further, mineral oils produced in the EEZ or Continental Shelf of India would be deemed to be produced in India and subject to levy of Central excise duties under the Central Excise Act, 1944.''
87. Similarly, in Circular No. 22 of 2002 dated April 23, 2002, the said notification, i.e., S. O. 189(E) has been clarified in para 3 as under:
''3. The implication of the said notification is that mineral oils extracted or produced in the EEZ and Continental Shelf of India if brought to the mainland shall not be treated as import and therefore, no customs duty shall be leviable on such mineral oils. Likewise, the goods supplied from the mainland to a place in EEZ or Continental Shelf of India in connection with any activity related to mineral oil extraction or production shall not be treated as export under the Customs Act, 1962 and consequently, no export benefits can be availed of on such supplies. Another implication of the said notification is that bringing of any goods from any other country to any place in EEZ or Continental Shelf of India in connection with any activity related to extraction or production of mineral oils shall be treated as import under the Customs Act, 1962 and would be charged to duty accordingly.''
. .........
97. The combined effect of these notifications is to extend the application of the Customs Act and the Customs Tariff Act to the aforesaid areas declared as ''designated areas'' under the Maritime Zones Act, 1976. The further effect of these notifications is that the designated areas of the Continental Shelf and the Exclusive Economic Zone become a part of the territory of India for limited purposes. The natural consequence of such declarations and the extension of the Customs Act and the Customs Tariff Act to these designated areas is to introduce the customs regime to such areas resulting in the levy and collection of customs duties on goods imported into these areas as if these areas are a part of the territory of India. In these circumstances, the definition of India'' as given in section 2(27) of the Customs Act gets extended by these provisions to cover areas declared as designated areas beyond the territorial waters and located the Continental Shelf and the Exclusive Economic Zone of India. If one reads the Customs Act without reading the Maritime Zones Act, 1976, then the oil rig located in the notified areas/designated areas constitute ''place outside India''. On the other hand, the very purpose of sections 5 , 6 and 7 of the Maritime Zones Act, 1976 is to declare an area of the Contiguous Zone/Continental Shelf/Exclusive Economic Zone as a designated area so that exploration, exploitation and protection of resources belonging to India could be carried out. Under the said Act, the Central Government can create artificial island, off-shore terminals, etc. By the said Act, customs and other fiscal enactments have been extended. Therefore, the object is very clear that the revenue generated from exploration and exploitation should accrue to the coastal State, viz., India.
98. As stated above, the area of Exclusive Economic Zone/Continental Shelf, where the oil rigs are stationed (which of course is outside territorial waters) is deemed to be a part of the territory of India under the Central Government notifications issued pursuant to the provisions of the Maritime Zones Act, 1976. The supply of imported spares or goods or equipments to the rigs by a ship will attract import duty and the ship employed for transshipment of the goods for that purpose would not be a foreign going vessel under section 2(21) of the Customs Act. The area of discharge or unloading/loading is within India by virtue of the deeming provisions of sections 6 and 7 of the Maritime Zones Act, 1976. The Customs Act stands extended to the designated areas by virtue of the Maritime Zones Act, 1976. The oil rigs carrying on operations in the designated area is not a foreign going vessel as the same would be deemed to be a part of Indian territory, i.e., going from the territory of India to an area which also deemed to be part of the territory of India."
53. Thus, by virtue of the notifications dated July 18, 1986 and September 19, 1996 issued under clause (a) of sub-section (5) of section 6 and clause (a) of sub-section (6) of section 7 of the Maritime Zones Act, the Central Government has declared certain areas in the Continental Shelf or, in the Exclusive Economic Zone of India, where certain installations, structures and platforms of certain co-ordinates given in the Schedule are situated and the areas extending up to 500 metres from such installations, structures and platforms as "designated areas" for the purposes of sections 6 and 7 of the Maritime Zones Act, 1976. In view of the above notifications, the designated areas of the Continental Shelf and the Exclusive Economic Zone become part of the territory of India for limited purposes and the definition of "India" as given in section 2(27) of the Customs Act gets extended to cover areas declared as designated areas beyond the territorial waters and located in the Continental Shelf and the Exclusive Economic Zone of India. Undisputedly, the provisions of the Central Sales Tax Act have not been made applicable to the Continental Shelf and the Exclusive Economic Zone and having regard to the fact that these areas are outside the State of Gujarat, the question of applying the provisions of the GST Act would not arise. But the question involved in the present case is not as to whether the provisions of the CST Act or the GST Act would be applicable, but whether the movement of goods from the Panna-Mukta oil fields to Hazira within the State of Gujarat is a sale in the course of import into the territory of India. Therefore, what is required to be examined is whether the Panna-Mukta oil fields can be said to be outside the territory of India. Since the Panna-Mukta oil fields are situated in the Exclusive Economic Zone, they are not situated within the territory of India. But by virtue of a deeming fiction, in view of the above notifications issued under the Maritime Zones Act, such territory is deemed to be a territory of India. However, such deeming fiction also applies only to those enactments which have been specifically made applicable to the said territory. As noted earlier, the provisions of the Customs Act have been made applicable to the Continental Shelf and the Exclusive Economic Zone for the purposes stated in the said notifications. One such purpose is prospecting for extraction or production of mineral oils in the Continental Shelf of India or the Exclusive Economic Zone of India. It may be noted that for the purposes of the said notification, "mineral oils" include petroleum and natural gas. Thus, for the purpose of extraction of natural gas in the Continental Shelf and the Exclusive Economic Zone, the provisions of the Customs Act apply. Consequently, the customs frontiers of India stand extended beyond the designated areas, viz., Continental Shelf and the Exclusive Economic Zone for the said purpose and accordingly, the Panna-Mukta oil fields fall within the customs frontiers of India.
54. On behalf of the petitioners, it has been contended that the extension of the customs frontiers of India on account of the applicability of the provisions of the Customs Act to the designated area would not mean that the territory of India stands extended to the designated area even for the purpose of the Sales Tax Acts. For this purpose, reference may be made to section 5 of the Central Sales Tax Act, which provides as to when a sale or purchase of goods is sought to take place in the course of import or export. In the present case, the relevant provision would be sub-section (2) of section 5 , which says that a sale or purchase of goods shall be deemed to take place in the course of import of goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. The expression "Crossing the Customs Frontiers of India" has been defined under clause (ab) of section 2 of the CST Act to mean crossing in the limits of the area of a customs station in which the imported goods or export goods are ordinarily kept before clearance by customs authorities. The Explanation says that for the purpose of this clause, "customs station" and "customs authorities" shall have the same meaning as in the Customs Act, 1962. Therefore, the import of sub-section (2) of section 5 of the CST Act would be that for the purpose of falling within the ambit of the expression "import" the goods have to cross the customs frontier so as to fall with the purview of the expression "in the course of import into the territory of India". In the present case, the provisions of the Customs Act have been made applicable to the designated areas and consequently, the customs frontiers stand extended beyond the designated areas and hence, the Panna-Mukta oil fields from where the movement of goods is occasioned in the present case, fall within the customs frontiers of India. Once the oil fields fall within the customs frontiers of India, the movement of goods therefrom, cannot be said to be movement in the course of import of goods into the territory of India, inasmuch as, the said oil fields are within the customs frontiers of India. Therefore, the contention that the sale of goods has taken place in the course of import of goods into the territory of India cannot be accepted. In the opinion of this court, there is no contradiction between the decision of the Bombay High Court in the case of
55. The learned advocates for the petitioners have submitted that the sweetening of gas at the sweetening and separation facility of ONGC at Hazira does not amount to manufacture, whereas on behalf of the respondents, it has been emphatically argued that having regard to the definition of "manufacture" as defined under clause (16) of section 2 of the GST Act, the conversion of sour natural gas into sweetened natural gas amounts to manufacture and would attract the provisions of the GST Act. Having regard to the fact that this court has held that what was agreed to be purchased was natural gas, and the goods as agreed, viz., natural gas stood appropriated at the off-shore processing facility and delivered at the delivery point as contemplated under sub-clause (iv) of clause (a) of article 21.5.13 of the PSC, and consequently, the sale did not take place within the State of Gujarat, the question as to whether subjecting the natural gas to the process of sweetening amounts to manufacture is rendered redundant. Under the circumstances, it is not necessary to enter into the merits of the question as to whether the processing of natural gas at the ONGC''s sweetening and separation facility whereby the sour gas is converted into sweetened gas, amounts to manufacture or not.
56. At this juncture, it may be noted that on behalf of the respondent-State of Gujarat, Mr. S.N. Shelat had submitted that the sale of goods is required to fall in any of the three categories, namely, (i) sale in the course of inter-State trade, (ii) sale in the course of import or export of goods, or (iii) sale within the State. It was submitted that there is no fourth category and that in the present case, it is an admitted position that the sale in question is not an inter-State trade, and according to the respondents, the sale would not fall within the category of a sale in the course of import of goods into the territory of India and hence, the sale can only fall within the third category, that is, within the State of Gujarat.
57. In this regard, it may be apposite to refer to the decision of this court in the case of
"8. Shri Rajaram Agarwal, learned counsel for the assessees, raised a new contention before us, which we have already referred to as an alternative contention. This contention which really seems to be unanswerable appears to have been missed at the stage of the High Court but this contention is purely one of law and merits consideration. The point made by him was this. There is no dispute that the assessees have transferred the manufactured goods by way of sale and that these goods have been despatched to various ports of India. The exact terms of despatch are not clear and there are no facts on record which will help us to understand the course of transactions in the several cases before us. But Shri Agarwal submitted that the sales made by the assessees can only fall within one of three categories. They are either local sales or inter-State sales or export sales. Each of the assessees has sold its goods to another dealer. If that dealer is also a resident of Haryana and has taken delivery of the goods in Haryana and exported them thereafter, the assessees'' sales would be local sales. If the purchasing dealer of the manufactured goods is in some other State and the goods have been moved out of Haryana in pursuance of that sale, they would be inter-State sales. The goods which have been sold by the assessee must have been delivered to the dealer in pursuance of the sale either within the State or outside the State in India. In either event, it would be a sale covered by the exceptions in section 9(1) . It would be a local sale or inter-State sale. The only third possibility is that the assessee sold the goods to a dealer outside India and exported the goods in pursuance of that sale in which event it would be a sale within the meaning of section 5(1) of the Central Sales Tax Act.
9. We think Shri Agarwal is right in saying that any sale effected by the assessees in the circumstances, which have been set out by us earlier, must fall in one of three categories. We are unable to conceive of a fourth category of sale, which could be neither a local sale nor an inter-State sale nor an export sale. Shri Gupta, on behalf of the State, contended that the goods might have been directly moved by the assessee to a port for shipment abroad in pursuance of an export contract entered into by the dealer who purchased from the assessee. Even in such a case if the transport of goods from the assessee''s place of business to the port is in pursuance of the terms of the sale, the movement of the goods would be occasioned by the sale made by the assessee and would be an inter-State sale. If, on the other hand, the goods were sent to the port by the assessee subsequent to and independent of the sale made by him, then, for the purpose of that transport, the assessee would only be an agent of the purchaser and the movement of the goods in pursuance of the contract of sale entered into by the purchaser and would be one in the course of export within the meaning of section 5(1) of the Central Sales Tax Act. As pointed out by Shri Agarwal, even in
This court, after considering the above decision, held thus (page 387 in 45 VST):
"We are, however, unable to accept the contention. The observations of the apex court cannot be seen in isolation and it is well-settled that it is not observation of the court but what the court holds in the fact-situation of a given case which is the ratio that can be applied in similar set of facts and circumstances. In the decision of
In the facts of the above case, it was held that when the sale of goods took place at Bombay High, such movement was not covered within the expression "movement of goods from one State to another" contained in clause (a) of section 3 of the CST Act. The goods had not moved from one State to another since Bombay High does not form part of any State of the Union of India. In the present case, this court has held that the movement of goods is not in the course of import of goods into the territory of India and that the sale has not taken place within the State of Gujarat and the parties do not dispute that the sale is not an inter-State trade. Therefore, the sale does not fall within any of the three categories. This case is squarely covered by the above referred decision as the goods have been sold within the deemed territory of India but not within any State of the Union of India. As observed by this court in the above decision, the Supreme Court in the case of
58. On behalf of the petitioners, it has also been contended that the show-cause notices for reopening the assessment and the reassessment orders are without jurisdiction and ab initio void. It has been contended that in respect of five years, namely, 1997-98 to 2001-02, the original assessment of the assessee, namely, BG Exploration is a "nil" assessment insofar as the Panna-Mukta gas is concerned. Notices of reassessment in each of these five years were issued on October 20, 2003 and the reply of the petitioners was filed on December 12, 2003 and the reassessment orders were passed on January 9, 2004 and for others, on January 20, 2004. It has been submitted that on September 30, 1999, the petitioner had written to the Additional Commissioner of Sales Tax enclosing a copy of the PSC and relying upon several articles thereof. On January 7, 2002, the Additional Commissioner of Sales Tax had issued a show-cause notice for the year 2001-02 with reference to the letter dated September 30, 1999 wherein he had dealt with various aspects of the PSC according to his interpretation. On January 28, 2002, the petitioner submitted a reply relying on various clauses of the PSC and in paragraph 7 thereof, a specific reference was made to ISPA. On March 4, 2002, the petitioner filed a supplementary reply clarifying some issues such as delivery point, etc., and explained the difference between sour gas and sweetened gas and maintained that they continue to remain the same commercial commodity. Thus, the assessing officer had before him the PSC and the ISPA as well as detailed submissions made by the petitioners on various clauses of the PSC. After considering all the above material, the assessing officer passed a "nil" assessment order (so far as Panna-Mukta gas was concerned) for the year 2001-02 on June 30, 2003 and on the same date, a "nil" assessment order was also passed for the year 2000-01. According to the petitioners, having regard to the fact that "nil" assessment orders were passed on June 30, 2003, there was absolutely no reason to believe that any turnover of Panna-Mukta gas had escaped assessment to invoke section 44 of the Gujarat Sales Tax Act on October 20, 2003 and that between June 30, 2003 and October 20, 2003, the assessing officer had no new material before him nor did he discover any new fact that was unknown to him. Reliance has been placed upon various decisions of the Supreme Court as referred to hereinabove. On behalf of the respondents, it has been contended that the respondent-authorities were required to carry out reassessment under section 44 of the GST Act for the reason that the petitioners in their returns did not show the transaction of Panna-Mukta gas fields and thus, evaded tax. It was only after a search operation was carried out that the respondent-authorities issued a show-cause notice and a statutory notice for reassessment under section 44 of the GST Act, 1969. Since the decisions of the Supreme Court in
"17. Section 41B providing for provisional assessment reads as under:
''41B. Provisional assessment.--(1) Where the Commissioner has reason to believe that the dealer has evaded the tax, he may, after taking into account all relevant materials gathered by him and after giving the dealer a reasonable opportunity of being heard, provisionally assess to the best of his judgment the amount of tax payable by the dealer.
(2) The provisions of this Act shall mutatis mutandis apply to the provisional assessment as if provisional assessment were an assessment made under this Act.''
(Underlining Here italicised to invite pointed attention and for emphasis)
18. A bare perusal of the above quoted provision would go to show that resort to provisional assessment can be made by the Commissioner or his delegate as assessing authority only if he ''has reason to believe that a dealer has evaded the tax''.
19. Neither in its show-cause notice issued prior to making a provisional assessment nor in the assessment orders, the assessing authority has recorded reasons or grounds for coming to the conclusion that dealer has evaded the tax. As has been mentioned above in the order effecting the seizure of its account books, the assessing authority found that certain works contracts were liable to be taxed under the Central Sales Tax Act which were in the nature of branch transfers. In the orders of assessment, the assessing authority has reproduced the stand taken on behalf of the assessee that ''such branch transfers were made for completing the works in accordance with the orders and specification of customers outside the State and were not sales but were merely transactions in the course of works contract''. The assessing officer has also in the order of assessment, rejected the contention advanced on behalf of the petitioner that the branch transfers were inter-State works contract and not inter-State sales. He held them exigible to tax under the Central Act. It is on taking such view of law that the assessing officer provisionally assessed the petitioner and consequently imposed tax, interest and penalty on it for the different assessment periods under consideration. On the facts and legal position disclosed by the dealer, we do not find that there existed any grounds and circumstances for the assessing officer to reasonably form an opinion ''that the dealer has evaded the tax''. Such formation of opinion is pre-condition for invoking the power of provisional assessment under section 41B of the Act. In its affidavit in reply to the petition, the impugned order and provisional assessments are sought to be supported by stating thus:
''as a very large amount of tax was involved and regular assessment of the petitioner was likely to take time, I decided to make provisional assessment.''
20. From the portion quoted above, it is amply clear that at no point of time the assessing officer had any reason to believe that the dealer has evaded the tax. The expression ''evasion of tax'' conveys mens rea on the part of the dealer. The expression conveys a meaning that the dealer by infringing the law has been trying to avoid payment of tax in due time."
59. It may be noted that in some of the cases before this court, orders of provisional assessment are under challenge whereas in some cases orders of reassessment are under challenge. While taking action under section 41B of the GST Act, the Commissioner should have reason to believe that the dealer has evaded the tax, whereas while taking action under section 44 of the GST Act, the Commissioner should have reason to believe that any turnover of sales or turnover of purchases of any goods chargeable to tax under that Act has escaped assessment or has been under-assessed or assessed at a lower rate in respect of any period in an order of assessment under section 41 . Therefore, in either case, the Commissioner should have reason to believe that the dealer has evaded the tax; or that any turnover of sale or purchase of goods chargeable to tax has escaped assessment or is under-assessed or assessed at a lower rate. Therefore, while resorting to provisional assessment or reassessment, the Commissioner should have reason to believe. In the present case, a perusal of one of the show-cause notices issued under section 44 of the GST Act reveals, that according to the Commissioner the petitioner had not been paying sales tax on the sale of natural gas pursuant to the PSC because the delivery point was off-shore underline connection at ONGC''s existing pipeline and title of goods passed to GAIL at the same point, however, a sale of ascertained goods cannot be deemed to take place in the state of origin because the commingled and unsweetened gas is unascertained or future goods and it is only at the time of their appropriation as sweetened gas to the contract of sale by them to GAIL at Hazira, where actual physical delivery and sales take place. In this regard, it may be noted that similar objections were raised by the Commissioner in the year 1999, pursuant to which Enron, the predecessor of the petitioner-BG Exploration had given its reply dated September 3, 1999. Thereafter, the Additional Commissioner had addressed a communication dated September 15, 1999 calling for further details, in response to which the said petitioner had given a detailed reply dated September 23, 1999. On January 7, 2002, the Additional Commissioner of Sales Tax (Enforcement) issued a show-cause notice for the year 2001-2002 referring to the above letter dated September 3, 1999 and dealt with various aspects of the PSC according to his interpretation. In response thereto, the petitioner gave a detailed reply dated January 28, 2002 as well as a reply dated March 4, 2002 clarifying some issues such as delivery point as well as the difference between sweet and sour gas, etc., and the fact that sweet and sour gas remain the same commercial commodity. The assessing officer, therefore, had before him, the PSC, the ISPA as well as the detailed submissions of the petitioner on various clauses of the PSC and after considering all the above material, he passed a NIL assessment order for the year 2001-02 on June 30, 2003. On the same day, NIL assessment order was also passed for the year 2000-01. Thereafter show-cause notice dated October 20, 2003 came to be issued under section 44 of the GST Act for reassessment for the year 1998-99. Similar show-cause notices have been issued in respect of subsequent years also.
60. From the facts noted hereinabove, as well as on a perusal of the show-cause notice dated January 7, 2002 issued by the Additional Commissioner, it is evident that the show-cause notice for reassessment had been issued on the very same grounds as in the previous show-cause notice. Therefore, when the assessing officer had, after applying his mind to the material produced before him and the grounds raised by him and the explanation given by the petitioner, issued a subsequent show-cause notice on the very same grounds, it is nothing but a mere change of opinion. A perusal of the subsequent show-cause notice shows that there is no other material before the assessing officer between June 30, 2003 when the assessment order for the year 2001-02 came to be made and October 20, 2003 when the notice under section 44 of the GST Act came to be issued. The show-cause notice reads thus:
"With reference to above, it has come to our notice that you have been supplying natural gas from Panna-Mukta gas fields to M/s. Gas Authority of India Ltd., Hazira, since 1997-98.
You have not been paying any sales tax in Gujarat State on the said transactions on the ground that delivery point of Panna-Mukta fields is at off-shore underline connection at O.N.G.C''s existing pipeline and title of goods is passed to GAIL at the same point. Hence movement of goods from Panna-Mukta gas fields to Hazira is in pursuance of productions sharing contract, falling under section 3 or 5 of Central Sales Tax Act. Therefore it is exempted from sales tax in Gujarat State.
But looking to the facts and legal position, a sale of ascertained goods cannot be deemed to take place in the stage of origin because the commingled and unsweetened gas is unascertained or future goods and it is only at the time of their appropriation as sweetened gas to the contract Of sale by you to GAIL at Hazira, where actual physical delivery and sale takes place.
Hence, you are liable to any sales tax in Gujarat State on the sales of Panna-Mukta gas fields as per Gujarat Sales Tax Act, 1969.
Your assessment for the year 1998-99 is finalised on dated May 5, 2000 under section 41(3) of the Gujarat Sales Tax Act is proposed to reassessment.
Therefore you are required to remain present at above-mentioned address on dated November 10, 2003 with your explanation that why sales tax, penalty and interest should not be levied on the said transactions as per the Gujarat Sales Tax Act, 1969, failure of which may result in to ex party decision. The notice under section 44 of the Gujarat Sales Tax Act, No. 37, for reassessment for the year 1998-99 is attached herewith and detailed statement of sales of Panna-Mukta Gas Oil field, since 1997-98 to 2001-03 is also attached herewith."
61. At this juncture, reference may be made to the reply dated January 28, 2002 of the petitioners and more particularly paragraphs 23 to 27 thereof, which clearly show that the very issues raised in the present show-cause notice had already been dealt with in detail by the petitioners, and such explanation had been accepted by the assessing officer who passed a NIL assessment order. Therefore, while issuing the show cause notice under section 44 of the GST Act, the Commissioner was required to have reason to believe that any turnover of sales or purchase had escaped assessment. The formation of such opinion is a precondition for exercise of powers, both under section 41 as well as section 44 of the GST Act. The Supreme Court in
"On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done, under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the assessing officer to make a back assessment, but in section 147 of the Act (with effect from April 1, 1989), they are given a go-by and only one condition has remained, viz., that where the assessing officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-April 1, 1989, power to reopen is much wider, However, one needs to give a schematic interpretation to the words ''reason to believe'' failing which, we are afraid, section 147 would give arbitrary powers to the assessing officer to reopen assessments on the basis of ''mere change of opinion'', which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess the assessing officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of ''change of opinion'' is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place..."
62. On a plain reading of the above show-cause notice, it is apparent that the same does not disclose the formation of any opinion on the part of the Commissioner based on any new material on record. The reassessment is, therefore, sought to be made on a mere change of opinion. As held by the Supreme Court in
63. On behalf of the respondents, a preliminary objection has been raised with regard to the very maintainability of the petitions on the ground that the petitioners have an alternative statutory remedy by way of appeal available under the provisions of the GST Act and the petitioners have also resorted to such remedy.
64. On behalf of the respondent-State authorities, Mr. P.K. Jani, learned Additional Advocate General has contended that these petitions are not maintainable, inasmuch as, the petitions involve disputed questions of fact and the petitioners have already availed of the alternative statutory remedy under section 65 of the GST Act and the appeals preferred by the petitioners are pending for final adjudication. Therefore, these petitions are required to be rejected on the ground of there being an efficacious alternative remedy available to the petitioners. In support of such submission, reliance was placed upon the decision of the Supreme Court in
65. Out of this batch of seven petitions, three petitions were filed in the year 2004 and subsequently, after bipartite hearing, interim orders had been passed by the Division Bench on April 29, 2004. The other four petitions have been filed between 2007 to 2010. By the present petitions, the petitioners have challenged the very validity of the tax sought to be levied by the respondent-State authorities on the ground that the sales in question having been made outside the State of Gujarat, are not amenable to levy of tax under the Gujarat Sales Tax Act. Thus, the petitioners have challenged the very jurisdiction of the respondent-State authorities to levy the tax in question. The Supreme Court in
"... The Appellate Bench appears to have been under the impression that the Income-tax Officer was the sole Judge of the fact whether the firm in: question was resident or non-resident. This conclusion, in our opinion, is wholly wrong. No authority, much less a quasi-judicial authority, can confer jurisdiction on itself by deciding a jurisdictional fact wrongly. The question whether the jurisdictional fact has been rightly decided or not is a question that is open for examination by the High Court in an application for a writ of certiorari. If the High Court comes to the conclusion, as the learned single judge has done in this case, that the Income-tax Officer had clutched at the jurisdiction by deciding a jurisdictional fact erroneously, then the assessee was entitled for the writ of certiorari prayed for by him. It is incomprehensible to think that a quasi-judicial authority like the Income-tax Officer can erroneously decide a jurisdictional fact and thereafter proceed to impose a levy on a citizen. In our opinion, the Appellate Bench is wholly wrong in opining that the Income-tax Officer can ''decide either way''."
66. In
67. In
68. In
69. As regard the contention raised by the learned Additional Advocate General that the petitions involve disputed questions of fact, such contention must be stated, only to be rejected. These petitions as discussed hereinabove raise neat questions of law, which are required to be decided on a construction of the provisions of the agreements between the parties and the relevant statutory provisions. While deciding the questions arising in these petitions, this court has not been called upon to touch any issue involving a disputed question of fact.
70. Thus, in the light of the above decisions, it is apparent that where the very jurisdiction of the concerned authority is called in question and the petitions do not involve any disputed questions of fact, the validity of an alternative remedy would not be a bar to entertaining a writ petition under article 226 of the Constitution of India. Moreover, the present petitions have been filed way back in the years 2004 to 2010. At the relevant time, the court had admitted the petitions and had granted interim relief after bipartite hearing. The decision of the Supreme Court in the case of
71. To summarise:
"(i) On a conjoint reading of the production sharing contract and the interim sales and purchase agreement, it is apparent that what was agreed to be sold and purchased was natural gas.
(ii) At the stage when the PSC came to be executed, the gas was not discovered and was still in the wells and it was not even certain as to whether the Government of India would purchase all the gas that is produced and delivered. Therefore, though under the PSC 100 per cent of the deliverability of ANG and NANG and condensate was agreed to be produced and delivered, the goods, viz., natural gas cannot be said to be ascertained goods at the time when the production sharing contract came to be executed. Clause (a) of section 4(2) of the Central Sales Tax Act, 1956 would not be applicable to the transactions in question.
(iii) On a combined reading of the PSC and the ISPA, the delivery point is at the downstream weld at the underwater connection between the sellers'' pipeline and ONGC''s underwater gas transmission line/lines which transport gas from the Bassein Field to Hazira area, viz., the ''delivery point'' as contemplated under clause (a)(iv) of article 21.5.13 of the PSC and not downstream of the sweetening and separation facility owned and operated by ONGC.
(iv) The ISPA executed between the constituents of the contractor and the GAIL cannot amend, modify, vary or supplement the PSC. The price clause as contained in the ISPA which provides for payment at the rate of 90 per cent of the gas price specified in article 21.5.13(d) of the PSC for the net MMBtu of gas delivered at the downstream of ONGC facility at Hazira, would not modify the principal agreement between the parties, namely, that the gas is to be delivered at the delivery point as contemplated in clause (a)(iv) of article 21.5.13 of the PSC nor can the same be read to mean that the parties had agreed to sell and purchase sweetened gas.
(v) The price clause contained in the ISPA is only a mechanism by which the parties have decided the price of the goods and cannot be relied upon to decide the situs of the sale. Merely because the sellers have decided to charge on the basis of what is ultimately received by the buyer cannot be determinative of the fact as to where the sale takes place.
(vi) The goods, viz., natural gas were ascertained goods at the time when they came to be separated and measured at the offshore processing facility. The ascertained goods upon being separated and measured came to be appropriated to the contract and delivered at the delivery point. In terms of article 27.2 of the PSC, the title to the goods also passed to the buyer at the delivery point. The situs of the sale is the off-shore processing facility where the goods were appropriated to the contract. Therefore, it cannot be said that the goods in question were within the State of Gujarat at the time of their appropriation to the contract of sale so as to fall within the ambit of clause (b) of section 4(2) of the Central Sales Tax Act, 1956. The transactions in question are, therefore, not amenable to tax under the provisions of the Gujarat Sales Tax Act, 1969.
(vii) Merely because the natural gas upon being delivered at the delivery point was commingled with other gases, does not mean that it was not in a deliverable state because having regard to its unique physical properties, large volumes of natural gas can be transported only in a continuous stream and once delivered in the pipeline for transportation, it becomes commingled with other natural gas. Individual molecules are not separately identified and cannot be accurately tracked or traced. As a result, natural gas is sold and purchased on a "quality and quantity" basis.
(viii) The act of sweetening of natural gas, having taken place post appropriation, after the goods were delivered and the title had passed to the buyer outside the State of Gujarat, merely because post appropriation the goods were subjected to the process of sweetening within the State of Gujarat it cannot be said that the sale of goods has taken place within the State of Gujarat.
(ix) Since the provisions of the Customs Act, 1962 have been extended beyond the designated area, the Panna Mukta oil fields from where the movement of goods is occasioned fall within the customs frontiers of India. Consequently, the sale of goods cannot be said to have taken place in the course of import of goods into the territory of India as contemplated under sub-section (2) of section 5 of the Central Sales Tax Act, 1956.
(x) Since the sale of goods has taken place outside the State of Gujarat, the question as, to whether or not subjecting the natural gas to the process of sweetening amounts to manufacture becomes redundant, and hence, it not necessary to enter into the merits of the question as to whether or not the processing of the natural gas at ONGC''s sweetening and separation facility at Hazira, whereby the sour gas is converted into sweetened gas, amounts to manufacture.
(xi) The show-cause notices which form the basis of the impugned assessment orders are without jurisdiction as the same have been issued without formation of the requisite opinion as required under the provisions of sections 41 and 44 of the Gujarat Sales Tax Act, 1969 and are based on a mere change of opinion.
(xii) As the controversy involved in the present case goes to the very root of the jurisdiction of the Sales Tax Officer to levy sales tax under the provisions of the Gujarat Sales Tax Act, 1969, the availability of an alternative statutory remedy would not preclude the petitioners from invoking the extraordinary jurisdiction of this court under article 226 of the Constitution of India."
72. In the light of the above discussion, the petitions succeed and are accordingly allowed. Having regard to the fact that this court has held that the sales in question have not taken place within the State of Gujarat, the State of Gujarat has no authority to levy the sales tax under the provisions of the GST Act on the transactions in question. Consequently, all the assessment orders which have been called in question in each of the petitions are hereby quashed and set aside.
73. Vide interim orders dated April 1, 2004 and April 29, 2004 passed in Special Civil Application No. 2071 of 2004, 2084 of 2004 and 3119 of 2004, this court had directed the petitioners to deposit the amount as stated therein with the respondent-State authorities towards grant of partial interim relief in favour of the petitioners. In the light of the view taken by this court, the petitioners shall be entitled to refund of the amount deposited with the respondents with interest at the rate of nine per cent per annum. Rule is made absolute accordingly in each of the petitions.
74. At this stage, Mr. P.K. Jani, learned Additional Advocate General has requested that the operation of this judgment be stayed for a period of ten weeks so as to enable the respondents to approach the higher forum. The request is accepted. The operation of this judgment shall stand stayed for a period of ten weeks from today.
