1989 (12) TMI 190 - AT - Central Excise

Appeals granted, demands time-barred. Assessable value based on actual prices. Related party status denied. Invalid demands beyond limitation.

INDIAN OIL CORPORATION Versus COLLECTOR OF CENTRAL EXCISE

The appeals were allowed, and the demands exceeding a period of one year were held to be time-barred. The assessable value of petroleum products was ... Demand - Short-levy Issues Involved:1. Time-bar of demands.2. Assessable value of petroleum products.3. Relationship between the appellant and buyers.4. Validity of show cause notices.5. Application of Rule 10 vs. Rule 10-A of Central Excise Rules.6. Suppression of facts and related persons.7. Double collection of duty.Detailed Analysis:1. Time-bar of Demands:The appellants argued that a substantial part of the demand was time-barred, as the show cause notices were issued beyond the period of limitation provided in Rule 10. They contended that Rule 10, not Rule 10-A, was applicable since any short recovery was due to error, inadvertence, or mis-construction, not due to suppression of facts. The Tribunal agreed, noting that the appellants held a Central Excise Licence, filed classification lists and price lists, and there was no provisional assessment. The demands exceeding a period of one year were held to be time-barred.2. Assessable Value of Petroleum Products:The appellants produced various petroleum products and sold them at prices fixed by the Ministry of Petroleum. They argued that the compensatory price increase was a surcharge on lubricants, which went entirely to the pool account and did not form part of the wholesale cash price. The Tribunal considered the agreements and concluded that sales to Burmah Shell and BPC were at arm's length and not to related persons. Thus, the assessable value should be based on actual prices rather than potential higher prices.3. Relationship Between the Appellant and Buyers:The appellants contended that Burmah Shell and BPC were not related persons. The Tribunal examined the connection between AOC and Shell, noting that AOC was a subsidiary of BOC, which had shareholding interest in Burmah Shell, UK. However, there was no mutuality of interest. The Tribunal cited case law supporting the view that subsidiaries of the same holding company are not related persons. Therefore, the Tribunal held that AOC and BPC were not related persons.4. Validity of Show Cause Notices:The Tribunal noted that the show cause notices did not allege suppression of facts but only an omission to furnish a pricing circular. The Tribunal accepted the appellants' submission that suppression of facts should involve active concealment, not mere omission. Therefore, demands made beyond the normal period of limitation were held invalid.5. Application of Rule 10 vs. Rule 10-A of Central Excise Rules:The appellants argued that Rule 10, not Rule 10-A, was applicable. The Tribunal agreed, noting that the short-levy occurred due to inadvertence, error, or mis-construction of law. Therefore, Rule 10 was applicable, and demands exceeding a period of one year were time-barred.6. Suppression of Facts and Related Persons:The Tribunal considered the appellants' argument that there was no suppression of facts. The show cause notices did not allege suppression but only an omission to furnish a pricing circular. The Tribunal accepted the appellants' submission that suppression of facts should involve active concealment, not mere omission. Therefore, demands made beyond the normal period of limitation were held invalid.7. Double Collection of Duty:The appellants argued that any realization of duty in respect of sales to Shell would amount to double collection of duty, as Shell had already paid excise duty on surcharge to the Block Control Account. The Tribunal noted that the appellants were prepared to pay the excise duty element on surcharge relating to sales to Castrol without contesting the same on limitation. Therefore, the Tribunal held that there would be no loss of revenue.Conclusion:All seven appeals were allowed. The appellants were directed to credit to the Central Excise Department the amounts collected from Castrol as excise duty on surcharge relating to the clearances of products BOC 400, AG 140, and BOC 250 without contesting the same on limitation.