2019 (4) TMI 999 - AT - Central Excise

Trade Margin not part of assessable value for excise duty: Tribunal rules in favor of Appellant

The Tribunal held that the 'Trade Margin' paid by the Appellant to Oil Marketing Companies should not be included in the assessable value for central ... Valuation - inclusion of Trade Margin in the assessable value - Appellant has entered into agreement with the OMCs for supply on Natural gas/ CNG on principal to principal basis - extended period of limitation - HELD THAT:- The terms of the supply were negotiated on principal to principal basis and it specifically provides the responsibility of the Appellant and OMCs to do certain acts and services. Hence clearly it is a negotiated deal between the two parties - The agreement between the appellant and OMCs clearly shows that the trade margin were being decided at fixed level by the parties to such agreement. The Trade Margin is decided after considering the costs and expenses incurred by OMCs including their profits. The above terms of the agreement clearly show that the transaction between the appellant and the OMCs is at arms length and cannot be doubted. Hence the Trade Margin cannot be included in the assessable value at the Appellant’s end and hence the demand raised against the Appellant on Trade margin is not sustainable. Reliance can be placed in the case of MAHANAGAR GAS LIMITED VERSUS CCE, MUMBAI - V [2016 (9) TMI 782 - CESTAT MUMBAI], where it was held that trade discount allowed by whatever name called is an admissible deduction and the appellants are not liable to include the same for the purpose of payment of duty. In the present case also the value of the goods between the Appellant and OMCs is fixed as per the agreement and hence the same cannot be disputed - It is also a fact that the OMCs are Public Undertakings and therefore, there is no iota of doubt that the transaction between the parties is the sole consideration and at arm’s length - there is no commission being paid by the appellant to the OMCs and what has been provided by the appellant is only a trade discount, which is a normal business practice - the demand on ‘Trade Margin’ confirmed against the Appellant is not sustainable and is required to be set aside. Time limitation - HELD THAT:- The Revenue was in knowledge of the valuation method adopted by the appellant. The Appellant since 2005 had made correspondence with the department disclosing the price structure with bulk customers, retail customers and OMCs to the Revenue - Since there is no ingredient of any malafide intention on the part of the Appellant to evade the excise duty, the extended period cannot be invoked for raising demand. Appeal allowed - decided in favor of appellant. Issues Involved:1. Inclusion of 'Trade Margin' in the assessable value for payment of central excise duty.2. Nature of the transaction between the Appellant and Oil Marketing Companies (OMCs).3. Applicability of extended period for raising demand.Issue-wise Detailed Analysis:1. Inclusion of 'Trade Margin' in the Assessable Value:The core issue revolves around whether the 'Trade Margin' paid by the Appellant to the OMCs should be included in the assessable value for central excise duty purposes. The adjudicating authority argued that the 'Trade Margin' is compensation for facilities provided by the OMCs and should be included in the assessable value. However, the Appellant contended that the 'Trade Margin' is a genuine pre-estimate of costs, expenses, and profit margins, negotiated on a principal-to-principal basis, and not an additional consideration. The Tribunal found that the transaction between the Appellant and OMCs is at arm’s length, and the 'Trade Margin' cannot be included in the assessable value. This conclusion was supported by the Tribunal's previous judgment in the case of Mahanagar Gas Ltd, which was affirmed by the Supreme Court.2. Nature of the Transaction Between the Appellant and OMCs:The Tribunal examined the nature of the transaction and the terms of the agreement between the Appellant and OMCs. It was established that the relationship was on a principal-to-principal basis, with specific responsibilities and the passing of title to the goods clearly defined. The Appellant and OMCs paid VAT at different stages, indicating a genuine sale transaction. The Tribunal rejected the adjudicating authority’s claim that no actual sale took place and that service tax should have been paid. The Tribunal referenced several cases, including BEHR India Ltd and BPCL, to support the view that the transaction was a sale and not a service.3. Applicability of Extended Period for Raising Demand:The Tribunal also addressed the issue of the extended period for raising the demand. It was noted that the Appellant had consistently disclosed its pricing structure and the terms of its agreements with the OMCs to the Revenue authorities since 2005. The Tribunal found that there was no malafide intention to evade duty, and thus, the extended period could not be invoked. This view was supported by various judgments, including those of the Supreme Court and High Courts, which emphasized the importance of transparency and the absence of intent to evade duty.Conclusion:The Tribunal concluded that the demand for including the 'Trade Margin' in the assessable value was not sustainable on merits or on the grounds of limitation. The impugned order was set aside, and the appeal was allowed with consequential reliefs to the Appellant. The cross-objection was also disposed of.