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Cairn India Limited & another Versus State of Rajasthan & others

2016 (7) TMI 715 - RAJASTHAN HIGH COURT

The point of sale of the crude oil - shifting of delivery point/s for the sale of Barmer Crude oil outside the state of Rajasthan - the petitioner was then concerned with certain reports in the vernacular press that respondent state was seeking to impose Value Added Tax (VAT) at the rate of 4% then prevailing treating the sale of crude oil from the Barmer Oil Fields as a local sale (Intra State Sale) instead of an inter state sale-as it palpably was, on which the then extant CST @ 2% against C-f .....

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in terms of the judgments of the Apex Court referred to above, where the sale and delivery takes place has been relegated to an inconsequential event when the sale seamlessly occasions the movement of goods outside the state. It is thus evident that the sale transaction of crude oil by the petitioner in the facts of the case, even with the point of sale being in Rajasthan, partakes the character of an inter-state sale. The purport of the undertaking by the petitioner in its letter dated 23-10-20 .....

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levy was only to be dependent on the sale being a local sale or inter-state sale. In the instant case the sales on the facts relevant thereto being an inter-state sale, as the originating state in terms of Section 9 of the CST, the State of Rajasthan is entitled CST at the rate applicable to an inter-state sale. Besides it is preposterous to argue that sales tax would be leviable contrary to law and the mandate of Article 265 of the Constitution of India on the basis of a purported undertaking b .....

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tion No. 15191/2009, S.B. Civil Writ Petition No. 11965/2009 - Dated:- 13-7-2016 - Alok Sharma, J. For the Petitioner : A. R. Madhav Rao, Sameer Jain, Mahi Yadav, Nivedita, Pragya Sethia For the Respondent : R. D. Rastogi, Ashish Kumar, Shiv Mangal Sharma ORDER The petitioner Cairn India Limited (hereinafter the petitioner ) is engaged in the business of exploration and production of crude oil and natural gas in block RJ-ON-90/1 in district Barmer, Rajasthan. It is a mining company registered as .....

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India and its nominees. As per letter dated 24-3- 2009 emanating from the Ministry of Petroleum and Natural Gas, Government of India, it initially nominated Mangalore Refinery and Petrochemicals Limited (MRPL), HPCL, and IOCL for lifting purchase of crude oil extracted by the petitioner from RJ-ON-90/1 Barmer. Production of crude oil started at the Mangla field of (RJON- 90/1 in district Barmer, Rajasthan) (hereinafter the Barmer Oil Fields) on 29-8-2009. Since then Essar oil, Reliance Industri .....

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tal area in Gujarat) where it was stored in tanks (heated chambers) wherefrom it was thereafter loaded onto oil tankers(coastal heated tanker) for being further carried to Mangalore via a coastal run to MRPL s refinery. The petitioner states to have since then laid heated pipeline from Barmer, Rajasthan to Bhogat (Gujarat coast) operationalised in July, 2010, the Central Government has also approved with some intermediary delivery facilities (all in Gujarat State). All such enroute points are re .....

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the buyers nominated by the Central Government, as buyers of the petitioner s crude oil had refineries for the purpose of processing crude oil outside the State of Rajasthan. The Government of Rajasthan concerned with the shifting of delivery point/s for the sale of Barmer Crude oil outside the state of Rajasthan was apprehensive that such shifting would entail loss of sales tax revenues to the State Government and corresponding windfall gain to the Government of Gujarat. To eschew the aforesai .....

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Government of Rajasthan and corresponding windfall gain to the State of Gujarat. The Government of India also conveyed this fact to the State of Rajasthan vide letter dated 14-1-2009. Resultantly vide letter dated 22-1- 2009 the Director Petroleum, Government of Rajasthan required the petitioner to submit an undertaking that the crude oil off take point from the Barmer Oil Fields would be in Rajasthan and that the petitioner would ensure that such a clause was incorporated in the Crude Oil Sale .....

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e petitioner was then concerned with certain reports in the vernacular press that respondent state was seeking to impose Value Added Tax (VAT) at the rate of 4% then prevailing treating the sale of crude oil from the Barmer Oil Fields as a local sale (Intra State Sale) instead of an inter state sale-as it palpably was, on which the then extant CST @ 2% against C-form was leviable. A letter dated 8- 6-2009 in this regard followed from the petitioner to the Principal Secretary, Mines and Petroleum .....

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act of the point of sale of crude oil being within the state of Rajasthan, only CST as leviable on the petitioner s inter state sales would accrue to the State of Rajasthan as the originating state . Analogy was drawn with the minerals mined and sold in Rajasthan by RSMML for consumption outside the state of Rajasthan, which transactions were being treated as interstate sales by the Commercial Taxes Department on which CST was leviable and not RVAT. It was pointed out that as the entire producti .....

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Rajastthan Finance, Tax department responded to the petitioner s letter dated 8-6-2009 interalia stating that since the point of sale of crude oil had been agreed by the petitioner to be in Rajasthan, the sale was liable to be treated as a local sale attracting VAT @ 4%. The petitioner vide letter dated 30-6-2009 refuted that assertion and stated that merely because the point of sale was in Rajasthan, the sale could not be treated as a local sale exigible to RVAT overlooking the important fact t .....

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from the petitioner at Barmer for processing at their refineries, all of which were situate outside the State of Rajasthan. It was also stated that the petitioner had required MRPL, HPCL, IOCL to whom crude was to be sold as nominees of the Central Government under the PSC to set up Rajasthan office and get themselves registered as dealers in the State of Rajasthan. They had however refused to so do, in view of the fact that the transaction of sale of crude oil was clearly an inter state sale e .....

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(as alleged) was an intra state sale and hence liable to Rajasthan VAT at the rate of 4% advolerum. Disagreement on the nature of sale transactions between the petitioner and the respondent State ongoing, the petitioner company having in the meantime commenced production of crude oil in the Barmer Oil Fields under PSC dated 15-5-1995 entered into a MOU dated 5-8-2009 with MRPL for sale of crude. Clauses 7 and 10 of the MOU read thus: 7. Till completion of Bhogat facilities, Mangla crude oil wil .....

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e the crude oil purchased under this MOU in the State of Rajasthan and Gujarat and the same shall be transported outside the state of Gujarat and Rajasthan. The crude oil sold to MRPL was transported from the Barmer Oil Fields through heated tankers to Gujarat where it was stored in heated chambers and then sent onward by ships to its final destination at Mangalore where MRPL s refinery is situated. A show cause notice dated 15-9-2009 then came to be issued by the Assistant Commissioner Commerci .....

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itioner then deposited CST @ 2% against C form furnished by the buyer on the crude oil sold in the month of September, 2009. Subsequently the tax as claimed has been deposited for the month of August, September and October, 2009, all no doubt subject to the outcome of this writ petition. This Writ petition along with SBCWP No.11965/2009 came up for admission before this court on 16-11-2011, whereupon vide an interim order the court required the petitioner to invoke Section 36 of the RVAT Act, 20 .....

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ment of India, in that case MRPL with refinery situate outside state of Rajasthan-in the State of Karnataka, could in no circumstance be construed as an intra state sale but was clearly an inter state sale not exigible to RVAT @ 4% advoleum or at all, as sought to be levied but only to CST @ 2% against C -form. It was submitted that the sale of crude oil to refineries nominated by the Central Government under the PSC with their refineries outside the State of Rajasthan was an obvious inter state .....

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nanted that it would not resell or use the crude oil purchased under the MOU in the State of Rajasthan and even in the State of Gujarat but instead that the crude oil purchased from the petitioner s Barmer Oil Fields would be transported outside both the State of Gujarat and Rajasthan. The respondent department, before the Commissioner, however asserted that the point of sale of crude from the Barmer Oil Fields having been unconditionally agreed by the petitioner to be in Rajasthan and the deliv .....

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om the Barmer Oil Fields through heated tankers to Kandla where it was appropriately stored for further loading on oil ship tankers (coastal heated tankers) to destination Mangalore. It was stated that after July, 2010 subsequent to heated pipelines having been laid by the petitioner from Barmer to Bhogat, Gujarat the activity of dispatch and sale of crude oil was carried out through the said pipelines with delivery point/s of such supplies being the designated place/s in Gujarat as notified by .....

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petitioner to MRPL was a local sale on which RVAT @ 4% advolerum was leviable. So too for all other sales. Aggrieved the petitioner has filed this petition re-agitating the case that the sale of crude oil from Barmer, even with the point of sale being in Rajathan, is an interstate sale, as the sale occasions as a necessity-as an inevitable incident of the sale-movement of goods outside the State of Rajasthan as part of as continuous seamless and unbroken transaction. The defence to the writ peti .....

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19.4 of the PSC dated 15-5-1995 which was at the relevant time the outlet flange of the petitioner at its delivery facility at Barmer. A completed sale as defined in Section 2(38) of the RVAT Act, 2003 thus obtained in the State of Rajasthan, and therefore, levy of RVAT @ 4% advolerum on the sale transaction was appropriate. It was submitted that the whole case set up by the petitioner seeking to treat the sale of crude to various nominees of the Government of India, albeit situate outside Raja .....

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ion of the fact determined by the Additional Commissioner (VAT & IT) under his impugned order dated 9-2-2012 on the evidence on record and brooks no interference under Article 226/ 227 of the Constitution of India. It was submitted that the show cause notice dated 15-9-2009 was thus rightly issued to the petitioner as its liability of tax for the assessment year 2008-09 exceeded ₹ 20,000/- and had not been discharged. It was submitted that for the period August, 2009 to June 2010 the p .....

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npur and Viramgham is a mere convenience for the buyers and cannot entail change in the nature of the transaction from one of local sale to an inter state sale. MTP Nagana Barmer is the dispatch point of crude oil to the buyers designated by the Central Government and with the petitioner s undertaking that for the sale of crude oil, the point of sale will be in Rajasthan, invoices were thus drawn, delivery followed at Barmer and hence a completed intra state sale is clearly made out. Additional .....

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ct of 2003, and therefore the petitioner has an alternative remedy for reason of which this court should eschew exercising its jurisdiction under Article 226 of the Constitution of India. The doctrine of promissory estoppel has also been pressed. It was submitted that petitioner had made a commitment by way of its undertaking dated 23-10-2008 to the Government of Rajasthan that the point of sale of the crude shall be in the State of Rajasthan such that the State would suffer no loss of revenue. .....

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r at Barmer at enormous cost, the State cannot be denuded of its rights of collecting due tax under RVAT Act, 2003 on the transaction. It has been submitted that in the circumstances, the impugned order dated 9-2-2012 passed by the Additional Commissioner (VAT & IT) on the petitioner s determination application treating the petitioner s sale of crude oil as an intra state sale is legal and warrants no interference by this court. In rejoinder to the additional submissions of the respondent st .....

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Department of Government of Rajasthan at Jaipur. On the issue of alternative remedy of an appeal under Section 83 of the Act, 2003 it was submitted that primarily under challenge in the writ petition is the very jurisdiction of the Additional Commissioner in resorting to the Act of 2003, when on the plain admitted facts of the case the contract of sale of crude oil at Barmer occasioned, as a necessary incident known to all concerned, the movement, of crude oil sold, outside the state of Rajasth .....

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mitted that the allegation of the petitioner seeking to backtrack on its undertaking dated 23.10.2008 as also reflected in the letter dated 23-1-2009 and other correspondences is incorrect and false. The undertaking submitted by the petitioner is sought to be misconstrued. It merely stated that the point of sale of crude oil produced at the Barmer Oil Fields would be in the State of Rajasthan. But there was no undertaking that the petitioner would pay tax on the sale as per the provision of the .....

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of sale in Rajasthan, as a necessary incident occasioned the movement of good, purchased, outside the State of Rajasthan in view of undisputed fact that there is no refinery in the State of Rajasthan for processing the crude oil. The respondent State itself has in fact at all times been aware that crude oil produced at the Barmer Oil Fields and sold to the nominees of the Central Government would be as a consequence moved to the refineries outside the State of Rajasthan for being processed. It w .....

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made out cannot entail collection of tax not otherwise leviable in law. It has been further submitted that Article 286 of the Constitution of India as also the Schedule VII thereof make it clear that in case of Inter state sales, tax can only be levied by an Act of Parliament which in the instant case is the Central Sales Tax Act. In the course of the hearing before this court on 25-2-2016, it was directed that the respondent State file an affidavit with regard to the opinion of the Ministry of .....

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tter makes two aspects clear (i) that the leviability of sales tax is not decided by point of delivery and (ii) that leviability of sales tax in respect of a transaction would be determinable inter alia by the defined point of sale and the nature of sale which in turn would depend on the terms of contract between the parties to the sale transaction. Specific to the case at hand the said letter amongst other aspects, refers to a scenario where the sale of crude oil takes place in Rajasthan but th .....

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all be deemed to have taken place in the course of inter-state trade or commerce if such sale or purchase occasions the movement of goods from one state to another. In the circumstances it was concluded that (i) state sales tax/ VAT would accrue to Rajasthan government in case the sale of crude oil is made for further processing within Rajasthan but (ii) CST would accrue to Rajasthan if the sale is made in Rajasthan but occasions the need to be necessarily moved to another State for refining. Re .....

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the case. CONTENTIONS: Mr. A.R. Madhav appearing with Mr. Sameer Jain on behalf of the petitioner has submitted that, under Clause 1.23 of the PSC, the point of delivery was to be the one identified by the Central Government. Initially this was the point at which the crude oil reached the outlet flange of the delivery facility of the petitioner at Barmer. Subsequently other delivery points were identified from time to time, (Salaya on 30-4-2008, Bhogat on 25-7-2009) and (Kandla, Radhanpur and Vi .....

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oted the PSC and recorded that the mining lease would inter alia be subject to the terms and conditions agreed upon in the Production Sharing Contract (PSC) and/ or deed/ agreement signed in regard to the block/ area. Thus the terms of the PSC including the right of Central Government to fix delivery points and place where title and risk passes in goods to the buyers as set out in PSC was accepted, at least impliedly by the State of Rajasthan. And now it is not open to the respondent State to ob .....

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of delivery points having been fixed by the Central Government under its letter dated 30-4-2008 at Salaya, Gujarat on 30-4-2008, thereafter Bhogat, Gujarat on 24-7-2009, the petitioner to assuage the apprehension of respondent State that all revenues would be lost to it, undertook vide its letter dated 23-10-2008 that the point of sale of crude oil excavated in Barmer would be in State of Rajasthan, as correctly reflected in the letter dated 7-1-2009 by the petitioner to the then Chief Minister .....

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nt to fix the different/ multiple delivery points for sale of crude oil produced in Barmer. Mr. Madhav Rao emphatically pointed out that it is inconceivable that subsequent to the Central Government deciding on 30-4-2008 that the delivery point would be at Salaya, Gujarat outside the state of Rajasthan, the petitioner could have submitted an undertaking contrary thereto on 23-10- 2008 and committed to ensuring that the delivery point for sale of crude oil from Barmer would be in the State of Raj .....

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r as the crude oil cannot at all be used in Rajasthan, the point of sale in Rajasthan only occasions, as of necessity and obvious clear intent the movement of crude oil sold to the buyers to their oil refineries, all situate outside the State of Rajasthan. In these circumstances in terms of Section 3 (a) of the CST Act, 1956 the sale of crude oil by the petitioner to the nominees of the Government of India is evidently without any question at all, an inter state sale on which the State of Rajast .....

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f the CST Act a sale or purchase of goods is deemed to have taken place in the course of inter state trade/ commerce if the sale or purchase occasions the movement of goods from one state to another. Mr. Madhav Rao also submitted that the crude oil sold to MRPL following the MOU dated 5-8-2008 was to be utilised by MRPL at its Mangalore refinery as in borne out from clause 10 of the MOU between the petitioner and MRPL which records that MRPL would not resell or consume the crude oil in the State .....

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yderabad Engineering Vs. State of A.P. [(2011)4 SCC 705] to contend that even where the title and risk passes in fact is totally irrelevant to determine the question as to whether the sale is local on which the State Sales tax is exigible or whether it is an inter state sale to which CST attracts. It was submitted that the only consideration for the court is to examine as to whether the sale in issue occasioned the movement of goods from one state to another. It was submitted that in the circums .....

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ect to the provision of Section 3 of the CST Act, 1956. Mr. Madhav Rao then submitted that the issue in the writ petition also engaged the attention of the Ministry of Finance, Government of India wherein it was categorically stated as reflected in its letter dated 10-9-2009 that the sale of crude oil at Barmer to nominees of the Central Government for being processed by Refineries situate out side the state of Rajasthan would be an inter state sale. On the impugned order dated 9-2-2012 passed b .....

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cing and addressing the terms of the MOU dated 5-8-2008 between the petitioner and MRPL, particularly condition 10 thereof and the undisputed fact that following the sale of crude oil to MRPL, the crude oil was only appropriated at Barmer but had to be resultantly transported outside the State of Rajasthan to be utilised at MRPL s refinery at Mangalore in the State of Karnataka. It was submitted that the Additional Commissioner failed to address the fundamental aspects of the transaction regardi .....

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vering the issue before him by a sleight of hand mechanically observing that the facts of the cases decided by the Apex Court were different from the facts of the case before him. Mr. Madhav Rao submitted that consequently the impugned notice dated 15-9-2009, being without jurisdiction as also the letters dated 22-6-2009 and 29-7-2009 being wholly illegal be quashed and be set aside. So be the order dated 9-2-20212 passed by the Additional Commissioner. And it be declared that the sale of crude .....

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and MRPL being an intra state sale, is one of fact that brooks no interference at the hands of this court in exercise of its jurisdiction under Article 226 of the Constitution of India. It was submitted that the impugned order dated 9-2-2012 passed by the Additional Commissioner VAT & IT suffers from no error of jurisdiction, perversity or patent error of law apparent on the face of record, and therefore the petitioner be relegated to its alternative remedy of an appeal under Section 83 of t .....

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ransaction in respect of which show cause notice dated 15-9-2009 and letters dated 22-6-2009 and 29-7-2009 had been issued. Reliance has been placed on the judgment in case of Balabhagas Hulaschand Vs. State of Orissa [1976(2) SCC 44] in support of the contention that sale of crude oil by the petitioner to MRPL in the context of its undertaking dated 23- 10-2008 would render the sales of crude oil from the Barmer Oil fields intra state sales. It was submitted that the delivery point of the crude .....

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of the Petroleum and Natural Gas Rules, 1959. It was submitted that the point of sale and delivery point being in the State of Rajasthan, neither the subsequent change of delivery point by the Central Government to places outside the State of Rajasthan on the recommendations of the CEC in the exercise of power under Clause 1.23 of the PSC nor the subsequent movement of crude oil outside the State of Rajasthan following the sale could morph a local sale into an inter state sale. It was submitted .....

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hers is an inter state sale. It was submitted that the petitioner s letter/ undertaking dated 23-10-2008 and 7-1-2009 are conclusive of the matter and it was only based on the petitioner s representation that the Right to Use (ROU) for laying of pipeline from the State of Rajasthan the Gujarat was granted to the consortium of Cairn and ONGC. It was submitted that the petitioner having made representations to the State of Rajasthan that no revenue loss would be caused to it as the point of sale o .....

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Chief Secretary Government of Rajasthan it was first submitted that the said letter not being part of pleadings should not be taken into consideration. The further submission was that the opinion is general in nature without regard to the terms and conditions of COSAs entered by the petitioner with different buyers nominated by the Central Government for purchase of crude oil from Barmer oil fields facility or the petitioner s undertaking of 23-10-2008 and 7-1-2009 and the Director of MOPNG s l .....

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its undertaking dated 23-10-2008 and letter dated 7-1-2009 that the point of sale would be in Rajasthan the sales of crude oil at Barmer partakes the character of local sales exigible to RVAT Act, 2003. Heard. Considered. It would be appropriate to first deal with the objection to the territorial jurisdiction of the Jaipur Bench to hear this petition. It is not in dispute that the impugned order dated 9-2-2012 has been passed by the Additional Commissioner VAT & IT at Jaipur. It is also not .....

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was admitted on 2-7-2012, pleadings are complete, and the parties have been heard at length. Further the challenge in this writ petition is fundamentally to the jurisdiction of the respondent state to resort to the RVAT Act, 2003 despite the prohibition of Section 4 thereof in respect of inter state sale. Aside of the aforesaid, the facts of the case are not in dispute and only the adjudication of a legal issue on admitted facts is sought. Even in the impugned order dated 9-2-2012 no finding ob .....

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lia agitates an issue of jurisdiction of the Statutory Authority to take proceedings against the petitioner, a petition under Article 226 of the Constitution of India would be maintainable. Further, this writ petition also agitates the case that the determination of sale transaction of petitioner company with regard to crude oil produced at Barmer Oil fields as a local sale by the Additional Commissioner VAT & IT under the impugned order dated 9-2-2012 is in cross hairs of multiple decisions .....

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stance of aggrieved party would lie before the jurisdictional High Court under Article 226 of the Constitution of India and such a petition ought not to be rejected on the ground of an alternative remedy of a Statutory Appeal. So to in Hyderabad Engineering ltd. vs State of A.P. [(2011)4 SCC 705], Oil India ltd. vs The Superintendent of Taxes [(1975)1 SCC 733], D.C.M. Ltd vs Commissioner of Sales Tax, Delhi [(2009)4 SCC 231], Indian Oil Corporation ltd. vs. Union of India [(1980) Suppl. SCC 428] .....

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VAT & IT or for that matter against the show cause notice dated 15-9-2009 is not an efficacious remedy. Remitting the petitioner to the statutory alternative remedy at this belated stage would only prolong the litigation to the detriment of the petitioner as well as the respondent state. Prolonged litigation benefits none. On the merits of the petition it would be appropriate to recapitulate the essential facts in brief. Petroleum in its natural state is vested in Union of India which has in .....

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9.4 of the PSC as the outward flange of the petitioner s delivery facility at Barmer, albeit in the context of price determination of crude oil sold, yet subsequently vide communication dated 30-4-2008 the delivery point was first shifted, on the recommendations of the Empowered Committee of Secretaries from Barmer to the outlet flange as Salaya, Gujarat on 30-4-2008 and subsequently on 24-7-2009 to Bhogat, Gujarat. And then additionally en route on 5-10-2009 to Kandla, Radhanpur and Viramgham f .....

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d 18-8- 2009. But it is not at all in dispute that the crude oil excavated at the Barmer Oil fields and sold to nominees of the Central Government such as MRPL, IOCL etc. cannot be processed in State of Rajasthan for the reason that none of the nominees, who purchase the crude oil have their refineries in State of Rajasthan and for the purpose of refining the crude oil purchased to various petroleum products the crude oil has to be as of necessity and known to all concerned moves outside the Sta .....

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yers nominated by the Central Government. This has also not been denied. Thus even with the point of sale of the crude oil produced at Barmer Oil fields being in the State of Rajasthan, it does not detract from the fact that the sales occasioned the movement of goods (crude oil) outside the State of Rajasthan. Section 3(a) of the Central Sales Tax Act, 1956 defines an inter-state sale as under:- 3. When is a sale or purchase of goods said to take place in the course of inter-state trade or comme .....

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of sale, then the sale is an inter-state sale. In the instant case also the crude oil produced at Barmer Oil Fields as of necessity and as contracted has to be moved -occasioned by the sale-from Barmer to refineries of the buyers who are all situate outside the state of Rajasthan for the purpose of its processing. In the case of English Electric Company of India Limited Vs. The Deputy Commercial Tax Officer [(1976)4 SCC 460] the Apex Court has held that even when the movement of goods from one .....

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ne state and pursuant to contract of sale, was sold to Electricity Board or Government of another state where it was received and consumed. Resultantly, the Apex Court held such a sale to be an inter-state sale. It was further held that inter-state trade has three essential ingredients (i) there must by a contract of sale, incorporating a stipulation, express or implied, regarding inter-state movement of goods; (ii) the goods must actually move from one state to another pursuant to such contract .....

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when the sale to MRPL was at the Delivery Point Barmer where the sale occasioned the movement of goods to Karnataka via Gujarat by road and steamer. In the circumstances, the ingredients of inter state sale are fully made out and it cannot be held that the sale of Barmer Crude oil by the petitioner to the nominees of the Central Government-all with refineries outside the State of Rajasthan is an intra state sale. The defence of the respondent State to the writ petition overlooks the fundamental .....

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ted to an inconsequential event when the sale seamlessly occasions the movement of goods outside the state. It is thus evident that the sale transaction of crude oil by the petitioner in the facts of the case, even with the point of sale being in Rajasthan, partakes the character of an inter-state sale. The purport of the undertaking by the petitioner in its letter dated 23-10-2008 as also the subsequent the letter dated 7-1-2009 was only that the change of the delivery point by the Central Gove .....

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