OIL INDIA LTD. versus THE SUPERINTENDENT OF TAXES & OTHERS

Citation: [1975] 3 S.C.R. 797 · Decided: 03-03-1975 · Supreme Court of India · Bench: KUTTYIL KURIEN MATHEW · Disposal: Case Partly allowed
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Judgment (excerpt)

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OIL INDIA LTD. 
"· 
THE SUPERINTENDENT OF TAXES & OTHERS 
March 3, 1975 
(K. K. MATHEW AND P. K. GOSWAMI, JJ.] 
797 
Central Sales Tax Act-Sect1°on 3-lnterstate Sale.:..-Sale in the course of 
tnterstatc trade-If movement of goods as a result of covenant or an incident· 
of the contract of sale-Must sale precede the movement of goods. 
By an agreement entered into betwC'Cn the petitioner, the Government' of 
India, Burma Oil Company Limited and Assam Oil Company Limited, it was 
agreed that all crude oil produced by the petitioner (except Assam Oil Com· 
pany's entitlement) be sold to and purchased by the Government of Jndia. 
Tho exact clause reads as under : 
, 
· 
"All crude oil produced by Oil India excluding Assam Oil Com· 
pany's entitlement in respect of Oil India's existing areas under clause 
20 of tho Promotion Agreement wilI (subject as hereinafter provided) 
bo sold to and purchased by tho Government of India PROVIDED 
that after meeting as a first call on such oil the joint annual require-
ments upto 2t million tons of Indian Refineries Limited'li Barauni 
and Nunmati Refineries Assam Oil Companys Digboi refinery shall 
have the next call thereon up to a maximum of 435,000 tons per 
annum to the extent that it cannot be economically met from Assam 
Oil Company's le11Sed areas." 
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The petitioner pursuant to the provisions of the said clause 7 ~upplied crude 
oil to Banmni Refinery of Indian Oil Corporation situated in Bihar through 
pipeline constructed and owned by the petitioner Company. At Barauni Re-
finery the crude oil which flows through tho pipes from the oil fields of Assam 
is pumped into tho Indian Oil Corporation's tanks and thereafter it is measured. 
After the measurement is agreed upon, the Indian Oil Corporation takes delivery 
on behalf of the Government of India. The petitioner Company bas been 
filing Jegular sales tax returns uncher the Bihar Sales Tax Act and was being 
~ed under that Act for the supply of 
crude oil to tbo 
Refinery at 
Barauni treating the supply as intra-State 11ales. 
Thereafter. the Sale11 Tax 
Authority in Assam issued notice to the petitioner on the ground that the 
C'.cntral sales tax was payable under the Oentral Sales Tax Act on the supply 
of crude oil to the Refinery at Barauni as the •ales were in the course 
of 
inter-State trade. The Assessing Authority held that the supply of crude oil 
to tho Refinery at Barauni by tho petitioner attracted Central Sales Tax. In 
tho present petition, tho petitioner seeks a writ of mandamus direeting the 
Assam Sales Tax Authorities not to levy tho sales tax under tho Central Sale• 
Tax Act on the supply of crude oil to tht' refinery at Barauni. In the alter-
native, tbe petitioner prayed for a direction to the Bihar Tax Authorities to 
refund the taxes collected. 
HELD : Under Section 3 of the Central Sal~ Tax Act a sale or purchase 
of goods shall be deemed to have taken place ia the course of inter-State trade 
or commerce if the sale or purchase occasions mo~ment of goods from one 
State to another. This Court has held in a number of cases that if the move-
ment of goods from one State to another is the result of a covenant or an 
incident of the contract of sale then the sale is an inter-State •ale. In thi• 
case tho crude oil was carrieC: from Assam through pipeline to Barauni in 
Biha~. Clause 12 of the agreement prov~es that the petitioner shall _ arrange 
for the construction of pipe-line or such other related facilitiea &9 the Com-
pany shall consider necessary for . tm, transport of crude oil to be prodnced 
by it to the refinery at Baraui:ii. This would i~dicate that the construction of . 
the pipeline was underaken by the petitioner m pursuance of t~ agreement 
798 
SUPREME COURT REPORTS 
[19751 3 s.c.n. 
:and that was for the specific puipo5e of transporting crude oil to Barauni from · A 
Assam. This can only_ point to the conclusion that the parties contemplated 
that there should be movement of good11 from the State of Assam to the State 
cf Bihar in pursuance to the contract 6f sale. It is immaterial as to in wbi'ch 
state the property in the goods' passes. It is not necessary that the sale must 
precede the inter-State movement in order that the sale may be deemed to have 
occasioned such movement. The sales were, .therefore, in the course of inter· 
State trade and the Bihar Government bad no jurisdiction to tax, the sales 
under the Sales Tax Laws of the State. The Bihar
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