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TMI Blog2016 (1) TMI 870X X X X Extracts X X X X X X X X Extracts X X X X ..... and delivered at the Delivery Point. In terms of Article 27.2 of the PSC, the title to the goods also passed to the Buyer at the Delivery Point. The situs of the sale is the Offshore Processing Facility where the goods were appropriated to the contract. Therefore, it cannot be said that the goods in question were within the State of Gujarat at the time of their appropriation to the contract of sale so as to fall within the ambit of clause (b) of section 4(2) of the Central Sales Tax Act, 1956. The transactions in question are, therefore, not amenable to tax under the provisions of the Gujarat Sales Tax Act, 1969. Merely because the Natural Gas upon being delivered at the Delivery Point was commingled with other gases, does not mean that it was not in a deliverable state because having regard to its unique physical properties, large volumes of Natural Gas can be transported only in a continuous stream and once delivered in the pipeline for transportation, it becomes commingled with other natural gas. Individual molecules are not separately indentified and cannot be accurately tracked or traced. As a result, natural gas is sold and purchased on a “quality and quantity” basis. The ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NOURABLE MS. JUSTICE HARSHA DEVANI) 1. All these petitions involve similar questions of fact and law and the parties are also common, and hence, the same were taken up for hearing together and are decided by this common judgment. In all, there are three petitioners, viz. British Gas Exploration and Production India Limited, Reliance Industries Limited, and the Oil and Natural Gas Corporation Limited, who are collectively known as "the Contractor". All the three petitioners have filed individual petitions challenging orders passed by the Sales Tax Department against them. For the sake of convenience, reference is made to the facts as stated in Special Civil Application No.2084/2004 which has been filed by British Gas Exploration and Production India Limited. Wherever the facts are different, reference shall be made to the same at an appropriate stage. 2. The petitioner - British Gas Exploration and Production India Limited (hereinafter referred to as "BGEPIL") is engaged in the business of exploration and production of oil and gas. On 22nd December, 1994, the Government of India, BGEPIL, Reliance Industries Limited (hereinafter referred to as "RIL") and Oil and Natural Gas Corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural gas to the Government of India. The PSC, therefore, is a contract arrived at for acquisition and disposal of minerals by the Government of India, who in public interest and the interest of consumers, controls the production, prices and distribution of natural gas. 5. The Government of India appointed Gas Authority of India Limited (hereinafter referred to as "GAIL") as its nominee to take over the natural gas produced by the Contractor on behalf of the Government of India. The Contractor delivered the natural gas to ONGCL for transportation and re-delivery of the same to GAIL. Natural Gas is separated from condensates at the oil fields and also measured under sophisticated equipment at the oil fields itself. The delivery is thereafter taken by ONGCL from the Contractor at the off-shore tie-in point into the ONGCL pipeline itself for and on behalf of GAIL in terms of the final delivery point in the said PSC. ONGCL, therefore, takes delivery on behalf of GAIL and undertakes to transport the said Natural Gas to Hazira for handing over to GAIL. It is the case of the petitioners that in the nature of the peculiar transport arrangement under sea water and commercial expediency, ON ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Additional Commissioner of Sales Tax (Enforcement), Surat called upon the petitioner - BGEPIL to explain why the sales should not be taxed, pursuant to which, the said petitioner submitted a detailed reply explaining as to why such sales should not be taxed. The Additional Commissioner, however, issued a notice purporting to be a show-cause notice calling upon the said petitioner to show cause why supply of Natural Gas from Panna-Mukta oil/gas fields to GAIL, should not be taxed. The petitioner submitted its reply by letters dated 28th January, 2002 and 4th March, 2002. It is alleged in the petition that the second respondent Commissioner has, notwithstanding the clear position of law, adopted a resolute attitude to tax these transactions of the Joint Venture and has directed the respective assessing authorities to impose tax on these transactions by resorting to reassessments or provisional assessments as the case may be in case of each respective constituent of the Joint Venture. Pursuant to these directions, the fifth and sixth respondents issued notice for reassessment under section 44 of the Gujarat Sales Tax Act, 1969 (hereinafter referred to as "the GST Act"). Similar not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the Respondent No.3 for the F.Y. 2005-06. Special Civil Application No.9871/2008 (a) this Hon'ble Court may be pleased to issue an appropriate writ, direction or order under Article 226 of the Constitution quashing and setting aside the assessment order dated 3rd July 2008 passed by the Respondent No.3 for the F.Y.2003-04; Special Civil Application No.11677/2007 (a) this Hon'ble Court may be pleased to issue an appropriate writ, direction or order under Article 226 of the Constitution quashing and setting aside the assessment order dated 30-3-2007 passed by the respondent no.3 for the F.Y.2002-03. Special Civil Application No.3119/2004 (a) that this Hon'ble Court be pleased to declare that in respect of sale of Natural Gas effected by the Petitioner and the other Joint Venture Partners under the Production Sharing Contract dated 22nd December, 1994 with Government of India to Government of India and or its nominee GAIL, in view of sale of such Natural Gas taking place outside State of Gujarat, no Sales Tax is leviable or recoverable under the provisions of the Gujarat Sales Tax Act, from the Petitioner. (b) That this Hon'ble Court be pleased to issue Writ o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd setting aside impugned orders dated 15.1.2004 (Annexure-F collectively) and the consequent impugned demand notices for payment of tax (Annexure-G collectively); C. Your Lordships be pleased to issue a writ of prohibition or a writ in nature of prohibition or any other appropriate writ, order or direction commanding the respondents not to levy/demand/collect any tax by treating the transaction between the petitioner and GAIL as sale eligible for payment of sales tax under the provisions of Gujarat Sales Tax Act, 1969. Special Civil Application No.4022/2009 [a] this Hon'ble Court may be pleased to issue an appropriate writ, direction or order under Article 226 of the Constitution quashing and setting aside the assessment order dated 30th March, 2009 passed by the Respondent No.3 for the F.Y. 2004-05. 9. Mr. P. Chidambaram, Senior Advocate, learned counsel for the petitioner - BG Exploration and Production India Ltd. assailed the impugned orders by submitting that such orders had been passed without any authority in law as the sales in question have not taken place within the State of Gujarat and, therefore, are not amenable to tax under the GST Act. It was submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant factor is the situs of the goods when they are appropriated to the contract of sale by the seller or by the buyer. 9.2 It was submitted that in the facts of the present case, the sale of the goods, namely, Natural Gas under the PSC took place outside the State of Gujarat since none of the conditions under section 4(2) of the CST Act are satisfied. It was pointed out that the territory of "India" has been defined in the Constitution of India in Article 1(3) which states that the territory of India shall comprise of States and Union Territories and such other territories as may be acquired. There is, however, no reference to the territorial waters in Article 1. 'State' has been defined under Article 1(2) of the Constitution of India to mean the territories that are specified in the First Schedule of the Constitution of India. The territory of Gujarat is stated to be the territories specified in section 3(1) of the Bombay State Reorganization Act, 1960 under Entry 4 of the First Schedule. When read with section 3(1) of the Bombay State Reorganization Act, 1960, the territory of the State of Gujarat is extended to cover the following territories:- "(a) Banaskantha, Mehsana, Sab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase, on a daily basis, 100% of the Deliverability of ANG and NANG. Accordingly, the gas was delivered at the delivery point in terms of Article 21.5.13(b). It was further submitted that Article 1.27 and Article 21.5.13(a)(iv) define "Delivery Point" as the upstream weld at the underwater connection between the seller's pipeline and ONGC's underwater gas transmission line or lines which transport gas from Bassein field to the Hazira area. Actually, gas is delivered to one of the two parallel pipelines laid down by ONGC from the Bassein field to Hazira which is entirely consistent with Article 1.27 of the PSC. It was submitted that for the purpose of Article 21.5.13(c), the gas is measured at the Offshore Processing Platform belonging to the petitioner. By virtue of Article 27.2, title passes to the Government of India or its nominee at the delivery point. The price of gas is payable for each MMBTU of gas delivered. Under Article 21.5.13(a)(vi), MMBTU means one million BTUs on a net heating value basis. The unit is based on 'heat energy'. There is a standard formula to convert a certain "volume" of' gas into the equivalent "heat energy". Article 21.5.13(d) sets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... varied or supplemented in any respect except by an instrument in writing signed by all the parties. It was submitted that GAIL is not a party to the contract and under Article 21.5.14, any document between the contractor and GAIL shall not abrogate the obligation of the Government of India under the PSC. Hence, the Interim Sales Purchase Agreement (ISPA) cannot amount to an amendment or modification or variation of the PSC. Reliance was placed upon the decision of the Supreme Court in the case of Hindustan Shipyard v. State of Andhra Pradesh, (2006) 6 SCC 579, for the proposition that it is not the meaning of an individual recital or the inference flowing from any term or condition of the contract read in isolation, but an overview of the contract wherefrom the nature of the transaction covered thereby has to be determined. It was submitted that no long term Gas Sales Contract was entered into between the Contractor and the Government of India or its nominee till 2008. For the intervening period, on 5th February, 1998, the sellers (ONGC, RIL and the petitioner) and GAIL entered into an Interim Sales and Purchase Agreement (ISPA) without prejudice of any kind in relation to their re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r its nominee) at the delivery point as defined. The PSC is the sole contract between the seller and the Government. The goods were always specific or ascertained goods because the volume of gas to be produced, sold and delivered is captured in the word "Deliverability" as defined in Article 21.5.13(a)(iii) of the PSC and that all the gas that falls within "Deliverability" must be sold on a daily basis to the Government of India or its nominee under Article 21.5.13(b). It was submitted that applying section 4(2)(a) of the CST Act, the goods were outside the State of Gujarat (gas wells or Offshore Platform) when the contract of sale was made. Alternatively, it was submitted that assuming that the goods (gas) were unascertained or future goods, they were appropriated to the contract, on a daily basis, when they were delivered at the delivery point to ONGC's Bassein - Hazira pipeline. There was appropriation on a daily basis and the seller and buyer assented to such appropriation. The goods were outside the State of Gujarat at the time of appropriation (at the delivery point). Therefore, whether section 4(2)(a) or section 4(2)(b) of the CST Act is applied to the case, the sale sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore particularly paragraphs 13 and 14 thereof. It was submitted that in the light of the principles laid down in the above decisions, the State of Gujarat is not competent to levy sales tax on the sale of Natural Gas to GAIL. 9.5 Alternatively, Mr. Chidambaram submitted that the sales in the present case are sales of goods in the course of import into the territory of India. Article 1(3) of the Constitution defines the territory of India. The gas wells and the Offshore Platform are located at places outside the territory of India. Article 297(3) of the Constitution enables Parliament to specify the limits of the territorial waters, the continental shelf, the exclusive economic zone and other maritime zones. Parliament has made the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (Maritime Zones Act). Section 3 thereof declares that the sovereignty of India extends and has always extended to the territorial waters of India. Section 5 defines 'Contiguous Zone'. Section 6 defines 'Continental Shelf' and section 7 defines 'the Exclusive Economic Zone'. Under section 5(5), section 6(6) and section 7(7) of the Maritime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be deemed to take place in the course of the import of the goods into the territory of India" within the meaning of section 5(2) of the CST Act. According to the learned counsel, since the phrase "territory of India" is not defined in the CST Act, the meaning must be consistent with the Constitution of India and hence, the meaning of the phrase will be the same as in Article 1(3) of the Constitution. Since the CST Act has not been extended to any area beyond the territorial waters, there is no question of a deemed territory of India for the purpose of the CST Act. Consequently, the State of Gujarat would not have jurisdiction to levy sales tax on the transaction which is a sale in the course of import into the territory of India. It was submitted that the gas wells, Offshore Platform and delivery point are located outside the territory of India. Any movement of goods from a place outside the territory of India (Gas Wells, Offshore Platform and delivery point) to a place within the territory of India (Hazira) will indeed be a movement in the course of import of the goods into the territory of India. Any sale which occasions such import would fall under section 5(2) of the CST Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verability of Natural Gas. It is, these goods (Natural Gas) which are delivered at the delivery point and the title passes to the Government or its nominee at the delivery point and all costs and risks after the delivery point become the responsibility of the Government or its nominee. It was pointed out that the impugned assessment orders have assessed the goods as Natural Gas. The rate of sales tax is levied under Item (7) of part B of Schedule II to the GST Act which is "Natural and Associated Gas" and hence, the respondent State cannot now contend that the goods are anything other than Natural Gas. 9.8 As regards the validity of the reopening of assessment, it was submitted that the show-cause notices are under section 44 of the GST Act to reopen the assessment and the consequent reassessment orders are without jurisdiction and are void ab initio. Referring to the record of the case, it was pointed out that in respect of five years, viz., 1997-98 to 2001-02, the original assessment was a nil assessment so far as Panna-Mukta Gas was concerned. Notice of reassessment in respect of each of these five years was issued on 20th October, 2003 and the petitioner filed its reply theret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IR (1961) 41 ITR 191, Ganga Saran v. ITO, 1981 (3) SCC 143, CIT v. Kelvinator, (2010) 320 ITR 561, Phoolchand Bajranglal v. ITO, (1993) 4 SCC 77, State of Maharahstra v. Ketan Enterprises, 2010-(ST1)-GJX-0125-Bom, an unreported decision of this court in the case of Krishak Bharati Cooperative Limited v. State of Gujarat rendered in Special Civil Application No.3708/2012 as well as the decision in the case of Niko Resources v. Assistant Director of Income Tax, 2014-TIOL-1679-HC-AHM-IT. Referring to the impugned order, it was submitted that the reassessment orders proceed on the basis that since sweetened gas is delivered at Hazira, the State is competent to levy sales tax. It was submitted that for the reasons already submitted, the basis of the reassessment is erroneous and perverse. Moreover, it is merely a change of opinion and hence, does not furnish any ground to reopen the nil assessment insofar as Panna-Mukta Gas is concerned. 9.9 Next, it was submitted that assuming that the petitioner is liable to pay sales tax under the GST Act for the period from 1997-98 to 2004-05, under the PSC, it is the Government of India or its nominee who has to pay sales tax, if any such tax is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concealment nor deliberate furnishing of inaccurate particulars. This is a case where the issue is a constitutional and legal issue namely, whether the sale is a local sale within the State of Gujarat or not and hence, in such a case, section 45(2)(c) of the GST Act is not attracted and no penalty can be levied thereunder. It was submitted that under section 45(6) of the GST Act, penalty is leviable if the reassessed amount of tax exceeds the original amount of tax by 25%. In the present case, the original assessment was made only in respect of Tapti gas. If sales tax is leviable on Panna-Mukta Gas also, the reassessed amount will naturally exceed the original assessed amount. If the difference exceeds 25%, the assessee is, under section 45(5), deemed to have failed to pay tax. Based on such a deeming provision, another penalty is leviable under section 45(6) of the GST Act. It was urged that in the present case, the failure to pay the tax on the Panna-Mukta gas is solely because of the dispute whether the sale of Panna-Mukta Gas is a local sale within the State of Gujarat. Since the question is purely a constitutional and legal issue, there is no justification to deem a failure to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of ONGC barring one, all are provisional assessments and that this is not a fit case where provisional assessments can be made. It was argued that the impugned assessment orders are passed without jurisdiction and are void ab initio, inasmuch, as an order can be passed under section 41(b) of the GST Act where the Commissioner has reason to believe that the dealer has evaded tax. In the instant case, at no point of time, the Assessing Officer had any reason to believe that the dealer had evaded tax and that there did not exist any facts, circumstances or grounds, for the Assessing Officer to invoke the power of making provisional assessment under section 41(b) of the Act. It was contended that apart from the fact that there is no evasion of tax, the impugned order is not passed on the premise that the dealer has evaded the tax. Reliance was placed upon the decision of this court in the case of Batliboy v. Sales Tax Officer, 2000 (111 or 119) STC 583, wherein the court has held that under section 41B of the GST Act, provisional assessment can be made by the Commissioner or his delegate as assessing authority only if "he has reason to believe that a dealer has evaded tax". In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the learned counsel for the petitioners, it was contended that the sales in question have not taken place in the course of import into the territory of India. The attention of the court was invited to the provisions of sub-section (2) of section 5 of the CST Act to submit that the word 'import' is not defined under the said Act. 'Customs frontier' is not defined under the CST Act and, therefore, section 2(22) of the Customs Act has to be imported into section 5(2) of the CST Act. It was submitted that section 5(2) of the CST Act is not applicable because the sale does not occasion import from a foreign destination. According to the learned counsel, in view of the provisions of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1956 and notification issued thereunder, the customs frontier is extended. The provisions of the Customs Act are imported into the provisions of the CST Act for determining whether the sale is in the course of import. It was submitted that the movement of goods from the Continental Shelf or Exclusive Economic Zone to Hazira onshore being within the customs frontier, is not import into the territo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fall within any one of the above three categories. 11.1 Mr. Shelat next submitted that it is the case of the Contractor that the sale is of specific/ascertained goods; however, such contention is not borne out from the Production Sharing Contract which is for future goods, that is, unascertained goods. It was submitted that when the Contractor entered into the production sharing contract, they were not aware while undertaking petroleum operations in the contract area, as to what quantity/quality of natural gas could be received. Moreover, the contracting parties are not ad idem about the delivery point for the appropriation to the contract of sale. The attention of the court was invited to the provisions of section 4 of the CST Act to submit that clause (b) of subsection (2) thereof provides that in case of unascertained or future goods, a sale of goods is deemed to be inside a State if the goods are within the State at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation. It was pointed out that according to the Union of India and GAIL, appropriation takes place at Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that, therefore, no assent is given for appropriation by the Union of India or its nominee. The delivery point, according to the Union of India and its nominee is onshore Hazira in view of Articles 21.5.13(iii), 21.5.13(c) and 21.5.13(e). Therefore, in view of the provisions of clause (b) of sub-section (2) of section 4 of the CST Act, the sale of goods in the instant case is deemed to have taken place inside the State of Gujarat. 11.3 It was submitted that when Article 21.3 of the PSC refers to the domestic market, the Government of India has contemplated domestic market to serve through its nominee GAIL and GAIL has to comply with the directions of the Union of India. Article 21.3, therefore, has to be read conjointly with other clauses. According to the learned counsel, reliance placed by the petitioners upon the decision of the Supreme Court in Reliance Natural Resources v. Reliance Industries (supra) is not justified because in the facts of the said case under the Production Sharing Contract with the Union of India, 'the contractor was free to sell the gas produced from the block subject to the adjustment and terms of profit sharing between the Government and it, as set ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he property in the goods passes where the terms of the contract show a clear intention that it will pass notwithstanding that there may be an express provision in the contract to the contrary." Reference was also made to Halsbury's Laws of England Volume 13 paragraph 174, wherein it has been stated that "It is a rule of construction applicable to all written instruments that the instrument must be constructed as a whole in order to ascertain the true meaning of several clauses. The best construction of deeds is to make one part of the deed expound the other so as to make all other parts agree. Effect must, as far as possible, be given to every word and every clause. It has been said that the court in a case of patent satisfaction (though the dictum may have a more general application) must adopt a purposive construction rather than a purely literal one derived from applying to it the kind of meticulous verbal analysis in which lawyers are so often tempted by their training to indulge. The fact that a particular construction leads to a very unreasonable result is a relevant consideration." 11.6 In support of his submissions, the learned counsel placed reliance upon the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be done by the vendor to the goods for the purpose of putting them into a state in which the vendee is to take them and a case where the vendee for his own satisfaction wants to get the goods weighed for the purpose of ascertaining the amount of the price. This distinction has been recognized in a number of cases and appears to be well founded: Annan v. Dubar Sheikh A.I.R. 1923 Oudh 15 (at p. 41 of 26 O.C.) and Abdul Aziz v. Jogendra Krishna Roy [1917] 44 Cal. 98 (at p. 115). Two rules of civil law appear to have been incorporated both in the Sale of Goods Act and in the Indian Statute with which we are concerned. These rules have been stated by Blackburn, J, to be as follows (Contract of Sale, third edition, 1910, P. 184): They are two fold: the first is that where, by the agreement, the seller is to do anything to the goods for the purpose of putting them into that state in which the buyer is to be bound to accept them, or, as it is sometimes worded, into a deliverable state, the performance of those things shall (in the absence of circumstances indicating a contrary intention) be taken to be a condition precedent to the vesting of the property. The second is, that where an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of a portion of a specified larger stock. Till the portion is identified and appropriated to the contract, no property passes to the buyer. Mr. Shelat submitted that appropriation is essentially a question of fact when parties are not ad idem and when the buyer contends that it is not appropriated on the delivery point as understood by the Contractor, this court is required to consider the totality of the circumstances under which the Production Sharing Contract has been executed and implemented. 11.12 On the question as to whether the sweetening of gas is a process leading to new marketable gas, the learned counsel submitted that what has been agreed upon by the Production Sharing Agreement is delivery of sweetened gas onshore at Hazira. It was submitted that the petitioners have contended that under the Production Sharing Contract, the sale is of natural gas delivered at the upstream weld, but such gas delivered at the upstream weld is not the same as agreed by the Union of India and GAIL. The sour gas becomes a product which is marketable only after it is sweetened by processing and it is this marketable product that the buyer had agreed to purchase. Therefore, the sweetenin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pting any goods. The court was of the opinion that the expression 'manufacture' covers within its sweep not only such activities which bring into existence a new commercial commodity different from the articles on which that activity was carried on, but also such activities which do not necessarily result in bringing into existence an article different from the articles on which such activity was carried on. The decision of the Supreme Court in the case of Commissioner of Income Tax v. M/s. Oracle Software India Ltd. JT 2010 (6) SC 369 was cited wherein the court held as under:- "The term "manufacture" implies a change, but, every change is not a manufacture, despite the fact that every change in an article is the result of a treatment of labour and manipulation. However, this test of manufacture needs to be seen in the context of the above process. If an operation/process renders a commodity or article fit for use for which it is otherwise not fit, the operation/process falls within the meaning of the word 'manufacture." After examining various decisions, the court in paragraph 22 of the decision held as under:- "22. We may mention that, as noted above, decisions con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. In the Reliance case, the contractor was to sell gas to a third party with the approval of the Government. In the facts of the present case, the buyer is already nominated by the Government of India and the gas in the sweetened form is to be delivered as already indicated. Price is also fixed and hence, such decision would be of no assistance to the petitioners. 12. Vehemently opposing the petitions, Mr. P.K. Jani, learned Additional Advocate General for the respondent State authorities submitted that the question as to whether the goods are sold and manufactured within the State of Gujarat has to be dealt with in the light of section 4(2)(b) of the CST Act, viz., that the goods were within the State of Gujarat when the sale took place so as to attract the GST Act and that the said goods were future unascertained goods. Reference was made to the provisions of clause (b) of sub-section (2) of section 4 of the CST Act to submit that if the said section is read with the provisions of the Sale of Goods Act, it would specify that the goods are sold within the State of Gujarat on the same being ascertained by processing the gas so as to make it a domestic and marketable commodity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the PSC, to point out that it has been stated therein that according to the Union of India, insofar as interpretation of the PSCs and Interim Gas Sales and Purchase Contract is concerned, its stand is that in the facts and circumstances of the present case, the delivery point is onshore at Hazira and the contention of the petitioners that the delivery point is off-shore at Panna-Mukta oil fields has been denied. In view of the specific terms of the PSCs executed between the petitioner No.1 - RIL and ONGC and the Union of India and the Interim Gas Sales and Purchase Agreement executed between the petitioner No.1 - RIL and ONGC and GAIL - respondent No.7 as also the fact that the gas produced at Panna-Mukta oil fields is incapable of being consumed till it is subjected to a sweetening process on-shore at Hazira and the quantity of gas becomes ascertainable on-shore at Hazira, the delivery point is on-shore at Hazira. The liability of sales tax, if any, has to be determined on the above basis. It was submitted that when the Government of India, who is a signatory to the PSC, has specifically stated that the sale has taken place on-shore, that is, at Hazira, a unilateral assertion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of sweetened gas has emerged which is liable to be taxed under the provisions of section 3 of the Gujarat Sales Tax read with rule 3 of the Gujarat Sales Tax Rules, 1990. It was, accordingly, submitted that the say of the petitioners that the goods are appropriated by the purchasers, that is, GAIL is contrary to the provisions of the Contract Act, the Sale of Goods Act as well as terms of the PSC and the ISPA. 12.2 Next, it was submitted that in terms of the expression 'delivery point', the terms 'upstream' or 'downstream' are of great significance. The term 'upstream' is that stage of the production process that involves searching for and extracting raw materials. This part of the production process does not do anything with the material, such as processing it. It only deals with the finding and extraction of the raw material. The term 'downstream' means the stage in the production process that involves processing the materials collected during the upstream stage into a finished product. Further, the downstream stage includes the actual sale of that product to other businesses, Government or private individuals. The downstream process also has a direct contact with the cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine both NANG and ANG is in a combined state. Mr. Jani further submitted that the contention that the title of goods passes at T-Junction because the goods in question acquire the characteristic of ascertained goods is incorrect and that reliance placed upon clause 21.5.13(a)(ii) has no relevance and in fact, the Production Sharing Contract refers to 100% deliverability. Referring to clause 21.5.13(e), it was submitted that the parties have acknowledged that Gas Authority of India shall receive the Gas at Hazira. Simultaneously, clause 3 of the ISPA also is very clear on the situs. Thus, it is clear that the parties have time and again acknowledged that the delivery point shall be Hazira. 12.4 Mr. Jani next contended that the sale has not taken place in the course of import into the territory of India. According to the learned counsel, the provisions of the Customs Act have been made applicable to the area of Panna and Mukta and by virtue of the notification issued by the Union of India, the customs frontiers have been extended to Panna- Mukta area and, therefore, for the purpose of the Customs Act, Panna-Mukta is a part of India. Anything sent to Panna-Mukta from anywhere in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sour gas. The presence of Hydrogen Sulphide is undesirable because it makes the gas extremely harmful and lethal to breathe and can be extremely corrosive. The gas is considered sour if the content of Hydrogen Sulphide exceeds 5.7 mg per cubic metre of natural gas. The process of removing Hydrogen Sulphide and other organic compounds from sour gas is commonly referred to as sweetening and the gas is known as sweetened gas. The attention of the court was invited to the process known as "Amine Process" or alternatively, "Girdler Process" whereby Hydrogen Sulphide is removed from natural gas. It was submitted that in the present case, it is only after the completion of the said process of converting the natural gas/sour gas into sweetened gas that GAIL takes delivery of the same which can be appreciated from Article 21.5.13(e) of the Production Sharing Contract and the Interim Sales and Purchase Agreement. It was submitted that the processing of natural gas is a very detailed and complex procedure. Once the product is processed and manufactured, a new product comes into existence. Therefore, what is in essence sold by the petitioners to the Government's nominee is sweetened gas, pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t loses the characteristic of being ascertained even if it were to be assumed that the contention of the petitioner is accepted. It was submitted that it is thus relevant to consider the provisions of section 22 of the Sale of Goods Act which clearly mention that where there is a contract of ascertained goods in the deliverable state, but the seller is bound to weigh, measure, test or do something for the purpose of ascertaining the price, the title of the goods shall not pass, till the time such act is done. Therefore, if all the three provisions as well as Articles 21.5.13(e) and clause 3 of ISPA are read in a conjoint manner and applied to the present case, it would simply mean that Hazira, Surat is the place where ascertainment of goods takes place and on ascertaining only, the price gets fixed which is the specific intention of the parties to the contract. Therefore, the definition of 'delivery point' is not relevant at this juncture. In support of his submissions, the learned counsel placed reliance upon the following decisions:- (1) Installment Supplies v. State of Orissa, AIR 9174 SC 1105, paragraphs 6, 10, 12 (2) Usha Beltron Ltd. v. State of Punjab & Haryana, 2005 (7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act by preferring appeals before the appellate authority, which are pending for final adjudication. It was submitted that the petitioners have simultaneously preferred these petitions by challenging the very jurisdiction of the Sales Tax authorities in levying sales tax on the ground that the sales have taken place beyond the territorial waters of India and thus, the State of Gujarat has no jurisdiction to levy sales tax as delivery of natural gas in the light of clause 21.5.13(a)(iv) has taken place at upstream-weld underwater connection. Therefore, the court may first deal with the primary objection as regards the maintainability of the petitions on the ground that the petitioners have already availed of the alternative remedy and that they should be directed to first exhaust the statutory remedy so availed. In support of such submission, the learned counsel placed reliance upon the following decisions:- (1) Titaghur Paper Mills Company Limited v. State of Orissa, AIR 1983 SC 603, paragraphs 11, 12, (2) State of U.P. v. Rajya Khanij Vikas Nigam Sangharsh Samiti, 2008 (12) SCC 675 paragraphs 36, 38, 39, 41, 44, 47, 48, 52 (3) State of Goa v. Leukoplast (India) Ltd., 1997 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the interpretation of the phrase 'occasions such import' under section 5 of the CST Act and 'occasions the movement of goods from one State to another' under section 3 of the CST Act are irrelevant. It was submitted that in view of the fact that neither has the sale of gas taken place in the course of import of goods into the territory of India nor has such sale been occasioned by the movement of goods from one State to another, the decisions cited by the learned counsel on the issue as to what is 'manufacture' and whether sweetened natural gas is different from sour natural gas, are irrelevant. 13.1 It was submitted that in the absence of the applicability of sections 3 and 5 of the CST Act, the court will have to determine whether the sale of gas has been made within the State of Gujarat as per section 2(28) of the GST Act read with section 4(2) of the CST Act read with the provisions of the Sale of Goods Act, 1930 to the extent applicable. It was submitted that for determining whether sale has been made in Gujarat, it would be pertinent to appreciate that the Production Sharing Contract read with the Interim Sales and Purchase Agreement is not a contract of sale of specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contract of sale by the seller or the buyer. Such appropriation would be feasible only when the goods as agreed to be sold come into existence which is possible only after sweetening. The appropriation, therefore, takes place post sweetening. The appropriation of future goods would only take place when the goods are completed and ready for delivery. In view of section 4(2)(b) of the CST Act, the sale of gas is deemed to take place inside the State of Gujarat and consequently, such sales is liable to sales tax under the GST Act. 13.3 Elaborating upon the above propositions as well as dealing with the contentions raised on behalf of the petitioners, Mr. Thakore submitted that GAIL is in substantial agreement with what is submitted by the petitioner - BG Exploration in respect of the limitation on the power of the State Government to impose sales tax. Reference was made to the provisions of Article 286 of the Constitution of India read with the CST Act, 1956 to submit that there are limitations on the power of the State to impose sales tax. It was submitted that however, GAIL does not agree with the proposition that no recourse can be had to the Sale of Goods Act which is a pre-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e owner of the motorcar agrees to sell his motorcar to the purchaser under a written contract signed by the owner - vendor and the purchaser at Calcutta on 10th October, 2014 when the Car was at Ahmedabad. The terms of contract provide that the property in car will pass to the purchaser when the full payment is made. The payment will be made in installments within six months. The title in the property would pass on the last instalment being paid on 1st July, 2014. By then the car is stationed in Calcutta. So far as the Sale of Goods Act is concerned, the intention of the parties is that the property will pass on 1st July, 2014 and accordingly would actually pass on 1st July, 2014 at Calcutta. Yet for the purposes of the GST Act, the Gujarat Sales Tax Authorities would be entitled to levy sales tax because on the date of the contract, the car being specific goods was inside the State of Gujarat and that would be deemed to be situs of sale under section 4(2) of the CST Act. It was submitted that, therefore, it is irrelevant where and when the title passes. 13.5 Mr. Thakore next submitted that similarly in case of future goods where or when the title passes to the buyer under the agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... niformity, certainty, economy in collection, and efficiency in tax management, all of which are desiderata in all fiscal measures. These provisions, if they should serve their purpose at all, must, in reason, override any special terms in private contracts to the contrary. Reliance was also placed upon the decision of the Supreme Court in the case of Madras Marine and Co. v. State of Madras, (1986) 3 SCC 552. 13.6 Dealing with the contention raised by the petitioners that the sale of goods took place outside the State of Gujarat, it was submitted that in this regard, it is important to determine whether the goods are specific goods/ascertained goods or future goods. If the goods are specific goods, then section 4(2)(a) will apply and the sale shall be deemed to take place inside the State, if the goods are within the State at the time the contract of sale is made. Assuming without admitting that the Production Sharing Contract is a contract of sale, then, if the goods are specific goods namely, those which can be identified on that date the property in the goods would pass where they are situated on the date of the PSC. As to whether mineral gas which is still to be extracted can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the petitioners relying on the definition of 'Deliverability' that since all that gas that falls within the deliverability must be sold on daily basis to the Government of India or its nominee under Article 21.5.13(b), the goods are specific or ascertained goods, it was submitted that the same completely ignores the definition of 'future goods' given under the Sale of Goods Act or in common law. It was submitted that the goods which are yet to be produced or extracted can never be specific goods or ascertained goods. They will always be future goods and only section 4(2)(b) of the CST Act would apply. In support of his submission, the learned counsel placed reliance upon the King's Bench decision in the case of Underwood Ltd. v. Burgh Castle Brick & Cement Syndicate, 1922 (1) KB 123 as well as the decision of the Andhra Pradesh High Court in the case of Markapur Municipality v. Dodda Ramireddi, AIR 1972 A.P. 299. 13.8 It was submitted that the issue, therefore, is as to when such future goods can be said to be appropriated to the contract. For that limited purpose and only for that limited purpose, one has to see the terms of the PSC and the Interim Sales and Purchase Agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessarily would take place post sweetening, at Hazira in Gujarat and, therefore, the sale is deemed to have taken place within the State of Gujarat. In support of such contention, the learned counsel placed reliance upon the following decisions:- (1) Wilkinds v. Bromhed and Hutton, (1844) 6 M&G 963 134 ER 1182-1189 (2) Atkinson v. Bell, (1828) 8 B&C 277 108 ER 1046-1049 (3) Mucklow v. Mangles, (1808) 1 Taunt 318 127 ER 856 (4) Bellamy v. Davey, (1891) 3 Ch 540 (5) Indian Wood Products Co. Ltd. v. Sales Tax Officer, New Delhi & others, AIR 1968 Delhi 211 13.9 Dealing with the decisions on which reliance had been placed by the learned counsel for the petitioners, it was submitted that reliance placed upon the decision of the Supreme Court in A.V. Thomas & Co. Ltd. v Deputy Commissioner (supra) is totally inapposite for the following reasons:- (i) The judgment deals with the assessment period 1952- 1953 and interprets the provisions of Article 286 of the Constitution of India as it then stood. (ii) Article 286 underwent a substantial change and clause (2) was substituted in 1956. After substitution, clause (2) provides that Parliament ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d irrespective of passing of property:- "It is to be borne in mind that the term "appropriation may be used in two senses. It may either mean simply the identification of the goods by agreement of parties as the goods to which the contract of sale relates or it may mean the passing of the property in the goods from the seller to the buyer by such means as delivery to the carrier etc. The scheme of the Act shows that the element of passing of property is not relevant in determining the situs of the sale. The question of appropriation of goods has to be decided, therefore, irrespective of the passing of property. In other words, the appropriation referred to in section 4(2)(b) connotes the setting apart of goods as specific goods to be delivered under the contract of sale and not an appropriation linked with passing of property. The Indian Wood Products Company Ltd., v. The Sales Tax Officer, Ward No.13, New Delhi. (1968) 21 S.T.C. 437. Therefore, the fact that the property in the goods moved from Faridabad to Delhi may not have passed to the buyer but may still be in the petitioner did not prevent the appropriation of the goods to the contract of sale within the meaning of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 2(ab) of the CST Act which defines "crossing the customs frontiers of India" to mean crossing in the limits of the area of the customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities and the Explanation thereto says that for the purposes of that clause, "customs station" and "customs authorities" shall have the same meanings as in the Customs Act, 1962. Referring to section 5 of the CST Act, it was submitted that in both eventualities envisaged thereunder, it has to be seen as to what are the customs frontiers of India. It was submitted that when the designated area has been extended to include the High Seas where the Offshore Platform is situated, that would be part of India for the purpose of import and hence, it cannot be said that the sale has taken place in the course of import. In support of his submission, the learned counsel placed reliance upon the decision of the Bombay High Court in the case of Commissioner of Sales Tax v. Pure Helium, 2012 (49) VST 14. Referring to paragraph 11 of the said decision, it was submitted that two propositions can be culled out therefrom, firstly, if the goods are sent from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assistant Commissioner, State of Maharashtra v. Embee Corporation, Indure Ltd. v. CTO, State of Travancore, Cochin v. Bombay Company (supra) are of no relevance as there is no import of gas in its movement from Panna-Mukta to Hazira. 13.13 Dealing with the contention that the contract was for the sale and purchase of all the natural gas discovered and produced in the contract area as defined in the PSC and that sweetening of natural gas does not amount to manufacture nor does it bring about another product and that after sweetening, the goods remain natural gas, it was submitted that what has been agreed to be delivered and accepted or received is sweetened gas. Consequently, whether sweetening changes the nature of product or not, there can be no appropriation to the contract, unless the natural gas is sweetened, which takes place at Hazira. In this context, it is irrelevant that the PSC provides for 100% of the deliverability of the natural gas. It was submitted that the distinction sought to be drawn between appropriation and unconditionally appropriated in section 4(2) (b) of the CST Act and section 23 of the Sale of Goods Act is a distinction without merit for when the word ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the gas produced at Panna-Mukta oil fields is incapable of being consumed till it is subjected to a sweetening process onshore at Hazira and the quantity of gas becomes unascertainable at Hazira, the delivery point is on-shore at Hazira and the liability of sales tax, if any, has to be determined on the above basis. 15. In rejoinder, Mr. P. Chidambaram, learned counsel for the petitioner - BG Exploration submitted that according to the respondents, the gas was produced in the deemed territory of India, the delivery point is in the deemed territory of India and Hazira is in the territory of India and hence, there can be no import into the territory of India. It was submitted that such argument is misconceived for the reason that the area in which the gas is produced is deemed to be part of territory of India only for the purpose of the Customs Act and the Customs Tariff Act which have been extended by notification under the Maritime Zones Act. The CST Act and the GST Act have not been so extended. For the purpose of CST Act, there is no deemed territory of India and no part of the Continental Shelf or the Exclusive Economic Zone can be deemed to be part of the territory of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied or demanded under the GST Act. It was submitted that, therefore, the gas wells, Offshore Platform and delivery point being located outside the territory of India, any movement of goods from a place outside the territory of India to a place within the territory of India will indeed be a movement in the course of import of goods into the territory of India. Any sale which occasions such import would fall within section 5(2) of the CST Act and would, therefore, be outside the purview of the GST Act. 15.2 As regards the contention raised by the learned Additional Advocate General regarding the maintainability of the petitions, it was submitted that since the assessment orders dated 3rd January, 2004 and 9th January, 2004 for the five years are wholly without jurisdiction, the petitioners had filed the present writ petitions to quash the orders and to declare that the sale of natural gas by the petitioner to Government of India cannot be taxed in view of Article 286 of the Constitution read with section 5 of the CST Act. It was submitted that the petitions are maintainable because the impugned assessment orders are without jurisdiction and because they were passed by reopening t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The PSC is a contract for the sale of sweetened gas. GAIL can refuse to take the Gas if it is not according to specifications required by it. Hence, the Gas has to be put into a 'deliverable state'. The petitioner lacks bona fides because it has not produced the ISPA or even the PSC. It was submitted that these statements and assertions have no basis whatsoever and must be disregarded. 16. In the backdrop of the facts and contentions noted hereinabove, the moot question that arises for consideration is whether the sale of natural gas pursuant to the PSC executed between the petitioners and the Central Government and the ISPA executed between the petitioners and GAIL, the nominee of the Central Government, has taken place within the State of Gujarat. It is an admitted position, which even otherwise cannot be disputed that in view of the provisions of Article 286 of the Constitution of India, a State Government cannot impose sales tax where the sale takes place outside the State or during the course of import of goods into the territory of India. Therefore, two questions are required to be determined. Firstly as to whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be determined in accordance with the principles specified in section 3, 4 and 5 of the CST Act. 19. For the purpose of ascertaining as to whether a sale has taken place in the course of inter-State trade or commerce, one has to refer to the principles specified in section 3 of the CST Act which postulates as to when a sale or purchase of goods is said to take place in the course of inter-State trade. However, in the present case, it is an admitted position between the parties that sale of the goods in question is not in the course of inter-State trade or commerce. Consequently, it is not necessary to refer to the provisions of section 3 of the CST Act. Of course, the learned counsel for the respective parties have referred to several decisions on the interpretation of section 3 of the CST Act, but the same have been relied upon to contend that the purport of the words "in the course of" used in section 3 and section 5 of the CST Act is the same. 20. The next eventuality contemplated under section 87 of the GST Act is when such sale has taken place outside the State. For the purpose of determining this question the principles as specified in section 4 of the CST Act would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined in Article 21.5.13(a)(iii). All gas that falls within "Deliverability" must be sold on a daily basis to the Government of India or its nominee under Article 21.5.13(b) and that the goods were outside the State of Gujarat at the time when the contract of sale was made. The contention raised by the petitioners has been resisted by the respondents on the ground that the sale of goods is for unascertained and future goods and therefore, the first part of sub-section (2) of section 4 would not apply. 23. Before dealing with the rival contentions, reference may be made to the decisions on which reliance has been placed by the learned counsel for the respective parties. 23.1 In a pre-bifurcation decision of the Bombay High Court in the case of Emperor v. Kunverji Kavasji Kavarana, AIR 1941 Bombay 106, the court has held that the expression 'specific goods' necessarily means goods capable of being ascertained with certainty - cerium est quod cerium reddi potest. The words, 'specific goods' would, according to their natural interpretation mean goods whose delivery can be demanded in specie. A contract to sell some liquor out of a big cask containing a much larger quantity, the req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrangement for preserving or protecting the same from accidental fire. Even if the extracted bamboos were destroyed by fire, the Company would still be liable to pay the price and the sales tax in addition to fine that may be imposed by the competent authority. Since the Company was required to preserve the extracted bamboos at its own risk, the intention of the parties would seem to suggest that the property in bamboos stood transferred to the Company the moment it was severed and taken possession of by the Company, because generally though not always, the goods sold are at the seller's risk until the property in them is transferred to the buyer and only when the property is transferred to the buyer, the goods are at the buyer's risk, whether goods are actually delivered or not." 23.3 In Mucklow v. Mangles, (1) TAUNT 318, it was held that if a person contracts with another for a chattel which is not in existence at the time of the contract, though he pays him the whole value in advance, and the other proceeds to execute the order, the buyer acquires no property in the chattels till it is finished and delivered to him. The court held that if the thing be in existence at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deliverable state and are unconditionally appropriated to the contract either by the seller with the consent of the buyer or by the buyer with the consent of the seller. Under Section 26, the goods remain at the seller's risk until the property passes to the buyer. It is apparent from the foregoing provisions that the law permits the sale of future ascertained or contingent goods". 24. For the purpose of deciding as to whether the goods in question were ascertained goods at the time when the contract of sale came to be made, it may be necessary to refer to certain recitals in the PSC. Article 9 refers to Discovery, Development and Production. On a perusal of the contents thereof, it is apparent that the stage of entering into the contract was prior to the discovery within the contract area. In case of a new discovery having potential commercial interest an appraisal programme was required to be submitted by the contractor. Article 21 deals with Natural Gas and Article 21.1 says that subject to Article 21.2, the Indian domestic market shall have the first call on the utilisation of Natural Gas discovered pursuant to Petroleum Operations and produced from the contract area. Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Gujarat at the time of their appropriation to the contract of sale by the seller or by the buyer, whether the assent of the other party was prior or subsequent to such appropriation, so as to fall within the ambit of clause (b) of section 4(2) of the CST Act. On behalf of the petitioners, it has been alternatively submitted that if the goods are unascertained or future goods, they were appropriated to the contract on a daily basis when they were delivered at the Delivery Point to ONGC's Bassein Hazira pipeline and that the seller and buyer assented to such appropriation. Whereas it is the case of the respondents that appropriation of the goods did not take place at the Bassein Hazira pipeline of ONGC but downstream of ONGC's separation and sweetening facility at Hazira, within the State of Gujarat, as what was agreed to be purchased was sweetened gas and not sour gas. Therefore, the buyer did not assent to appropriation of the goods at the Bassein Hazira pipeline and hence, the sale of the goods in question falls within the ambit of clause (b) of sub-section (2) of section 4 of the CST Act and is a sale within the State of Gujarat. Thus, the crucial question that arises for con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd therefore subject to the operation of the "Explanation", the State in which property passed would be the only State which would have the power to levy a tax on the sale. At p. 286 it was observed: "The conclusion reached therefore is that where the property in the goods passed within a State as a direct result of the sale, the sale transaction is not outside the State for the purpose of Article 286(1)(a) unless the Explanation operates". The majority decision in Indian Copper Corporation Ltd. v. State of Bihar concludes the point in favour of the appellant. On the facts of this case it was found by the Sales Tax Appellate Tribunal that in regard to the sales of tea in full lots the property passed at Fort Cochin and this view has not been challenged in this court. Therefore, on the majority decision in Indian Copper Corporation Ltd. v. State of Bihar the only State which would have the power to levy a tax on such sale would be the State of Madras and so far as Travancore Cochin was concerned, the sale would be an outside sale. 10. In the present case therefore the sale was an "outside sale" and cannot be said to be an "inside sale" qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erriding rules for fixing the taxable event, as between the public exchequer, on the one hand and the taxpayers, on the other. While the sales tax law taxes up sales or purchases as taxable events, and to that extent, goes along with the general law governing such transactions, the legislature has not thereby lost the prerogative of bending the rules of common law to the service of the revenue. The legislature has laid down in the sales tax statutes clear-cut principles for determining the situs of sales and purchase in order to bring about uniformity, certainty, economy in collection, and efficiency in tax management, all of which are desiderata in all fiscal measures. These provisions, if they should service their purpose at all, must, in reason, override any special terms in private contracts to the contrary. 26.3 In Bengal Corporation Private Ltd. v. State of Madras (supra), the Madras High Court was of the opinion that the appropriation referred to in section 4(2)(b) signifies and connotes the earmarking and setting apart of goods as specified goods to be delivered under the contract of sale and does not signify an appropriation carrying with it the idea of passing of propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the defendants, and he had written to tell them so. If they had expressed their assent, then this case would have been within Rohde v. Thwaites (6 B. & C. 388, 9 Dowl. & Ryl. 293), and there would have been a complete appropriation, vesting the property in the defendants. But there was not any such assent to the appropriation made by the bankrupt; and, therefore, no action for goods bargained and sold was maintainable." Holroyd J. observes, "I think the action will not lie for goods bargained and sold, because there was no specific appropriation of the machines assented to by the purchasers, and the property in the goods therefore remained in the maker." And Littledale J. adds, "There could not be any sale in this case, unless there was an assent, by the defendants, to take the articles." Looking as the facts of this case, it seems to me that there is complete evidence of assent on the part of the plaintiff, to the appropriation made by the vendors. The plaintiff was informed by letter that the greenhouse was finished, and was requested to remit the price. He did so, at the same time requesting the vendors to keep the greenhouse for him until he sent for it. It has been argued, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requested the bankrupts to keep the greenhouse for him, thereby assenting to the appropriation which they had made. When the latter deposited it with Wait, they gave notice that it was the plaintiff's property, and requested Wait to take care of it for him. The reason why it was held in Atkinson v. Bell (8B. & C. 277, Mann. & Ryl, 292) that the action for goods bargained and sold could not be maintained, was, that, although there had been an appropriation, no assent, on the part of the persons for whom the articles were made, had been shown. The language of the judges, as read by the Lord Chief Justice, shows that to have been the only ground on which the case was decided. "If," says Baylej J., "the defendants had expressed their assent, then this case would have been within Rohde v. Thwaites (6 B. & C. 388, 9 D. & R. 293), and there would have been a complete appropriation, vesting the property in the defendants." What was the assent in Rohde v. Thwaites (6 B. & C. 388, 9 D. & R. 293), which was, in that learned judge's opinion, sufficient to pass the property? There, the vendee never saw the sugar; but, having received a message from the seller that they were ready for hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds from the seller to the buyer by such means as delivery to the carrier, etc. The court observed that the scheme of the Act shows that the element of passing of property is not of relevance in determining the situs of the sale. The question of appropriation of goods has to be decided, therefore, irrespective of passing of the property. In other words, appropriation referred to in section 4(2)(b) connotes the setting apart of goods as specific goods to be delivered under the contract of sale and not an appropriation linked with passing of property. The court in the facts of the said case held that the appropriation took place when the ascertained or future goods were manufactured in accordance with the specifications of the contract of sale and in accordance with the agreement of the parties. For the same reason, therefore, the petitioner lost the right of diversion of these goods to any other person in view of the contract and the law. Diversion made contrary to the contract and law would not be in pursuance of any right and is, therefore, not relevant. 26.7 In Indian Wood Products Co. Ltd. v. Sales Tax Officer (supra), the Delhi High Court observed that since the goods in questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordships denote goods which are by express stipulation to be supplied from a fixed and a predetermined source, from within which the seller may make his own choice (unless the contract requires it to be made in some other way) but outside which he may not go. For example, 'I sell you 60 of the 100 sheep now on my farm'. Approaching these situations a priori common sense dictates that the buyer cannot acquire title until it is known to what goods the title relates. Whether the property then passes will depend upon the intention of the parties and in particular on whether there has been a consensual appropriation of particular goods to the contract. On the latter question the law is not straightforward, and if it had been decisive of the present appeal it would have been necessary to examine cases such as Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd's Rep 240 and other cases cited in argument. In fact, however, the case turns not on appropriation but on ascertainment, and on the latter the law has never been in doubt. It makes no difference what the parties intended if what they intend is impossible: as is the case with an immediate transfer of tit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtained, and they are in the state in which they ought to be accepted." In Simmons v. Swift (5) (at p. 862) the rule has been enunciated as follows: "Generally speaking, where a bargain is made for the purchase of goods and nothing is said about payment or delivery, this property passes immediately so as to cast upon the purchaser all future risks, if nothing further remains to be done to the goods: although he cannot take them away without paying the price. If anything remains to be done on the part of the seller, until that is done the property is not changed." The real question in all such cases is whether the parties did intend that property should pass: Turley v. Bales (6) (at p. 203) and Martineau v. Kitching (7). The true test therefore is what was the intention of the parties." The court further observed that the word 'ascertained' has not been defined or explained in the Indian Contract Act. According to Chitty (Law of Contracts, 17th edn.1921, p.462) the expression means "goods which the parties have agreed upon as the goods to be appropriated to the contract". 26.10 In Underwood Limited v. Burgh Castle Brick and Cement Syndicate, 1 K.B. 123, it was held thus: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract therefore represented by the pucca delivery orders was a contract for the sale of unascertained goods and no property in the goods was transferred to the buyer in view of section 18 of the Indian Sale of Goods Act till the goods were ascertained by appropriation, which in that case took place at the time only of actual delivery. 26.13 In DLF Universal v. Director, T & C Planning, Haryana, AIR 2011 SC 1463, the Supreme Court held thus:- "11. It is settled principle in law that a contract is interpreted according to its purpose. The purpose of a contract is the interests, objectives, values, policy that the contract is designed to actualize. It comprises joint intent of the parties. Every such contract expresses the autonomy of the contractual parties' private will. It creates reasonable, legally protected expectations between the parties and reliance on its results. Consistent with the character of purposive interpretation, the court is required to determine the ultimate purpose of a contract primarily by the joint intent of the parties at the time the contract so formed. It is not the intent of a single party; it is the joint intent of both parties and the joint intent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riation of goods has to be decided, therefore, irrespective of passing of the property. In other words, appropriation referred to in section 4(2)(b) connotes the setting apart of goods as specific goods to be delivered under the contract of sale and not an appropriation linked with passing of property. (iii) The appropriation referred to in section 4(2)(b) connotes the setting apart of goods as specific goods to be delivered under the contract of sale and not an appropriation linked with passing of property. The term unconditional appropriation existed in the Sale of Goods Act, years before the enactment of the Central Sales Tax Act, and if the Parliament intended to convey the same idea, the Parliament would not have omitted the word 'unconditionally' in section 4(2)(b). CATEGORY II (i) When there is an appropriation on the one side, and an assent to such appropriation on the other; it is sufficient to pass the property to the plaintiff. (ii) Ascertainment might take place by any method which is satisfactory to the parties concerned. (iii) The buyer cannot acquire title until it is known to what goods the title relates. Whether the property then passes will depend upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement (ISPA) between the Contractor and GAIL. For the purpose of deciding the situs of the goods at the time of appropriation to the contract, it would be necessary to refer to certain recitals from the PSC as well as the ISPA to understand what the parties had agreed. Since the sale transaction is contained in two documents, as held by the Supreme Court in DLF Universal v. Director, T & C Planning, Haryana (supra) and S. Chhattanatha Karayalar v. Central Bank of India (supra) and this court in Her Highness Maharani Shantadevi Gaekwad v. Savjibhai Patel, it would be necessary to read and interpret them together and joint intent of the parties would be required to be discovered from the entirety of the contract and the circumstances surrounding their formation. 30. A perusal of the recitals contained in the ISPA shows that what has been agreed to be sold is Natural Gas. The price clause says that the Buyer shall pay to the Sellers at the rate of 90% of gas price specified in Article 21.5.13(d) of the PSC for the net MMBtu of gas delivered at the downstream of ONGC processing facility at Hazira (on account basis as directed by the Ministry of Petroleum and Natural Gas). The paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lects to take the Excess ANG, the Contractor is required to deliver such Excess ANG to the Government or its nominee free of cost, at the downstream flange of the Gas/Oil separation facilities and the Government or its nominee shall bear all costs including gathering, treating, processing and transporting costs beyond the downstream flange of the Gas/Oil separation facilities. 32.1 Article 21.5.13 provides that the price of ANG and NANG produced from the Oil or Gas Field for use in India shall be specified in the Gas sales contract which shall be in accordance with the provisions of this Article 21.5.13. Thus, the price of ANG and NANG has to be specified in the Gas sales contract and has to be in accordance with the provisions of Article 21.5.13. 32.2 Clause (a) of Article 21.5.13 contains certain definitions which are for the purposes of that sub-Article alone. The terms defined are: (i) British Thermal Unit, (ii) Buyer, (iii) Deliverability, (iv) Delivery Point, (v) Maximum Delivery Pressure, (vi) MMBTU and (vii) Seller. 32.3 For the purpose of appreciating the controversy in issue, it may be necessary to refer to the following definitions: (i) "Buyer" means the Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to produce and deliver 100% of the Deliverability of ANG and NANG and Condensate on a daily basis to the Buyer at the Delivery Point and the Buyer has to take and purchase the Gas and Condensate so delivered. The "Delivery Point" envisaged in this clause would be in terms of sub-clause (iv) of clause (a) inasmuch as clause (a) provides that unless the context otherwise requires the words and terms defined thereunder wherever used and appearing in Article 21.5.13 shall have the meaning provided therein. Moreover, "Delivery Point" is not defined elsewhere in the PSC nor is it defined under the ISPA. 32.6 Clause (c) of Article 21.5.13 of the PSC provides that the Gas and Condensate sold under the said agreement shall be separated into Gas and Condensate at the offshore processing facility, measured separately, and recombined and delivered at the Delivery Point at the operating pressure of the Buyer's owned or contracted pipeline up to a maximum pressure of one thousand psig. Under this clause, the Gas and Condensate are first required to be separated at the offshore processing facility, measured and recombined and then delivered at the Delivery Point. The expression "Delivery Po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar distinction between the two, which shall be elaborated hereinafter. 34. The fact regarding reference to GAIL not being in its capacity as nominee of the Government of India has been pointed out by the petitioner to the respondent Commissioner of Sales Tax in its letter dated 3rd September, 1999 wherein it has been stated that the Delivery Point of Panna-Mukta gas is offshore underline connections at ONGC's existing pipeline, where the title passed to Government of India (or its nominee GAIL) (Reference Article 12.5.13(a)(iv) in 21.5.13(e) and Article 27.2 of PSC). It has further been stated that this gas together with ONGC's own gas, passes through ONGC owned sweetening facilities. As a matter of gesture of commercial cooperation and under commercial expediency, JV agreed to compensate ONGC for the incremental cost of ownership and operation of the sweetening facilities. This factor however, does not affect the delivery point and passing of title to the buyer at the offshore delivery point. In its letter dated 23 September, 1999 (page 43) the petitioner has stated that compensation to ONGC for sweetening the associated natural gas from Panna was deliberated and agreed during Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is sold in accordance with the agreement. 35. The question as regards the stage when appropriation of the goods has taken place has to be considered in the light of the peculiar nature of the goods, viz. Natural Gas, which cannot be transported in the manner in which ordinary goods are transported. The facts on record reveal that the Gas and Condensate sold under the PSC are, in terms of Article 21.5.13(c), to be separated into Gas and Condensate at the offshore processing facility, measured separately, and recombined and delivered at the Delivery Point at the operating pressure of the Buyer's owned or contracted pipeline up to a maximum pressure of one thousand psig. Under this clause, the gas and condensate are first required to be separated at the offshore processing facility, measured and recombined and then delivered at the Delivery Point. Delivery point is defined in clause 21.5.13(a)(iv) as the upstream weld at the underwater connection between Seller's pipeline and ONGC's underwater Gas transmission line or lines which transport Gas from Bassein Field to the Hazira area. Therefore, the Natural Gas produced by the Contractor is delivered to the Government of India or it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage the goods, viz. Natural Gas, was not in a usable condition and that it was made fit for use only after it was subjected to processing at ONGC's separation and sweetening facilities at Hazira. It has been vehemently contended on behalf of GAIL that what GAIL had agreed to purchase was sweetened Gas and that the parties had agreed that the same would be received by GAIL at Hazira downstream. That sweetening is a duty imposed on the Contractor and not the Union of India or GAIL. The cost of operating the sweetening facilities has to be borne by the Contractor and since what was contracted to be received by them was sweetened Gas they would not assent if any other Gas is delivered to them. Therefore, there was no assent to delivery of Gas at the Delivery Point prior to its sweetening. According to the learned counsel for GAIL, irrespective of the fact whether sweetened gas and sour gas are different commodities or not under the Sales Tax Act and irrespective of the fact as to whether sweetening of gas amounts to manufacture or not, what is agreed to be sold is sweetened gas and consequently the sale of such goods would be deemed to take place at the time of their appropriation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of quantity of gas delivered to the buyer at downstream of separation and sweetening facilities owned and operated by ONGC at Hazira as certified by ONGC. 38. To understand the intent of the parties, both the contracts, viz., the PSC as well as the ISPA have to be read together. Article 21.3 provides that for the purpose of sales to the domestic market pursuant to Article 21, the Delivery Point shall be the Delivery Point set forth in the Gas sales contract entered into by the Contractor. In the opinion of this court, in the first place, sale to GAIL as nominee of the Government of India cannot be said to be a sale to the domestic market, because, the domestic market would include several players, whereas here the gas is sold to GAIL as a nominee of the Government of India. Therefore, insofar as sale of Gas to the Government of India or its nominee is concerned, the same is governed by the PSC and the ISPA read together. Accordingly, the Delivery Point would be the Delivery Point as envisaged under the PSC, else, the said expression would be rendered redundant. Examining the case from another angle, assuming for the sake of argument that sale of Natural Gas to GAIL as nominee of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the rights or obligations of the parties, (ii) be deemed an admission by any party as to the proper interpretation of the PSC or the rights and obligations of any party thereunder, or (iii) be a waiver of any rights of a party under the PSC." 40. From the recitals contained in the ISPA, it is manifest that the contract is for sale and purchase of natural gas to GAIL as nominee of the Government of India. Under the terms of the agreement (ISPA) the Sellers have agreed to sell and the Buyer has agreed to purchase natural gas for the period and upon the terms set forth therein. The period is specified in clause 2. The terms set forth are in respect of price of gas, liability to pay the sales tax, to continue negotiations in good faith, to resolve disputes in accordance with the laws in India, mutually by the parties, failing which to refer the matter to arbitration, and signing of the agreement shall not be deemed to be a waiver of any rights of a party under the PSC. On a reading of the ISPA in its entirety, there is no reference to any Delivery Point therein. On behalf of the respondents, reliance has been placed upon the price clause in the agreement, viz. clause 3 of ISPA for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Government of India or its nominee. Therefore, GAIL as nominee of the Government of India, steps into its shoes as Buyer and accordingly, is governed by the terms of clause (b) of Article 21.5.13 of the PSC has to take and purchase 100% of the Deliverability of natural gas as agreed under the ISPA at the Delivery Point. For the purposes of Article 21.5.13, "Delivery Point" means the upstream weld at the underwater connection between Sellers' pipeline and ONGC's underwater Gas transmission line or lines which transport Gas from Bassein Field to the Hazira area. Therefore, on a conjoint reading of the PSC and the ISPA, what was agreed to be sold and purchased was Natural Gas which was to be delivered at the Delivery Point as defined under clause (a)(iv) of Article 21.5.13. In terms of clause (c) of Article 21.5.13, the gas and condensate are separated into Gas and Condensate and measured separately and then recombined and delivered at the Delivery Point. In the opinion of this court, having regard to the fact that what is agreed to be sold and purchased by the parties is natural gas, the goods, viz. natural gas becomes ascertained goods upon their production. These ascertained good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IL at Hazira downstream of separation and sweetening facilities owned and operated by ONGC, to contend that even under the PSC it was agreed that GAIL would receive the gas at Hazira which is the delivery point. As noticed earlier, GAIL was not a party to the PSC and reference to GAIL in the PSC is as a carrier and not as the nominee of the Government of India. In the opinion of this court, the parties have intentionally employed the term "received" and not "delivered" in clause (e) inasmuch as, as noticed earlier, having regard to the nature of the goods, viz. Natural Gas, the same cannot be delivered like ordinary goods and can be delivered only through a gas pipeline. Therefore, once the gas is appropriated and delivered at the Delivery Point as defined in Article 21.5.13 (a)(iv) of the PSC, namely at the offshore T-Junction, it can only be received downstream of ONGC's sweetening and separation facilities at Hazira along with all the other gas in the pipeline. Therefore, the natural gas which is delivered at the T-Junction, when it is received at Hazira by GAIL, would be in the form of sweetened gas as the same along with all other gas would undergo the process of sweetening. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the risk in the goods passed on to the Buyer, namely GAIL as nominee of the Government of India. In the opinion of this court, once the goods are appropriated to the contract and delivered at the Delivery Point outside the State of Gujarat, merely because the same undergo a process of sweetening having regard to the nature of the goods, it cannot be said that the goods were appropriated to the contract only post sweetening as is sought to be contended on behalf of the respondents. 44. Another aspect of the matter is that the reference to the goods in the PSC as well as in the ISPA is to Natural Gas/Gas. In the price clause, the expression used is "Natural Gas" and "Gas". Similarly, in the sales tax clause, the expression used is "Gas" and in the clause regarding agreement to purchase and sale, the expression used is "Natural Gas". The ISPA does not define the expressions "Gas" or "Natural Gas". "Gas" is defined under Article 1.46 of the PSC to mean "Natural Gas". "Natural Gas" is defined under Article 1.54 of the PSC to mean Wet Gas, Dry Gas, all other gaseous hydrocarbons, and all substances contained therein, including Sulphur and Helium, which are produced from oil or gas wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mented, it is to be by way of an instrument in writing signed by all the parties namely, the constituents of the Contractor and the Government of India. The ISPA executed between the constituents of the Contractor and the GAIL, therefore, cannot amend, modify, vary or supplement the PSC. Under the circumstances, the price clause as contained in the ISPA which provides for payment at the rate of 90% of the Gas price specified in Article 21.5.13(d) of the PSC for the net MMBtu of gas delivered at the downstream of ONGC facility at Hazira, would not modify the principal agreement between the parties, namely that the Gas is to be delivered at the Delivery Point as contemplated in clause (a)(iv) of Article 21.5.13 of the PSC nor can the same be read to mean that the parties had agreed to sell and purchase sweetened Gas. 4. Another contention which has been vehemently canvassed on behalf of the respondents is that the Gas which is delivered at the Offshore T-Junction is co-mingled with other gases and hence, it ceases to be ascertained. It is On-shore Hazira that the goods are ascertained, ascertainable or deliverable as they are co-mingled with other gases. In this regard, it may be ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansportation of natural gas cannot be compared with transportation of tangible goods. Mixture of natural gas of common quality during the course of transportation does not affect the right of the buyer. Every buyer or shipper may draw its natural gas from the open access gas pipeline with due measurement at exit point. The court noted that while transporting the gas from Hazira to onward destination because of addition of natural gas of GAIL, it is subjected to processing and extracting of some molecules to make it suitable for industrial consumption and then carried through spur pipeline at the installation of the customers where again the processing or purification and removal of raw materials is undertaken. The court observed that under section 3 of the CST Act read with section 7 of the VAT Act, natural gas is delivered at delivery point and the quantity is ascertained with due movement to forward destination situated outside the State, therefore, it is an inter-state sale or trade. The court observed that in view of the statutory compulsion under the Petroleum and Natural Gas Regulatory Board (Access Code For Common Carrier Or Contract Carrier Natural Gas Pipelines) Regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontended that the gas pipeline possessing the gas of different customers is passed on in co-mingled form, hence, it is unascertained goods. The court observed that the factual matrix with regard to transportation of gas in co-mingled form was not disputed. The court held that the movement of gas on common carrier basis under the open access system because of statutory compulsion does not make the shipper's gas unascertained. The court referred to the international practice in the book dealing with Sale and Gas Transport Agreement Principle and Practice (Third Edition) written by Peter Roberts and observed that the delivery point shall be the point at which title, custody and risk or loss of damage of gas transfers from seller to buyer. The court referred to the following observations made by the author with regard to transfer of title:- "The delivery point will ordinarily be the point at which title to, custody of and the risk of loss of or damage to the gas (or LNG) transfers from the seller to the buyer. The delivery point will also often be determinative in the allocation of tax liabilities between the parties (40-017). Modern contracts and commercial codes have successfully s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be undistinguishable, whether by consent of the owners or by someone's wrongful act, the owners become tenants in common of the mass. The co-mingling of a fungible commodity does not affect ownership unless the parties intend to transfer title. The way the system works, each shipper is simply entitled to a volume of gas thermally equivalent to that which is placed into storage regardless of where it was placed when stored or from where it is taken when removed from storage. The court also made reference to the Canada Federal Court of Appeal decision in The Ministry of Public Safety and Emergency Preparedness (Canada) v. Tenaska Marketing Canada, 2007 FCA 223, wherein the court held thus:- "Due to its unique physical properties, large volumes of natural gas can only be transported in a continuous stream. Once delivered into a pipeline for transportation, it becomes commingled with other natural gas. Individual molecules are not separately identifiable, and cannot be accurately tracked or traced. As a result, natural gas is sold and purchased on a "quality and quantity basis", and treated as a fungible goods, with title taken on a quality and quantity basis. Accordingly, and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, once the gas is injected at the ONGC's off-shore pipeline, the same is received downstream of ONGC's sweetening and separation facilities at Hazira. However, merely because the gas which is delivered at the Offshore T-Junction is co-mingled with other gases, does not detract from the fact that prior thereto, the natural gas sold by the seller to the buyer, was ascertained at the off-shore processing facility and appropriated to the contract of sale and delivered at the Delivery Point. The subsequent sweetening of the gas post appropriation, does not change the situs of the sale in terms of clause (b) of section 4(2) of the CST Act, in view of the fact that the situs of the sale is at the offshore Processing Facility where the ascertained goods were separated and measured and appropriated to the contract and delivered to the buyer at the Delivery Point, where the title of the goods also stood transferred to the buyer in terms of Article 27.2 of the PSC. Under the circumstances, the appropriation of goods has taken place at the off-shore processing facility and the goods are delivered at the Delivery Point namely, at the upstream weld at the underwater connection between the Selle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Oil Rig. The respondents refused to permit the petitioner to transship stores and equipments to the Oil Rig without payment of customs duty. The petitioner contended that the goods imported for Oil Rig are liable to be transshipped to the Oil Rig without levy of duty of customs and that the respondents were wrongfully levying duty of customs on the goods which were used on the Oil Rig. The court took into consideration notifications dated 18th July, 1986 and 19th September, 1996 issued under the Maritime Zones Act, 1976 whereby the Customs Act, 1962 and Customs Tariff Act, 1975 had been extended to the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the notification of the Government of India in the Ministry of External Affairs No. SO 643(E) dated 19th September, 1996 with immediate effect. The court after referring to the provisions of sections 7(1) and 7(7) along with sections 3, 6 and 7 of the Maritime Zones Act, held that if the area of the exclusive economic zone or continental shelf where the rigs were stationed (of course outside territorial waters) is deemed to be a part of the territory of India under the Central Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia. The continental shelf of India comprises of the seabed beyond the territorial waters to a distance of 200 nautical miles. The exclusive economic zone represents the sea or waters over that continental shelf. 74. From the reading of Sections 6 and 7 of the Maritime Zones Act, 1976, it is clear that in respect of the continental shelf and exclusive economic zone, India has been given only certain limited sovereign rights and such limited sovereign rights conferred on India in respect of continental shelf and exclusive economic zone cannot be equated to extending the sovereignty of India over the continental shelf and exclusive economic zone as in the case of territorial waters. Sub-section (6) of Section 6 and sub-section (7) of Section 7 of the Maritime Zones Act, 1976 empower the Central Government by notification to extend any enactment in force in India with such restrictions and modifications which it thinks fit to the continental shelf and the exclusive economic zone and. further provides that an enactment so extended shall have effect as if the continental shelf or the exclusive economic zone to which the enactment has been extended is a part of the territory of India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been extended. Therefore, the object is very clear that the revenue generated from exploration and exploitation should accrue to the coastal State viz. India." 49.3 In Commissioner of Sales Tax, Maharashtra State, Mumbai v. Pure Helium (India) Limited (supra), the Bombay High Court was dealing with the question as to whether Mumbai High is a foreign destination and whether the sales of helium gas by the respondent to its vendee situated in the Mumbai High region are sales in the course of export out of India as contemplated by section 5(1) of the Central Sales Tax Act, 1956. The assessee claimed that the sales which were effected were sales in the course of export under section 5(1) of the CST Act for the reason that Mumbai High falls beyond the territorial waters of India. The case of the assessee, therefore, was that the sales had occasioned the export of goods to a place outside the territory of India. The assessing authority, however, had held that Mumbai High was a part of the territory of India and that the sales had occasioned inter- State movement of goods. The submission of the Revenue was that article 366 (3) defines the expression "Union Territory" to mean Union Terr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Maharashtra to Mumbai High and was contrary to the mandate of the provisions of section 6 of the CST Act. On the question as to whether Mumbai High was a foreign destination, and that the sale of helium gas by the assessee to its vendee situated in the Mumbai High was a sale in the course of export out of India as contemplated under section 5(1) of the CST Act, 1956, the court held that export of goods out of the territory of India envisages the movement of goods across the customs frontier. The notion of customs frontier is not alien to sub-section (1) of section 5. Once the customs frontier stands extended to a territory, there can obviously be no export of goods to a territory which falls within the customs frontier. An export of goods involved the movement of goods from within the customs frontier to a point beyond. Contrariwise, the import of goods involves the movement of goods from a point which lies outside the customs frontier to a point within. Sub-section (1) of section 5 also recognises the intrinsic relevance of goods crossing the customs frontier in the case of an export, or as the case may be, on import of goods. The court observed that the provisions of Customs Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from one State to another. For this purpose, the court found it necessary to ascertain whether the movement of goods from Hazira to Bombay High can be stated to be a movement of goods from the State of Gujarat to another State within the country. The court referred to various provisions of the Maritime Zones Act and held thus:- "34. From the above provisions it can clearly be seen that though Union of India has certain rights over the Exclusive Economic Zone, the Indian Union does not have sovereignty over such an region. Clause (a) to sub- Section (7) of Section 7, for example provides that the Union has, over the Exclusive Economic Zone, sovereign rights for the purpose of exploration, exploitation, conservation and management of the natural resources. Sovereign rights are thus for the limited purposes provided therein. Sub-Section (4) of Section 7 does not speak of unlimited sovereign rights much less sovereignty of the Union of India over the exclusive economic zone. It is only by virtue of the notification in Official Gazette that the Central Government may declare any area of exclusive economic zone to be a designated area and make such provision as it may deem necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clear that the goods had not been moved from one State to another since, in our opinion, Bombay High does not form part of any State of Union of India." 40. By a notification dated 27.2.2010 provisions of Chapter V of Finance Act, 1994 (pertaining to Service Tax) have been extended to continental shelf and Exclusive Economic Zone as indicated for the purposes specified in the notification. It can thus be seen that the Central Government has been issuing notifications extending different taxing statutes to designated areas, continental shelf and Exclusive Economic Zone. Such notifications have been issued extending the Income Tax Act, 1961, Customs Act and the Customs Tariff Act, Central Excise Act and the Central Excise Tariff Act, the Service Tax and the provisions contained in Finance Act, 1994. However, admittedly, no such notification has been issued extending all or any of the provisions of CST Act to any of the designated areas, continental shelf or Exclusive Economic Zone. To our mind in absence of such notification, respondents could not have demanded tax under the CST Act from the petitioners on its sale of machinery, parts etc. to the respondent No.5, which sale was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shelf would be chargeable to central excise duty as goods produced in India. The court had observed that in the present case, it was, however, confronted with the situation where CST Act has not been extended by issuance of notification to the Central Government to the continental shelf or exclusive economic zone. It has been contended on behalf of the petitioners that there is a contradiction between the law laid down by this court in the case of Larsen & Toubro Limited v. Union of India and by the Bombay High Court in the case of Commissioner of Sales Tax v. Pure Helium (India) Limited, and that the decision in the case of Larsen & Toubro Limited lays down the correct proposition of law. 51. The facts are not in dispute. Pursuant to the contract of sale, namely the PSC and the ISPA, there has been a movement of goods from the Panna-Mukta oil fields to the State of Gujarat. The question that, therefore, arises is whether the sale of goods is in the course of import of goods into the territory of India. The Supreme Court in the case of Aban Lloyd Chiles Off-Shore Limited (supra) has, after considering the provisions of the Maritime Zones Act and the notifications whereby the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, arises for consideration in the present case is whether the movement of goods from Panna-Mukta oil fields into the State of Gujarat can be said to be in the course of import of goods into the territory of India. Therefore, the central question that arises for consideration is whether the Panna-Mukta oil fields can be stated to be outside the territory of India as a result whereof, the sale can be said to be in the course of import of goods into the territory of India. 52. It may be noted that while a specific contention has been raised by the petitioners in the memorandum of petition that the Panna and Mukta oil/gas fields are located in the area of Economic Zone as defined in the Maritime Zones Act; the location of the said oil/gas fields is beyond the Territorial Waters of India; and since the Natural Gas has been imported by the Joint Venture from the gas field to Hazira, no tax can be levied on such transaction in terms of Article 286 of the Constitution, on behalf of the respondents nothing has been pleaded on the basis of the notifications that find place in the above decisions to contend that by virtue of the deeming fiction, the Panna-Mukta oil/gas fields stand inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llations, structures and platforms as designated areas for the purposes of the said sections. By Notification No. S.O. 189(E) issued on 11th February, 2002, the Central Government in exercise of powers conferred by clause (a) of sub-section (5) of section 6 of and clause (a) of sub-section (6) of section 7 of the Maritime Zones Act, extended the provisions of the Customs Act, 1962 and Customs Tariff Act, 1975 to the continental shelf of India and the exclusive economic zone of India for the purposes of: (a) the prospecting for extraction of production of mineral oils in the continental shelf of India or the exclusive economic zone of India, and (b) the supply of any goods as defined in clause (22) of section 2 of the Customs Act, 1962 in connection with any of the activities referred to in clause (a). The Explanation thereto provides that for the purposes of that notification 'mineral oils' include petroleum and natural gas. 53. The Supreme Court in Aban Lloyd Chiles Off- Shore Limited (supra), in the context of the above notifications held thus: "73. A combined reading of Sections 3, 6 and 7 of the Maritime Zones Act, 1976 shows that territorial waters, the seabed and subsoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uently, if mineral oil is extracted or produced in the exclusive economic zone or continental shelf and is brought to the mainland, it will not be treated as import and, therefore, no customs duty would be leviable. Likewise, goods supplied to a place in the exclusive economic zone or continental shelf will not be treated as export under the Customs Act and no export benefit can be availed on such supply. Any mineral oil produced in the exclusive economic zone or continental shelf will be chargeable to Central excise duty, as goods produced in India. 86. Implication of Notification No. S.O. 189(E) dated 7- 2-2002 and its consequences have been clarified in Circular No. 17 of 2002-Customs dated 13-3-2002 in following terms: "3. The implication of the said notification is that mineral oils extracted or produced in the EEZ and continental shelf of India if brought to the mainland shall not be treated as import and therefore, no customs duty shall be leviable on such mineral oils. Likewise, the goods supplied from the mainland to a place in EEZ or continental shelf of India in connection with any activity related to mineral oil extraction or production shall not be treated as exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. In these circumstances, the definition of "India" as given in Section 2(27) of the Customs Act gets extended by these provisions to cover areas declared as designated areas beyond the territorial waters and located the continental shelf and the exclusive economic zone of India. If one reads the Customs Act without reading the Maritime Zones Act, 1976, then the oil rig located in the notified areas/designated areas constitute "place outside India". On the other hand, the very purpose of Sections 5, 6 and 7 of the Maritime Zones Act, 1976 is to declare an area of the contiguous zone/continental shelf/exclusive economic zone as a designated area so that exploration, exploitation and protection of resources belonging to India could be carried out. Under the said Act, the Central Government can create artificial island, offshore terminals, etc. By the said Act, customs and other fiscal enactments have been extended. Therefore, the object is very clear that the revenue generated from exploration and exploitation should accrue to the coastal State viz. India. 98. As stated above, the area of exclusive economic zone/continental shelf, where the oil rigs are stationed (which of cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be applicable, but whether the movement of goods from the Panna-Mukta oil fields to Hazira within the State of Gujarat is a sale in the course of import into the territory of India. Therefore, what is required to be examined is whether the Panna-Mukta oil fields can be said to be outside the territory of India. Since the Panna-Mukta oil fields are situated in the exclusive economic zone, they are not situated within the territory of India. But by virtue of a deeming fiction, in view of the above notifications issued under the Maritime Zones Act, such territory is deemed to be a territory of India. However, such deeming fiction also applies only to those enactments which have been specifically made applicable to the said territory. As noted earlier, the provisions of the Customs Act have been made applicable to the continental shelf and the exclusive economic zone for the purposes stated in the said notifications. One such purpose is prospecting for extraction of production of mineral oils in the continental shelf of India or the exclusive economic zone of India. It may be noted that for the purposes of the said notification, 'mineral oils' include petroleum and natural gas. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontiers of India. Once the oil fields fall within the customs frontiers of India, the movement of goods therefrom, cannot be said to be movement in the course of import of goods into the territory of India, inasmuch as, the said oil fields are within the customs frontiers of India. Therefore, the contention that the sale of goods has taken place in the course of import of goods into the territory of India cannot be accepted. In the opinion of this court, there is no contradiction between the decision of the Bombay High Court in the case of Commissioner of Sales Tax v. Pure Helium (supra) and the decision of this court in the case of Larsen & Toubro Limited v. Union of India (supra). In Larsen & Toubro Limited (supra), this court was seized with a matter wherein it was contended that the movement of goods from Hazira to Bombay High was a movement of goods from the State of Gujarat to another State within the country. The court held that the Bombay High which is situated in the exclusive economic zone is part of the territory of India, sale of goods took place at Bombay for which the goods moved from Hazira to Bombay, such movement does not get covered within the expression "movement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itory of India, as the movement of goods is not from a place which lies outside the customs frontiers of India so as to fall within the ambit of sub-section (2) of section 5 of the Act. Under the circumstances, in the facts of the present case, it cannot be said that the sale of Natural Gas by the Contractor to GAIL is in the course of import of goods into the territory of India. 56. The learned advocates for the petitioners have submitted that the sweetening of gas at the sweetening and separation facility of ONGC at Hazira does not amount to manufacture, whereas on behalf of the respondents, it has been emphatically argued that having regard to the definition of "manufacture" as defined under clause (16) of section 2 of the GST Act, the conversion of sour natural gas into sweetened natural gas amounts to manufacture and would attract the provisions of the GST Act. Having regard to the fact that this court has held that what was agreed to be purchased was natural gas, and the goods as agreed viz. natural gas stood appropriated at the offshore Processing Facility and delivered at the Delivery Point as contemplated under sub-clause (iv) of clause (a) of Article 21.5.13 of the PSC, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he exact terms of despatch are not clear and there are no facts on record which will help us to understand the course of transactions in the several cases before us. But Shri Agarwal submitted that the sales made by the assessees can only fall within one of three categories. They are either local sales or inter-State sales or export sales. Each of the assessees have sold its goods to another dealer. If that dealer is also a resident of Haryana and has taken delivery of the goods in Haryana and exported them thereafter, the assessees' sales would be local sales. If the purchaser-dealer of the manufactured goods is in some other State and the goods have been moved out of Haryana in pursuance of that sale, they would be inter-State sales. The goods which have been sold by the assessee must have been delivered to the dealer in pursuance of the sale either within the State or outside the State in India. In either event, it would be a sale covered by the exceptions in Section 9(1). It would be a local sale or inter-State sale. The only third possibility is that assessee sold the goods to a dealer outside India and exported the goods in pursuance of that sale in which event it would be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the sale in the nature that we are confronted with. It was not a case where the0 sale of goods occasioned the movement from the Indian State to a territory which is not part of India and which is for the limited purpose of claiming rights to exploit natural resources and exploration, etc., the Union of India claims limited sovereign rights." In the facts of the above case, it was held that when the sale of goods took place at Bombay High, such movement was not covered within the expression "movement of goods from one State to another" contained in clause (a) of section 3 of the CST Act. The goods had not moved from one State to another since Bombay High does not form part of any State of the Union of India. In the present case, this court has held that the movement of goods is not in the course of import of goods into the territory of India and that the sale has not taken place within the State of Gujarat and the parties do not dispute that the sale is not an inter-State trade. Therefore, the sale does not fall within any of the three categories. This case is squarely covered by the above referred decision as the goods have been sold within the deemed territory of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absolutely no reason to believe that any turnover of Panna-Mukta gas had escaped assessment to invoke section 44 of the Gujarat Sales Tax Act on 20th October, 2003 and that between 30th June, 2003 and 20th October, 2003, the Assessing Officer had no new material before him nor did he discover any new fact that was unknown to him. Reliance has been placed upon various decisions of the Supreme Court as referred to hereinabove. On behalf of the respondents, it has been contended that the respondent authorities were required to carry out reassessment under section 44 of the GST Act for the reason that the petitioners in their returns did not show the transaction of Panna-Mukta gas fields and thus, evaded tax. It was only after a search operation was carried out that the respondent authorities issued a show-cause notice and a statutory notice for reassessment under section 44 of the GST Act, 1969. Since the decisions of the Supreme Court in Calcutta Discount v. ITO, Ganga Saran v. ITO, C.I.T. v. Kelvinator, Phoolchand v. ITO, etc. have been rendered in the context of the Income Tax Act, it may be germane to refer to the decision of a Division Bench of this court in the case of Batliboi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods under consideration. On the facts and legal position disclosed by the dealer, we do not find that there existed any grounds and circumstances for the assessing officer to reasonably form an opinion "that the dealer has evaded the tax". Such formation of opinion is pre-condition for invoking the power of provisional assessment under section 41B of the Act. In its affidavit in reply to the petition, the impugned order and provisional assessments are sought to be supported by stating thus: "as a very large amount of tax was involved and regular assessment of the petitioner was likely to take time, I decided to make provisional assessment." 20. From the portion quoted above, it is amply clear that at no point of time the assessing officer had any reason to believe that the dealer has evaded the tax. The expression "evasion of tax" conveys mens rea on the part of the dealer. The expression conveys a meaning that the dealer by infringing the law has been trying to avoid payment of tax in due time. 60. It may be noted that in some of the cases before this court, orders of provisional assessment are under challenge whereas in some cases orders of re-assessment are under challen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4th March, 2002 clarifying some issues such as Delivery Point as well as the difference between sweet and sour gas, etc. and the fact that sweet and sour gas remain the same commercial commodity. The Assessing Officer, therefore, had before him, the PSC, the ISPA as well as the detailed submissions of the petitioner on various clauses of the PSC and after considering all the above material, he passed a NIL assessment order for the year 2001-02 on 30th June, 2003. On the same day, NIL assessment order was also passed for the year 2000-01. Thereafter show cause notice dated 20th October, 2003 came to be issued under section 44 of the GST Act for reassessment for the year 1998-99. Similar show cause notices have been issued in respect of subsequent years also. 61. From the facts noted hereinabove, as well as on a perusal of the show cause notice dated 7th January, 2002 issued by the Additional Commissioner, it is evident that the show cause notice for re-assessment had been issued on the very same grounds as in the previous show cause notice. Therefore, when the Assessing Officer had, after applying his mind to the material produced before him and the grounds raised by him and the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 002 of the petitioners and more particularly paragraphs 23 to 27 thereof, which clearly show that the very issues raised in the present show cause notice had already been dealt with in detail by the petitioners, and such explanation had been accepted by the Assessing Officer who passed a NIL assessment order. Therefore, while issuing the show cause notice under section 44 of the GST Act, the Commissioner was required to have reason to believe that any turnover of sales or purchase had escaped assessment. The formation of such opinion is a precondition for exercise of powers, both under section 41 as well as section 44 of the GST Act. The Supreme Court in Commissioner of Income-Tax v. Kelvinator of India Ltd. (supra) has in the context of section 147 of the Income Tax Act, 1961 held thus: "On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the assessing officer to make a back assessment, but in Section 147 of the Act (with effect from 1-4-1989), they are given a go-by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners are pending for final adjudication. Therefore, these petitions are required to be rejected on the ground of there being an efficacious alternative remedy available to the petitioners. In support of such submission, reliance was placed upon the decision of the Supreme Court in Titaghur Paper Mills Company Limited v. State of Orissa, AIR 1983 SC 603, wherein the court held that under the scheme of the Orissa Sales Tax Act, there is a hierarchy of authorities before which the petitioner could get adequate redress against the wrongful acts complained of and as regards the remedy of applying for stay of recovery to the Commissioner of Sales tax under the relevant provisions of the said Act and dismissed the petitions. It may be noted that in the facts of the said case the assessment orders were challenged on the ground of being arbitrary etc. The very jurisdiction to levy sales tax was not subject matter of challenge therein. The decision of the Supreme Court in Sales Tax Officer, Jodhpur v. M/s Shiv Ratan G. Mohatta, AIR 1966 SC 142, was cited wherein the court found that no exceptional circumstances existed in that case to warrant the exercise of extraordinary jurisdiction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainable because the impugned assessment orders are without jurisdiction and because they were passed by reopening the assessments without having "reason to believe" that any turnover had escaped assessment. It was argued that the petitioners are not obliged to avail of the alternative remedy but can maintain a writ petition under Article 226 of the Constitution of India. In support of such submission, the learned counsel placed reliance upon the decisions of the Supreme Court in the case of Raza Textiles v. Income Tax Officer, Whirlpool Corporation v. Registrar of Trademarks and Godrej Sala Lee v. Assistant Commissioner (supra). It was further submitted that the present petitions came to be admitted in the year 2004 and after elaborate hearing, an interim order came to be passed by the Division Bench on 29th April, 2004 pursuant to which the petitioner paid tax at the rate of 4% with interest at 18% for the years 1997-98 to 2001-02 and for the years 2002-03 and 2003-04 and for the period after 1st April, 2004, the petitioner paid at the rate of 4% until the tax regime changed on 1st April, 2005. It was submitted that, therefore, at this stage, it would be iniquitous to ask the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by the Supreme Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the fundamental rights or where there has been violation of the principles of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged. 68. In Godrej Sara Lee v. Commissioner (AA) (supra), the Supreme Court was of the opinion that the question as to whether the notification referred to therein could have a retrospective effect or retroactive operation was a jurisdictional fact and should have been determined by the High Court in exercise of its writ jurisdiction under Article 226 of the Constitution of India as it is well known that when an order of a statutory au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case wherein the assessment orders are from 1997-98 to 2001-02 and the legal position is, as discussed hereinabove, clearly in favour of the petitioners, it would, therefore, not be in the interest of justice to relegate the petitioners to avail of the remedy before the statutory authorities. In the aforesaid premises, the availability of the efficacious alternative remedy when the very jurisdiction of the respondent authorities has been called in question, would not be a bar to this court in entertaining the present writ petitions under Article 226 of the Constitution of India. The said contention is, therefore, rejected. 72. TO SUMMARISE i. On a conjoint reading of the Production Sharing Contract and the Interim Sales and Purchase Agreement, it is apparent that what was agreed to be sold and purchased was Natural Gas. ii. At the stage when the PSC came to be executed, the gas was not discovered and was still in the wells and it was not even certain as to whether the Government of India would purchase all the Gas that is produced and delivered. Therefore, though under the PSC 100% of the deliverability of ANG and NANG and Condensate was agreed to be produced and de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (b) of section 4(2) of the Central Sales Tax Act, 1956. The transactions in question are, therefore, not amenable to tax under the provisions of the Gujarat Sales Tax Act, 1969. vii. Merely because the Natural Gas upon being delivered at the Delivery Point was commingled with other gases, does not mean that it was not in a deliverable state because having regard to its unique physical properties, large volumes of Natural Gas can be transported only in a continuous stream and once delivered in the pipeline for transportation, it becomes commingled with other natural gas. Individual molecules are not separately indentified and cannot be accurately tracked or traced. As a result, natural gas is sold and purchased on a "quality and quantity" basis. viii.The act of sweetening of natural gas, having taken place post appropriation, after the goods were delivered and the title had passed to the Buyer outside the State of Gujarat, merely because post appropriation the goods were subjected to the process of sweetening within the State of Gujarat it cannot be said that the sale of goods has taken place within the State of Gujarat. ix. Since the provisions of the Customs Act, 1962 h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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