2004 (3) TMI 758 - SC - VAT and Sales Tax

Whether Natural Gas in whatever physical form including Liquefied Natural Gas (LNG) is a Union subject covered by Entry 53 of the List I and the Union has exclusive legislative competence to enact? Whether States have legislative competence to make laws on the subject of natural gas and liquefied natural gas under Entry 25 of List II of the Seventh Schedule to the Constitution? Whether the State of Gujarat had legislative competence to enact the Gujarat Gas (Regulation of Transmission, Supply & Distribution) Act, 2001?

Issues Involved:
1. Whether natural gas, including Liquefied Natural Gas (LNG), is a Union subject under Entry 53 of List I.
2. Whether States have legislative competence to make laws on natural gas and LNG under Entry 25 of List II.
3. Whether the State of Gujarat had legislative competence to enact the Gujarat Gas (Regulation of Transmission, Supply, and Distribution) Act, 2001.

Detailed Analysis:

Issue 1: Whether natural gas, including LNG, is a Union subject under Entry 53 of List I.
The Supreme Court examined whether "natural gas" falls under the Union's exclusive legislative competence as per Entry 53 of List I, which includes "Regulation and development of oilfields and mineral oil resources; petroleum and petroleum products; other liquids and substances declared by Parliament by law to be dangerously inflammable." The Court observed that natural gas is a petroleum product and part of mineral oil resources. The Court referred to various authoritative texts and legislative practices that consistently included natural gas within the ambit of petroleum and petroleum products. The Court concluded that "Natural Gas including Liquefied Natural Gas (LNG) is a Union subject covered by Entry 53 of List I and the Union has exclusive legislative competence to enact laws on natural gas."

Issue 2: Whether States have legislative competence to make laws on natural gas and LNG under Entry 25 of List II.
The Court analyzed Entry 25 of List II, which pertains to "Gas and gas works." It was argued by the States that this entry should include all types of gas, including natural gas. However, the Court held that Entry 25 of List II relates specifically to manufactured gas used for industrial, medical, or similar purposes, and not to natural gas. The Court emphasized that the term "gas" in Entry 25 of List II must be read in conjunction with "gas works," which traditionally refers to the manufacture of artificial gas. Therefore, the Court concluded that "The States have no legislative competence to make laws on the subject of natural gas and liquefied natural gas under Entry 25 of List II of the Seventh Schedule to the Constitution."

Issue 3: Whether the State of Gujarat had legislative competence to enact the Gujarat Gas (Regulation of Transmission, Supply, and Distribution) Act, 2001.
The Court examined the provisions of the Gujarat Act, which aimed to regulate the transmission, supply, and distribution of gas, including natural gas. The Act defined "gas" as a matter in gaseous state predominantly consisting of methane, which includes natural gas. The Court held that since natural gas falls under the Union's exclusive legislative competence as per Entry 53 of List I, the State of Gujarat lacked the legislative competence to enact laws regulating natural gas. Consequently, the Court declared that "The Gujarat Gas (Regulation of Transmission, Supply & Distribution) Act, 2001, so far as the provisions contained therein relating to the natural gas or liquefied natural gas (LNG) are concerned, is without any legislative competence and the Act is to that extent ultra vires of the Constitution."

Order:
In light of the above conclusions, the Supreme Court dismissed the Writ Petition and the Civil Appeals, thereby upholding the Union's exclusive legislative competence over natural gas and LNG and invalidating the relevant provisions of the Gujarat Gas Act.

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