Case Law Details
Gail India Ltd Vs Commissioner of Commercial Taxes (Allahabad High Court)
The Allahabad High Court, in the case of Gail India Ltd Vs Commissioner of Commercial Taxes, has addressed a key issue regarding the levy of Entry Tax on the transmission of natural gas. The court ruled that the tax cannot be levied on the sale price of the gas when its purchase value is already ascertainable. The revision petition, filed by GAIL India Ltd., a government-owned enterprise, challenged an order passed by the Commercial Tax Tribunal which had remanded the case back to the assessing authority without deciding the core issue.
GAIL, engaged in the production and trading of natural gas, argued that it procured natural gas from ONGC through a purchase agreement and then sold it to various consumers within the state of Uttar Pradesh. According to the company, the assessing authority incorrectly levied Entry Tax at a rate of 4% on the value charged by GAIL to its purchasers. This value, the authority claimed, was the “market value” and included transmission charges and marketing margins. GAIL’s counsel contended that the transmission charges were outward freight and should not be included in the value of the goods for tax purposes. They also pointed out that the pricing of natural gas is controlled by the Government of India, and that the value at which the gas was brought into the state was ascertainable, making the use of the sale price as the basis for the Entry Tax incorrect. The company also clarified that no transmission charges were paid by them on the procurement of the gas from ONGC.
The court examined the records and found that GAIL did not pay any transmission charges for bringing the gas into Uttar Pradesh via its own pipeline. Crucially, the court noted that the revenue department did not argue that the purchase value of the gas, as it entered the state, was not ascertainable. The court held that once the value at which the gas was brought into Uttar Pradesh is known, Entry Tax cannot be levied on the price at which it was subsequently sold to customers. The sale value could only be considered as the purchase value if the latter was unascertainable, which was not the case here.
This decision serves as a significant precedent, reinforcing the principle that tax levies must be based on the correct and ascertainable value as per statutory provisions. The court criticized the Tribunal for remanding the matter instead of deciding the legal and factual issues itself, as it is the “last court of fact and law.” Consequently, the High Court quashed the Tribunal’s order and remanded the case back to the Tribunal to be decided afresh in accordance with the law, without being influenced by any prior observations. The court’s directive emphasizes the need for tax authorities to follow a fair and legally sound process for valuation and to avoid arbitrary tax assessments.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. Heard Mr. Navin Sinha, learned Senior Advocate assisted by Mr. Nishant Mishra for the revisionist and Mr. B.K. Pandey, learned ACSC for the State-respondents.
2. By means of present revision, the revisionist is assailing the order dated 4.11.2023 passed by the Commercial Tax Tribunal, Bench IV, Kanpur in Second Appeal No. 321/13 (A.Y. 2003-04).
3. The present revision was admitted vide order dated 27.4.2024 on the substantial question of law nos. A and B as framed in the memo of revision.
4. Learned Senior Counsel for the revisionist submits that the revisionist is a Government of India undertaking, under the administrative control of Ministry of Petroleum and Natural Gas, Government of India, engaged in production of LPG, other Liquid Hydrocarbons and Polymer as well as trading in Natural Gas, for which the revisionist was duly registered under the erstwhile UP Trade Tax Act, 1948. He further submits that as the natural gas is the commodity which cannot be stored hence, entered into purchase agreement with ONGC and also sale agreement with purchasers within the State of UP. The movement of natural gas always preceded with the agreement. He further submits that on all transactions of sale, ONGC charged the value of goods and also taxes, royalty etc. whereas while selling natural gas to purchasers, the applicant/revisionist charged the value of goods, transmission charges, local sales tax, entry tax etc.
5. He further submits that revisionist, in the State of UP, consumes the natural gas for its own purpose as well as sales to other consumers. He submits that the assessing authority passed the assessment order by treating the natural gas procured by the applicant-revisionist as acquired and obtained otherwise that by way of purchase and thereby levied the entry tax at the market value in terms of Section 2 (e) of the Act of 2000. Thus, assessed the entry tax @ 4 % on the value charged by the revisionist from the purchasers.
6. Learned Senior Counsel further submits that the assessing authority levied the entry tax @ 4 % on the value charged by the revisionist from the purchaser by treating the same as market value and also include the value of transmission charges and marketing margin acquired by the revisionist. He further submits that against which the matter traveled up to the stage of Tribunal and the Tribunal instead of deciding the issue has remanded the matter back to the assessing authority. He submits that the Tribunal being the last court of fact and law ought to have decide the issue instead of remanding the same.
7. Learned Senior Counsel further submits that no transportation charges were paid by the revisionist on purchase of natural gas to ONGC, therefore, entry tax cannot be levied on it upto the point it reaches U.P. He further submits that transmission charges, charged by the revisionist on its sale to other parties are outward freight, which is not liable to be included in the value of the goods for the purposes of levying the entry tax. He further submits that pricing of natural gas is controlled by the pricing policy of the Government of India, therefore, the imposition of entry tax on the sale to the third party is incorrect.
8. Per contra, learned ACSC supports the impugned order and submits that the revisionist itself demanded for remand therefore, nothing wrong has been committed by the Tribunal in the impugned order.
9. Rebutting to the said submission, learned Senior Counsel submits that the remand was an alternative prayer of the revisionist and open remand will give the second inning to the department, which is not permissible in the eyes of law.
10. After hearing learned counsel for the petitioner, the Court has perused the records.
11. The records shows that the revisionist transported natural gas through its own pipe line and no transmission charges were paid by it on procurement of natural gas. The natural gas come from Gujrat to Auraiya, UP from which the revisionist uses for its own as well as sell the natural gas to third party. While selling the natural gas to the third party, the revisionist charges its transmission charges etc. which according to the revisionist is an outward freight which is not liable to be included in the value of goods.
12. Though the transportation charges can be included for levy of entry tax in accordance with law, if same was paid for transporting natural gas upto the State of UP but neither any amount was paid by the revisionist for bringing natural gas through its own pipe line nor any material has been brought on record by the revenue.
13. Further, it is not the case of the revenue that while bringing the natural gas in the State of UP, the value of goods was not ascertainable. Once the value at which the gas was brought in State of UP is ascertainable, the levy of entry tax on the price at which the same was sold to its customers by the revisionist, cannot be sustained in the eyes of law. The sale value of natural gas could be taken as purchased value, if the purchased value was not ascertainable, while entry of goods in the State of UP, which is not the case is hand. The Tribunal being the last Court of fact and law ought to have decide the issue one for all instead of remanding the same. Therefore, the matter requires re-consideration by the Tribunal.
14. In view of above, the impugned order cannot be sustained in the eyes of law and same is hereby quashed. The matter is remanded to the Tribunal for deciding the case afresh in accordance with law without being influenced with any of the observations made herein above.
15. The revisionist undertakes to produce a certified copy of this order before the Tribunal within 15 days from today and on receipt of the same, the Tribunal shall make all endevour to decide the case within a period of three months without granting any unnecessary adjournment to either of the parties. The revision is allowed.
16. The substantial questions of law are answered accordingly.
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