2017 (8) TMI 1155 - AT - Central Excise

Tribunal clarifies valuation rules for excise duty on petroleum products, Buyer nature key factor

Commissioner of Central Excise, Chennai-I Versus Chennai Petroleum Corporation Ltd.

The Tribunal upheld the Order-in-Original in favor of the Respondent, emphasizing the distinction between related and unrelated buyers in the valuation of ... Valuation - related party transaction - clearances made by the respondent to oil marketing companies, viz. HPCL and BPCL who are independent and separate PSUs and are unrelated buyers - Held that: - the sales made by CPCL are not exclusively to the related person i.e. IOCL. The sales made to HPCL as well as BPCL cannot be considered as sales to related persons. They are independent and separate PSUs who are unrelated buyers - reliance placed in the case of Aquamall Water Solutions [2005 (10) TMI 533 - SUPREME COURT] wherein the Apex Court upheld the Tribunal's order which held that when goods are not exclusively sold to principal holding company, Rule 9 & 10 of Central Excise (Valuation) Rules, 2000 cannot be invoked and the prices of goods sold by the principal holding company to their dealer should not be adopted as transaction value - appeal dismissed - decided against Revenue. Issues:Valuation of petroleum products for excise duty - Application of Central Excise Valuation Rules - Distinction between related and unrelated buyers - Interpretation of Rule 9 and Rule 10 - Impact of CBEC circulars - Pre and post-amendment scenarios.Analysis:The case involved two appeals filed by Revenue against OIO No.4 & 5/2007 concerning the valuation of petroleum products for excise duty. The Respondent, a refinery manufacturing various petroleum products, had sold products exclusively to IOCL, its holding company, and to other unrelated buyers like HPCL and BPCL. The dispute centered around the valuation of products sold to unrelated buyers compared to those sold to the holding company. The Department argued that excise duty should be based on the price at which IOCL sold the goods, while the Respondent contended that the Refinery Transfer Price (RTP) should be used. The Order-in-Original held in favor of the Respondent, citing the Aquamall Water Solutions case and emphasizing the need to adopt the sale price of related persons based on best judgment.The Department contended that the valuation should be based on the price at which IOCL/IBP sold to their dealers, as per Rule 10 read with Rule 9 of the Central Excise Valuation Rules. The Commissioner's decision was based on the Aquamall Water Solutions case and the new Section 4, which recognizes multiple values based on each transaction. The Department argued for differential duty between the RTP price and IOCL/IBP price, emphasizing the need to follow CBEC Circular No.643/34/2002-CX. The Respondent, on the other hand, argued that the demand was for the period before the amendment to Rule 9 and 10 in 2013 and relied on various case laws to support their position.After considering the arguments from both sides, the Tribunal noted that the sales to HPCL and BPCL were made to independent and unrelated buyers, unlike the sales to IOCL. The Tribunal referred to the Aquamall Water Solutions case, where it was held that when goods are not exclusively sold to the principal holding company, Rule 9 & 10 of Central Excise Valuation Rules cannot be invoked. The Tribunal also considered the CBEC circular clarifying the issue post-amendment. Consequently, the Tribunal upheld the impugned order, dismissing the Revenue appeals and disposing of the cross objections filed by the Respondent.In conclusion, the Tribunal's decision was based on the distinction between related and unrelated buyers, the interpretation of Central Excise Valuation Rules, the application of relevant case laws, and the impact of CBEC circulars. The judgment clarified the valuation method for petroleum products for excise duty, emphasizing the need to consider the nature of the buyer in determining the appropriate valuation rules.