2026-VIL-44-SC
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VAT Supreme Court Cases

Central Sales Tax Act, 1956 - Inter-State Sale of Natural Gas - Jurisdiction of State to Levy VAT - Constitutional Competence – Delivery Point and Transfer of Title – Respondents operating under a Production Sharing Contract with the Government of India for an offshore deep-water block, entered into Gas Sales and Purchase Agreements with buyers in various States – The natural gas extracted from the offshore basin was delivered at a designated onshore processing terminal in one State ("delivery point"), with title, risk, and possession passing to the buyers at that point, following which the buyers independently arranged transportation of the gas through common carrier pipelines across multiple States to their facilities in another State - Assessing authority of the destination State levied VAT on the transaction, treating the same as an intra-State sale on the ground that the gas, being fungible and co-mingled in the common carrier pipeline, constituted unascertained goods that were appropriated only upon receipt at the buyers' factories within that State, and that the sale was therefore completed within its territory — HELD – The Section 3 of the CST Act, enacted pursuant to Article 269(3) to formulate principles for determining when a sale takes place in the course of inter-State trade or commerce, operates as the primary and overriding provision, and Section 4 of the CST Act, which fixes the territorial situs of a sale for the purpose of identifying the appropriate State, is expressly made subject to Section 3 and cannot be invoked to override an established inter-State character of a transaction – In the present case, the delivery point was unambiguously fixed at the onshore processing terminal in the originating State and the transportation thereafter was effected solely under separate carriage agreements between the buyers and the pipeline operators, who acquired no title to the gas and acted merely as carriers – The co-mingling and fungibility of gas in the common carrier pipeline was a statutory compulsion arising from the open access common carrier regime mandated by the applicable Regulations. The physical intermixing of gas in the pipeline after the sale was concluded at the delivery point was a mere incident of transportation that could neither alter nor relocate the character of an already completed inter-State sale; the subsequent re-metering at the destination point is held to be legally irrelevant to the determination of the taxable event - The nature of goods, whether ascertained or unascertained, is irrelevant for the purposes of Section 3(a) of the CST Act, once it is established that a contract of sale occasions the movement of goods from one State to another - The Explanation 3 inserted into Section 3 of the CST Act by the Finance Act, 2016, was clarificatory and not substantive in nature and did not alter the pre-existing legal position but merely gave explicit statutory expression to what was already implicit in Section 3; accordingly, the argument that the Explanation was applicable only prospectively is rejected - The destination State had itself recognised the inter-State character of the transaction by issuing statutory declaration forms to the buyers under the CST Rules. Having approbated the inter-State nature of the transaction in that manner, it was not open to the State to reprobate by simultaneously asserting jurisdiction to levy VAT on the same transaction - The judgment of the High Court quashing the assessment order and directing refund of the tax realised, is confirmed – The Revenue appeals are dismissed
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