INDIAN OIL CORPORATION LTD. & ANR. versus UNION OF INDIA AND ORS.

Citation: [1981] 1 S.C.R. 673 · Decided: 10-09-1980 · Supreme Court of India · Bench: A.C. GUPTA · Disposal: Case Allowed

cites 3 · see the full citation network in Lexace

Judgment (excerpt)

INDIAN OIL CORPORATION LTD. 
& ANR. 
v. 
UNION OF INDIA AND ORS. 
September JO, 1980 
[A. C. GUPTA, S. MURTAZA FAZAL ALI AND P. S. KAILASAM, JJ.] 
Sales Tax legislation-Central Sales Tax Act, 1956-Section 3(1)-Factory 
fin Barauni in Bihar-Naphtha sent by pipeline from Barauni to Kanpur in 
U.P.-Orders placed pursuant to an agreement by the buyer in Kanpur on th~ 
seller's office in Kanpur-Sale-Whether taxable under the Central Sales Tax 
·Or U.P. Sales Tax Act .. 
The Indian Oil Corporation was a manufacturer of naphtha with its 
works at Barauni in Bihar while the 5th respondent was . a manufacturer of 
fertilizers with its factory at Kanpur. 
The Indian Oil Corporation supplies 
673 
A 
B 
c 
naphtha to the 5th respondent's fertilizer factory at Kanpur through a pipe-
D 
line. Both the buyer and the seller have their offices at Kanpur and indents 
are addressed by the buyer to the seller at their Kanpur office. 
The pipeline 
·from Barauni to the petitioner's depot at Kanpur has been constructed by 
·the petitioner, the pipeline between the buyer's and the seller's fences is how-
·ever constructed by the buyer, the 5th respondent. 
On the question whether the sale of naphtha should be taxed under the 
·Central Sales Tax Act or under the U.P. Sales Tax Act, the U.P. ·authorities 
insisted that since the indent had been placed by the buyer on the seller at 
their Kanpur Office the sale was a local sale while the sale\ tax authorities 
1n Bihar insisted that since there was transfer of goods froin one State to 
another the sale was inter-State chargeable to tax under the Central Sales 
Tax Act. 
' 
Allowing the petition, 
HELD : On the facts of the present case the sales are clearly inter-State 
sales and the State of U.P. had no jurisdiction to assess thei petitioners to 
·sales tax under the State Act. As the movement of naphtha commences from 
Barauni in Bihar the sales tax payable on the sales under the agreement 
can be assessed and collected only by the authorities in the State of Bihar 
on behalf of the Government of India in view of section, 9 of the Central 
·sales Tax Act. [680E] 
It is now well-settled by a series of decisions of this Court that a sale 
shall be an inter-State sale under section 3(a) if there is a contract of sale 
·preceding the movement of goods from one State to another and the move-
ment- is the result of a covenant in the contract of sale or is an incident of 
that contract; in order that a sale may be regarded as an inter-State sale 
it is immaterial whether the property in the goods passes in one State or 
:another. [678H-679A] 
E 
F 
G 
H 
G74 
A 
B 
c 
D 
E 
SUPREME COURT REPORTS 
[1981] 1 S.C.R. 
Tata Iron & Steel Co. Ltd. v. S. R. Sarkar [1961] I S.C.R. 379; Kelvinator 
of India Ltd. v. State of Haryana [1974] I S:.C.R. 463; Oil India Ltd. v. Supe-
rintendent of Taxes [1975] 3 SCR 767; 
Balabhagas 
Hulaschand v. State of 
Orissa [1976] 2 SCR 939; Union of India v. K. G. F;hosla & Co. (P) Ltd. 
[1979] 3 SCR 453, referred to. 
The terms of the agreement make it quite clear that the sales of naphtha 
to the respondent were inter-State sales. 
The source of supply is the seller's 
refinery at Barauni in Bihar and the destination is the buyer's factory at 
Kanpur. 
This clause alone is sufficient to prove that the sales in question 
were inter-State sales. [679B-C] 
Clause 3(iii) of the agreement which says that the naphtha shall be sup-
plied against indents in writing addressed to the seller at their installation at 
Kanpur cannot be read in isolation. 
Sub-clause (iv) of clause 3 sets 0ut 
the details of the buyer's requirement for the first four years and thereafter. 
Under clause 8 Indian Oil Corporation a.re bound not only to bring the 
contractual quantity of naphtha from Barauni to the seller's Kanpur installa-
tion but also to provide at their own cos~ storage facilities at Kanpur of a 
capacity equivalent to not Jess than 30 days' requirement of the buyer. The· 
indents are therefore not outside the agreement but are relatable to the buyer's 
requirements under the agreement. It is obvious that the sales under the agree-
ment are not possible without inter-State movement of naphtha. 
Clause 3 
. read with clause 8 also proves· that really there are no two movements but 
only one movement from Barauni to Kanpur pursuant to the contract of sale 
and the arrangement regarding storage facilities provided in clause 8 is only 
for operational convenience, it is only a mechanism d

Excerpt shown. Read the full judgment & AI analysis in Lexace.