State of UP v. Reliance Industries
Supreme Court of India2026 INSC 491Bench: Justice J.K. Maheshwari and Justice Atul S. Chandurkar
The Supreme Court clarified the constitutional and statutory framework governing the taxation of fungible goods such as natural gas that are transported through common-carrier pipelines across State boundaries. The Court held that where a contract of sale itself occasions the movement of goods from one State to another, the transaction is an inter-State sale within the meaning of Section 3(a) of the Central Sales Tax Act, 1956, and is constitutionally exigible to tax only by Parliament under Article 269 read with Entry 92A of List I; the destination State has no legislative competence to levy VAT or local sales tax on such a transaction under Entry 54 of List II. The fact that natural gas, being fungible, is co-mingled in the common-carrier pipeline with quantities introduced by other shippers does not, in law, fracture the inter-State character of the sale, provided that an equivalent quantity injected into the pipeline in the origin State is withdrawn in the destination State pursuant to and in performance of the same contract. The Court further held that the situs of sale is determined by the 'delivery point' identified in the Gas Sales and Purchase Agreement (GSPA), because that is the contractually agreed point at which title and risk pass from seller to buyer; subsequent processing, re-metering, odorisation or other operational steps undertaken for efficiency at the destination end do not relocate the taxable event into the consuming State. The State of Uttar Pradesh's attempt to levy VAT on the supply of natural gas by Reliance Industries was therefore held to be unconstitutional and beyond its legislative competence.