MADRAS REFINERIES LTD. versus STATE OF TAMIL NADU

Citation: [2001] SUPP. 3 S.C.R. 153 · Decided: 18-09-2001 · Supreme Court of India · Bench: B.N. KIRPAL, S.N. PHUKAN, P. VENKATARAMA REDDI · Disposal: Disposed off
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Judgment (excerpt)

MADRAS REFINERIES LTD. 
A 
v. 
STATE OF TAMIL NADU 
SEPTEMBER 18, 2001 
[B.N. KIRPAL, S.N. PHUKAN AND P. VENKATARAMA REDDI, JJ.] 
B 
Sales Tax: 
Tamil Nadu General Sales Tax Act, 1959 : 
Schedule-Item 1 ~9, Explanation-First sale in the State'-Levy of Tax-
Sale' by an oil company to another oil company-Amount received by oil 
refinery from industrial pool account-Proposed to be included in turnover 
treating it as sale price-Held, any mone")' received by the refinery either from 
Indian Oil Corporation Ltd. or.from the compensation pool which is relatable 
to the sales made by the refinery to IOCL is not to be included in taxable 
turnover as it is not to be regarded as the.first sale in the State-Therefore, to 
that extent, no tax can be levied in the hand of the refinery on the amount so 
received. 
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 6243-6245 of 
c 
D 
1998. 
E 
From the Judgment and Order dated 3.8.98 of the Tamil Nadu Taxation 
Special Tribunal, Chennai in T.P. Nos. 615, 791 and 1933 of 1997. 
AND 
Civil Appeal Nos. 1048-1049 of 1999. 
From the Judgment and Order dated 3.8.98 of the Tamil Nadu Taxation 
Special Tribunal, Chennai in T.P. No. 2193 of 1997. 
Harish N. Salve, Solicitor General and Mukul Rohtagi, Additional Solicitor 
General, M.L. Verma, T.L.V. Iyer, S. Balakrishnan, R.L. Ramani, N. Prasad, 
K.K. Mani, C.N. Sreekumar, Ms. Deepa, Ms. Revathy Raghavan, Ms. Shweta 
Garg and Ms. Rekha Pandey for the appearing parties. 
The following Order of the Court was delivered : 
153 
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D 
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F 
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154 
SUPREME COURT REPORTS . 
· [2001] SUPP. 3 S.C.R. 
Civil Appeal Nos. 6243-6245 of 1998 
The challenge in these appeals is to the three show cause notices which 
were issued by th~ respondent in respect of the years 1984~85, 1986-87 and 
1988-89 proposing to include in the turnover the amount received by the 
appellant from the industrial pool account and ~eating the saine as sale price. 
The undisputed facts are that the appellant has a refinery and major 
portion of its products are sold to different oil companies. According ~o the 
Solicitor General, the main sales of the appellant are of oil to the Indian Oil 
Corportion Ltd. (IOCL). In respect of the sales so made, according to a prescribed 
formula and in order to achieve equivalisation of price of petroleum products 
produced by the appellant and other similar companies, the money is paid to 
it from the industrial pool account in cases where the retention price of the 
appellant is more than the sale price (equivalent to ex-refinery price) received 
from the oil companies. 
Under the Tamil Nadu General SalesTax Act, sales taX is payable on the 
sale of all kinds of mineral oils as per the Schedule. The point of levy of tax 
is at the point of first sale in the State. Explanation 1 after item No. 159 
provides that "for the purposes of items 151 to 159, a sale by an oil company 
to· any other oil company shall not be deemed to be the first sale in the State 
and accordingly any sale by one oil company to another person (not being an 
oil company) shall be deemed to be the first sale in the State". Explanation 2 
makes it clear that for the purpose of Explanation 1, oil company would mean 
the Madras Refineries Ltd., Indian Oil Corporation Ltd., Bharat Petroleum 
Corporation Ltd., Hindustan Petroleum Corporation Ltd. and such other oil 
company as may be notified by the Government of Tamil Nadu. 
It is by reasons of the said Explanation 1 that no sales tax was levied on 
the appellant in respect of the sales worth Rs. 1180, 52,00, 952 made by the 
appellant to IOCL during the year 1988-89. Similarly on sales made to IOCL 
for the years 1984-85 and 1986-87, no tax was levied thereon. It is not in 
dispute that ~n the sales made by IOCL, sales tax is leviable. 
What is proposed to be done now pursuant to the notice which has been 
issued is to include in the turnover the amount received by the appellant from 
·the compensation pool. It is the case of the appellant that in the show cause 
notices, it is stated that the amount so received is to form part of the sale price 
and, therefore, would be includible in its taxable turnover. It is, however, 
+ 
MADRAS REFINERIES LTD. v. STATE 
155 
contended that even if it be assumed that the amount received from the 
compensation pool would form part of the sale price, but, as the amount is 
received in connection with the sales made by the appellant to another oil 
company, namely, IOCL, t
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