OIL FIELDS (REGULATION AND DEVELOPMENT) ACT,1948

Facts: The Appellant was engaged in production of natural gas from oil blocks situated in Indus Basin of Rajasthan. It is contented that when gas is produced something in liquid is obtained knows as condensate, for which the appellant files return and as per Central Excise Tariff Act, 1985 it attracts nil rate of tax. But this was challenged by the department stating that condensate is nothing but crude oil, hence taxable. Therefore, the present appeal.

Held: The court held that the if there has been any intention of the legislature to tax "condensate" arising out of the processing of the natural gas, the same would have been specifically mentioned in the Oil Industry Development Act. It is evident that "condensate" is obtained and received from natural gas processing plant as a by-product where the manufacturing of the aforesaid "condensate" was never intended, thus this question of classification and payment of cess in the form of duty of excise is not leviable. Then emphasis was also given to its definition as per Rule 3(ac) of the Petroleum and Natural Gas Rules, 1951 which were made by the Central Government in exercise of the powers conferred by sections 5 and 6 of the Oilfields (Regulation and Development) Act, 1948 and was held that the product in question is 'condensate', therefore no cess can be leviable.

Facts: The Appellant was engaged in production of natural gas from oil blocks situated in Indus Basin of Rajasthan. It is contented that when gas is produced something in liquid is obtained knows as condensate, for which the appellant files return and as per Central Excise Tariff Act, 1985 it attracts nil rate of tax. But this was challenged by the department stating that condensate is nothing but crude oil, hence taxable. Therefore, the present appeal.

Held: The court held that the if there has been any intention of the legislature to tax "condensate" arising out of the processing of the natural gas, the same would have been specifically mentioned in the Oil Industry Development Act. It is evident that "condensate" is obtained and received from natural gas processing plant as a by-product where the manufacturing of the aforesaid "condensate" was never intended, thus this question of classification and payment of cess in the form of duty of excise is not leviable. Then emphasis was also given to its definition as per Rule 3(ac) of the Petroleum and Natural Gas Rules, 1951 which were made by the Central Government in exercise of the powers conferred by sections 5 and 6 of the Oilfields (Regulation and Development) Act, 1948 and was held that the product in question is 'condensate', therefore no cess can be leviable.

Facts: The respondent assessee is engaged in oil exploration. For the assessment year 2006-2007, after noticing the reports in the Economic Times that royalty is being paid at the rate of 2996 to the State Governments by the assessee, the Assessing Officer issued notice calling upon the appellant to explain how despite the injunction contained in S. 6A of the Oilfield Act, 1948, the assessee could have paid 9% extra. After not being satisfied by the explanation given by assessee the Assessing Officer actually taxed the difference in royalty paid between the pre-discount and post-discount price. After being aggrieved by the order of the the appellate authority and tribunal the revenue department has filed the present appeal before the Hon'ble High court of Uttarakhand.

Held: The court held that The respondent assessee is an Oil Exploration Company and there is no dispute in respect of oil exploration done on-shore, royalty is to be paid to the State Government and in respect of off-shore exploration royalty is to be paid to the Central Government. under Section 6A(4) of the Oilfield (Exploration and Development Act), 1948, the Government can issue a notification fixing the rate of royalty. The proviso is a limitation on the maximum rate of royalty that can be fixed. It expressly provides that royalty cannot be in excess of 20% of the Well Head Price. Since respondent is a oil producer he is bound to pay royalties to the state government. Unless the Oil Marketing Companies get oil at a discount, necessarily the price at which oil and its products are finally sold in the market would be affected; that is to say, there will be rise in the price. Apparently, the Government of India had a policy, under which the price was to be controlled. The result was that the oil companies like the respondent assessee were asked to sell the oil, which they drilled at a discount to OMC's. This is what is the post-discount price. The court by dismissing the appeal held that S. 6A may not be read in isolation and the respondents were only faithfully abiding by the decision of the Government of India.