State Of Gujarat v. Hindustan Petroleum Corpn.

P.D Desai, J.:— The assessee herein is a company which carries on the business of sale and distribution of petroleum products. The assessee is a registered dealer. One of the items in which the assessee deals is known by the trade name “Liquefied Petroleum Gas” (hereinafter referred to as “LPG”). The assessee sold 5,800 tonnes of LPG in bulk to M/s. Kisan Gas Co., Bombay, at the rate of Rs. 537.68 per metric ton, under bill No. 0575. The assessee charged sales tax at 12 per cent on the total sale price of Rs. 4,568.54 on the basis that LPG was covered by entry 88 of Schedule II—Part A of the Gujarat Sales Tax Act, 1969 (hereinafter referred to as “the Act”). Thereafter, the assessee made an application under section £2 for the determination of the question as to what was the correct rate of tax payable on the sale of LPG in bulk. The contention of the assessee, inter alia, was that LPG sold by it in bulk was not covered by entry 88 of Schedule II—Part A, because it was not supplied in closed containers but it was poured into the tank-truck brought by the purchaser to the site and that, under the circumstances, LPG being a petroleum product, it was covered by entry 32 of Schedule II—Part A. The Deputy Commissioner of Sales Tax, who heard the application, held that LPG sold by the assessee was one of the petroleum products. However, the said article would not be covered by entry 32 of Schedule II—Part A, which is a general entry for petroleum products, but by entry 88 of Schedule II— Part A, which was a specific entry relating to inflammable gas. As regards the contention of the assessee that LPG was not supplied in closed containers and that, therefore, entry 88 of Schedule II—Part A would not be attracted, the holding of the Deputy Commissioner was that the said entry was not concerned with sealed containers but with closed containers and that since “container” meant that which contains or that in which goods are enclosed for transport, tank-truck into which LPG was poured at the site could be treated as “closed containers” and that, accordingly, on the facts and in the circumstances of the case, LPG could be held to have been supplied in closed containers. The Deputy Commissioner accordingly held that LPG supplied by the assessee in bulk was covered by entry 88 of Schedule II—Part A.

2. The assessee carried the matter in appeal to the Gujarat Sales Tax Tribunal (hereinafter referred to as “the Tribunal”). The same contention, inter alia, which has been set out above as having been advanced before the Deputy Commissioner was urged before the Tribunal on behalf of the assessee. The Tribunal held that LPG was a petroleum product. It also appears to have held that LPG is an inflammable gas. However, the view of the Tribunal was that in order that entry 88 of Schedule II—Part A can apply, inflammable gas should be supplied by the vendor in a closed container and that since, in the instant case, LPG, which was supplied in bulk, was poured into the tank-truck of the purchaser-and it was not supplied in any closed container by the assessee, the said entry was not attracted. The Tribunal also found in the alternative that tank-trucks of the purchasers into which LPG was poured could not be held to be “closed containers” within the meaning of entry 88 of Schedule II—Part A and that, therefore, also the said entry was not attracted. As LPG was essentially a petroleum product, the Tribunal was of the view that it was covered by entry 32 of Schedule II—Part A. In view of these findings, the Tribunal allowed the appeal and set aside the order of the Deputy Commissioner of Sales Tax. At the instance of the State of Gujarat, the Tribunal has stated a case in respect of the following question:

“Whether, on the facts and in the circumstances of the case and on a true and proper interpretation of the relevant entries of the Schedule to the Gujarat Sales Tax Act, 1969, the Tribunal was correct in law in holding that liquefied petroleum gas (LPG) sold by the opponent in bulk to M/s. Kisan Gas Co. through the tank-trucks of the said purchaser was covered by entrx 32 of Schedule II—Part A and not by entry 88 of the said Schedule to the Gujarat Sales Tax Act, 1969?”

3. Now, several coqtentions were advanced before the Deputy Commissioner of Sales Tax as well as before the Tribunal and various aspects, including several entries, were examined by both those authorities. We do not, however, propose to consider all those matters and the relevant facts which we have set out above pertain only to the aspect upon the consideration of which, in our opinion, the present reference can be answered. The short question which, in our opinion, requires to be considered is whether LPG, which is a petroleum product and at the same time also inflammable gas is covered by entry 32 of Schedule II—Part A or entry 88 of Schedule II— Part A and the resolution of the said question really depends upon the construction of the relevant words in entry 88.

4. The two entries may be read at this stage:

“32. Petroleum products, including light diesel oil but excluding lubricants, kerosene, solvent oil, furnace oil and also excluding motor spirit declared tax-free under entry 39 in Schedule I.

88. Inflammable gas supplied in closed containers.”

5. It may be recapitulated that both the Deputy Commissioner of Sales Tax and the Tribunal have found that LPG is a petroleum product. The finding is obviously correct. As pointed out by the Tribunal, petroleum products are of various types and they are derived either straight from crude or from derivatives of crude. One of the petroleum products is propylene which is produced by catalytic cracking of raw naphtha in the refining process. This substance is used as a source of energy in the form of LPG. Propylene is a mixture of certain light hydrocarbons derived from petroleum which are gaseous at normal ambient temperature and atmospheric pressure. It may, however, be condensed to liquid state at normal ambient temperature by application of moderate pressure. Such liquefied petroleum gas is the substance which the assessee sells and which has been referred to as LPG earlier. There cannot, therefore, be any doubt that entry 32 of Schedule II—Part A would be attracted if a separate entry, namely, entry 88 of Schedule II—Part A, had not been enacted or for some reason the said entry is not applicable.

6. It has been found and it is not in dispute that LPG is an inflammable gas. It is a commercial commodity used by consumers for various purposes. When, therefore, in a statute dealing with single point levy of sales tax a specific entry has been enacted covering petroleum products, which are in the form of inflammable gas, the entry would ordinarily cover the goods of that description. Entry 88 of Schedule II—Part A would, therefore, have applied if that were the only requirement to be satisfied for being covered by the said entry. The important point, however, is that entry 88 enacts a further condition when it speaks of inflammable gas “supplied in closed containers”. It is thus manifest that it is only that variety or kind of inflammable gas which is supplied in closed containers that would fall within the coverage of the said entry. Those qualifying words are, therefore, determinative of the question whether a particular petroleum product which is in the form of inflammable gas is covered by the said entry or by entry 32.

7. It is pertinent to point out at this stage that the physical nature of the product influences the manner in which it is distributed. Xhe majority of the petroleum products are liquids, stable under most conditions, capable of being contained in simply constructed tanks and of beigg jjumped from one location to another. The petroleum products that offer greater problems of handling are those that fall at either end of the boiling range: gases, greases, heavy fuels, waxes and asphalts. Liquefied petroleum gas (LPG) has to be stored and moved under pressure and is normally distributed to the consumer in small cylinders. Other petroleum products are supplied either in barrels or heated or insulated containers (see Encyclopaedia Britannica, Vol. 17, page 766). The above aspect relating to marketing of LPG brings into sharp focus the importance of the qualifying words “supplied in closed containers” in entry 88. Those words, it would be appreciated, have a meaning and purpose and they would indicate that the legislature, as it was aware of the technique of marketing inflammable gases, has included in entry 88 only those inflammable gases which are supplied to the consumers in closed containers like small cylinders. This is one reason why we think that LPG sold in bulk by the assessee in the instant case is not covered by entry 88.

8. There is also another aspect of the matter which has been touched upon by the Tribunal. When the entry speaks of inflammable gas supplied in closed containers, it obviously means that the supply must be in closed containers provided by the vendor. It cannot be overlooked that the Act taxes sales or purchases of taxable goods. In the instant case, what is sought to be taxed is sale and the sales tax falls on the vendor though its ultimate incidence might pass on to the consumer. When, therefore, the entry speaks of inflammable gas supplied in closed containers, it would be proper to construe it as meaning inflammable gas supplied by the vendor in closed containers. This is implicit in the entry in view of the taxable event and the taxable person. If the contention of the revenue, namely, that even if LPG is poured into the tank-trucks of the purchaser, it would amount to supplying inflammable gas in closed containers, is to be accepted, it would be necessary to add the words “or collected” in-between the words “supplied” and “in closed containers”. There is no reason why addition of words should be made because even without that the entry is capable of bearing a reasonable meaning. In our opinion, therefore, even on this ground, on the facts and in the circumstances of the case set out above, entry 88 would not be attracted.

9. We wish to make it clear that we are not entering into the validity of the findings of the Tribunal on the other aspects involved in the case such as whether tank-trucks into which LPG is poured can be said to be closed containers within the meaning of entry 88. It is not necessary for the purpose of answering this reference to go into any of those questions.

10. In view of the foregoing discussion, we are of the view that the Tribunal was right in law in holding that LPG sold by the assessee in bulk form by pouring the same into tank-trucks of the purchasers is not covered by entry 88 of Schedule II—Part A and that it is covered by entry 32 of Schedule II—Part A. In the result, we answer the question referred to us in the affirmative, that is to say, in favour of the assessee and against the revenue. State of Gujarat will pay the costs of this reference to the assessee.

11. Reference answered in the affirmative.