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Contention (iii):- The supply of Superior Kerosene [KO (LABFS)] by BPCL to RIL under the Agreement dated 24th August, 1992 itself was not a sale, and therefore, there was no question of there being a "sales return"

34. As mentioned earlier, this argument was only canvassed by Mr. Venkatraman on behalf of RIL. Mr. Venkatraman submitted that when the first DDQ application was filed on 21st April, 1992 by BPCL, RIL was not a party to the said proceeding. This is an admitted fact. He, therefore, submitted WP 2217 OF 2015.docx that RIL cannot be precluded from contending that the supply of Kerosene by BPCL to RIL, itself was not a sale. In this regard he brought to our attention several different entries of Schedule-C of the Bombay Sales Tax Act, 1959 (Entries 26, 6, 56, 160). Relying upon these entries, Mr. Venkatraman submitted that all these entries would indicate that the sale of Kerosene, whether for the purpose other than for household purpose or for public distribution remained completely exempted from tax till 1st October, 1995. After this date, sale of Kerosene under the public distribution system continued to remain exempted whereas the sale of Kerosene for other purposes became taxable with effect from 1st October, 1995. The reason why Mr. Venkatraman placed reliance on this was that when BPCL filed its DDQ application dated 21st April, 1992, the sale of Kerosene, whether through PDS or non-PDS, was exempted from sale tax. This being the case, Mr. Venkatraman submitted there was no occasion or reason for BPCL to contend that the supply of kerosene from BPCL to RIL was not a sale. Further, as there was no tax liability on BPCL under the DDQ order, BPCL did not have any reason to challenge the same on the ground that the supply of kerosene from BPCL to RIL was a sale.

Both counsels submitted that in the facts of the present case, there is no dispute that the goods supplied in the first leg of the transaction as well as the return stream both met with BIS:1459 specifications meant for Superior Kerosene. It was the contention of the counsel that in fact the Commissioner of Sales Tax had addressed a letter dated 28th January, 1994 to the Registrar, University of Bombay, Department of Chemical Technology, seeking a specific clarification as to whether the supply of Superior Kerosene by BPCL to RIL and the delivery of the return stream by RIL to BPCL, are one and the same product. The counsel submitted that in response to this communication, one Professor Manmohan Sharma, Department of Chemical Technology, vide its letter dated 11th May, 1994 had stated that it was a standard practice for a feedstock to go from the refinery to a petrochemical plant and to receive the return stream. The feedstock under reference would be denuded with respect to only the N-Paraffin. However, the return stream would qualify as per the established practice as a blendable stock for Kerosene. They also placed reliance on the letter dated 17th December, 1994 addressed by Professor K. K. Tiwari, University Department of WP 2217 OF 2015.docx Chemical Technology, Mumbai. Mr. Tiwari opined that although the N-Paraffin content of the returned Kerosene is expected to be lower than LAB feedstock Kerosene, the IS 1448 and 1459 do not specify the composition of aliphatics and aromatics. Hence, as per the IS specifications, the feedstock Kerosene and the return Kerosene may be treated as Superior Kerosene. Placing heavy reliance on these letters, both the counsels submitted that the return stream, namely the Kerosene redelivered by RIL to BPCL, was the same Kerosene that was supplied by BPCL to RIL in the first leg of the transaction. Both counsels submitted that apart from these two opinions, it was also a common fact that the return stream Kerosene taken by BPCL from RIL was mixed in the original tank of BPCL containing Superior Kerosene and then was sold under the public distribution system. They submitted that when experts confirm that post the denudation of N-Paraffin, the return stream Kerosene retains the name, character and use as Superior Kerosene which was supplied by BPCL in the first leg of the transaction, the Revenue had not led any evidence to discredit or disprove this position. Looking to this, Mr. Venkatraman as well as Mr. Dada submitted that what was explicitly clear was that the Kerosene supplied by BPCL to RIL in the first leg of the WP 2217 OF 2015.docx transaction as well as the return stream of Kerosene supplied by RIL to BPCL were one and the same product, and therefore, the return stream certainly qualified as a "sales return" and not a purchase of Kerosene by BPCL from RIL.

49. To further fortify this argument, Mr. Sonpal submitted that the return stream Kerosene (from RIL to BPCL) could never be given/sold by BPCL to another Petrochemical plant for the purposes of extraction of N-Paraffin. This clearly shows that the product that was supplied by BPCL to RIL in the first leg of the transaction was different from the return stream that was given back by RIL to BPCL. If this be the case, Mr. Sonpal submitted that there was no question of then the return stream being classified as a "sales return". He submitted that even according to Mr. Venkatraman and Mr. Dada the concept of a "sales return" would arise only when the goods returned were the same in character and use as the goods originally sold. In the facts of the present WP 2217 OF 2015.docx case, it is amply clear that the Kerosene returned by RIL to BPCL in the return stream were different in character as well as use and therefore could never be termed as a sales return, was the submission. To put it differently, Mr. Sonpal submitted that in fact if the Kerosene returned by RIL to BPCL were one and the same as the original goods supplied by BPCL to RIL, then, there would have been no impediment on BPCL for supplying return stream back to RIL for the purposes of extraction of N-Paraffins. Admittedly that could never have been done as the N-Paraffins were already extracted by RIL from the Kerosene that was already supplied by BPCL to RIL, in the first leg of the transaction. He, therefore, submitted that merely because the so called experts, on the basis of BIS standards, had opined that the Kerosene supplied by BPCL and the return stream, both could be classified as Kerosene, would not carry the case of RIL or BPCL any further. It may be true that the return stream also could be used as Kerosene for several other purposes but that alone would not classify the return stream as a sales return, as clearly the returned Kerosene was different in character and use. For all the aforesaid reasons, Mr. Sonpal submitted that the findings given by the MSTT on this aspect of the matter were wholly justified and required no interference by WP 2217 OF 2015.docx us either in our writ jurisdiction or in our reference jurisdiction.

It is an admitted fact before us, at least across the bar, that the Kerosene supplied by BPCL to RIL can be used for extraction of N-

WP 2217 OF 2015.docx Paraffins whereas the Kerosene returned by RIL to BPCL cannot be used for the same purpose. The process of extraction carried out by RIL is thus a manufacture within the meaning of the said expression as defined in the BST Act and the kerosene is therefore not returned to BPCL in the same form. In other words, BPCL cannot use the Kerosene returned by RIL to be supplied to another Petrochemical plant for extraction of N-Paraffin. This, to our mind, would clearly go to establish that the Kerosene supplied by BPCL to RIL in the first leg of the transaction and the product returned by RIL to BPCL in the second leg of the transaction, at least for the purposes of sales tax, are two different products. It cannot be disputed that the two products are different in character and use. This being the case, it is quite clear that the return stream of Kerosene and which was sought to be returned by RIL to BPCL can never be termed as a sales return but in fact a sale by RIL to BPCL.