JUDGMENT
M.B. Shah, J.
1. In these references, the Gujarat Sales Tax Tribunal (“Tribunal” for short) has referred, for our decision, the following question, under section 69 of the Gujarat Sales Tax Act, 1969 (hereinafter to be referred to as “the Sales Tax Act”) :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that ‘condensate’ was covered by entry 54 of Schedule II, Part A to the Gujarat Sales Tax Act, 1969 and not by entry 13 of Schedule III to the said Act ?”
2. Sales Tax Reference No. 1 of 1989 arises out of an application filed by M/s. Atlas Petro Chemicals for referring the aforesaid question to this Court in view of the judgment and order passed by the Tribunal in Revision Application No. 93 of 1981, on January 27, 1983.
3. Sales Tax Reference No. 2 of 1989 arises out of an application filed by M/s. Indequip Chem Dyes Limited for reference in view of the judgment and order passed by the Tribunal in Revision Applications Nos. 32, 33 and 34 of 1980, on January 27, 1983, as well as in Second Appeal No. 286 of 1980, on August 1, 1983. The Tribunal decided the aforesaid revision applications by a common judgment and order as they involved common question of law for its determination. In Second Appeal No. 286 of 1980, decided by the Tribunal also same question was involved. Therefore, these two references are decided by a common judgment.
4. It is admitted that M/s. Indequip Chem Dyes Limited and M/s. Atlas Petro Chemicals are registered dealers under the Sales Tax Act. They purchased “condensate” from Oil and Natural Gas Commission. They were initially paying the sales tax as per residuary entry 13 of Schedule III of the Act. At the time of assessment, they claimed set-off under the relevant rules for initial use in the manufacture of goods for sale. The Sales Tax Officer, at the time of making the assessment, granted set-off. Subsequently, in view of the decision of the Tribunal that condensate would be covered by entry 54 of Schedule II, the assessments were revised and set-off was not held admissible under the relevant rules, on the ground that condensate was crude oil, which was covered by the definition of the prohibited goods. At the time of hearing before the Tribunal, Oil and Natural Gas Commission was permitted to appear before it and the parties were permitted to lead necessary evidence in view of the directions given by this Court in writ petitions filed by the applicants. The Tribunal, after appreciating the contentions raised by the parties in detail, held that, crude oil, as sold, is obtained by separating water and other extraneous substances before sale; and the so-called natural petroleum either in the liquid form or in the gaseous form, i.e., wet or dry gas, by itself is not sold in the same condition without removing impurities. The Tribunal negatived the contention that condensate is obtained after separation of gas and other impurities and, therefore, it is to be considered as otherwise “treated”. Dealing with the test of common parlance, as contended by the applicants, the Tribunal observed that, crude oil and condensate were exclusive products of Oil and Natural Gas Commission and, as such, the petroleum in its natural state. It was sold as crude oil to be refinery establishment based on technical data worked out according to the Government of India policy; while the sale of condensate, being in small quantity, as compared to crude oil, were made to private parties for their purpose of refinement and processing. The use of both the crude oil and the condensate was the same. For arriving at the aforesaid conclusions, the Tribunal had mainly relied on the averments made by the applicants in special civil applications filed by them before this Court as well as the affidavits tendered by them and the affidavits tendered on behalf of Oil and Natural Gas Commission.
5. The question which we are called upon the answer, is whether “condensate”, which is admittedly petroleum, is covered by entry 54 of Schedule II, Part A of the Sales Tax Act. If it is not covered, then it would be covered by residuary entry 13 of Schedule III. Entry 54 is as under :
“54. Crude oil, that is to say, petroleum in its natural state before it has been refined or otherwise treated.”
6. The learned counsel for the applicants, Mr. Kaji, has not submitted that, “condensate” is not a petroleum. He submits that “condensate” even though it is a petroleum, it is obtained after undergoing some process or treatment and, therefore, it would not be covered by entry 54. The emphasis of the argument of the learned counsel is on the treatment of the product, which is known as “condensate”, before it is obtained. It is his contention that, for obtaining condensate from the wet gas, it is required to be treated and, therefore, it would not be covered by the said entry. As against this, the learned Assistant Government Pleader vehemently contended that the finding recorded by the Tribunal is just and legal and that, there is no question of giving any treatment to the petroleum in its natural state, which, in the market is known as “condensate” and which is obtained mainly from the gas fields. It is his submission that, for obtaining either crude oil or condensate, high technical process is involved. But after obtaining the said crude oil or condensate, it is not treated.
7. At the outset, we make it clear that the finding given by the Tribunal is mainly on appreciation of the evidence, which was produced before it and on the basis of the affidavits and various dictionary meanings of the words “condensate” and “petroleum”. As such, it would be difficult to say that the question referred to us is pure question of law.
8. The applicants themselves described the process of obtaining crude oil and condensate in the petition filed by them. Relevant paragraph quoted and referred to by the Tribunal is as under :
“2. The Oil Natural Gas Commission constituted under the Central Act carries on activity of extraction of oil, crude oil, natural gas, etc. The Oil and Natural Gas Commission has wells dug up by it in the course of its extraction activity. There are two types of wells owned by the Oil and Natural Gas Commission ….. The first category of wells is oil bearing, while the other category of wells is only gas bearing. The Oil and Natural Gas Commission has drilled 49 wells in the Cambay area for the purpose of extracting oil and natural gas. Out of the said 49 wells, the petitioner is reliably informed that, 24 wells are dry, while 19 wells are gas bearing and 4 wells are oil bearing. The remaining 2 wells still require further testing. Basically, therefore, the Cambay area is a gas field and not an oil field. The process of extracting natural gas from such gas bearing wells is that from the depth of the soil gas is extracted by depressurization at or up to the stage of surface of the earth. The gas is stored in reservoir where by depressurization some impurities are separated. The gas being lighter in weight collects at the top of the reservoir and would be transmitted therefrom to another reservoir from the top. The impurities remaining in the original reservoir would be the residue retained after the gas is being transmitted. During the depressurization and while separating impurities from the natural gas after it has come out of the soil, liquid is found which would be transmitted to separate reservoir by a different channel leaving in the original reservoir other impurities like mud, pebbles, etc. The liquid so taken and separated is stored in a separate reservoir. This liquid is brown in colour. It is popularly known as condensate and is similar in appearance to kerosene.”
9. The Tribunal has observed after referring to the judgment of this Court in the case of State of Gujarat v. Oil & Natural Gas Commission [1982] 49 STC 310, that, from the gas wells, either gas in its natural form or petroleum known as condensate is obtained; and from the oil wells, crude oil in its unpurified form along with traces of gas is obtained. The crude oil so obtained is subjected to the process of separation and de-emulsification. The gas is, thereafter, separated from the oil with help of a separator.
10. From the aforesaid averments in the petition filed by the applicants and the discussion by the Tribunal, it is clear that, there are two categories of wells, one oil bearing wells and the other gas bearing wells. This aspect is further borne by the meaning of the word “natural gas” given in the oil Industry (Development) Act, 1974. Under section 2(i) “natural gas” is defined to mean gas consisting primarily of hydrocarbons obtained from oil wells or gas wells. Even the learned advocate for the applicants has not disputed this aspect. From the gas wells, a major portion of the gas is mixed with some portion of liquid, which after separation from the gas and other impurities, is known as “condensate”, i.e., a substance produced by condensation. From the oil wells, for obtaining crude oil also, a process of separating gas is required to be performed. Hence, it is apparent that from the oil wells as well as gas wells, crude oil or condensate would come out – from the gas wells main substance would be gas and residuary substance would be condensate while from the oil wells, crude oil would be the main substance and gas would be the minor substance. In both the cases, for separating oil from the gas, some process is required to be performed. But after separating crude oil or condensate from the gas, it is pointed out that no treatment or process is required to be performed.
11. Further, from the affidavits filed by the applicants and the Oil and Natural Gas Commission, the Tribunal has referred to various definitions of the word “condensate”. For our discussion, we would refer to only few out of them. The Tribunal has referred to the affidavit of N. T. Baddi, proprietor of M/s. Atlas Petro Chemicals. In this affidavit, he has referred to the definitions given from the “Glossary of Terms used in the Petroleum Industry”, which are as under :
“‘Condensate’ : A liquid produced from vapours that come from a well in the form of gas. A hydrocarbon which is gaseous in the ground but becomes fluid when produced.
‘Crude Petroleum’ : A naturally occurring mixture of hydrocarbons and/or sulphurs, nitrogen, and/or oxygen derivates of hydrocarbons which occur in the earth in a liquid state. The term is derived from Latin ‘petra’ which means rock and ‘oleum’ which means oil. The broad categories are : Paraffin base, asphaltic base and mixed base. Some of the important properties considered in evaluating a crude are : Gravity (API) sulphur content, nitrogen content, carbon residue and salt content.”
He has further quoted from “Hand Book of Oil Industry Terms and Phrases” the definitions of the words “condensate” and “crude oil”, which are as under :
“Condensate” – “Liquid hydrocarbons produced with natural gas which are separated from the gas by cooling and various other means. Condensate generally has an A.P.I. gravity of 50 Degree and 120 Degree and is water-white straw or bluish in colour.”
“Crude-Oil” – “Oil as it comes from the well; refined petroleum.”
The Tribunal has further noted the contention of Mr. Baddi that, merely because condensate and crude oil both are liquid petroleum, they cannot be equated as the same commodity. The Tribunal has also referred to the affidavit of Mr. Kamlesh V. Doshi, B.E. (Chemical Engineering). In the said affidavit, he has quoted the definition of “crude oil” given from the book “American Standard of Testing Materials”, 1951, wherein “crude oil” given the meaning as under :
“A naturally occurring mixture, consisting predominantly of hydrocarbons, and/or oxygen derivates of hydrocarbons, which is removed from the earth in liquid state or is capable of being removed. Crude petroleum is commonly accompanied by varying quantities of extraneous substances such as water, inorganic matter and gas. The removal of such extraneous substances alone does not change the status of the mixture as crude petroleum. If such removal appreciably affects the composition of the oil mixture then the resulting product is no longer crude petroleum.”
He has also quoted from the book “Petroleum process Hand Book” by Brand and Davidson, wherein “condensate” is given the following meaning :
“‘Condensate’ –
1. The liquid product coming from condenser.
2. A light hydrocarbon mixture product as liquid product in a gas – recycling plant through expansion and cooling of the gas. Condenser – ordinarily, a water cooled heat exchanger used for cooling and liquidifying oil vapours. Where the cooling medium used is air, the condenser is called an air condenser. (See also specific condensers under alphabetical listing). Condenser box – a large box-shaped structure in which the condenser, which may consist of coils or ‘works’ is submerged in a heat-absorbing medium, usually water.”
The Tribunal further referred to the definition of “condensate” given in the book “Petroleum Products Hand-Book” by Vigil B. Guthrio, which is as under :
“Condensate : (1) a highly gaseous liquid coming from gas condensate wells, from which the gas is separated, the liquid remaining being shipped with crude oil in pipe-lines to refineries. (2) Any liquid material coming from the condenser in the refinery.”
12. From the aforesaid definitions, it would be apparent that, from the gas well, some liquid in gaseous form is coming out of the earth. The liquid is separated from the gas and is known as “condensate”. The process is of separation of the gas from the liquid. It is a treatment given to the gas for obtaining gas from the wet gas.
13. On the record, there is opinion of Superintending Chemist of Oil and Natural Gas Commission. Wherein it is, inter alia, stated that, under ambient conditions, certain natural gas composition exists as liquid, which is called condensate. It is not artificially condensed. No additional plant is required for production of condensate, which is not used for production of crude oil. Like crude oil, condensate is also separated from the oil gas separator on the surface. It is also stated that condensate can be considered at par with crude oil for the purpose of its end-use and sale because :
(i) Both condensate and crude oil are hydrocarbons.
(ii) Both of them are classed under the general name “petrolet”.
(iii) Both condensate and crude oil are originated from the same type of material accumulated in the same type of formation and produced in a similar way from underground.
(iv) Both condensate and crude oil are liquid hydrocarbons.
(v) On refining both condensate and crude oil can yield products like LPG petrol, kerosene, etc.
14. In our view, from the aforesaid various definitions and opinion furnished before the Tribunal, it cannot be said that the conclusion arrived at by the Tribunal that both crude oil and condensate are petroleum in its natural state, is in any way erroneous. As per the definitions of “condensate”, it is a gaseous liquid coming from gas condensate wells, from which the gas is separated and the liquid remaining being shipped with the crude oil in pipe-lines to refineries or is a liquid material coming from the condenser in the refinery. Therefore, there is no difference between crude oil and condensate. However, it is the contention of the learned advocate for the applicants that for obtaining the product, which is know as “condensate”, the natural gas, which itself is a petroleum, is required to be treated and, therefore, it would not be covered by entry 54 which provides for levy of sales tax on crude oil, i.e., petroleum in its natural state before it has been refined or otherwise treated. In our view, this argument is fallacious mainly because the produce “condensate” is not at all treated before its sale. From the gas well, gas along with condensate and other impurities comes out. Gas, condensate and other impurities are separated. Therefore, at that stage, neither the gas nor the condensate is treated. Once it is not disputed that condensate is petroleum in its natural state and that is equivalent to crude oil, it would be difficult to hold that it is refined or otherwise treated its sale. As such, it is not the case of the applicants that before sale, condensate is either refined or otherwise treated.
15. The learned counsel, Mr. Kaji, referred to the definition of the word “crude oil” given under section 2(e) of the Oil Industry (Development) Act, 1974, which is as under :
“Crude oil” means petroleum in its natural state before it is refined or otherwise treated but from which water and foreign substances have been extracted.
He emphasised that, in this definition, it is specifically provided that from the crude oil, water and foreign substances have been extracted, while in entry 54, there is no such provision. In our view, it would hardly make any difference in interpreting entry 54 for deciding whether product “condensate” is covered by the said entry or not. At this stage, it may be noted that, the Oil Industry (Development) Act defines the word “natural gas” to mean gas consisting primarily of “hydrocarbons” obtained from oil wells and gas wells. It is, therefore, apparent that, even from the oil wells, natural gas is obtained. Before obtaining gas, crude oil is required to be separated from the gas, which comes out from the oil wells. Similarly, the gas wells also would contain gas plus oil, which is known as “condensate” and it is required to be separated from the gas. Merely because a substance known as “condensate” is separated from the gas for gathering it, it would not mean that, condensate is treated and, therefore, it would not be covered by entry 54. Therefore, the Tribunal has rightly found that, where the petroleum that comes out from the well with dominantly liquid containing less gas, such well is known as oil well, while where petroleum comes out with more gas and less liquid, the well is known as gas well (wet gas or dry gas); but so far as the substance is concerned, it is hydrocarbon from which various petroleum products are being obtained after refining. But there is no question of refinement or otherwise treating the condensate for obtaining it.
16. In the result, we hold that the Tribunal was right in holding that condensate is covered by entry 54 of Schedule II, Part A to the Gujarat sales Tax Act, 1969 and not by the residuary entry 13 of Schedule III to the said Act. We, therefore, answer the question referred to us, for our decision, in the affirmative and against the assessee.
17. Reference answered in the affirmative.