2025 (1) TMI 989 - SC - Central Excise

Oil marketing companies' MOU arrangement for uninterrupted petroleum supply doesn't constitute sole consideration for Central Excise valuation purposes

Bharat Petroleum Corporation Ltd. Versus Commissioner of Central Excise Nashik Commissionerate

Bharat Petroleum Corporation Ltd. Versus Commissioner of Central Excise Nashik Commissionerate - 2025 INSC 84 1. ISSUES PRESENTED and CONSIDEREDThe judgment primarily revolves around the following core legal questions:(i) Whether the price was the sole consideration for the sale of petroleum products among Oil Marketing Companies (OMCs) under the Memorandum of Understanding (MOU)Rs.(ii) Whether the revenue was entitled to invoke an extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act, 1944Rs.(iii) Whether the revenue was entitled to levy a penalty under Section 11AC of the Central Excise Act, 1944Rs.2. ISSUE-WISE DETAILED ANALYSISIssue (i): Whether the price was the sole consideration for the saleRs.- Relevant legal framework and precedents: Section 4(1)(a) of the Central Excise Act, 1944, stipulates that the transaction value is applicable if the price is the sole consideration for the sale, and the buyer and seller are not related.- Court's interpretation and reasoning: The court examined the MOU and concluded that the arrangement was not purely commercial but aimed at ensuring an uninterrupted supply of petroleum products across India. The MOU facilitated product sharing among OMCs to avoid supply disruptions, indicating that the price was not the sole consideration.- Key evidence and findings: The court analyzed the MOU's clauses and the intent behind its execution, which was to ensure smooth distribution rather than commercial sale. The MOU was executed at the behest of the Ministry of Petroleum and Natural Gas, emphasizing mutual assistance over commercial transactions.- Application of law to facts: The court applied Section 4(1)(a) and determined that since the price was not the sole consideration, the transaction value could not be applied as per the said section.- Treatment of competing arguments: The court rejected the argument that the price was the sole consideration, as the MOU's primary objective was to ensure supply continuity, not commercial profit.- Conclusions: The court concluded that the price was not the sole consideration for the sales under the MOU, thereby negating the applicability of Section 4(1)(a) for determining transaction value.Issue (ii): Whether the revenue was entitled to invoke an extended period of limitationRs.- Relevant legal framework and precedents: Section 11A(1) of the Central Excise Act allows an extended period of limitation for recovery of duties in cases of fraud, collusion, or suppression of facts.- Court's interpretation and reasoning: The court found no evidence of suppression or misrepresentation by BPCL regarding the MOU. The department was aware of the MOU, and there was no deliberate concealment by BPCL.- Key evidence and findings: The court noted that the MOU was known to the department, and there was no specific allegation of misrepresentation by BPCL.- Application of law to facts: The court held that the conditions for invoking the extended period of limitation were not met, as there was no suppression or misrepresentation by BPCL.- Treatment of competing arguments: The court dismissed the revenue's argument that BPCL had suppressed the MOU, noting that the department was already aware of its existence.- Conclusions: The court concluded that the extended period of limitation could not be invoked, and the demand was unsustainable on this ground.Issue (iii): Whether the revenue was entitled to levy a penalty under Section 11ACRs.- Relevant legal framework and precedents: Section 11AC imposes penalties for non-levy or short-levy of duty due to fraud, collusion, or suppression of facts.- Court's interpretation and reasoning: The court found no basis for imposing a penalty under Section 11AC, as the conditions for invoking the extended period of limitation were not satisfied.- Key evidence and findings: The absence of fraud, collusion, or suppression of facts negated the applicability of Section 11AC.- Application of law to facts: The court determined that there was no justification for imposing a penalty, as the prerequisites under Section 11AC were not met.- Treatment of competing arguments: The court rejected the revenue's contention for imposing a penalty, given the lack of evidence for fraud or suppression.- Conclusions: The court concluded that the penalty under Section 11AC was not applicable, and the imposition was unjustified.3. SIGNIFICANT HOLDINGS- Preserve verbatim quotes of crucial legal reasoning: 'By no stretch of the imagination, it can be said that the price fixed under the MOU was the sole consideration for the sale by one OMC to the other.'- Core principles established: The court emphasized that for transaction value to apply under Section 4(1)(a), the price must be the sole consideration. Additionally, the extended period of limitation and penalties under Sections 11A and 11AC require evidence of fraud, collusion, or suppression.- Final determinations on each issue: The court determined that the price was not the sole consideration, the extended period of limitation was not applicable, and the penalty under Section 11AC was unjustified. Consequently, the demand against BPCL was set aside, and other related appeals were remanded for fresh adjudication.