The Supreme Court has ruled that the State of Uttar Pradesh cannot levy VAT on natural gas supplied by Reliance Industries Limited to industrial buyers in Uttar Pradesh, holding that the transactions qualify as inter-State sales under the Central Sales Tax Act.
A Bench led by Justice J.K. Maheshwari and Justice Atul S. Chandurkar delivered the judgment in a batch of appeals filed by the State of Uttar Pradesh against Reliance Industries and major fertilizer manufacturers.
The dispute arose from VAT demands raised by Uttar Pradesh on gas transported from the KG-D6 basin off the Andhra Pradesh coast to buyers located in Uttar Pradesh.
Background of the Case
Reliance Industries, along with foreign consortium partners, had entered into a Production Sharing Contract with the Union Government under the New Exploration and Licensing Policy (NELP) for extraction of natural gas from the KG-D6 block.
Under Gas Sales and Purchase Agreements (GSPA), the gas was delivered at Gadimoga in Andhra Pradesh, after which transportation arrangements were undertaken through pipelines operated by Reliance Gas Transportation Infrastructure Ltd and GAIL to industrial units in Uttar Pradesh.
Despite the interstate movement, Uttar Pradesh authorities imposed VAT, treating the transaction as an intra-State sale on the ground that the gas became ascertainable only upon delivery at buyers’ premises in Uttar Pradesh.
What Happened During the Hearing
Senior counsel appearing for Uttar Pradesh argued that natural gas transported through common carrier pipelines was fungible and unascertained until final delivery in Uttar Pradesh. The State contended that the sale was completed only when gas reached the buyers’ factories.
Reliance Industries opposed the levy, arguing that the movement of gas from Andhra Pradesh to Uttar Pradesh was directly occasioned by pre-existing contracts and therefore squarely fell within Section 3(a) of the Central Sales Tax Act.
The company also pointed out that CST had already been paid in Andhra Pradesh and buyers were issued statutory Form-C declarations.
Court’s Key Observation
The Supreme Court emphasized the constitutional framework governing inter-State trade and taxation, observing that States cannot overlap taxation powers reserved for Parliament.
The Court observed that “stable jurisprudence would attract foreign investments” while discussing the importance of certainty in fiscal laws involving international consortiums.
The Bench also reiterated that Article 269 and the Central Sales Tax regime reserve taxation of inter-State sales to the Union framework, with proceeds assigned to States as provided by law.
Court’s Decision
The Supreme Court ultimately dismissed the appeals filed by the State of Uttar Pradesh, thereby affirming the Allahabad High Court’s decision setting aside the VAT assessment orders.
The Court agreed that the movement of natural gas from Andhra Pradesh to Uttar Pradesh was an inter-State transaction triggered by contractual obligations under the GSPA and GTA arrangements. As a result, Uttar Pradesh lacked jurisdiction to levy VAT on the transactions.
Case Details
Case Title: State of Uttar Pradesh & Ors. v. Reliance Industries Limited & Ors.
Case Number: Civil Appeal No. 3910 of 2016 and connected matters
Court: Supreme Court of India
Judge: Justice J.K. Maheshwari
Date: May 15, 2026
