TaxTMI 
TaxTMI 
2025 (6) TMI 356
X X X X Extracts X X X X
X X X X Extracts X X X X
....03-2002, the pricing of the petroleum products was fixed in terms of the Administered Price Mechanism (APM). W.e.f. 01-04-2002, APM was discontinued, to maintain uninterrupted supplies to the consumers and in public interest, the Government of India directed OMCs to enter into an agreement so that an OMC having refinery in a particular area may sell the petroleum products to another OMC having the nearby marketing facilities at the Import Parity Price. 2.3 Thus, an agreement was entered into among the Appellant and the other OMCs, viz. BPCL and HPCL on 31-03-2002 in form of a Memorandum of Understanding (MOU). Under the said MOU, all the OMCs agreed to sell and purchase the subject petroleum products [viz. High Speed Deisel (HSD) and Motor Spirit (MS, petrol)] to each other by charging the prices based on "Import Parity Price", suggested by the government. 2.4 In terms of said agreement, the Import Parity Price (IPP) was taken as the sale price even though the goods were actually manufactured indigenously. The agreement defines IPP as the sum of landed cost of the product at the nearest port, the transportation cost from the port to the storage point of the selling OMC and th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2.11 The demand proposed in the SCN came to be confirmed vide Order-in-Original dated 30-10-2008. 2.12 Being aggrieved by the Order-in-Original, the Appellant preferred the present appeal before this Tribunal. This appeal was disposed off in favour of the Appellant by setting aside the demand by relying upon the Appellant's own case in CCE, Mumbai-IV vs. IOCL, 2014 (308) ELT 502 (Tri-Mumbai)vide Final Order No. FO/77002/2018 dated 28-11-2018. 2.13 The Revenue being aggrieved by such order challenged it before the Hon'ble Supreme Court vide Civil Appeal No. 5516 of 2019. This appeal formed part of the batch wherein arising out of different order of this CESTAT. The Hon'ble Supreme Court vide its judgment dated 20-01-2025 was pleased to dispose of the batch of petitions by holding that the price fixed under the MoU cannot be taken as transaction value in terms of Section 4(1)(a) of the Central Excise Act, 1944 since price was not the sole consideration for sale. Accordingly, the following order was passed: "40. Hence, we pass the following order: i) Civil Appeal No.5642 of 2009 is hereby allowed. The impugned orders, including the order dated 8th December 2007....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch 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. Hence, we concur with the conclusion in the impugned judgment that the price was not the sole consideration for sale." 3.3 It is submitted that Rule 4 of the Valuation Rules, 2000 would be applicable in cases where there is no sale of goods involved and in the absence any price per se, the price of such goods sold nearest to the time of removal of goods under assessment, is adopted. 3.4 In the instant case, Rule 4 has been invoked in the SCN and relied upon in the OIO to confirm the demand by finding that goods were not sold to the OMCs by the Appellant. However, the Hon'ble Supreme Court did not dispute the sale of goods to the OMCs but rejected the transaction value only on the ground that price is not the sole consideration for sale between the Appellant and the OMCs. Even as per Section 2(h) of the Central Excise Act, which defines sale to mean 'transfer of possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration', the transaction between the Ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o be set aside. 3.14 It is further submitted that without prejudice to the submissions made above, value for the additional consideration of 'uninterrupted and smooth supply of the subject goods cannot be quantified, making rule 6 unworkable. Therefore, there cannot be any addition to the IPP charged by the Appellant from the OMCs. 3.15 As held by the Hon'ble Supreme Court, the 'ensuring uninterrupted and smooth supply' of subject goods among the OMCs was additional consideration in the transaction of sale of subject goods under MoU. Rule 6 requires conversion of additional consideration in money value and add the same with the transaction value agreed between the parties. 3.16 In the instant case, given the abstract nature of the additional consideration viz. 'ensuring uninterrupted and smooth supply of subject goods', it is not possible to quantify the additional consideration in money value under the appropriate rule. A bare look at the Explanation 1 of Rule 6 of the Valuation Rules also provides an insight of what all additional considerations are capable of being worked out and added to the price of excisable goods. It provides for the apportioned value of of the foll....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f residential complex services. • Vasudha Bommireddy vs. Assistant Commissioner of S. T., Hyderabad, 2020 (35) G.S.T.L. 52 (Telangana) - in the context of absence of any provision for determination of value of service portion in composite contract of sale involving not only service component but also sale of built up area along with undivided share of land and also sale of goods included in total consideration paid for purchase falling in clause (b) of Section 66E. • Sal Steel Ltd. vs. Union of India, 2020 (37) G.S.T.L. 3 (Guj.) - in the context of absence of machinery provision for valuation of services of ocean freight where the liability to pay service tax in case of CIF contracts was fixed on the importer of goods, who is not even the recipient of services. 3.20 Therefore, when the money value of the additional consideration is not capable of being derived, the valuation mechanism of Rule 6 fails and consequently, the demand has to be set aside. 3.21 The department's working of treating the difference between the IPP and sale prices to dealer as differential value for charging excise duty (though while invoking Rule 4 and not Rule 6) can also not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble, demand of interest and penalty is also liable to be set aside. 3.27 The Hon'ble Supreme Court in its remand order has held that neither the extended period of limitation is invocable in the batch of the cases before it nor penalty is imposable under Section 11AC, in as much as the revenue was always aware of the MoU between the OMCs. Accordingly, the penalty under Section 11AC imposed in the impugned order is also not sustainable. 3.28 As regards the interest liability, the Appellant submits that: (i) Till the issuance of the Hon'ble Supreme Court's order dated 20.01.2025, the Hon'ble Supreme Court on the same issue, in cases of Commissioner vs. Hindustan Petroleum Corpn. Ltd. - 2006 (196) E.L.T. A72 (S.C.) and Commissioner vs. Kochi Refineries Ltd. - 2015 (320) E.L.T. A33 (S.C) had accepted the IPP as transaction value. (ii) The appellant relied on these judgements and had a bona fide belief that the transaction value adopted by OMCs is correct. (iii) The above is strengthened by the fact that the same methodology is applied while procuring/ selling petroleum products from/ to private refiners and standalone refiners. (iv) MoF itself ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt reflected from the MOU is essentially for ensuring that every OMC gets smooth and uninterrupted supply all over India, irrespective of whether an OMC has a refinery or otherwise in a particular part of India. Thus, from a plain reading of the MOU, we find that the real consideration for the MOU was to ensure an uninterrupted supply to all the OMCs at various places in India. The MOU incorporates mutual arrangements made by MNCs for an uninterrupted supply of petroleum products so that MNCs can further sell the products to their dealers. 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. Hence, we concur with the conclusion in the impugned judgment that the price was not the sole consideration for sale." 7. In view of the remand proceedings, we have gone through the various provisions, which are relevant for adjudication of the case. Section 4 of the Central Excise Act, 1944 is very much relevant, which reads as under : "SECTION [4. Valuation of excisable goods for purposes of charging of duty of excise. - (1) Where under this Act, the duty of excise is chargeable on any ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t is to be adopted. On the basis of this, the demand has been confirmed in the impugned order, but the Hon'ble Apex Court observed that the price is not sole consideration for sale. Therefore, where the price is not the sole consideration for sale, Rule 6 of the Valuation Rules is applicable. Admittedly, in this case, Rule 6 of the Valuation Rules has not been invoked in the show-cause notice and the Rule 4 of the Valuation Rules is not applicable as per the observations of the Hon'ble Apex Court while remanding the matter back to this Tribunal. 10. In that circumstances, the demand in question is to be set aside as Rule 4 of the Valuation Rules is not applicable to the facts and circumstances of the case as observed by the Hon'ble Apex Court in the case of Commissioner of Central Excise, Nagpur Vs. Ballarpur Industries Limited (supra), wherein the Hon'ble Supreme Court has observed as under : "21. Before concluding, we may mention that, in the present case, the second and the third show cause notices are alone remitted. The first show cause notice dated 21-5-1999 is set aside as time-barred. However, it is made clear that Rule 7 of the Valuation Rules, 1975 will not be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....voked in this case, therefore, on merit, the demand is not sustainable by invoking Rule 4 of the Valuation Rules. 13. But we are duty bound to follow the direction of the Hon'ble Apex Court while remanded the matter to this Tribunal holding that the price is not the sole consideration for sale, therefore, we have to find out whether the appellant has received any consideration of over and above transaction value or not ? 14. To this effect, the appellant has filed an Affidavit. The same is taken on record. For better appreciation, the same is extracted below : As per the Affidavit, the appellant did not receive any additional consideration in monetary terms or otherwise from the OMC in relation to the sale of such petroleum product and the Revenue has also not alleged in the show-cause notice that the appellant has received any amount in monetary terms or otherwise over and above the transaction value from the OMC in relation to the sale of the goods in question. Therefore, Rule 6 is not applicable on merit in the facts and circumstances of the case. 15. We further take note of the fact that the demand in this case is for the period 01.11.2006 to 15.03.2007, wherein the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... HSD 23,361.47 23,412.72 51.25 12/16/2006 12/31/2006 HSD 23,060.96 23,412.72 351.76 1/1/2007 1/15/2007 HSD 22,763.03 23,412.72 649.69 1/16/2007 1/31/2007 HSD 21,495.00 23,412.72 1,917.72 2/1/2007 2/15/2007 HSD 21,311.29 22,412.00 1,100.71 2/16/2007 2/28/2007 HSD 22,074.00 22,412.00 338.00 3/1/2007 3/15/2007 HSD 22,021.31 22,412.00 390.69 3/16/2007 3/31/2007 HSD 23,472.23 22,054.64 -1,417.59 4/1/2007 4/15/2007 HSD 23,472.23 22,054.64 -1,417.59 4/18/2007 4/30/2007 HSD 23,807.54 22,054.64 -1,752.90 5/1/2007 5/15/2007 HSD 25,096.52 22,054.64 -3,041.88 5/16/2007 5/31/2007 HSD 25,028.43 22,054.64 -2,973.79 6/1/2007 6/....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... MS 19,347.14 21,454.00 2,106.86 3/1/2007 3/15/2007 MS 20,536.92 21,454.00 917.08 3/16/2007 3/31/2007 MS 23,742.90 21,097.90 -2,645.00 4/1/2007 4/15/2007 MS 22,901.08 21,097.90 -1,803.18 4/16/2007 4/30/2007 MS 23,858.43 21,097.90 -2,760.53 5/1/2007 5/15/2007 MS 24,119.76 21,097.90 -3,021.86 5/16/2007 5/31/2007 MS 24,463.93 21,097.90 -3,366.03 6/1/2007 6/15/2007 |MS 25,050.98 21,097.90 -3,953.08 6/16/2007 6/30/2007 MS 23,608.33 21,097.90 -2,510.43 • is the period of demand For FY 2006-07 Rs. Excess Duty paid on HSD considering Dealer prices as Assessable Value 39,429,171 Short Excise Duty paid on MS considering dealer price as assessable value -736211.965 Total Excess ED paid in FY 2006-07 38,692,959 16. In that circ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... valuation. Further, transactions where excise duty paid is lower than the duty payable on application of Rule 8 has been selected. By adopting such methodology of pick and choose, the excise duty demand has been arrived at. This bench finds that the approach of the Ld. Commissioner in confirming the demand by considering the annexures relating to short payment of excise duty alone is legally erroneous. The Ld. Commissioner ought to have allowed the adjustment of excess excise duty paid against the short payment, prior to raising any demand on the Appellant. We are in agreement with the long range of judgments referred to by the Appellant wherein such adjustment has been allowed in the context of identical matters, matters involving CAS-4 valuation, matters involving provisional assessment and matters involving SSI exemptions. Some of the judgments which are directly applicable to the present case are referred hereunder: (a) Pr. Commr. of CGST & CE Vs. Godrej Consumer Products Ltd. 2019 (367) ELT 985 (MP) - wherein the Hon'ble High Court upheld the Tribunal's order relying on the following observations made in the case of Essar Steel India Ltd. v. Commissioner, 2017 (345) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... duty liability as already discharged on the basis of value which is not final. The net excess or shortage will have to be considered. In the present case, admittedly, no refund has been claimed or under consideration for the impugned period even though overall payment by the appellant for the whole year is much higher than the actual liability." 11. It is observed that demand raised vide the impugned order is not sustainable as during the relevant period the Appellant had paid the correct duty arrived at in terms of Rule 4 of the Valuation Rules. Moreover, the Appellant has paid much higher duty than what is demanded in the impugned order and in such factual circumstances, adjustment of excise duty must have been allowed instead of raising any further demand." 18. As the appellant paid excess duty in whole of the period in dispute, therefore, the impugned demand is not sustainable. In view of this, we observe as under : (a) As Rule 4 of the Valuation Rules is not invokable as observed by the Hon'ble Apex Court, therefore, the demand proposed in the show-cause notice by invoking Rule 4 of the Valuation Rules, is not sustainable ; (b) As per the directi....