OIL AND NATURAL GAS COMMISSION v. STATE OF BIHAR & Ors.

"I am writing to confirm that Indian Oil Corporation would be in a position to receive 300 tonnes a day of Lakwa crude via the Oil Pipeline any time from today. We would also wish you to augment the supplies so as to reach about a G H A B C D E 356 SUPREME COURT REPORTS [1977] 1 S.C.R. million tonnes per annum as soon as possible. The above 300 tonnes will be in addition to the supplies that we are receiving currently from OIL (Oil India Ltd.) and by rail from Rudrasagar. Kindly arrange to supply full analytical data regarding the .crude that you would be sending from Lakwa. I would also suggest that the pricing arrangement may also be worked out regarding the supply and intimated to us, if necessary, after consulting OIL." The next important document relates to the Minutes of the meet- ing held at the Office of the Chairman of the Corporation at New Delhi on 8 August, 1968. The representatives of the Corporation, the Commission and Oil India Limited were present. \ Crude oil supplied both by the Commirnion and Oil India Limited come through the pipeline belonging to Oil India Limited to refineries at Gauhati and Barauni belonging to the Corporation. The manner of measurement and of payment for crude is ascertained by the Cor poration from the Commission and Oil India Limited. At the meeting held on 18 October 1968, the Central Government representatives and repre~entatives of the petitioner, Oil India Limited It was decided that crude oil which and the Corporation were present. was being delivered to the refineries of the Corporation at Gauhati and Barauni is a mixture of Oil India Limited crude and the Com mission crude. Oil India Limited would send the bills· for entire quantities of crude, so delivered, giving the bifurcation of crude belonging to Oil India Limited and the Commission with API gravity of each. · · The document dated 23 February, 1968 records the price of crude oil purchased by the Corporation from the Commission and the basis on which payment should be made. Another document dated 17 February, 1969 written by the Central F Government to Oil India Ltd., shows that crude oil would be supplied to the Barauni, Gauhati and Digboi refineries as mentioned therein. For the Barauni Refinery, Oil India would supply a certain quantity In case the Commission's supply and the Commisgion the balance. fell short, it would be made good by Oil India Limited. For Gauhati Refinery, certain quantity would be supplied by Oil India Limited and the remainder would be deemed to have been supplied l]y the Commission. The requirements of Digboi refinery would be met by Oil India Limited. G The next document is dated 7 August 1973 incorporating Minutes of the meeting held on that day at the Ministry of Petrolel!lm & Claemicals to discuss the Sales Tax liability of the Commission crude the Ministries 0£ sold to the Corpo!!ation. The representatives of Petroleum & Chemicals and of Finance, the Commission and Oil India Limited were present. After discussion, it unanimously decided that whatever principle had been adopted in the past for computation of piIJeline tariff payable by the Commission should also be adopted H A.. /"" OIL & NATURAL GAS COMMISSION V. BIHAR (Ray, C.J.) 357 for payment of Sales-tax by the Commission. Since for tariff com- A putation all of Commission's crude is deemed notionally to be delivered to Barauni Refinery and none to Gauhati Refinery, the Sales-tax liability of the Commission would also accrue on the principle that all of its crude was being sold to. Barauni Refinery. The Commission is described by the Solicitor General to be a natu- tory body which has no option either with reganl to the production B or supply and the directions and decisions of the Government leave no choice with the Commission in regard to supplies. This Court in Salar Jung Sugar Mills Ltd. Etc. v. State of Mysore & Ors.(') laid down the following propositions: First, statutory orders regulating the supply and distribution of goods by and between the parties under Control Orders in a State do not abwlutely impinge c on the freedom to enter into contract. Second, directions, decisions and orders of agencies of the Government to control production and supply of commodities, may fix the parties to whom the goods are to be supplied, the price at which these are to be supplied, the time dur- ing which these are to be supplied and the pers0i1s who has to carry In such cases it cannot be said thafcompulsive out these directions. directions rob the transactions of the character of agreement. The D reason is that the transfer of property which constitutes the agreement It is in spite of the compulsion of law is neither void nor voidable. not as result of coercion. The statute supplies the consensus and the modality of consensus is furnished by the statute. There is privity of contract between the parties. E The other third, fourth, fifth and sixth propositions are these. Third, such a transaction is neither a gift nor an exchange nor a It is a transfer of property from one person hypothecation nor a loan. to another. There is consideration for the transfer. There is assent. The law presumes t:Lle assent when there is transfer of goods from one to the other. Fourth, a sale may not require the consensual element an<l that there may, in truth, be a compulsory sale of property with whieh the owner is compelled to part for a price against his will and the effect of the statute in such a case is to say that the absence of the transferor's consent does not matter and the sale is to proceed without In truth, transfer, is brought into being which ex facie in all its it. essential characteristics is a transfer of sale. Fifth, delimiting areas for transactions· or denoting parties or denoting price for transactionl> are ali within the area of individual freedom of contract with limited choice by reason of ensuring the greatest good for the greatest number G of achieving proper supply at standard or fair price to eliminate the evils _of hoarding and scarcity on the one hand and ensuring availability on the other. Sixth, after· all the transactions in substance represent th.e out-going of the business and the price would come into computa- tion of profits. F Judged by the principles laid down by this Court ia Salar Jun: H Sugar Mills' case, which is a decision by a seven-Judge Bench, there (1) [ 1972] 2 S.C.R. 228. 358 SUPREME COURT REPORTS ( 1977] 1 S.C. R. is no doubt that the transactions in the present case amounted to a sale It is true that of crude oil by the Commission to the Corooration. the Government decic!ed and directed the Commission to supply to the Indian Oil Corporation at a price to be fixed, b1~t the transaction is in course of busine_ss conducted by the Commission. It is the business of the petitioner under the statute to plan, promote, ,)rganise and implement programmes for the development of petroleum rtsources and the production and sale of petroleum products produced by it and to perform such functions as the Central Government may, from time to time, assign to the Commis~ion. These are the func tions of the Commission under section 14 of the Oil & Natural Gas Commission Act, 1959. Further, section 29 of the Act states that "the Commission shall be deemed to be a Company within the mean ing . of any enactment for the time being in force providing for levy of any· tax or fee by the Central Government or a State Govern ment and shall be liable to pay such tax or fee accordingly". Sec tion 31 contemplates power of the Central Government to make rnles inter alia prescribing the conditions subject to which, and the mode in. which, contracts may be entered into by or on behalf of the Commis sion. The provisions of the Oil & Natural Gas Commission Act show that the Commission is engaged in the business of producing crude oil in Assam and the supply of the crude oil. The supply 'the Corporation is a sale transaction fulfilling all lhe ingredients of a sale. The supply of crude oil by the Commission to the Barauni Refinery of the Corporation is also a sale in the course of inter-state trade. The movement of crude oil from Assam to Barauni is pursu ant to the Contract for sale of crude oil. f The directions given by the Government are because of Directions character and constitution of decisions do not detract from the sale of crude oil by the Commission . to the Corporation. These statutory Corporations work in collabo ration with the Central Government particularly the Ministries of Petroleum and Finance for policy and planning. the Commission. The State of Bihar raised a feeble contention that it was uot an inter-State. sale. The delivery may be in Assam or'in Bihar at ·Barauni but the movement of goods is the result of contract and as an incident to the agreement between the Commission and the Corporation, The State of Assam has lawfully levied the Central Sales Tax on the peti tioner. The State of A1Ssam is entitled to levy Central Sales Tax on the petitioner. The Commission has been paying Sales Tax since. the It is made clear that it is open to the Com commencement of sales. misslon to make applications for refund, i( any, in accordance with the Sales Tax Law. For the foregoing reasons the Writ Petition is dismissed. Parties will pay and bear their own costs. V. P. S. Petition dismissed. B c D E F G H