2026 INSC 491 1

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATTE JURISDICTION

CIVIL APPEAL NO. 3910 OF 2016

STATE OF UTTAR PRADESH & ORS. …APPELLANTS

VERSUS

RELIANCE INDUSTRIES LIMITED & ORS. …RESPONDENTS

WITH

CIVIL APPEAL NO. 3913 of 2016

STATE OF UTTAR PRADESH & ORS. …APPELLANTS

VERSUS

M/s. TATA CHEMICALS LTD. & ORS. …RESPONDENTS

WITH

CIVIL APPEAL NO. 3914 of 2016

STATE OF UTTAR PRADESH & ORS. …APPELLANTS

VERSUS

REPORTABLE

2

M/S. KRIBHCO SHYAM FERTILIZERS …RESPONDENTS

LTD. & ORS.

CIVIL APPEAL NO. 3915 of 2016

STATE OF UTTAR PRADESH & ORS. …APPELLANTS

VERSUS

INDIAN FARMERS FERTILIZERS …RESPONDENTS

COOPERATIVE LTD. & ORS.

J U D G M E N T

J.K. MAHESHWARI, J.

CIVIL APPEAL NO. 3910 OF 2016

1. India is a Union of States. Reality is that all States are not

endowed equally. There is stark disparity in the economic scenario

among various States in India. Each State has its unique

contributions and products. It is the free flow of trade and

commerce that seeks to nullify some effects of inequality with just

exceptions. But for the Union, generally it is observed that

federating units would want to cut corners by instituting

protectionist measures to augment their resources over others. It

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is in this context that the framers of the Constitution have laid

down a road map to ensure that the Union Government takes over

fiscal policies touching upon inter-state or international trade and

commerce. This avowed purpose, we are here to secure.

2. On the same lines, Alexander Hamilton, one of the founding

fathers of the United States of America, in his Federalist Paper No.

11 (1787), recounts the benefits of free trade:

“An unrestrained intercourse between the States themselves

will advance the trade of each by an interchange of their

respective productions, not only for the supply of reciprocal

wants at home, but for exportation to foreign markets. The

veins of commerce in every part will be replenished, and will

acquire additional motion and vigor from a free circulation of

the commodities of every part. Commercial enterprise will

have much greater scope, from the diversity in the

productions of different States. When the staple of one fails

from a bad harvest or unproductive crop, it can call to its aid

the staple of another. The variety, not less than the value, of

products for exportation contributes to the activity of foreign

commerce. It can be conducted upon much better terms with

a large number of materials of a given value than with a

small number of materials of the same value; arising from

the competitions of trade and from the fluctuations of

markets. Particular articles may be in great demand at

certain periods, and unsalable at others; but if there be a

variety of articles, it can scarcely happen that they should

all be at one time in the latter predicament, and on this

account the operations of the merchant would be less liable

to any considerable obstruction or stagnation. The

speculative trader will at once perceive the force of these

observations, and will acknowledge that the aggregate

balance of the commerce of the United States would bid fair

to be much more favorable than that of the thirteen States

without union or with partial unions.

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It may perhaps be replied to this, that whether the States are

united or disunited, there would still be an intimate

intercourse between them which would answer the same

ends; but this intercourse would be fettered, interrupted,

and narrowed by a multiplicity of causes, which in the

course of these papers have been amply detailed. A unity of

commercial, as well as political, interests, can only result

from a unity of government.”

3. This Appeal is filed against the impugned order dated

07.09.2012 passed by the Division Bench of Allahabad High Court

(Lucknow Bench) in Writ Petition No. 6281 of 2010 and other

connected cases, wherein the High Court allowed the writ petition

preferred by the Respondent No. 1 herein and quashed the order

of assessment dated 11.06.2010 passed by the Additional

Commissioner Grade-II, Commercial Tax Lucknow along with all

consequential orders/notices passed by the State of Uttar Pradesh.

The High Court further directed the State Government to refund to

the assesses the tax realised in pursuance to order dated

11.06.2010.

I. FACTS

4. At the outset, it is necessary to discuss the facts in brief.

Respondent No. 1 herein is a company engaged in the business of

extracting and refining Petroleum and Petro-chemical products.

5

5. In the year 1999, the Government of India announced a New

Exploration and Licensing Policy (hereinafter referred as “NELP”)

wherein it was provided that various petroleum blocks were

awarded to private players for exploration, development and

production of Petroleum, etc. This policy initiative was in line with

the opening of markets by Indian Government to attract and

felicitate technology transfer, increase in foreign investment, etc.

6. The Respondent No.1 herein (Reliance Industries Limited)

formed an international consortium (hereinafter referred as

“International Consortium”) with Niko Limited, a company

organised and existed under laws of Cayman Islands. This

International Consortium/Contractor was the successful bidder

for block KGDDWN-98-3 (hereinafter referred as “ KG-D6”). In

2010, another international company, BP Exploration (Alpha)

Limited, a company registered under Laws of England and Wales,

became a member of this International Consortium as the

aforesaid company invested in the consortium by purchasing

participating interest during the currency of Britain-India

Business Investment Treaty, 1994.

7. The KG-D6 is situated off-shore to the coast of Andhra

Pradesh in the Indian Ocean. This block is a deep-water

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exploration block. It is in this context that such exploration

required highly skilled, experienced technicians, and expensive

machinery and know-how. In order to attract private players and

international investors that the government came up with the

above liberalized policy.

8. A Production Sharing Contract (hereinafter referred as “PSC”)

was entered into between the Government of India and the

International Consortium on 12.04.2000. It is relevant to refer to

the judgment passed by the three-judge bench of this Court in

Reliance Natural Resources Ltd. v. Reliance Industries Ltd.

1

,

wherein the salient features of the PSC were expounded as under:

“74. Some of the salient features of the PSC are as

follows:

(i) Clause 6 of the preamble makes it clear that

discovery and exploitation will be in the overall interest of

India.

(ii) Article 8.3(k) makes (sic it clear that) the contractor

is to be mindful of the rights and interest of the people of

India in the conduct of petroleum operations.

(iii) Under Article 10.7(c)(iii) the contractor is duty-

bound to ensure that the production area does not suffer

any excessive rate of decline of production or an excessive

loss of reservoir pressure.

(iv) Article 32.2 makes it clear that the contractor is not

entitled to exercise the rights, privileges and duties within

the contract in a manner which contravenes the laws of

India.

1

(2010) 7 SCC 1

7

(v) Article 21(1) mandates that the discovery and

production of natural gas shall be in the context of the

Government's policy for the utilisation of natural gas. The

above clauses in the form of articles make it clear that PSC

is subject to the Constitution of India; the Oilfields

(Regulation and Development) Act, 1948; the Petroleum and

Natural Gas Rules, 1959; the Territorial Waters, the

Continental Shelf and Exclusive Economic Zone and Other

Maritime Zones Act, 1976 and also the gas utilisation policy.

(vi) Article 27(1) deals with title to petroleum

under the contract areas as well as natural gas

produced and saved from the contract area vests with

the Government unless such title has passed in terms

of PSC. As per Clause (2), title remains with the

Government till the time the natural gas reaches the

delivery point as defined in the PSC.”

(Emphasis supplied)

9. Further the nature and operation of this PSC as an

international commercial contract is adumbrated in detail by this

Court in the case of Reliance Industries Ltd. v. Union of India

2,

which is applicable herein is as under:

“2. Petitioner 1 is a company incorporated and

registered under the provisions of the Companies Act, 1956;

Petitioner 2 is a company incorporated in Cayman Islands,

British Virgin Islands; Petitioner 3 is a company

incorporated according to the laws of England and Wales.

The respondent herein is the Union of India (hereinafter

referred to as “the UoI”), represented by the Joint Secretary,

Ministry of Petroleum and Natural Gas.

3. Briefly stated, the relevant facts are as under : In

1999, the UoI announced a policy New Exploration and

Licensing Policy (hereinafter referred to as “NELP”). Under

NELP, certain blocks of hydrocarbon reserves were offered

for exploration, development and production to

2

(2014) 11 SCC 576

8

private contractors under the agreements which were in the

nature of production sharing contract. One of the said blocks

was Block KG-DWN-98/3 (Block KG-D6). The joint bid made

by Petitioners 1 and 2 for Block KG-D6 was accepted by the

UoI. Thereafter on 12-4-2000, production sharing contract

(hereinafter referred to as “PSC”) was executed between

Petitioners 1 and 2 as contractor on one side and the UoI on

the other.

*** *** ***

56. In my opinion, the submission is misconceived and

proceeds on a misunderstanding of PSC. RIL, Niko and BP

are all parties to PSC. They are all contractors under PSC.

PSC recognises that the operator would act on behalf of

the contractor. All investments are funded by not just

Petitioner 1 but also by the other parties, and they are

equally entitled to the costs recovered and the profits

earned. For the sake of operational efficiency,

the operator acts for and on behalf of the other parties.

Therefore, I find substance in the submission of Mr Salve

that the disputes have been raised in the correspondence

addressed by Petitioner 1 not just on its own behalf but on

behalf of all the parties. During the course of his

submissions, Mr Anil Divan had, in fact, submitted that Niko

and BP will be affected by the arbitral award and it would

be binding upon them too. Therefore, if Petitioner 1 was to

succeed in the arbitration, the award would enure not only

to the benefit of Petitioner 1 but to all the parties to PSC.

Conversely, if the Government of India were to succeed

before the Tribunal, again the award would have to be

enforced against all the parties. In other words, each of

the contractors would have to perform the obligations cast

upon them. In that view of the matter, it is not possible to

accept the submission of Mr Divan that the arbitration in the

present case is not an international arbitration.

57. It is equally not possible to accept the contention of Mr

Divan that Niko and BP have not raised any arbitrable

dispute with the Union of India. A perusal of some of the

provisions of PSC would make it clear that all three entities

are parties to PSC. All three entities have rights and

obligations under PSC [see Article 28.1(a)], including with

respect to the cost petroleum, profit petroleum and contract

costs (see Article 2.2), all of which are fundamental issues

9

in the underlying dispute. Where RIL acts under PSC,

including by commencing arbitration, it does so not only on

behalf of itself, but also “on behalf of all constituents of the

contractors” including Niko and BP. I am inclined to accept

the submission of Mr Salve that there is a significant and

broad-ranging dispute between RIL, Niko and BP on the one

hand and the UoI on the other hand, that goes to the heart

of the main contractual rights and obligations under PSC.

Furthermore, it is a matter of record that in the

correspondence leading to the filing of the earlier petition

being AP No. 8 of 2012, no such objection about Niko and

BP not being a party to the dispute had been taken. In fact,

the petition was disposed of on a joint request made by the

parties that two arbitrators having been nominated, no

further orders were required. Therefore, there seems to be

substance in the submission of Mr Salve that all these

objections about Niko and BP not being the parties are an

afterthought. Such objections, at this stage, cannot be

countenanced as the commencement of arbitration has

already been much delayed.”

From the above, it is clear that the above PSC had consortium of

three independent companies as Contractor namely RIL, Niko

(Cayman Islands company) and BP Alpha (English Company) who

had authorised Respondent No.1 herein, as Operator, to carry out

daily operations in this regard. Therefore, when the transactions

involve foreign investments and international element, there is an

inherent expectation of stability in the rule of law. Laws including

fiscal laws being an important aspect for ease of doing business

should also reflect stability and uniformity.

10. Under the terms and conditions of the licence, consortium

led by Respondent No. 1 has been permitted to extract petroleum

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and natural gas from KG Basin and sell it to the different

customers (buyers). Once the RIL (Respondent No. 1) recovers the

investment made by it through extraction process, then a part of

the product is to be given to the Government of India free of cost

and the remaining quantity of petroleum and natural gas may be

sold by RIL (Respondent No. 1) to its customers subject to

allocation of product in their favour by the Government of India.

11. Subject to above conditions, RIL (Respondent No. 1) entered

into Gas Sales and Purchase Agreement (hereinafter referred as

“GSPA”) with its customers in various States, including the State

of U.P. (Appellant No. 1), to whom the gas was allotted by the

Government under the Gas Utilization Policy (hereinafter referred

as “GUP”). In reference to the present appeal, the Respondent No.

1 entered into GSPA with Respondent No. 2 to Respondent No. 8,

hereinafter collectively referred to as buyers. Under GSPA, the

buyers enter into a sale agreement for purchase of gas with the

Respondent No. 1 herein. Following clauses of GSPA are relevant:

“Clause 2 – “Delivery Point” means the outlet flange of

Sellers’ delivery facilities located at the onshore processing

terminal of the Gas Fields at Gadimoga near Kakinada,

Andhra Pradesh, at which point Sellers’ Facilities are

interconnected to the Gas transportation facilities of RGTIL.”

Clause 5 – Sale and Purchase of Gas

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(a) Scope of Sellers’ Obligations: Sellers shall sell and

deliver Gas from the Gas Fields at the Delivery Point on an

as-available basis, at the Sales Price and subject to the

terms and conditions set forth herein. Sellers shall deliver

the Gas to Buyer or Buyer's designee for onward

transmission to Buyer’s Facilities.

Clause 6 – Sales Price

(a) The price of Gas at the Delivery Point ("Sales Price") shall

be the sum of the Gas Price in US$/MMBtu (NHV) and the

Marketing Margin in US$/MMBtu (NHV) as set out in Exhibit

2. "Gas Price" means the price in US$/MMBtu (NHV)

determined in accordance with the formula set out in Exhibit

2.

(b) Sales Price shall be exclusive of Taxes for which Buyer

is responsible under Clause 22.

(c) SI Sellers shall bear any royalty on Gas sold to Buyer

under this Agreement.

Clause 7 – Transfer of Property and Transfer of Risk

(a) Sellers shall make all Gas supplied hereunder available

for delivery at the Delivery Point, in accordance with and

subject to the terms and conditions of this Agreement. Buyer

shall ensure receipt, offtake and transportation of the Gas

from the Delivery Point to Buyer's Facilities.

(b) Property (title) in and risk of loss of the Gas delivered

hereunder shall pass from Sellers to Buyer at the Delivery

Point upon delivery of the Gas to Buyer (or Buyer's designee)

at such point.

Clause 8 – Conditions Precedent

(a) The obligations of the Parties under this Agreement to

purchase or sell Gas, as applicable, are subject to the

execution of (and further the satisfaction or waiver of all

conditions precedent under) any and all Gas transportation

agreement(s) that are required to transport the Gas from

Delivery Point to the inlet of Buyer's Facilities.

Clause 12 – Sellers’ Supply Obligations

(a) For any Contract Month, Sellers shall be deemed to have

fulfilled their Gas supply obligations under this Agreement

for such Contract Month to the extent Sellers made available

for delivery to Buyer the applicable Adjusted Monthly

Supply Quantity at the Delivery Point in accordance with the

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terms and conditions hereof, irrespective of whether Buyer

offtakes such quantities of Gas at the Delivery Point.

Clause 14 Measurement and Quality

(a) Measurement:

(i) Gas shall be sold on the basis of the Measured Quantity

and the quality determined using Sellers' meter at the

Delivery Point. The quantity sold to Buyer is the Allocated

Quantity as set out in Exhibit 4.

Clause 22 – Taxes and Duties

(a) Buyer shall assume frill and exclusive liability for

payment of all Taxes to Sellers, imposed in connection with

the "purchase of Gas under this Agreement and any

payments made under this Agreement. For the avoidance of

any doubt the liability for payment of Taxe's shall include

any Taxes that are paid or accrued and payable or

assessed or imposed pursuant to any interim order,

provisional assessment, revisional assessment or final

assessment or any other order made by any Relevant

Authority. Buyer shall be liable for fines, penalties or

interest on Taxes which are required to be paid by Sellers

under order made by Relevant Authority.

Clause 26 – Miscellaneous

(e) Laws and Approvals

(ii) The Parties acknowledge and agree that Sellers are -

selling Gas to Buyer under this Agreement in their capacity

as Contractors under the PSC and subject to the terms

thereof. The obligations Of Sellers under this Agreement are

subject to the receipt and continued .effectiveness of all

requisite approvals required under laws and regulations

and the PSC and approvals of the Gas Price formula in

Exhibit 2 as the Gas price formula to be used for cost

recovery, profit sharing, and all other purposes under the

PSC in respect of Gas sold under this Agreement.”

12. Pursuant to the GSPA, various customers in the State of U.P.

entered into separate Gas Transportation Agreement (hereinafter

referred as “GTA”) with Reliance Gas Transportation

Infrastructure Ltd. (hereinafter referred as “RGTIL”) and Gas

13

Authority of India Limited (hereinafter referred as “GAIL”) for

transportation of gas from delivery point to their respective plants.

13. It is relevant to mention here that, the gas is extracted off

shore and brought to Gadimoga in the State of Andhra Pradesh. At

Gadimoga, RIL (Respondent No. 1) delivers the natural gas to its

customers through a meter installed there to measure the quality

and quantity of the gas supplied to the buyers. The gas is

thereafter transported from Gadimoga (Andhra Pradesh) to Hajira

in Gujarat through pipeline operated by RGTIL, and further

transported from Hajira (Gujarat) to Auraiya District in Uttar

Pradesh through pipelines of GAIL. From Auraiya, in terms of the

agreement, the required quantity of gas is taken by the purchasers

to their respective plants or factories where they manufacture

fertilizers, chemicals, and other products.

14. The Respondent No. 1 was handed down an ex-parte

provisional Assessment Order on 25.01.2010, passed under

Section 25 of Uttar Pradesh Value Added Tax Act, 2008 (in short

‘VAT Act’), fixing liability with regard to Value Added Tax for the

period between April 2009 to November 2009.

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15. Thereafter, the appeal preferred by the Respondent No. 1

before the Additional Commissioner, Grade – 2, Range – 3,

Lucknow was dismissed on 07.05.2010.

16. Aggrieved, Respondent No. 1 preferred a second appeal before

the Trade Tax Tribunal, Lucknow which was allowed on

13.05.2010. The Tribunal remanded the matter to the Assessing

Authority to pass fresh orders after providing due opportunity of

hearing to the Respondent No. 1.

17. Upon remand, the matter was heard on 08.06.2010 and a

fresh assessment order was passed on 11.06.2010 again fixing

liability on Respondent No. 1 at the rate of 21 percent. Aggrieved

thereby, Respondent No. 1 preferred Writ Petition No. 6281 of 2010

before the Allahabad High Court (Lucknow Bench).

18. The Writ Petition came to be allowed by the Impugned Order

as passed by the High Court, thereby quashing the assessment

order dated 11.06.2010 along with all consequential

orders/notices passed by the State of Uttar Pradesh. The High

Court observed as under:

i. State Legislature, under Entry 54 read with Article

366(29-A)(b) of the Constitution of India, is not

competent to impose a tax on deemed sales if such

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transactions constitute inter-State sales, sales outside

the State, or sales in the course of import/export.

ii. Sections 3, 4, 5, 14 and 15 of the Central Sales Tax Act,

1956 (in short ‘CST Act’) apply equally to transfers of

property in goods under works contracts covered by

Article 366(29-A)(b) of the Constitution of India.

iii. While defining “sale” in sales tax laws, States may fix the

situs of a deemed sale resulting from a transfer falling

within the ambit of Article 366(29-A)(b) of the

Constitution of India, but cannot extend the definition

to bring within its ambit inter-State, outside-State, or

import/export sales.

iv. The inter-State sale is governed by Section 3 of the CST

Act: under clause (a), where the sale occasions the

movement of goods from one State to another; or under

clause (b), where the transfer of documents of title

occurs after such movement has commenced but before

delivery. In either case, the transaction must qualify as

a “sale” within Section 2(g) of the Act, taking place in the

course of inter-State trade or commerce.

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v. Where no statutory fiction fixes situs, the location of sale

is where property in goods passes.

vi. In inter-State sales, movement of goods arises from the

contract of sale or is incidental thereto. Prior agreement

is not essential precedent for movement of goods.

vii. In view of Explanation 2 of Section 3 of CST Act, a sale

is intra-State only if movement commences and

terminates within the same State; if it terminates in

another State, it is inter-State.

viii. Sub-Section (2) of Section 4 has no bearing on intra-

state sale. Under the garb of sub-section (2) of Section

4, State has got no right to impose VAT. Question with

regard to inter-state sale should be decided

independently by the construction of Section 3 of the

Act.

ix. In the present case, admittedly, natural gas is delivered

to the transporter at Gadimoga, Andhra Pradesh in

terms of the agreement and it reaches the State of U.P.;

such movement is itself indicative of the sale being an

inter-State sale.

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x. Minor variations in quantity do not empower the State

of U.P. to levy VAT. The State of Andhra Pradesh

remains the beneficiary under Section 9(3) of the CST

Act. Further, in absence of any supporting material, the

processing at GAIL’s plant could not be said to have

altered the inter-State character of the sale or purchase

to the extent it relates to the petitioner and respondents.

xi. Under the 2008 Regulations read with 2006 Guidelines,

delivery of lean gas is deemed to be made at Gadimoga

and not in Auraiya, in terms of GSPA and GTA.

xii. No evidence exists of sale consideration linked to

processing in Gujarat or variation at Auraiya. GSPA and

GTA, executed under statutory provisions, are valid and

not illegal. The assessing authority ignored

constitutional and CST provisions, rendering its order

perverse, arbitrary, and is an instance of non-

application of mind to the statutory provision.

xiii. The GSPA and GTA, executed pursuant to statutory

provisions and the PSA, cannot be disregarded in

adjudicating the present controversy unless found to be

sham. Their genuineness being undisputed, the

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transaction must be treated as an inter-State sale. As

GSPA is a concluded agreement and not merely an

agreement to sell, the Assessing Authority erred in

ignoring its terms and failed to exercise jurisdiction

vested in it.

xiv. Neither there is any material on record nor there is any

substance in the argument advanced on behalf of the

State of U.P. that they have jurisdiction or statutory

right to impose VAT ignoring statutory mandate of CST

Act, 1956 read with constitutional provisions and 2008

Regulation.

19. Lastly, the High Court concluded as thus:

“294. In view of above, writ petition deserves to be

allowed. Accordingly, a writ in the nature of certiorari is

issued quashing the impugned order dated 11.6.2010

passed by Additional Commissioner Grade II, Commercial

Tax Lucknow as contained in Annexure-5 to the writ petition

with all consequential benefits. All consequential orders

passed or notices issued by the respondents State of U.P.

on account of order dated 11.6.2010 are also set aside.

A writ in the nature of mandamus is issued directing the

State; Government to refund the tax realised in pursuance

to order dated 11.6.2010 forthwith to the assesses

expeditiously.

Writ petition is allowed accordingly. No order as to costs.”

20. Aggrieved by the aforesaid Order, appellants have filed this

civil appeal.

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II. ARGUMENTS

21. Before us, the learned Senior Counsel appearing for the

Appellants, Dr. Dinesh Dwivedi, submitted that:

a. RIL extracts natural gas from the KG-D6 basin situated

in the State of Andhra Pradesh and effects delivery at the

designated point at Gadimoga, Andhra Pradesh. From

Gadimoga, the gas is transported to Hazira in the State

of Gujarat through pipelines owned and operated by

RGTIL. Thereafter, the gas is carried from Hazira to Pata,

District Auraiya, Uttar Pradesh, through the pipeline

network of GAIL. At Pata, the gas undergoes processing,

whereby hydrocarbons are removed and the remaining

product, being predominantly lean gas comprising about

90% methane, is channelled into different pipelines

emanating from Auraiya. It was further urged that these

pipelines at Auraiya belong to the respective purchasers

or consumers, who individually convey the lean natural

gas from Auraiya to their factories across Uttar Pradesh

for consumption in their industrial operations. It was

emphasised, in particular, that RIL acts as an agent of

the Union of India while undertaking the extraction of gas

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from the KG-D6 basin, and therefore the natural

resources vests in the Union of India, which holds it in

trust for the people of India.

b. The metering of gas is carried out at the premises of each

purchaser in Uttar Pradesh, where the gas is received,

and that an equivalent quantity is injected at Gadimoga

is extracted by the buyers at their factories. It was urged

that gas injected into the RGTIL pipeline cannot be

individually identified qua purchaser or qua contract,

and even in calorific terms the figures varied. Stress was

laid on the fact that, owing to the Central Government’s

policy of transportation through a single common carrier

pipeline, the gas moves in a co-mingled form and the gas

admittedly being fungible good, it cannot be tangibly or

individually identified until actual delivery at the

consumer’s premises.

c. The movement of natural gas as fungible goods are goods

in unascertained form which cannot be identified qua

purchaser. According to the State, such ascertainment

occurs only at the purchasers’ factories in Uttar Pradesh,

where the gas is received and appropriated, and it is at

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that stage that the transaction of sale takes place. On

this basis, the assessing authority in Uttar Pradesh levied

tax, treating the sale as intra-State.

d. Laying emphasis on the constitutional history of Article

286 of the Constitution of India and drawing our

attention to the findings of the seven-judge bench of this

Court in Bengal Immunity Co. Ltd. v. State of Bihar

3,

he submitted that the said judgment did not dispel the

prevailing confusion regarding inter-State sales, as at the

time there existed neither a statutory framework

governing taxation of sales and purchase in the course of

inter-State trade nor any statutory definition of an

inter-State sale.

e. Relying on the Second Law Commission Report, it was

submitted that the effect of the Sixth Constitutional

Amendment was to confer upon Parliament exclusive

authority to legislate on the imposition of tax on the sale

or purchase of goods in the course of inter-State trade

and commerce, and to empower it to prescribe the

3

(1955) 1 SCC 763

22

principles determining when such transactions take

place.

f. The GSPA between RIL and its buyers were executed even

before the extraction of natural gas, when the goods were

neither in existence nor in saleable form. Consequently,

the GSPA was not a contract of sale of goods but merely

an agreement for the sale of future and unascertained

goods, enforceable only once the gas was extracted and

Reliance acquired authority to sell.

g. The GSPA reflected only the intention of the parties to

enter into a contract of sale and did not in itself evidence

a completed sale of natural gas. Hence, the tax

authorities were neither bound by nor estopped from

examining the true nature of the transaction to

determine the point at which the property in goods

passed.

h. Further, under Article 265 of the Constitution of India,

no tax can be levied except by the authority of law, and

therefore the point of taxation must be determined

strictly by statute, not by contractual stipulation. An

agreement between parties declaring transfer at

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Gadimoga cannot bind the tax authorities to treat the

transaction as an inter-state sale.

i. Since the transaction did not fall within Section 3 of the

CST Act, the tax authorities were required to examine it

under Section 4 of the Act

22. Learned Senior Counsel appearing for the Respondent No. 1,

Dr. Abhishek Manu Singhvi, submitted that:

a. The sales of natural gas by the Respondent No. 1 to its

customers are in the course of inter-state sales under

Section 3(a) of the CST Act. He placed heavy reliance on

Explanation 3 of Section 3 of the CST Act. He further

relied on Section 7 of the VAT Act to submit that the State

of Uttar Pradesh has no jurisdiction to levy VAT on inter-

State sales, as in the present case.

b. Explanation 3 to Section 3 of the CST Act was brought in

vide an amendment to clarify the position of law out of

abundant caution.

c. Section 4 of the CST Act is subject to Section 3 of the Act,

and once the conditions of inter-State trade under

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Section 3 of the said Act are satisfied, Section 4 of the Act

has no application.

d. Under Section 3(a) of the CST Act, what is required is a

contract of sale that occasions the movement of goods

from one State to another, and not necessarily a

concluded sale. He emphasized that it is immaterial in

which State the property in goods passes; the decisive

factor is whether the contract of sale itself results in

inter-State movement. The inter-State movement must

arise from a covenant, express or implied, or as an

incident of the contract, while the mode of sale, storage,

or delivery is irrelevant.

e. For a sale to be an inter-state, three essentials are to be

satisfied: (i) existence of a sale, (ii) actual movement of

goods from one State to another, and (iii) a direct nexus

between the sale and such movement.

f. Reverting to facts of the instant case, he submitted that

there existed a pre-existing contract, namely the GSPA,

under which natural gas was moved from Andhra

Pradesh to Uttar Pradesh. Pursuant to the GSPA,

Respondent No. 1 was obliged to deliver the gas at the

25

“delivery point” at Gadimoga, Andhra Pradesh, where

supply, delivery, transfer of possession, title, and risk to

the buyer took place. The buyers, in turn, had entered

into GTA with RGTIL and GAIL for carriage of the gas

from Gadimoga to their facilities in Uttar Pradesh. The

inter-State movement of gas was thus directly occasioned

by the contract of sale between Respondent No. 1 and its

buyers, thereby satisfying all the essential requirements

of an inter-State sale. To support his contentions, the

Learned Senior Counsel for the Respondent No. 1 relied

on the judgements of this court in State of Andhra

Pradesh v. NTPC

4

and Hyderabad Engineering

Industries v. State of A.P.

5

g. The learned Senior Counsel for Respondent No. 1

submitted that, in terms of Article 269 of the Constitution

of India and Sections 9(1) and 9(3) of the CST Act, the

Central Sales Tax is collected through the machinery of

the State from which the movement of goods commences,

with the proceeds assigned to that State.

4

(2002) 5 SCC 203

5

(2011) 4 SCC 705

26

h. Respondent No. 1 is registered with the Andhra Pradesh

authorities and has consistently deposited CST there,

while under both the PSC and GSPA, the liability for sales

tax rests with the buyers. Any attempt by Uttar Pradesh

to levy VAT on these transactions would encroach upon

Parliament’s jurisdiction.

i. It is further submitted that even if during transportation,

natural gas is co-mingled with supplies meant for other

buyers, such co-mingling occurs only after identification

and metering at Gadimoga, Andhra Pradesh, and does

not affect the inter-State character of the transaction. He

argued that the alleged re-metering at Auraiya in Uttar

Pradesh is legally irrelevant, since the sale is concluded

at Gadimoga and transportation follows thereafter. The

subsequent inter-mingling of gas post-delivery does not

constitute a sale and therefore cannot give rise to any

liability for levy of Sales Tax or VAT in Uttar Pradesh.

j. Lastly, he also submitted that the State of U.P. already

acknowledged the transaction in question as inter-state

sale by issuing Form-C to the buyers in terms of Section

8(4) of CST Act read with Rule 12 of the Central Sales Tax

27

Rules, 1957 (in short ‘CST Rules’). Once that is done,

the State now at this juncture cannot blow hot and cold

by taking contrary stand.

23. Learned Senior Counsel Mr. Sunil Gupta, appearing for

Respondents Nos. 4 and 5, along with the learned counsel for the

remaining respondents, jointly submitted that they adopt the

submissions advanced by the learned Senior Counsel for

Respondent No. 1, hence are not reproduced for sake of brevity.

24. Having heard learned counsels appearing for parties and

perusing the documents on record, it is imperative to first refer to

the legal landscape and factual position herein.

25. At the outset, we may observe that the present matter

transcends beyond a mere tax dispute. In the matters involving

international consortiums, the rule of law demands existence of

stable and ascertainable legal regime upon which parties may

legitimately structure their affairs. Courts applying laws have to be

strictly adherent to the rule of law and usher the stability as most

of the international investments are protected under investment

treaties which provide extra protection against expropriatory and

discriminatory measures. Stable jurisprudence would attract

28

foreign investments and in turn help the country to progress

towards economic development.

III. CONSTITUTIONAL UNDERCURRENT

26. At the outset, we need to state a few things about federalism

under our Constitutional set-up. Article 1 of the Constitution of

India stipulates that “India, that is Bharat, shall be a Union of

States”. The Constitution of India postulates a political union as

well as economic union which was brought about by integration of

erstwhile British India with erstwhile Princely States. The Union

and States are co-equals in their respective fields under the Indian

federal structure. Framers of our Constitution created a unique

federal structure which cannot be abridged in a sentence or two.

The nature of Indian federalism can only be ascertained from a

study of various provisions of the Constitution of India. The

confirmation of the Union and the States authority as co-equals

can be found in the speeches of Hon’ble P.S. Deshmukh, Shri TT

Krishnamachari and Hon’ble Dr. BR Ambedkar before the

constituent assembly as follows:

“There is only one point of constitutional import to which I

propose to make a reference. A serious complaint is made

on the ground that there is too much of centralisation and

that the States have been reduced to municipalities. It is

clear that this view is not only an exaggeration, but is also

29

founded on a misunderstanding of what exactly the

Constitution contrives to do. As to the relation between

the Centre and the States, it is necessary to bear in

mind the fundamental principle on which it rests. The

basic principle of federalism is that the legislative

and executive authority is partitioned between the

Centre and the States not by any law to be made by

the Centre but by the Constitution itself. This is what

the Constitution does. The States, under our Constitution,

are in no way dependent upon the Centre for their

legislative or executive authority. The Centre and the States

are co-equal in this matter. It is difficult to see how such a

Constitution can be called centralism. It may be that the

Constitution assigns to the Centre too large a field for the

operation of its legislative and executive authority than is to

be found in any other federal Constitution. It may be that

the residuary powers are given to the Centre and not to the

States. But these features do not form the essence of

federalism. The chief mark of federalism, as I said, lies

in the partition of the legislative and executive

authority between the Centre and the Units by the

Constitution. This is the principle embodied in our

Constitution.”

(emphasis supplied)

27. The common thread, which runs along the Constitution of

India is that a unique balance is maintained in the demarcation of

the powers to preserve the federation. The Courts in India are given

the responsibility to preserve this balance as envisaged by the

framers of our Constitution. Any interference in balancing would

be detrimental to the spirit of the Constitution of India.

28. It is not helpful to call India as quasi-federal as the features

are unique and quite different from other countries like USA, UK,

30

etc. Members of the Constituent Assembly drew wisdom from the

working experiences of various constitutions to weave a unique

structure which can best be described as co-operative federalism.

29. The Constitution of India is unique as it contains an

exhaustive enumeration and division of legislative powers of

taxation between the Centre and the States. This separation is

reflected under Article 246(1) of the Constitution of India.

Adumbrating this principle of mutual exclusivity, H.M. Seervai in

his celebrated book, Constitutional Law of India, (4

th Edition)

opined as under:

“1A.25. The innovation made for the distribution of

taxing power may now be mentioned. In the United States

the power of taxation is conferred on the Congress in wide

general terms. But the power is not exclusive except as to

the imposts or duties on import or export subject to a limited

exception not here material. In Canada the power of

taxation is conferred in the widest terms on the Dominion,

and a power of direction taxation within the province to

raise revenue for provincial purposes is conferred on the

provinces. Thus the taxing powers are independent but as

regards direct taxation they cover an overlapping field. In

Australia “The Federal power over customs and excise

duties is exclusive (s. 90), but as regards other taxation the

Commonwealth and State Parliaments have separate rather

than concurrent powers.” 79 These overlapping powers of

taxation covering the same field, for example, the power to

impose an income tax, have given rise to much litigation and

have raised the question whether the federal power can be

so exercised as to nullify the State’s power of taxation. The

lists contained in the Sch. VII to the G.I. Act, 35, provided for

distinct and separate fields of taxation, and it is not without

significance that the concurrent legislative list contains no

31

entry relating to taxation but provides only for “fees” in

respect of matters contained in the list but not including fees

taken in any court. List I and List II of Sch. 7 thus avoid

overlapping powers of taxation and proceed on the basis of

allocating adequate sources of taxation for the federation

and the provinces, with the result that few problems of

conflicting or competing taxing powers have arisen under

the G.I. Act, 35. This scheme of the legislative lists as

regards taxation has been taken over by the Constitution of

India with like beneficial results.”

30. This view has resonated across various judgements of this

Court, especially in Hoechst Pharmaceuticals Ltd. v. State of

Bihar

6

, wherein this Court observed as follows:

“74. It is equally well settled that the various entries in

the three Lists are not ‘powers’ of legislation, but ‘fields’ of

legislation. The power to legislate is given by Article 246 and

other Articles of the Constitution. Taxation is considered to

be a distinct matter for purposes of legislative competence.

Hence, the power to tax cannot be deduced from a general

legislative entry as an ancillary power. Further, the element

of tax does not directly flow from the power to regulate trade

or commerce in, and the production, supply and distribution

of essential commodities under Entry 33 of List III, although

the liability to pay tax may be a matter incidental to the

Centre's power of price control.

75. “Legislative relations between the Union and the

States inter se with reference to the three Lists in Schedule

VII cannot be understood fully without examining the

general features disclosed by the entries contained in those

Lists”: Seervai in his Constitutional Law of India, 3rd Edn.,

Vol. 1 at pp. 81-82. A scrutiny of Lists I and II of the Seventh

Schedule would show that there is no overlapping

anywhere in the taxing power and the Constitution gives

independent sources of taxation to the Union and the States.

Following the scheme of the Government of India Act, 1935,

the Constitution has made the taxing power of the Union

6

(1983) 4 SCC 45

32

and of the States mutually exclusive and thus avoided the

difficulties which have arisen in some other Federal

Constitutions from overlapping powers of taxation.”

From the above, it is clear that the Constitution of India maintains

principle of exclusivity in allocating various taxations to either the

Parliament or to the State legislature. Corollary to aforesaid

principle is that, the construction of the taxing entry which may

lead to over-lapping must be eschewed. This Court has to give

primacy to this about purpose and ensure that taxation do not

overlap and thereby avoiding double taxation.

31. Under our Constitutional framework, the sovereign power to

tax is limited by division of powers between the Centre and States.

A Constitution Bench of this Court Synthetics and Chemicals

Ltd. v. State of U.P.,

7 recognized that under Indian federal setup,

both Centre and State enjoy this sovereign power to tax only to the

extent allowed by the Constitution. In this context, this Court held

as under:

“56. ……..We would not like, however, to embark upon any

theory of police power because the Indian Constitution does

not recognise police power as such. But we must recognise

the exercise of sovereign power which gives the States

sufficient authority to enact any law subject to the

limitations of the Constitution to discharge its functions.

Hence, the Indian Constitution as a sovereign State has

7

(1990) 1 SCC 109

33

power to legislate on all branches except to the limitation as

to the division of powers between the Centre and the States

and also subject to the fundamental rights guaranteed

under the Constitution. The Indian State, between the

Centre and the States, has sovereign power. The sovereign

power is plenary and inherent in every sovereign State to

do all things which promote the health, peace, morals,

education and good order of the people. Sovereignty is

difficult to define. This power of sovereignty is, however,

subject to constitutional limitations. This power, according

to some constitutional authorities, is to the public what

necessity is to the individual. Right to tax or levy imposts

must be in accordance with the provisions of the

Constitution.”

32. In this context, the immediate question which arises is, what

are those limitations?

33. In the field of taxation, the limitation prescribed and

categorised under the Constitution are of three categories – (i)

abstraction; (ii) eclipse and; (iii) division. This categorization must

be noted as a convenient referencing point for understanding the

nature of the constitutional restrictions.

34. When we talk of abstraction, we refer to entry 54 of State List

as contained in Seventh Schedule of the Constitution of India as

an illustration which provided for taxes on sale or purchase of

goods other than newspapers. A further exception was carved out

through entry 92-A of the Union List which was introduced by the

Sixth Amendment to the Constitution in 1956 which provided for

34

taxes on sale or purchase of goods other than newspapers where

such sale and purchase takes place in the course of inter-state

trade and commerce. Under the pre-existing entry 54 of the State

List, the State could have possessed an unfettered area of imposing

taxes on sale and purchase of goods other than newspaper.

Arguably, this could have extended to exercise of taxing powers on

inter-state trade on the strength of explanation to Article 286 of

the Constitution of India.

35. One more illustration of such abstraction is that the

Parliament in exercise of power under Article 269(3) of the

Constitution of India enacted CST Act. Section 14 and 15 of the

CST Act provides for a list of goods of special importance, the

manner of imposing taxes and the restrictions on the power of

imposing taxes.

36. The second source of containment of legislative powers is the

area of taxation which adumbrated from Article 245 to Article 253

of the Constitution of India. Hence, the legislative powers of the

State including those relating to taxation can be eclipsed by the

Parliament when the situation so arises.

37. Third source of restriction on legislative power of the State is

in the form of limitation provided by Articles 286(3), 366(29-A) etc.

35

of the Constitution of India. Further, any law made by the

Parliament or the State legislature is to be compliant with Part III

as declared under Article 13 of the Constitution of India. There is

no gainsaying, that the power to enact laws has been conferred

upon the Parliament or the State legislature to the above

constitutional limitation that levy of any tax ought not to fall foul

of Part III as adumbrated in Jindal Stainless Limited and

Another v. State of Haryana and Others

8.

38. After alluding to certain first principles, it necessary to

understand constitutional scheme. Under the federal scheme,

Article 248 empowers the Parliament with residuary power to

impose tax which is not otherwise provided in the concurrent,

union or the state list. The power of State and Union to legislate

on a particular taxation are clearly demarcated.

39. Article 249 of the Constitution of India empowers the

Parliament to legislate on a matter in the State list for national

interest provided the council of the State has passed a resolution

supported by not less that 2/3

rd of members present and voting

that is necessary or expedient in the national interest to do so.

8

(2017) 12 SCC 1

36

Similarly, Article 250 of the Constitution of India empowers the

Parliament to legislate on any matter in the State list during

proclamation of emergency. The Constitutional scheme also

provides for the supremacy of law made by the Parliament when

there is inconsistency between a State made law and a Parliament

made law in terms of Articles 251 and 254 of the Constitution of

India.

40. The power of the Parliament to legislate for two or more States

by consent is provided under Article 252 of the Constitution of

India. Article 253 of the Constitution of India is an exceptional

article wherein wide amplitude of powers has been reserved for the

Parliament to legislate on subject matters pertaining to

implementation of international treaties and conventions.

41. Part XII of the Constitution of India deals with Finances and

contains provisions from Article 264 to Article 300A of the

Constitution of India. Part XIII consists of those provisions related

to Trade, Commerce and Intercourse within the territory of India.

Part XIII contains Article 301 to Article 307 of the Constitution of

India.

42. Part XII doesn’t restrict itself in distributing the taxing power

between the Centre and the States but also creates a constitutional

37

machinery for distributing revenue. From the scheme of the

Constitution there is no gainsaying that Parliament possess

greater sovereign authority to impose taxes. However, States have

been provided with larger responsibility to administrate its

territories.

43. In this Context, Article 268 to Article 281 of the Constitution

of India devise a mechanism through which revenues collected or

levied by Union are shared with the States. This structure, which

existed prior to introduction of 101

st Constitutional Amendment

Act has been completely reworked by introduction of Goods and

Services Act, 2017, which may not be necessary to explain in detail

here.

44. Article 265 of the Constitution of India is the first principle

on which any taxing legislation is to be tested. Article 265 of the

Constitution of India reads as under:

“265. Taxes not to be imposed save by authority of

law.—No tax shall be levied or collected except by authority

of law.”

This salutatory principle emanates from the time of Magna Carta

as taxation was a major issue between then Steward Kings and the

Parliament. Similarly, Article I, Section 8(1) of the Constitution of

United States of America also echoes the same sentiments.

38

45. Explaining the fiscal federalism under the Indian

Constitution, this Court by a 9-Judge Bench in Jindal (supra),

interpreted Article 265 of the Constitution of India as under –

“21. We shall presently turn to the constitutional limitations

on the sovereign power to tax but before we do so we need

to point out that while the power to levy taxes is an attribute

of sovereignty, exercise of that power is controlled by the

Constitution. This is evident from the provisions of Article

265 which forbids levy or recovery of any tax except by the

authority of law…..The authority of law referred to above

must be traceable to a provision in the Constitution

especially where the legislative powers are shared by the

Centre and the States as is the case with our Constitution

which provides for what has been described as quasi-

federal system of governance.”

46. Therefore, three things that are clear under Article 265 of the

Constitution of India are as thus:

i. The levy and collection of the tax must be under the

authority of law.

ii. The tax to be levied must be within the competence

of the legislature imposing the tax and the validity of

the tax has to be adjudged with reference to the

competence of the legislature at the time of the

statute authorising the tax was enacted.

39

iii. The law referred in the Article 265 refers to a

statutory law or a law made by the legislature as

against the executive order.

47. One of the important provisions of this fiscal federalism is

Article 269 of the Constitution of India. Article 269 of the

Constitution of India read as under:

“269. Taxes levied and collected by the Union but

assigned to the States.

(1) Taxes on the sale or purchase of goods and taxes

on the consignment of goods shall be levied and collected by

the Government of India but shall be assigned and shall be

deemed to have been assigned to the States on or after the

1st day of April, 1996 in the manner provided in clause (2)

Explanation. For the purposes of this clause,-

(a) the expression “taxes on the sale or purchase of

goods” shall mean taxes on sale or purchase of goods other

than newspapers, where such sale or purchase takes place

in the course of inter-State trade or commerce;

(b) the expression "taxes on the consignment of goods"

shall mean taxes on the consignment of goods (whether the

consignment is to the person making it or to any other

person), where such consignment takes place in the course

of inter-State trade or commerce.

(2) The net proceeds in any financial year of any such

tax, except in so far as those proceeds represent proceeds

attributable to Union territories, shall not form part of the

Consolidated Fund of India, but shall be assigned to the

States within which that tax is leviable in that year, and

shall be distributed among those States in accordance with

such principles of distribution as may be formulated by

Parliament by law.)

(3) Parliament may by law formulate principles for

determining when a sale or purchase of , or consignment of

goods takes place in the course of inter-State trade or

commerce.

40

48. Article 269 of the Constitution of India specifies those taxes

which are levied and collected by the Government of India but are

assigned to State in the manner provided therein. The various

types of taxes mentioned under Article 269 is provided in the

explanation which includes sale and purchase of goods that takes

place in the course of inter-state trade or commerce other than

newspapers or taxes on consignment of goods which takes place

in the course of inter-state trade or commerce.

49. It is pertinent to also note that the power of State legislature

to levy sales tax under the constitutional scheme. In this context

it is relevant to reproduce Article 286 of the Constitution of India

(as it exists today) as below:

“286. Restrictions as to imposition of tax on the sale

or purchase of goods. — (1) No law of a State shall

impose, or authorise the imposition of, a tax on2 the supply

of goods or of services or both, where such supply takes

place—

(a) outside the State; or

(b) in the course of the import of the goods or services or both

into, or export of the goods or services or both out of, the

territory of India.

(2) Parliament may by law formulate principles for

determining when a supply of goods or of services or both

in any of the ways mentioned in clause (1).”

41

50. Entry 54 of list II of Seventh Schedule to the Constitution of

India as it existed on the date of enforcement of the Constitution

of India is extracted below:

“54. Taxes on the sale or purchase of goods other than

newspapers, subject to the provisions of entry 92A of List

I.”

51. After the commencement of the Constitution of India, a

controversy arose regarding the competence of the State

Legislature to levy sales tax on transactions of sale with reference

to clauses (1) and (2) of Article 286 as it stood prior to the Sixth

Amendment, which read as under:

“286. Restrictions as to imposition of tax on the sale

or purchase of goods.

(1) No law of a State shall impose, or authorise the

imposition of, a tax on the sale or purchase of goods where

such sale or purchase takes place -

(a) outside the State; or

(b) in the course of the import of the goods into, or

export of the goods out of, the territory of India.

(2) Parliament may by law formulate principles for

determining when a sale or purchase of goods takes place

in any of the ways mentioned in clause

(3) Any law of a State shall, in so far as it imposes, or

authorises the imposition of, -

(a) a tax on the sale or purchase of goods declared by

Parliament by law to be of special importance in inter-State

trade or commerce;

or

(b) a tax on the sale or purchase of goods, being a tax

of the nature referred to in sub-clause (b), sub-clause (c) or

sub-clause (d) of clause (29-A) of Article 366, be subject to

42

such restrictions and conditions in regard to the system of

levy, rates and other incidents of the tax as Parliament may

by law specify.”

52. The dispute emanated from the explanation appended to the

definition of “sale” in the Bombay Sales Tax Act, 1952, which

deemed that any goods delivered in the State of Bombay for

consumption therein would be treated as a sale within the State,

notwithstanding that property in the goods had passed in another

State. The issue, therefore, was whether the State Legislature of

Bombay could impose sales tax merely on the basis that goods

were consumed within its territory, despite the prohibition under

Article 286(2) of the Constitution of India. The Bombay High Court,

in a petition under Article 226 of the Constitution of India, struck

down the provision as repugnant to Article 286 of the Constitution

of India. However, the said decision was reversed by this Court in

State of Bombay v. United Motors (India) Ltd.

9

53. This Court in United Motors (supra), while examining

whether the State of Bombay has enacted a law imposing, or

authorising the imposition of, a tax on sales or purchases of goods

9

(1953) 1 SCC 514.

43

in disregard of the constitutional limitations on its legislative

competence, observed as under:

“16. We are therefore of opinion that Article 286(1)(a)

read with the Explanation prohibits taxation of sales or

purchases involving inter-State elements by all States

except the State in which the goods are delivered for the

purpose of consumption therein in the wider sense

explained above. The latter State is left free to tax such sales

or purchases, which power it derives not by virtue of the

Explanation but under Article 246(3) read with entry 54 of

List II.”

54. The correctness of the above ruling was subsequently

doubted, and the matter was reconsidered by a Seven Judge Bench

of this Court in Bengal Immunity (supra). The above case arose

from the fact that Bihar Commercial Taxes Department issued a

notice to a company based in West Bengal, raising a demand under

West Bengal Sales Tax as the sale of products from other states

were delivered in the State of Bihar. The challenge to the

imposition of the Bihar Sales Tax landed up before this Court

which was referred to a seven judge bench to consider the validity

of such taxes. This Court formulated four questions is the following

manner:

“13. Coming, then, to the merits of the petition, the

principal question is whether the tax threatened to be levied

on the sales made by the appellant Company and

implemented by delivery in the circumstances and manner

mentioned in its petition is leviable by the State of Bihar.

44

The legal capacity of the State of Bihar to tax these sales is

questioned on the following grounds, namely:

(A) that the sales sought to be taxed having taken

place in the course of inter-State trade or commerce and

Parliament not having by law provided otherwise, all States

are debarred from imposing tax on such sales by reason of

Article 286(2);

(B) that even if the ban under Article 286(2) did not

apply, the State of Bihar is not competent to impose tax on

such sales on a correct reading of Article 246(3) read with

Entry 54 of List II in the Seventh Schedule and Article

286(1);

(C) that the Bihar Sales Tax Act, 1947 can have no

extra-territorial operation and cannot, therefore, impose tax

on such sales by a non-resident seller;

(D) that on a true construction of the Act itself, it does

not apply to the sales sought to be taxed.”

Regarding the first question, this court through majority observed

as under:

“31.1. It should be noted that these are four separate and

independent restrictions placed upon the legislative

competency of the States to make a law with respect to

matters enumerated in Entry 54 of List II. In order to make

the ban effective and to leave no loophole the Constitution

makers have considered the different aspects of sales or

purchases of goods and placed checks on the legislative

power of the States at different angles. Thus in clause (1)(a)

of Article 286 the question of the situs of a sale or purchase

engaged their attention and they forged a fetter on the basis

of such situs to cure the mischief of multiple taxation by the

States on the basis of the nexus theory. In clause (1)(b) they

considered sales or purchases from the point of view of our

foreign trade and placed a ban on the States' taxing power

in order to make our foreign trade free from any interference

by the States by way of a tax impost. In clause (2) they

looked at sales or purchases in their inter-State character

and imposed another ban in the interest of the freedom of

internal trade. Finally, in clause (3) the Constitution makers'

45

attention was rivetted on the character and quality of the

goods themselves and they placed a fourth restriction on the

States' power of imposing tax on sales or purchases of

goods declared to be essential for the life of the community.

These several bans may overlap in some cases but in their

respective scope and operation they are separate and

independent. They deal with different phases of a sale or

purchase but, nevertheless, they are distinct and one has

nothing to do with and is not dependent on the other or

others. The States' legislative power with respect to a sale

or purchase may be hit by one or more of these bans. Thus,

take the case of a sale of goods declared by Parliament as

essential by a seller in West Bengal to a purchaser in Bihar

in which goods are actually delivered as a direct result of

such sale for consumption in the State of Bihar. A law made

by West Bengal without the assent of the President taxing

this sale will be unconstitutional because (1) it will offend

Article 286(1)(a) as the sale has taken place outside the

territory by virtue of the Explanation to clause (1)(a), (2) it

will also offend Article 286(2) as the sale has taken

place in the course of inter-State trade or commerce

and (3) such law will also be contrary to Article 286(3)

as the goods are essential commodities and the

President's assent to the law was not obtained as

required by clause (3) of Article 286. This appears to

us to be the general scheme of that article.

32. We come now to the particular bans. Although the

legislatures of the States were empowered by Article 246(3)

read with Entry 54 of List II to make a law with respect to

taxes on sales or purchases of goods, the different State

Legislatures, as already mentioned, considered themselves

free to make a law imposing tax on sales or purchases of

goods provided they had some territorial nexus with such

sales or purchases e.g. that one or other of the ingredients

or events which go to make up a sale or purchase was found

to exist or had happened within their respective territories.

Whether they were right or wrong in so acting is a question

which has not been finally decided by the courts but the fact

is that they did so. This resulted in multiple taxation which

manifestly prejudiced the interests of the ultimate

consumers and also hampered the free flow of inter-State

trade or commerce. So the Constitution makers had to cure

that mischief. The first thing that they did was to take away

46

the States' taxing power with respect to sales or purchases

which took place outside their respective territories. This

they did by clause (1)(a). If the matter had been left there,

the solution would have been imperfect, for then the

question as to which sale or purchase takes place outside a

State would yet have remained open. So the Constitution

makers had to explain what an outside sale was and, this

they did by the Explanation set forth in clause (1). The

language employed in framing the Explanation, however,

has given scope for argument to counsel and presented

considerable difficulties to the court in ascertaining its

purpose and intendment. If the Explanation simply said

“For the purposes of sub-clause (a), a sale or purchase shall

be deemed to have taken place outside a State when the

goods have actually been delivered for the purpose of

consumption in another State, notwithstanding the fact; etc.

etc.” then none of the difficulties would have arisen at all.

But why, it is asked, did the Constitution makers seek to

explain what was an outside sale or purchase by saying

that a sale or purchase was to be deemed to take place

inside the particular State mentioned in the Explanation?

Was the purpose of the Explanation only to explain what

was an outside sale or purchase or was it also its purpose

to allot or assign a particular class of sales or purchases of

the kind mentioned therein to a particular State so as to put

the question of situs of the sales or purchases of that

description beyond the pale of controversy? These are

questions which arise and are raised because of the

somewhat involved language of the Explanation…

*** *** ***

40. If, therefore, the Explanation cannot be read

into clause (2) because of the express language of the

Explanation and also because of the difference in the

subject-matter of the operative provisions of the two

clauses, then it must follow that, except insofar as

Parliament may by law provide otherwise, no State

law can impose or authorise the imposition of any tax

on sales or purchases when such sales or purchases

take place in the course of inter-State trade or

commerce and irrespective of whether such sales or

purchases do or do not fall within the Explanation. It

is not necessary, for the purposes of this appeal, to

47

enter upon a discussion as to what is exactly meant

by inter-State trade or commerce or by the phrase “in

the course of”, for it is common ground that the sales

or purchases made by the appellant Company which

are sought to be taxed by the State of Bihar actually

took place in the course of inter-State trade or

commerce. Parliament not having by law otherwise

provided, no State law can, therefore, tax these sales

or purchases, that is to say, Bihar cannot tax by

reason of clause (2) although they fall within the

Explanation and other States cannot tax by reason of

both clause (1)(a) read with the Explanation and

clause (2). This conclusion leads us now to consider

the arguments by which the respondent State and the

intervening States which support the respondent

State seek to get over this position.

41. In the forefront is placed the argument that found

favour with the majority of the Bench which decided State

of Bombay v. United Motors (India) Ltd. [State of

Bombay v. United Motors (India) Ltd., (1953) 1 SCC 514 :

1953 SCR 1069] That argument is to be found in the

majority judgment at SCC pp. 533-34 : SCR pp. 1085-86.

Shortly put, the majority opinion was that the operation of

clause (2) stood excluded as a result of the legal fiction

enacted in the Explanation. In their view the effect of the

Explanation in regard to inter-State dealings was to invest

what, in truth, was an inter-State transaction with an intra-

State character in relation to the State of delivery and clause

(2) could, therefore, have no application. They recognised

that the legal fiction was to operate “for the purposes of sub-

clause (a) of clause (1)” and that that meant merely that the

Explanation was designed to explain the meaning of the

expression “Outside the State” in clause (1)(a). They,

nevertheless, came to the conclusion that when once it was

determined with the aid of the fictional test that a particular

sale or purchase had taken place within the taxing State, it

followed as a corollary, that the transaction lost its inter-

State character and fell outside the purview of clause (2),

not because the fiction created by the Explanation was used

for the purpose of clause (2), but because such sale or

purchase became, in the eye of the law, a purely local

transaction. In his own inimitable language the learned

Chief Justice, who wrote and delivered the majority

48

judgment, concluded the discussion on this point by saying

that the statutory fiction completely masked the inter-State

character of the sale or purchase which, as a collateral

result of such masking, fell outside the scope of clause (2).

In spite of the great respect we always entertain for the

opinions of the then learned Chief Justice and the other

learned Judges who constituted the majority we are unable

to accept the aforesaid arguments or the conclusions as

correct for the reasons we now proceed to state.

42. The situs of an intangible concept like a sale can

only be fixed notionally by the application of artificial rules

invented either by Judges as part of the Judge-made law of

the land, or by some legislative authority. But as far as we

know, no fixed rule of universal application has yet been

definitely and finally evolved for determining this for all

purposes. There are many conflicting theories : One, which

is more popular and frequently put forward and is referred

to and may, indeed, be urged to have been adopted by the

Constitution in the non obstante clause of the Explanation,

favours the place where the property in the goods passes,

another which is said to be the American view and which

was adopted in C. Govindarajulu Naidu & Co. v. State of

Madras [C. Govindarajulu Naidu & Co. v. State of Madras,

1952 SCC OnLine Mad 229 : AIR 1953 Mad 116] fixes upon

the place where the contract is concluded, a third which

prevails in the continental countries of Europe prefers the

place where the goods sold are actually delivered, a fourth

points to the place where the essential ingredients which go

to make up a sale are most densely grouped. In this

situation if the Explanation were not there and the ban

under clause (2) were to be raised unconditionally it would

become necessary for the courts to reach a conclusion and

choose between these conflicting views.

42.1. Article 286(1)(a), it should be noted, does not say

that an inside sale may be taxed. It only says that no

outside sale shall be taxed. Now if a State claims that

the sale is inside because part of its ingredients lies

within its boundaries, by the same logic it is also an

outside sale because the remaining parts are outside

its territories and if it is an outside sale it cannot be

taxed whether or not it can be deemed to be inside for

some particular purpose. The prohibition of Article

49

286(1)(a) is against taxing an outside sale and if the

sale is outside even partially it may well be argued

that no State Legislature can override the

Constitution by deeming it to be an inside sale.

Therefore, if the last of the aforesaid theories were to

be adopted, then either no State would be able to tax,

or all having the requisite nexus would be able to do

so. But this, in our opinion, is the very mischief which

the Constitution makers wished to avoid and that, as

we understand the majority judgment in Bombay

case [State of Bombay v. United Motors (India) Ltd.,

(1953) 1 SCC 514 : 1953 SCR 1069] , was their view

also. So that view can be placed on one side . On any

one of the other views the situs would have to be fixed

artificially in one place and then one would have to apply

the logic of the majority decision and hold that as soon as

the situs is determined to be in one place by judicial fiction

i.e. a fiction enunciated by judicial decision, the inter-State

character of the transaction must cease. The majority hold

that this is the result when the situs is placed in only one

State, namely, the delivery State, because of the fiction

which the Explanation creates. The same result would have

to follow logically if the situs were to be established by

judicial fiction instead of by a constitutional one. The

reasoning of the majority, pushed to its logical conclusion,

will inevitably lead us to hold that all inter-State

transactions must eventually be converted into intra-State

transactions and, therefore, become amenable to the taxing

power of the State within whose territories they are, by the

constitutional or judicial fiction, to be deemed to take place.

In this view there will remain no inter-State transaction on

which clause (2) may possibly operate. The argument which

leads to this astounding conclusion has only to be stated to

be rejected. The truth is that what is an inter-State sale or

purchase continues to be so irrespective of the State where

the sale is to be located either under the general law when

it is finally determined what the general law is or by the

fiction created by the Explanation. The situs of a sale or

purchase is wholly irrelevant as regards its inter-State

character.

42.2. We find no cogent reason in support of the

argument that a fiction created for certain definitely

expressed purposes, namely, the purposes of clause (1)(a)

50

can legitimately be used for the entirely foreign and

collateral purpose of destroying the inter-State character of

the transaction and converting it into an intra-State sale or

purchase. Such metamorphosis appears to us to be beyond

the purpose and purview of clause (1)(a) and the

Explanation thereto. When we apply a fiction all we do is to

assume that the situation created by the fiction is true.

Therefore, the same consequences must flow from the fiction

as would have flown had the facts supposed to be true been

the actual facts from the start. Now, even when the situs of

a sale or purchase is in fact inside a State, with no essential

ingredient taking place outside, nevertheless, if it takes

place in the course of inter-State trade or commerce, it will

be hit by clause (2). If the sales or purchases are in the

course of inter-State trade or commerce the stream of inter-

State trade or commerce will catch up in its vortex all such

sales or purchases which take place in its course wherever

the situs of the sales or purchases may be. All that the

Explanation does is to shift the situs from point A in the

stream to point X also in the stream. It does not lift the sales

or purchases out of the stream in those cases where they

form part of the stream. The shifting of the situs of a sale or

purchase from its actual situs under the general law to a

fictional situs under the Explanation takes the sale or

purchase out of the taxing power of all States other than the

State where the situs is fictionally fixed. That is all that

clause (1)(a) and the Explanation do. Whether the delivery

State will be entitled to tax such a sale or purchase will

depend on the other provisions of the Constitution.

42.3. The assignment of a fictional situs to a sale or

purchase has no bearing or effect on the other aspects of the

sale or purchase e.g. its inter-State character or its export or

import character which are entirely different topics. This

fixing of a situs for a sale or purchase in any particular

State either under the general law or under the fiction does

not conclude the matter. It has yet to be ascertained

whether that sale or purchase which by virtue of the

Explanation has taken place in the delivery State was made

in the course of inter-State trade or commerce. For this

purpose the Explanation can have no relevancy or

application at all.

51

43. Another argument adumbrated in the majority

judgment in State of Bombay v. United Motors (India)

Ltd. [State of Bombay v. United Motors (India) Ltd., (1953) 1

SCC 514 : 1953 SCR 1069] at SCC pp. 530-31 and 534-35

: SCR pp. 1081 and 1086-1087 and elaborated before us is

that just as the freedom of trade referred to in Article 301

has been made to give way to the States' power of imposing

non-discriminatory taxes by Article 304 so must Article

286(2) be regarded as subject to the States' taxing power,

for the protection of Article 286(2) could not have been

intended to be larger. This argument was refuted by the

dissenting judgment in that Bombay case [State of

Bombay v. United Motors (India) Ltd., (1953) 1 SCC 514 :

1953 SCR 1069] at SCC pp. 543-45 and 559-60 : SCR pp.

1102-1103 and 1127 and also by the dissenting judgment

in State of Travancore-Cochin v. Shanmugha Vilas

Cashewnut Factory [State of Travancore-

Cochin v. Shanmugha Vilas Cashewnut Factory, (1953) 1

SCC 826 : 1954 SCR 53] at SCC pp. 861-62 : SCR p. 89.

Nothing that we have heard on the present occasion induces

us to depart from the views expressed on this subject in

those dissenting judgments.

*** *** ***

45. The same argument is put in a slightly different

way and in a more attractive form. It is said that we must

construe Article 286 as a whole and give meaning to every

part of it. Sales or purchases which fall within the

Explanation to clause (1)(a) clearly partake of the character

of inter-State transactions. Therefore, if we construe

clause (2) of Article 286 literally and strictly then the

whole of clause (1)(a) and the Explanation will be

redundant and useless and will have no immediate

operation and will remain a dead letter, at any rate,

until Parliament, in exercise of its powers under

clause (2), lifts the ban. We must, it is urged, make an

attempt to avoid such a result and adopt such a construction

as will not only give effect to each part of the article but also

make each part applicable in praesenti. That, it is pointed

out, can well be done if clause (2) is interpreted in a

restricted manner. The argument runs — give full and

immediate effect to the Explanation and then leave clause

(2) to govern or operate on cases which do not fall within the

52

Explanation. In effect this argument means that we must

treat all transactions of sales or purchases falling within the

Explanation as outside clause (2). Shorn of its thin veneer of

disguise this argument is nothing more than the argument

that the Explanation, in effect, operates as an exception to

clause (2) and all the criticisms applicable to that

construction will apply mutatis mutandis to the argument in

the present form. Apart from that there are obvious fallacies

which render the argument utterly unacceptable. We now

proceed to deal with these fallacies seriatim.

46. No less than five reasons have been suggested in

support of the argument that a restricted construction

should be placed on clause (2) of Article 286. It will be

convenient to deal with them at this stage one by one.

*** *** ***

48. For all the foregoing reasons we are definitely of

opinion that, until Parliament by law made in exercise

of the powers vested in it by clause (2) provides

otherwise, no State can impose or authorise the

imposition of any tax on sales or purchases of goods

when such sales or purchases take place in the course

of inter-State trade or commerce and the majority

decision in State of Bombay v. United Motors (India)

Ltd. [State of Bombay v. United Motors (India) Ltd.,

(1953) 1 SCC 514 : 1953 SCR 1069] insofar as it

decides to the contrary cannot be accepted as well

founded on principle or authority.”

(emphasis supplied)

55. After the said decision in Bengal Immunity (supra), the

Taxation Enquiry Commission recommended certain

constitutional amendments to clarify the scope of the State’s power

to levy sales tax. These recommendations were accepted, and

Parliament accordingly enacted the Constitution (Sixth

Amendment) Act, 1956, whereby Entry 92-A was inserted in List I

of the Seventh Schedule, Entry 54 in List II was substituted, and

53

Sub-clause (g) was added to clause (1) and clause (3) was added to

Article 269 of the Constitution of India.

56. By virtue of the amendment to Article 269 of the Constitution

of India, Parliament was vested with the exclusive power to levy

and collect tax on the sale or purchase of goods taking place in the

course of inter-State trade or commerce, and to prescribe the

principles for determining when such transactions assume an

inter-State character. The Sixth Amendment simultaneously

omitted the Explanation to clause (1)(a) of Article 286 of the

Constitution of India and substituted clauses (2) and (3) thereof

with two new clauses.

57. Consequent upon the Sixth Amendment to the Constitution

of India, Parliament enacted the CST Act. The object of the said

legislation was threefold: first, to lay down principles for

determining when a sale or purchase of goods takes place in the

course of inter-State trade or commerce, or outside a State, or in

the course of import into or export from India; second, to provide

for the levy, collection and distribution of taxes on sales effected in

the course of inter-State trade or commerce; and third, to declare

certain goods as being of special importance in inter-State trade or

commerce and to prescribe restrictions and conditions subject to

54

which State laws could impose tax on such goods. With the

enactment of the Central Sales Tax Act, the initial controversy

stood resolved.

IV. STATUTORY INTERPLAY

58. Before we observe certain provisions of the CST Act, a word

on interpretation is necessary. Interpretation of tax statute is to be

done is an strict manner.

10 The words have to be given their

natural meaning without expanding the ambit or reducing the

same. A man sought to be taxed comes within the letter of law he

must be taxed, however great the hardship may appear to the

judicial mind to be. On the other hand, if the authorities seeking

to recover the tax, cannot bring the subject within the letter of law,

the subject is free, however apparently within the spirit of law the

case might otherwise appear to be.

59. Moreover, we need to keep in mind that in the garb of

interpretation, the judiciary cannot amend the provisions of the

Constitution of India, which has been carefully drafted by the

Union Parliament. This Court can only provide meaning and

10

See, Commissioner of Customs (Import), Mumbai v. Dilip Kumar, (2018) 9 SCC 1

55

expound the avowed purpose of the law. Is Union of India v.

Deoki Nandan Aggarwal,

11 it was held as under:

“14. We are at a loss to understand the reasoning of the

learned Judges in reading down the provisions in

paragraph 2 in force prior to November 1, 1986 as “more

than five years” and as “more than four years” in the same

paragraph for the period subsequent to November 1, 1986.

It is not the duty of the court either to enlarge the scope of

the legislation or the intention of the legislature when the

language of the provision is plain and unambiguous. The

court cannot rewrite, recast or reframe the legislation for the

very good reason that it has no power to legislate. The

power to legislate has not been conferred on the courts. The

court cannot add words to a statute or read words into it

which are not there. Assuming there is a defect or an

omission in the words used by the legislature the court could

not go to its aid to correct or make up the deficiency. Courts

shall decide what the law is and not what it should be. The

court of course adopts a construction which will carry out

the obvious intention of the legislature but could not legislate

itself. But to invoke judicial activism to set at naught

legislative judgment is subversive of the constitutional

harmony and comity of instrumentalities…”

60. Having alluded to the rules of interpretation, it is relevant to

notice few provisions of the CST Act herein. The statutory regime

has to be understood in the backdrop of the Constitutional scheme

as discussed hereinabove which is applicable to the present

dispute.

61. Section 3 of CST Act reads as under:

11

1992 Supp (1) SCC 323

56

“3. When is a sale or purchase of goods said to

take place in the course of inter-State trade or

commerce.

A sale or purchase of goods shall be deemed to take place

in the course of inter-State trade or commerce if the sale or

purchase—

(a) occasions the movement of goods from one State to

another; or

(b) is effected by a transfer of documents of title to the

goods during their movement from one State to another.

Explanation 1 — Where goods are delivered to a carrier or

other bailee for transmission, the movement of the goods

shall, for the purposes of clause (b), be deemed to commence

at the time of such delivery and terminate at the time when

delivery is taken from such carrier or bailee.

Explanation 2 — Where the movement of goods

commences and terminates in the same State it shall not be

deemed to be a movement of goods from one State to

another by reason merely of the fact that in the course of

such movement the goods pass through the territory of any

other State.”

In 2016, CST Act was amended by way of Act 28 of 2016

12, wherein

Explanation 3 was added which reads as under:

“Explanation 3 — Where the gas sold or purchased and

transported through a common carrier pipeline or any other

common transport or distribution system becomes co-

mingled and fungible with other gas in the pipeline or

system and such gas is introduced into the pipeline or

system in one State and is taken out from the pipeline in

another State, such sale or purchase of gas shall be

deemed to be an movement of goods from one State to

another.]”

12

w.e.f. 14.05.2016.

57

From the above, it is clear that after coming into force of

Finance Act, 2016 (Act No. 28 of 2016), it was made clear that sale

of gas through common carrier pipeline from one State to another

comes within the ambit of the CST Act, as it does not matter

whether co-mingling took place with other gas introduced into the

common pipeline. However, the question which arises herein is

whether such explanation continues to clarifies the position as it

stood earlier?

62. The learned senior counsel appearing for the Appellant State

vehemently argued that the explanation is only applicable

prospectively and does not cover the situation as it existed before

2016. On the contrary, the learned senior counsel for the

Respondent No. 1 submitted that the explanation was added ex

abundunti catula to explain what was the position earlier. We have

given our consideration towards the explanation which necessarily

points to a clarificatory attempt by the Union Parliament.

63. An explanation ordinarily cannot enlarge the scope of the

section appended to it, but if it does, the effect must be to give

legislative intent to the same.

13

13 Pioneer Urban Land and Infrastructure Limited v. Union of India, 2019 (8) SCC 416, at

para 97

58

64. In this backdrop, it is essential to refer to the Office

Memorandum dated 21.07.2015 of the Ministry of Finance in

respect of Section 3 of CST Act, which reads as thus:

“OFFICE MEMORANDUM

Subject:- Clarification under section 3 of the Central Sales

Tax Act 1956 – Reg.

Pursuant to the decision of the Cabinet Committee on ;

Economic Affairs (CCEA) in its meeting held on 25.03.2015,

the following clarification is made with regard to section 3

of the Central Sales Tax Act, 1956:

Where the gas sold or purchased is transported through a

common transport/distribution system (such as a common

carrier pipeline), wherein the gas may be co-mingled and

fungible with the gas of other parties, so long as an

equivalent quantity of the gas introduced into the system in

one State is taken out of the system in other State (as

evidenced through commercial documentation) such

contractual movement of gas will be considered to be

physical movement of goods from one State to another.”

Upon consideration of the above, it clear that the clarification with

regard to Section 3 followed the decision of the Cabinet Committee

on Economic Affairs (CCEA) in its meeting held on 25.03.2015.

Such clarification was added as Explanation 3 to Section 3 of CST

Act by way of abundant caution and as can be gathered, the

legislative intent was not to alter the existing understanding of

Section 3 of the CST Act with respect to transportation of gas

through common carrier.

59

65. At this juncture, in order to understand the effect of such an

explanation appended to a Section, whether clarificatory or

explanatory in nature, it is apposite to refer to the judgment of this

Court in Sedco Forex International Drill. Inc. and Ors. v. CIT,

Dehradun & Another

14

, wherein this Court while dealing with the

issue as to whether the salary of the employees of the appellant

payable for field breaks outside India would be subjected to tax

under Section 9(1)(ii) read with the Explanation thereto in the

Income Tax Act, 1961 for Assessment Years 1992-93 and 1993-

94, observed as thus:

“17. As was affirmed by this Court in Goslino Mario

[(2000) 10 SCC 165 : (2000) 241 ITR 312] a cardinal

principle of the tax law is that the law to be applied is that

which is in force in the relevant assessment year unless

otherwise provided expressly or by necessary implication.

(See also Reliance Jute and Industries Ltd. v. CIT [(1980) 1

SCC 139) An Explanation to a statutory provision may

fulfil the purpose of clearing up an ambiguity in the

main provision or an Explanation can add to and

widen the scope of the main section [See Sonia Bhatia

v. State of U.P., (1981) 2 SCC 585, 598, para 24]. If it is in

its nature clarificatory then the Explanation must be

read into the main provision with effect from the time

that the main provision came into force [See Shyam

Sunder v. Ram Kumar, (2001) 8 SCC 24 (para 44); Brij

Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352, 354; CIT

v. Podar Cement (P) Ltd., (1997) 5 SCC 482, 506]. But if it

changes the law it is not presumed to be retrospective,

irrespective of the fact that the phrases used are “it is

declared” or “for the removal of doubts.”

14

(2005) 12 SCC 717

60

66. Likewise, this Court in Sree Sankaracharya University of

Sanskrit & Ors. v. Dr. Manu & Another

15, while determining the

issue of two advance increments in favour of respondent was called

upon to determine whether the order dated 29.03.2001 was a

clarification of Clauses 6.16 to 6.19 of G.O. dated 21.12.1999 or

whether it amended or modified the same. It observed as thus:

“31. It is trite that any legislation or instrument

having the force of law, which is clarificatory or

explanatory in nature and purport and which seeks

to clear doubts or correct an obvious omission in a

statute, would generally be retrospective in operation,

vide Ramesh Prasad Verma [State of Bihar v. Ramesh

Prasad Verma, (2017) 5 SCC 665] . Therefore, in order to

determine whether the Government Order dated 29-3-2001

may be made applicable retrospectively, it is necessary to

consider whether the said order was a clarification or a

substantive amendment.

32. In order to effectively deal with the aspect as to

retrospective operation of the Government Order dated 29-

3-2001 it may be useful to refer to the following extract from

the treatise, Principles of Statutory Interpretation, 11th Edn.

(2008) by Justice G.P. Singh on the sweep of a

clarificatory/declaratory/explanatory provision:

“The presumption against retrospective

operation is not applicable to declaratory

statutes. As stated in Craies and approved by the

Supreme Court : For modern purposes a declaratory

Act may be defined as an Act to remove doubts existing

as to the common law, or the meaning or effect of any

statute. Such Acts are usually held to be retrospective.

[…] An explanatory Act is generally passed to

supply an obvious omission or to clear up doubts

as to the meaning of the previous Act. It is well

settled that if a statute is curative or merely

15

(2023) 19 SCC 30

61

declaratory of the previous law, retrospective

operation is generally intended. The language

“shall be deemed always to have meant” or “shall be

deemed never to have included” is declaratory and is

in plain terms retrospective. In the absence of clear

words indicating that the amending Act is declaratory,

it would not be so construed when the amended

provision was clear and unambiguous. An amending

Act may be purely clarificatory to clear a meaning of a

provision of the principal Act which was already

implicit. A clarificatory amendment of this nature will

have retrospective effect and, therefore, if the principal

Act was existing law when the Constitution came into

force, the amending Act also will be part of the existing

law.”

*** *** ***

38. From the aforesaid authorities, the following principles

could be culled out:

38.1. If a statute is curative or merely clarificatory of

the previous law, retrospective operation thereof may

be permitted.

38.2. In order for a subsequent

order/provision/amendment to be considered as

clarificatory of the previous law, the pre-amended law

ought to have been vague or ambiguous. It is only

when it would be impossible to reasonably interpret a

provision unless an amendment is read into it, that

the amendment is considered to be a clarification or

a declaration of the previous law and therefore

applied retrospectively.

38.3. An explanation/clarification may not expand or alter

the scope of the original provision.

38.4. Merely because a provision is described as a

clarification/explanation, the Court is not bound by the said

statement in the statute itself, but must proceed to analyse

the nature of the amendment and then conclude whether it

is in reality a clarificatory or declaratory provision or

whether it is a substantive amendment which is intended to

change the law and which would apply prospectively.”

62

Viewed from this perspective, it is luculent that the explanation to

Section 3 of CST Act was added pursuant to the Cabinet Decision

vide Act 28 of 2016 (w.e.f. 14.05.2016). The office memorandum

dated 03.05.2015 in clear terms states that it was a clarification

which was discussed by the Cabinet Committee and later

incorporated as explanation in Section 3 of CST Act. The

amendment to Section 3 of CST Act by way of Explanation 3 does

not effectively alter its scope, rather simply reflects the statutory

intent to clarify inter-state transactions. Furthermore, considering

its clarificatory nature, unless expressly provided to be prospective

in nature, it has to be read to effective from the date the main

provision came into force. Therefore, in view of the above, in our

considered opinion, the argument advanced by learned senior

counsel for the Appellant that such explanation is applicable only

prospectively is misplaced and repelled.

67. Now Section 4 of CST Act deals with sale or purchase of goods

outside a State. The said Section is relevant and hence reproduced

below as thus:

“4. When is a sale or purchase of goods said to

take place outside a State.—

(1) Subject to the provisions contained in section 3,

when a sale or purchase of goods is determined in

accordance with sub-section (2) to take place inside a State,

63

such sale or purchase shall be deemed to have taken place

outside all other States.

(2) A sale or purchase of goods shall be deemed to

take place inside a State, if the goods are within the State

—

(a) in the case of specific or ascertained goods, at the

time the contract of sale is made; and

(b) in the case of unascertained or future goods, 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.

Explanation — Where there is a single contract of sale or

purchase of goods situated at more places than one, the

provisions of this sub-section shall apply as if there were

separate contracts in respect of the goods at each of such

places.”

Section 4 of the CST Act is subject to the provisions of Section 3.

It states that when a sale or purchase of goods is determined to

take place inside a State, such sale or purchase shall be deemed

to have taken place outside all other States. The statute

determines that a sale or purchase is deemed to take place inside

a State if the goods are within that State at the time the contract

of sale is made, in the case of specific or ascertained goods; or, in

the case of unascertained or future goods, at the time of their

appropriation to the contract of sale by either the seller or the

buyer, whether the assent of the other party is prior or subsequent

to such appropriation.

64

68. It establishes a rule of mutual exclusivity and essentially

pinpoints a sale’s location to prevent double taxation. It dictates

that once a sale legally occurs “inside” one State determined by

where the goods are located when the contract is signed or when

the goods are earmarked, it occurs “outside” all other States.

Furthermore, being subject to Section 3, it provides that if the

transaction causes goods to cross state borders, the host State

cannot apply its own local taxes, but must instead levy the unified

Central Sales Tax.

69. Now, adverting to the inter-play between Section 3 and

Section 4 of CST Act. Before the CST Act, multiple States

frequently claimed the right to tax a single transaction based on

different territorial nexus. For example – one State used to claim

jurisdiction to levy tax because the contract was signed there and

another because the goods were manufactured there. The interplay

of Sections 3 and 4 permanently resolves this.

70. Section 3 defines when a sale or purchase takes place in the

course of inter-State trade or commerce. It focuses entirely on the

movement of goods. If a sale occasions the movement of goods from

one State to another, or if it is effected by a transfer of documents

of title during such movement, Section 3 of CST Act colours the

65

transaction as an “inter-State sale”. On the other hand, Section 4

of CST Act provides that subject to Section 3, a sale determined to

take place “inside” one State is deemed to occur “outside” all other

States. Further, Section 4(2) stipulates artificial legal tests to fix

the territorial situs (location) of a sale. Under Section 4(2), the situs

is determined by where specific/ascertained goods rest at the time

the contract of sale is made, or where unascertained/future goods

are located at the time they are appropriated to the contract by the

seller or the buyer.

71. On conjoint reading, it is seen that, even if a sale is

technically deemed to have taken place “inside” a particular State

under the situs tests of Section 4(2), if that sale simultaneously

occasions the movement of goods across State borders, Section 3

takes precedence. The State cannot tax it as a purely local (intra-

State) sale under its general sales tax laws. Section 3 creates the

taxable event (the inter-State sale), but Section 3 itself does not tell

the government which State is entitled to collect the Central Sales

Tax. For that, the Act relies on Section 4. The State in which the

sale is deemed to have taken place “inside” (via the situs tests in

Section 4) becomes the “appropriate State” empowered to levy and

collect the Central Sales Tax on behalf of the Union government.

66

72. While Sections 3 and 4 of the CST Act provide the

foundational criteria for determining when a sale takes place in the

course of inter-State trade or ‘outside a State’, Section 7 of VAT Act

serves to operationalize these principles within the local

framework. Section 7 of the VAT Act states as under:

“Section 7. Tax not to be levied on certain sales and

purchases.

No tax under this Act shall be levied and paid on the

turnover of-

(a) sale or purchase where such sale or purchase

takes place –

(i) in the course of inter-state trade or commerce; or

(ii) outside the State; or

(iii) in the course of the export out of or in the course of

the import into, the territory of India;

b) sale or purchase of any goods named or described

in column 2 of the Schedule I or;

(c) such sale or purchase; or sale or purchase of such

goods by such class of dealers, as may be specified in the

notification issued by the State Government in this behalf:

Provided that while issuing notification under clause (c), the

State Government may impose such conditions and

restrictions as may be specified.

Explanation: For the purposes of this Act, sections 3, 4 and

5 of the Central Sales Tax Act, 1956, shall apply

respectively for determining whether or not a particular sale

or purchase of any goods falls under any of the sub-clauses

(i), (ii) and (iii) of clause (a).

A plain reading of the aforesaid provision makes it evident that the

State legislature, in enacting Section 7 of the VAT Act, has done no

more than to give statutory expression within the framework of the

67

enactment, to what the Constitution of India and the CST Act had

already ordained. The exclusion of inter-State trade from the levy

of State tax under Section 7 is, in substance, a legislative

acknowledgment of the constitutional boundaries within which the

State’s power of taxation must necessarily operate. Section 7, in

that view, is not the source of these limitations but a reflection of

them.

73. At this juncture, we can profitably refer to judgment of this

Court in State of Kerala v. Attesee

16, wherein the issue was

regarding the interconnection of the three Acts: the CST Act, the

Additional Duties of Excise (Goods of Special Importance) Act,

1957 and the State Sales Tax Act. Paragraph 6 of the said decision

reads as thus:

“6. Article 286 of the Constitution of India imposed certain

restrictions on the legislative powers of the States in the

matter of levy of sales tax on sales taking place outside the

State, sales in the course of import or export, sales in the

course of interstate trade or commerce and sales of declared

goods. The Sales Tax Acts in force in several States were

not in conformity with the provisions of the Constitution and

attempts to bring those laws to be in conformity with these

provisions gave rise to a lot of litigation. This led to an

amendment of Article 286. Clause (2) of the article, as it

stands, since 11-9-1956, authorised Parliament to

formulate principles for determining when sale or purchase

of goods can be said to take place in the course of import or

16

(1989) Supp. 1 SCC 733

68

export or in the course of inter-State trade or commerce.

Clause (3) was amended, in terms already set out, to restrict

the powers of a State to impose sales or purchase tax on

declared goods. The CST Act, 1956 which came into force

on 5-1-1957 formulated the principles referred to in Article

286(2). As already mentioned, this Act was amended, inter

alia, by Act 16 of 1957 w.e.f. 6-6-1957 and by Act 31 of

1958 w.e.f. 1-10-1958. Section 14 listed the goods which

are considered to be of special importance in inter-State

trade or commerce which included the six items set out

earlier. Section 15 of the Act, as originally enacted, was

brought into force only w.e.f. 1-10-1958. …..”

74. In another decision of this Court in State of Andhra

Pradesh vs National Thermal Power Corporation

17, the facts of

the case were simple, the State of Andhra Pradesh had levied a

duty on the electricity supplied to the State of Karnataka from its

power station at Ramagundam (State of Andhra Pradesh).

Aggrieved by such levy, NTPC had challenged before the Court on

the ground that such levy was taxing inter-state sale of electricity

as goods was prohibited by Article 286 of the Constitution of India.

A Constitution Bench of this Court while dealing with inter-state

sale held as under:

“What is inter-State sale?

24. It is well settled by a catena of decisions of this

Court that a sale in the course of inter-State trade has three

essential ingredients : (i) there must be 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

17

(2002) 5 SCC 203

69

of sale, the sale being the proximate cause of movement;

and (iii) such movement of goods must be from one State to

another State where the sale concludes. It follows as a

necessary corollary of these principles that a movement of

goods which takes place independently of a contract of sale

would not fall within the meaning of inter-State sale. In

other words, if there is no contract of sale preceding the

movement of goods, obviously the movement cannot be

attributed to the contract of sale. Similarly, if the transaction

of sale stands completed within the State and the movement

of goods takes place thereafter, it would obviously be

independently of the contract of sale and necessarily by or

on behalf of the purchaser alone and, therefore, the

transaction would not be having an inter-State element.

Precedents are legion; we may briefly refer to some of them.

In English Electric Co. of India Ltd. v. CTO [(1976) 4 SCC

460 : 1977 SCC (Tax) 23 : (1977) 1 SCR 631] this Court held

that when the movement of the goods from one State to

another is an incident of the contract, it is a sale in the

course of inter-State sale and it does not matter which is the

State in which the property passes. What is decisive is

whether the sale is one which occasions the movement of

goods from one State to another. In Union of India v. K.G.

Khosla and Co. Ltd. [(1979) 2 SCC 242 : 1979 SCC (Tax)

101] it was observed that a sale would be an inter-State

sale even if the contract of sale does not itself provide for

the movement of goods from one State to another provided,

however, that such movement was the result of a covenant

in the contract of sale or was an incident of the contract.

Similar view was expressed in Sahney Steel and Press

Works Ltd. v. CTO [(1985) 4 SCC 173 : 1985 SCC (Tax) 644]

. In Manganese Ore (India) Ltd. v. Regional Asstt. CST

[(1976) 4 SCC 124 : 1976 SCC (Tax) 447] after referring to

Balabhagas Hulaschand v. State of Orissa [(1976) 2 SCC

44 : 1976 SCC (Tax) 164] it was observed that so far as

Section 3(a) of the CST Act is concerned, there is no

distinction between unascertained or future goods and

goods which are already in existence, if at the time when

the sale takes place these goods have come into actual

existence.

Effect of Entry 53 List II, having remained unamended

70

25. Having seen the properties of electricity as goods

and what is inter-State sale, let us examine the effect of

Entry 53 List II, having been left unamended by the Sixth

Amendment from another angle. The Sixth Amendment did

not touch Entry 53 in List II and so the contents of Entry 53

were not expressly made subject to the provisions of Entry

92-A of List I and arguments were advanced, with

emphasis, on behalf of the States of Andhra Pradesh and

Madhya Pradesh contending that such omission was

deliberate and therefore the restriction which has been

placed only in Entry 54 by making it subject to the

provisions of Entry 92-A of List I should not be read in Entry

53. It was submitted that so far as sale of electricity is

concerned, even if such sale takes place in the course of

inter-State trade or commerce the State can legislate to tax

such sale if the sale can be held to have taken place within

the territory of that State or if adequate territorial nexus is

established between the transaction and State legislation.

For the several reasons stated hereinafter, such a plea

cannot be countenanced.

26. The prohibition which is imposed by Article 286(1)

of the Constitution is independent of the legislative entries

in the Seventh Schedule. After the decision of the larger

Bench in Bengal Immunity Co. Ltd. [AIR 1955 SC 661 :

(1955) 2 SCR 603] and the Constitution Bench decision in

Ram Narain Sons Ltd. v. CST [AIR 1955 SC 765 : (1955) 2

SCR 483] there is no manner of doubt that the bans imposed

by Articles 286 and 269 on the taxation powers of the State

are independent and separate and must be got over before

a State Legislature can impose tax on transactions of sale

or purchase of goods. Needless to say, such ban would

operate by its own force and irrespective of the language in

which an entry in List II of the Seventh Schedule has been

couched. The dimension given to the field of legislation by

the language of an entry in List II of the Seventh Schedule

shall always remain subject to the limits of constitutional

empowerment to legislate and can never afford to spill over

the barriers created by the Constitution. The power of the

State Legislature to enact law to levy tax by reference to List

II of the Seventh Schedule has two limitations : one, arising

out of the entry itself, and the other, flowing from the

restriction embodied in the Constitution. It was held in Tata

Iron and Steel Co. Ltd. v. S.R. Sarkar [AIR 1961 SC 65 :

71

(1961) 1 SCR 379] (SCR at pp. 387 and 388) that field of

taxation on sale or purchase taking place in the course of

inter-State trade or commerce has been excluded from the

competence of the State Legislature. In 20th Century

Finance Corpn. Ltd. [(2000) 6 SCC 12] the Constitution

Bench (majority) made it clear that the situs of the sale or

purchase is wholly immaterial as regards the inter-State

trade or commerce. In view of Section 3 of the Central Sales

Tax Act, 1956, all that has to be seen is whether the sale or

purchase (a) occasions the movement of goods from one

State to another; or (b) is effected by a transfer of documents

of title to the goods during their movement from one State to

another. If the transaction of sale satisfies any one of the

two requirements, it shall be deemed to be a sale or

purchase of goods in the course of inter-State trade or

commerce and by virtue of Articles 269 and 286 of the

Constitution the same shall be beyond the legislative

competence of a State to tax without regard to the fact

whether such a prohibition is spelled out by the description

of a legislative entry in the Seventh Schedule or not.

27. It is well settled, and hardly needs any authority

to support the proposition, that several entries in the three

lists of the Seventh Schedule are legislative heads or fields

of legislation and not the source of legislative empowerment.

(To wit, see Calcutta Gas Co. Ltd. v. State of W.B. [AIR 1962

SC 1044 : 1962 Supp (3) SCR 1] ) Competence to legislate

has to be traced to the Constitution. The division of powers

between Parliament and the State Legislatures to legislate

by reference to territorial limits is defined by Article 245. The

subject-matters with respect to which those powers can be

exercised are enumerated in the several entries divided into

three groups as three lists of the Seventh Schedule.

Residuary powers of legislation are also vested by Article

248 in Parliament with respect to any matter not

enumerated in any of the lists in the Seventh Schedule. This

residuary power finds reflected in Entry 97 of List I. If an

entry does not spell out an exclusion from the field of

legislation discernible on its apparent reading, the absence

of exclusion cannot be read as enabling power to legislate

in the field not specifically excluded, more so, when there is

available a specific provision in the Constitution prohibiting

such legislation.

72

28. It is by reference to the ambit or limits of territory

by which the legislative powers vested in Parliament and

the State Legislatures are divided in Article 245. Generally

speaking, a legislation having extraterritorial operation can

be enacted only by Parliament and not by any State

Legislature; possibly the only exception being one where

extraterritorial operation of a State legislation is sustainable

on the ground of territorial nexus. Such territorial nexus,

when pleaded, must be sufficient and real and not illusory.

In Burmah Shell Oil Storage & Distributing Co. of India Ltd.

[AIR 1963 SC 906 : 1963 Supp (2) SCR 216] which we have

noticed, it was held that sale for use or consumption would

mean the goods being brought inside the area for sale to an

ultimate consumer i.e. the one who consumes. In Entry 53,

“sale for consumption” (the meaning which we have placed

on the word “sale”) would mean a sale for consumption

within the State so as to bring a State legislation within the

field of Entry 53. If sale and consumption were to take place

in different States, territorial nexus for the State, where the

sale takes place, would be lost. We have already noticed

that in case of electricity the events of sale and consumption

are inseparable. Any State legislation levying duty on sale

of electricity, by artificially or fictionally assuming that the

events of sale and consumption have taken place in two

States, would be vitiated because of extraterritorial

operation of State legislation.

29. In 20th Century Finance Corpn. case [(2000) 6 SCC

12] the Constitution Bench by reference to the definition of

“tax on the sale or purchase of goods” [which too has been

inserted as clause (29-A) in Article 366 by the Sixth

Amendment] opined that the situs of sale can be fixed either

by the appropriate legislature or by Judge-made law and no

settled principles for determining situs of sale can be laid

down. Further, the State Legislature cannot by law, treat

sales outside the State and sales in the course of import as

“sales within the State” by fixing the situs of sales within

its State in the definition of sale, as it is within the exclusive

domain of the appropriate legislature i.e. Parliament to fix

the location of sale by creating legal fiction or otherwise. The

majority has clearly opined that the State where the goods

are delivered in the transaction of inter-State sale, cannot

levy a tax on the basis that one of the events in the chain

has taken place within the State; so also where the goods

73

are in existence and available for the transfer of right to use,

there also that State cannot exercise power to tax merely

because the goods are located in that State. Then it was

observed that in case where goods are not in existence or

where there is an oral or implied transfer of the right to use

the goods, such transactions may be effected by the

delivery of the goods in which case the taxable event would

be on the delivery of goods. However, we are dealing with

the case of electricity as goods, the property whereof, as we

have already noted, is that the production (generation),

transmission, delivery and consumption are simultaneous,

almost instantaneous. Electricity as goods comes into

existence and is consumed simultaneously; the event of sale

in the sense of transferring property in the goods merely

intervenes as a step between generation and consumption.

In such a case when the generation takes place in one State

wherefrom it is supplied and it is received in another State

where it is consumed, the entire transaction is one and can

be nothing else excepting an inter-State sale on account of

instantaneous movement of goods from one State to another

occasioned by the sale or purchase of goods, squarely

covered by Section 3 of the CST Act.

Sale of electricity by NTPCL

30. In both the cases before us, contracts have been

entered into between parties to the transaction, that is, the

sellers and the buyers (in other States) prior to the

generation of electricity. NTPCL generates electricity and

pursuant to these contracts, supplies the same from its

power stations situated in the State of A.P. or M.P. to the

buyers in other States where it is received and consumed.

There is no hiatus between generation, sale, supply,

transmission, delivery and consumption. The inter-State

movement of electricity is pursuant to contracts of sale. Such

sales can be held only as inter-State sales.

31. Though it may be permissible to fix the situs of sale

either by appropriate State legislation or by Judge-made

law as held by the majority opinion in 20th Century Finance

Corpn. case [(2000) 6 SCC 12] we would like to clarify that

none of the two can artificially appoint a situs of sale so as

to create territorial nexus attracting applicability of tax

legislation enacted by any State Legislature and tax an

inter-State sale in breach of Section 3 of the CST Act read

74

with Articles 286(2) and 269(1) and (3) of the Constitution.

No State legislation, nor any stipulation in any contract, can

fix the situs of sale within the State or artificially define the

completion of sale in such a way as to convert an inter-State

sale into an intra-State sale or create a territorial nexus to

tax an inter-State sale unless permitted by an appropriate

Central legislation. But this is exactly what the definition of

“consumer” in Section 2(a) of the M.P. Electricity Duty Act,

1949 has done. The definition of consumer has been

artificially extended to include any person who receives

electrical energy (without regard to its consumption) and

also to include a person who, receiving the electrical energy

in bulk, forwards it onwards for distribution, (without

regard to the fact whether it is transmitted outside the State

and whether the electricity is or is not consumed within the

State). The same definition has been adopted in the M.P.

Upkar Adhiniyam, 1981. This definition of consumer shall

have to be read down as including within it only such

persons who receive the electricity for consumption or

distribution for consumption within the State. Without such

reading down, the definition of “consumer” would be

rendered ultra vires of Articles 286 and 269 of the

Constitution read with Section 3 of the Central Sales Tax

Act, 1956.

Consequences on free flow of trade

32. Yet another reason why we cannot accept the line

of reasoning advanced on behalf of the States of Andhra

Pradesh and Madhya Pradesh is that the same runs counter

to the scheme of constitutional provisions and specially the

Sixth Amendment. As has been found by the Division Bench

of the Andhra Pradesh High Court in its impugned

judgment, if the reasoning suggested on behalf of the State

of A.P. was accepted, the State where the dealer supplying

the electricity is located and the electricity originates for

sale, as also the States in which the purchaser of electricity

is located and it is delivered, shall both subject the electrical

energy to taxation, by relying on the theory of territorial

nexus. Such a situation would be the one which was

obtaining in the country with respect to sales tax prior to

coming into force of the Constitution and which led to

complications and difficulties in administration of sales tax

legislation and therefore, was taken care of by the Sixth

75

Amendment. Such multiple taxation would result in

hampering free movement of electricity between the States,

and therefore, would be prejudicial to freedom of trade,

commerce and intercourse throughout the territory of India,

and for the unity and integrity of the country. That would

give rise to the same situation which was sought to be

remedied by the Constitution and the Sixth Amendment.”

75. In Hyderabad Engineering Industries (supra), the question

before this court was whether the turnover under dispute for

Assessment year 1981-1982 is an “branch transfer” or an “inter-

state sale” and thereby eligible to tax under the CST Act. This

Court while dealing with the above question, interpreted the

provisions of CST Act, concerning inter-state sale and observed as

under:

“17. To make a sale as one in the course of inter-State

trade or commerce, there must be an obligation, whether of

the seller or the buyer to transport the goods outside the

State and it may arise by reason of statute, contract

between the parties or from mutual understanding or

agreement between them or even from the nature of the

transaction which linked the sale to such transportation

such an obligation may be imposed expressly under the

contract itself or impliedly by a mutual understanding. It is

not necessary that in cases, there must be pieces of direct

evidence showing such obligation in a written contract or

oral agreement. Such obligations are inferable from

circumstantial evidence.

*** *** ***

19. Section 3 of the Act deals with inter-State sales

and details the circumstances as to when a sale or

purchase of goods can be said to take place in the course of

inter-State trade or commerce. A perusal of Section 3 of the

Central Act shows that it raises a presumption of law and

that is, a sale or purchase of goods shall be deemed to take

76

place in the course of inter-State trade or commerce, if the

sale or purchase (a) occasions the movement of goods from

one State to another, or (b) is effected by transfer of

documents of title to the goods during their movement from

one State to another. For purposes of clause (b) of Section 3,

Explanation 1 says that where the goods are delivered to a

carrier or other bailee for transmission, the movement of the

goods shall be deemed to commence at the time of such

delivery and terminate at the time when delivery is taken

from such carrier or bailee. Explanation 2 clarifies that

when the movement of goods commences and terminates in

the same State, the movement of goods will not be deemed

to be from one State to another merely because of the fact

that in the course of such movement, the goods pass through

the territory of any other State.

*** *** ***

39. From the above decisions, the principle which

emerges is—when the sale or agreement for sale causes or

has the effect of occasioning the movement of goods from

one State to another, irrespective of whether the movement

of goods is provided for in the contract of sale or not, or when

the order is placed with any branch office or the head office

which resulted in the movement of goods, irrespective of

whether the property in the goods passed in one State or the

other, if the effect of such a sale is to have the movement of

goods from one State to another, an inter-State sale would

ensue and would result in exigibility (sic) of tax under

Section 3(a) of the Central Act on the turnover of such

transaction. It is only when the turnover relates to sale or

purchase of goods during the course of inter-State trade or

commerce that it would be taxable under the Central Act.”

76. From the above discussion, following aspects are clear:

(i.) As per Article 269(1) of the Constitution of India, the

Union Government has the competence to levy and

collect tax on sale and purchase of goods in the

course of inter-State trade or commerce.

77

(ii.) Article 286(1) of the Constitution of India further

clarifies the position that the State legislature cannot

impose a tax on supply of goods or services where the

supply takes place outside the State.

(iii.) The Constitution (Sixth Amendment) Act, 1956

clarified the scope and competence of State

Legislature to impose tax under Entry 54 of List II,

Seventh Schedule, which cannot include any tax in

the course of inter-State trade and commerce or

international trade or commerce.

(iv.) Consequently, clarificatory statutory provision was

introduced in form of Central Sales Tax, 1956 in

terms of Article 269(3) of the Constitution of India.

(v.) Section 3 of the CST Act integrates the constitutional

intention to prohibit imposition of state sales tax in

the course of inter-State trade.

(vi.) Section 3 of CST Act read with its Explanation 1 and

2 clearly mandates that wherever the moment of

goods takes place from one state to another in the

course of inter-State trade or commerce is in the

78

exclusive domain of Union Government to tax under

CST.

(vii.) The 2016 amendment, which added Explanation 3 to

Section 3 of the CST Act, is a clarificatory provision

inserted as abundant caution to formalise the pre-

existing situations. The aforesaid explanation did not

create anything new except to explicitly state the pre-

existing legal position.

(viii.) To the extent that a transaction falls within the

purview of the CST Act, Section 7 of the VAT Act can

have no independent operation as the boundaries of

the State's jurisdiction in such matters have already

been drawn by the Constitution and the CST Act.

V. FACTUAL ANALYSIS

77. We now turn to the facts of the present case. Following

questions arise for our determination:

(i) Whether the subject transaction is in the nature of “inter-

state sale” or “intra-state sale”?

(ii) Whether the State of Uttar Pradesh had jurisdiction or

statutory right to impose VAT on the subject transaction?

79

78. There is no gainsaying that the natural gas first travels from

the basin to Gadimoga in Andhra Pradesh. At this point, two

separate agreements are in play, i.e., GSPA and GTA.

79. The High Court on a detailed examination of GSPA has

observed as under:

“130. Exhibit 1 of the aforesaid contract contains

proforma with regard to Daily Contract Quantity. Exhibit 2

relates to Sales Price and Exhibit 3 provides different

conditions regulating Gas Quality Specifications.

Nomination, Scheduling and Allocation Procedures have

been provided under Ext. 4 of the agreement. Measurement

is to be done an terms of provisions contained an Exhibit 5.

Clause 1 of the Exhibit 5 provides that the seller shall

provide and install, at their own expenses the measurement

at delivery point, i.e., Gadimoga in the present case. The

measured quantity shall be recorded an MMBtu at the

delivery point. It shall be appropriate to reproduce relevant

portion from Exhibit 5 which is as under:-

*** *** ***

131. From the aforesaid reading of contractual

obligation an terms of 1 GSPA, there appears to be no

reason to disagree with the petitioner’s contention that the

delivery point of the natural gas to the buyer is at

Gadimoga. The quantity of gas delivered to the buyer is

measured an accordance to MMBtu Scale at delivery point

and according to GSPA, it is the buyer who owes

responsibility with regard to damage or loss caused, if any.

However, an case quantity of gas made available by the

seller during contractual period is less than the adjusted

monthly supply quantity, then it shall be shortfall quantity,

which may be supplied by the seller. Supply of natural gas

by the petitioner is subject to execution of gas transportation

agreement requiring the transporter to transport gas from

delivery point to the inlet of buyer. It is for the buyer to make

necessary arrangement for supply of gas from delivery point

to buyer’s facility. Delivery of gas from one pipeline to other

80

an the course of transportation of gas to buyer’s facility

according to GSPA is for the purpose of making integrated

and continuous movement of gas from delivery point to

buyer’s facility.

132. From the aforesaid reading of the contract, it

appears that the petitioner or the seller is relieved from its

liability immediately after delivery of possession of gas to

the buyer at the sale point, i.e., Gadimoga an Andhra

Pradesh. The seller or the petitioner shall be entitled for

payment of cost of gas supplied at Gadimoga for the

measured quantity. Virtually, the seller or the petitioner is

absolved of the liability after delivery of gas at Gadimoga to

the transporter, i.e. RGTIL and shall be entitled for payment

of sale consideration on the basis of delivery made to RGTIL

and not at Orai an the State of U.P.

Accordingly, an view of the provisions contained an Section

3 of the CST Act readwith definition of sale given an the CST

Act or the VAT Act or even Sales of Goods Act, sale takes

place an Gadimoga itself so far as petitioner is concerned.

Delivery point being at Gadimoga, the sale consideration

also co-relates to the delivery point and thereafter natural

gas is transported to outside the State of Andhra Pradesh

and comes to Uttar Pradesh via Gujrat, thus it appears to be

inter-State sale.”

80. Further on the interpretation of GTA and open access system,

the High Court held as under:

“XIII- GAS TRANSMISSION AGREEMENT (GTA)

138. Under the agreement, different issues have been

dealt broadly but keeping an view the relevant conditions

referred here-an-above, there appears to be no room of

doubt that the liability of transporter, subject to conditions

provided an the agreement, is to transport the gas to exit

point to 1 the venue of downstream operator. It shall be

obligation of shipper (buyer) to deliver gas to the transporter

at entry point an terms of GSPA. Meaning thereby, the seller

shall deliver the gas at delivery point, i.e., Gadimoga on

behalf of buyer to the transporter an terms of GSPA. The

81

transporter shall carry it to downstream exit point without

any right or title with regard to gas.

*** *** ***

141. An combined reading of all three agreements

reveals that the petitioner provides gas at Gadimoga to the

buyer and payment is made an terms of measurement done

at the entry point situated at Gadimoga by the 4

th day of

receipt of invoice. The movement of goods, an the present

case, is for outside the State of Andhra Pradesh but the sale

an terms of Section 3 takes place an the State of Andhra

Pradesh at Gadimoga an pursuance to the conditions

contained an GSPA. An view of Section 7 of the VAT Act, the

State Government may not impose tax to an sale or

purchase taking place outside its territory.

142. The agreement with RGTIL which is an common

format reveals that the RGTIL i.e. transporter operates gas

pipeline system an India from Kakinada an the State of

Andhra Pradesh to Bharuch (Gujarat), referred as East-

West pipeline. The buyer, i.e., Shipper secured

transportation services from transporter for transportation

of natural gas through East-West pipeline from entry point

to exit point for onward transportation an downstream

pipeline to consumer’s facilities. The Gas Transport

Agreement (an short GTA) reveals that the Shipper or buyer

has executed GSPA (supra) or shall execute GSPA (supra)

and for downstream transportation, GTA was executed.

*** *** ***

XIV – Common Carrier – OPEN ACCESS SYSTEM

154. Accordingly, an terms of earlier Notification dated

20.12.2006 also, the RGTIL or GAIL both transported gas

from one place to other not only to the respondents but so

many buyers.

An the present case, entire procedure adopted by the

petitioner as well as Shipper or buyer seems to be an tune

with 2008 Regulation.

155. Shri J.N. Mathur, learned Senior Counsel

appearing for the State vehemently argued that

transportation of gas an common pipeline belongs to

different buyers, hence it becomes unascertained goods and

as such, sale shall be deemed to take place at Oral an the

State of U.P. and not an Gadimoga of Andhra Pradesh.

82

Relying upon the order passed by the assessing authority,

he further submits that the gas of different buyers mixed

with each other becomes unascertained goods, hence it

cannot be an instance of inter-state sale. He further submits

that the gas while moving an common pipeline is an

commingled form hence it is not known as to which portion

of gas belongs to whom, and thus it becomes ascertained

goods only at Orai at the delivery point where appropriation

takes place.

156. An case argument advanced by the learned

counsel for the State of U.P. is accepted, then the seller or

buyer of natural gas, who does not possess his own pipeline

shall be prevented to transport his gas and everyone will

have to install his own pipeline, which shall not be feasible

or practical. Transportation of natural gas cannot be

compared with transportation of tangible goods. Mixture of

natural gas of the common quality during the course of

transportation shall not affect the right of the buyer. Every

buyer or shipper may draw its natural gas from open access

gas pipeline with due measurement at exit point.

157. It is not disputed that an large number of

customers are being allotted gas by ‘Gas Linkage

Committee’ and the price determined by the sale committee,

the customers draw gas from the pipeline. 80% or more of

gas is Methane and remaining are other natural gases.

Basically, it is the Methane which is being utilized by the

industrial units. While transporting the gas from Hajira 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 the industrial consumption

and then carry it through spur pipeline at the installation of

the customers where again the processing or purification

and removal of raw material is undertaken.

158. However, there appears to be no evidence on

record, which may indicate that the petitioner or the seller

is concerned as to where the re-processing of gas takes

place. The payment to seller is made on the basis of

measurement done at the delivery point an terms of GSPA.

Under Section 3 of CST Act read with Section 7 of the VAT

Act, natural gas is delivered at delivery point, i.e.,

Gadimoga and quantity is ascertained with due movement

to forward destination situated outside the State, then it

83

shall be inter-state sale or trade. An view of the statutory

compulsion under the Regulation 2008 (supra) and the 2006

Notification (supra), the change of nature of gas during

movement or by the processing to some extent that too

outside the State of U.P. does not seem to change the nature

of sale an pursuance to inter-state trade. Assessing

authority seems to be mistaken while imposing VAT, that

too without considering statutory obligations (supra).

159. Accordingly, movement of gas or transportation of

gas on the open access common carrier basis does not make

any difference with regard to petitioner’s claim for the

benefit of Section 3 of CST Act read with Section 7 of the

VAT Act even if it is carried forward an commingled form

keeping an view the substance of agreement between the

parties at three stages, i.e., GSPA to deal with transaction

at Gadimoga and two gas transport agreements (GTA) to

transport gas from Gadimogs to Hajira (Gujrat) and from

Hajira to Orai an State of U.P.”

81. The High Court, on a detailed examination of the GSPA and

the GTA, returned clear findings on each of the contentions now

urged before this Court by the State of Uttar Pradesh. It held that

the delivery point of natural gas to the buyer is unambiguously at

Gadimoga in the State of Andhra Pradesh, where measurement is

carried out, and that the seller stands absolved of all liability

immediately upon delivery at that point, the sale consideration

correlating exclusively to the measured quantity at Gadimoga. It

further held that the transporter carries the gas from the delivery

point to the exit point without acquiring any right or title in the

gas, and that the GTA is an agreement solely for carriage and not

for sale. On the specific argument, now reiterated before this

84

Court, that the co-mingling of gas in the common carrier pipeline

renders the goods unascertained and relocates the point of sale to

Auraiya in Uttar Pradesh, the High Court categorically rejected the

same, holding that the transportation of gas in a common pipeline

on an open access basis does not affect the inter-State character

of the original transaction, and that any processing or change in

the nature of gas during transportation does not alter the nature

of the sale effected in pursuance of inter-State trade.

82. The aforesaid clause 2 of GSPA clearly stipulates the

definition of ‘delivery point’. A plain reading of the aforesaid clause

2 read with clause 7 indicate that, there is no doubt, the title and

risk both pass at the delivery point on delivery to the buyers

designee, i.e., at Gadimoga where RIL’s facilities are

interconnected to the facilities of the transporter. Therefore,

learned senior counsel, Dr. Singhvi, has rightly submitted that the

role of RIL concludes once the natural gas is handed over at

Gadimoga to RGTIL, thereby concluding the sale. As such, we are

in respectful agreement with the findings given by the High Court

in the impugned judgment, which are well-founded both on the

terms of the agreements and on the applicable provisions of

Section 3 of the CST Act.

85

83. It is also pertinent to mention that, even the State of Uttar

Pradesh acknowledges that the above sale transaction was inter-

State transaction and accordingly has issued Form-C to the buyers

in terms of Rule 12 of the CST Rules. There is no doubt that Rule

12 read with Section 8(4) of CST Act provides that a declaration be

made under the prescribed form in regard to the inter-state trade

(Form-C). Having recognised inter-State sale by providing Form-C

to the buyer, it is not appropriate for the State of Uttar Pradesh to

approbate and reprobate in characterizing the nature of

transaction. Further, the State of Uttar Pradesh heavily relies on

the Section 4 of CST Act to contend that the goods were

unascertained and came to be ascertained only at Uttar Pradesh,

therefore, the sale took place within the State. The aforesaid

argument is completely misplaced, as it tries to over amplify

Section 4 of the CST Act, whereas, the aforesaid provision is clearly

subjected to Section 3 of the CST Act. A Constitution Bench of this

Court in Tata Iron and Steel Co. Limited vs. S.R. Sarkar &

Ors.

18 while determining as to the correct place in which the sale

could be said to have taken place, interpreted Section 4 of the CST

Act and held as under:

18

1960 SCC OnLine SC 106

86

“…Fourthly, section 4 is expressly made subject to section

3. This can only mean that an case any conflict between the

two sections appears, section 3 would prevail. Now these

two sections define two kinds of sale, namely, an sale an

the course of inter-State trade and an sale taking place

outside an State. If an sale happens to come under both

definitions, it would have to be taken as an sale an the

course of interstate trade for section 4 has been made

subject to section 3. That being so, it would be impossible to

hold that section 4(2) indicates where an sale falling under

section 3(b) is to be held to have been effected.”

Therefore, once an transaction of sale fulfils a condition of an inter-

State trade under Section 3 of the CST Act, as pointed out in the

present set of facts, application of Section 4 of the CST Act is

completely misplaced.

84. Furthermore, the Appellant State tried to argue that

provisions of Section 23(2) of Sales of Goods Act, 1930 has to be

utilized to state that the delivery to transporter/carrier given at

Gadimoga was not sale, rather the sale happened at Auraiya, Uttar

Pradesh. At the outset, the argument with respect to

ascertainment and appropriation are irrelevant as Section 23(2) of

Sales of Goods Act makes it clear that once goods are delivered to

a carrier for the purpose of transmission to the buyer, then the

goods are treated to be appropriated. Even otherwise, for purposes

of Section 3 of CST Act, once there is movement of goods from one

state to another, pursuant to a contract of sale, the nature of

87

goods, whether they are unascertained or ascertained goods are

irrelevant. At this juncture it is relevant to note the judgment of

this court is Manganese Ore (India) Ltd. v. The Regional

Assistant Commissioner of Sales Tax, Jabalpur

19, wherein it

was held as under:

“7. Category IV is in respect of contracts of sale, copies

of which are Annexures 1 to 7 before the High Court. These

sales were admittedly made by the appellant in favour of

the buyers within the territory of India but outside the State.

It was, however, contended that as the goods purported to

have been sold to the buyers did not in fact move from the

State of Madhya Pradesh, therefore, there was no inter-

State sale, but only an inside sale in the State where the

goods were delivered, and therefore the State of Madhya

Pradesh had no jurisdiction to levy tax under the Central

Sales Tax Act. The same arguments were applied to

Categories II and III on the ground that if the sales

comprised in Categories II and III were not sales in the

course of export they also were not inter-State sales,

because the goods which moved from the State of Madhya

Pradesh were not actually the goods which were sought to

be sold to the buyers in other States in India. The High Court

has considered this matter at great length and has relied on

a number of authorities. In a recent judgment of this Court

in Balabhgas Hulaschand v. State of Orissa [(1976) 2 SCC

44 : 1976 SCC (Tax) 164] after review of all the authorities

on the point, this Court held as follows:

“That the following conditions must be satisfied before

a sale can be said to take place in the course of inter-

State trade or commerce:

(i) that there is an agreement to sell which contains

a stipulation express or implied regarding the

movement of the goods from one State to another;

19

(1976) 4 SCC 124

88

(ii) that in pursuance of the said contract the goods in

fact moved from one State to another; and

(iii) that ultimately a concluded sale takes place in the

State where the goods are sent which must be different

from the State from which the goods move.

If these conditions are satisfied then by virtue of

Section 9 of the Central Sales Tax Act it is the State

from which the goods move which will be competent to

levy the tax under the provisions of the Central Sales

Tax Act.”

On a careful consideration of the facts and circumstances of

the present case we are satisfied that the present case is

directly covered by the decision of this Court in Balabhgas

Hulaschand case [(1976) 2 SCC 44 : 1976 SCC (Tax) 164].

*** *** ***

14. Lastly it was contended by counsel for the

appellant that as the manganese ores despatched by the

appellant were unascertained or future goods which would

come into existence only after the manganese ores extracted

in various mines in Madhya Pradesh and Maharashtra

were stocked and piled up one after the other the provisions

of Section 3(a) of the Central Sales Tax Act would not apply.

This contention is completely without substance in

view of the decision of this Court in Balabhgas

Hulaschand case [(1976) 2 SCC 44 : 1976 SCC (Tax)

164] , where it was pointed out that so far as Section

3(a) of the Central Sales Tax Act is concerned there is

no distinction between unascertained and future

goods and goods which are already in existence , if at

the time when the sale takes place these goods have come

into actual physical existence…….

(Emphasis Supplied)

85. The Appellant State’s contention on co-mingling of gas to

indicate the change in nature of sale so as to disentitle the benefit

of Section 3 of the CST Act is completely irrelevant. The co-

mingling of gas as pointed out by the High Court is an statutory

89

obligation imposed is terms of the Petroleum and Natural Gas

Regulatory Board Act, 2006 and the PNGRB (Access Code for

Common Carrier or Contract Carrier Natural Gas Pipelines)

Regulations, 2008, which requires transporters to maintain

common carriers on an open access basis. The Supreme Court of

the United States in Peoples Natural Gas Co. v. Public Service

Commission

20 laid down the principle that the passing of custody

and title at the agreed delivery point, without arresting the

movement of the gas to its ultimate destination, constitutes the

legally operative moment of the transaction, and that the

subsequent feeding of gas into a common pipeline, including its

inevitable physical commingling with gas from other sources, does

not alter or relocate the character of the sale already concluded.

Applying this principle to the facts of the present case, the gas

having been metered, delivered, and title having passed at

Gadimoga in the State of Andhra Pradesh in terms of the GSPA,

the sale stood concluded at that point. The subsequent

commingling of the gas and the re-metering at Auraiya in the State

of Uttar Pradesh were mere incidents of transportation, attendant

upon a sale already fully completed in another State, and cannot

20

[270 U.S. 550 (1926)]

90

create a fresh occasion for the levy of tax under the VAT Act.

Therefore, the movement of gas via common carrier, does not

change the nature of sale to disentitle the benefit of Section 3 of

the CST Act. Further, even the Clause 2.6(a) of the GTA stipulates

that the transporter shall not receive any title and is merely

transporting and delivering the gas on behalf of the buyer.

86. Moreover, the State of Uttar Pradesh has contended that the

gas which is delivered by GAIL, after carrying out the processing

in the transmission of gas, at Uttar Pradesh is the final product,

and therefore the sale takes place at Uttar Pradesh, cannot be

accepted in light of the agreement between GAIL and buyers being

an agreement solely for the purpose of transportation. In any case,

any processing if being carried out by GAIL is not material to the

present dispute for determining the inter-sate nature of

transaction under Section 3 of the CST Act as the role of the

Respondent No. 1/seller, in the facts of the case, ends with the

sale of gas at the delivery point, i.e., Gadimoga.

87. Before parting, it is necessary to deal with the submission of

the State of Uttar Pradesh concerning gas being unascertainable

and its reliance on the judgment of Gujarat High Court in State of

91

Gujarat vs. Gas Authority of India Limited

21 and batch,

wherein the High Court upheld the finding of the Gujarat Sales Tax

Tribunal, Ahmedabad and held as under:

“[8.8]. The findings arrived at by the learned Tribunal are

not only based on appreciation of evidence led by both the

parties but also after site inspections carried out by the

learned Tribunal itself. The Appellate Tribunal is a statutory

Tribunal specifically constituted under the GST Act to decide

taxability of transactions either under the GST Act or CST

Act and is, therefore, conferred with the appellate powers to

examine the factual and technical aspects involved in the

transactions. The findings recorded by the learned Tribunal

are on appreciation of evidence which are neither perverse

nor contrary to the evidence on record. On facts and on

appreciation of evidence the learned Tribunal after

considering the decision of the Hon’ble Supreme Court in the

case of M/s. Balabhagas Hulaschand & Anr. (Supra) has

observed and held that the goods would fall under Case 2

as enumerated in the aforesaid decision and thereafter has

specifically come to the conclusion that transactions would

not amount to inter-State sales.

[8.9] Now, so far as the reliance placed upon the

decision of the Allahabad High Court in the case of Reliance

Industries Ltd. (Supra) is concerned, we are of the opinion

that on facts and considering the transactions in the present

case as well as the transactions which were before the High

Court in the aforesaid decision, the transactions in the

present case are not comparable. Therefore, considering the

findings recorded by the learned Tribunal while holding that

the transactions in question can be said to be Branch

Transfer and cannot be said to be inter-State sale, on facts

the decisions relied upon by the learned Counsel appearing

on behalf of the petitioner referred to herein above shall not

be applicable to the facts of the case on hand.

[8.10] Learned Tribunal has given cogent reasons and

has given the specific finding after long drawn reasoning

and therefore, the same are not required to be interfered by

21

SCA No. 12980 of 2007

92

this Court in exercise of powers under Article 226/227 of

the Constitution of India.”

From the reading of the above judgment, it is evident that the

reliance by the State of Uttar Pradesh on the aforementioned

judgment is distinguishable on the facts of the present case. In

fact, the very same judgment relied upon by the State of Uttar

Pradesh categorically differentiates the facts of the present case.

In the case cited before us, GAIL was acting in the capacity of the

seller itself, whereas in the present case, as observed herein above,

GAIL is merely an transporter. Therefore, the said judgment has

no application in this Appeal.

88. Lastly, the State of Uttar Pradesh has also submitted that the

public trust doctrine mandates that the Union of India is the

trustee of the natural resources and the Respondent No. 1 acts

only as an agent. Accordingly, it is submitted that the sale

transaction is complete only at the terminating point in the State

of Uttar Pradesh. Although the argument looks impressive at the

outset, however the devil is in the details. The Public Trust

Doctrine, as enunciated by this Court in M.C. Mehta v. Kamal

Nath

22 and subsequently elaborated in Intellectuals Forum,

22

(1997) 1 SCC 388

93

Tirupathi v. State of Andhra Pradesh

23 is a doctrine rooted in

environmental jurisprudence, grounded in Articles 21, 48A and

51A(g) of the Constitution of India, and directed towards the

protection and preservation of natural resources for the benefit of

present and future generations. As this Court held in

Intellectuals Forum (supra), the doctrine does not specifically

proscribe the alienation of property held in trust for the public; its

operation is concerned with normative standards of resource

management and governance, not with the determination of

taxable situs or the adjudication of fiscal claims. The doctrine, in

its avowed purpose, imposes affirmative duties upon the State as

trustee; it does not and cannot serve as an instrument to override

the constitutional scheme of legislative competence or to create

taxing jurisdiction where the Constitution has not conferred any.

Extending this principle to its logical conclusion, the doctrine

cannot be utilised to enable multiple taxation by State upon a

single inter-State transaction, when the constitutional scheme has

expressly and exclusively reserved that field to the Union. The

Courts must necessarily limit this doctrine to its avowed purpose;

to expand it beyond that purpose would be to distort a valuable

23

AIR 2006 SC 1350

94

instrument of environmental governance into a tool for overriding

constitutional guarantees, an expansion that this Court is not

prepared to countenance.

89. From the above following conclusion, we do not find any valid

reason to interfere with the well-reasoned judgment of the High

Court. It needs to be observed that High Court’s order is in line

with the constitutional scheme and statutory mandate, which was

not dispelled by the Appellant herein. Accordingly, the appeal is

dismissed.

CIVIL APPEAL NO. 3913 of 2016, CIVIL APPEAL NO. 3914 of

2016, CIVIL APPEAL NO. 3915 of 2016

90. In light of the reasoning given in the civil appeal no. 3910 of

2016, we find no reason to entertain these appeals. Accordingly,

they are dismissed.

.…………….…………J.

(J.K. MAHESHWARI)

…….………………………..J.

(ATUL S. CHANDURKAR)

New Delhi,

15

th

May, 2026