TaxTMI 
TaxTMI 
2025 (11) TMI 502
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.... under Sec. 11AB ibid on delayed payment of duty. The adjudged duty and penalty should be paid forthwith." 2.1 Appellant having a Terminal at Peepalgaon, Allahabad for supply of various petroleum products like High Speed Diesel, petrol etc. to the various petrol pumps either owned by them or by their marketing company. Appellant was under a memorandum of understanding with other public sector Oil Marketing Companies (O.M.Cs.) such as HPCL, BPCL and IBP are resorting to under valuation of petroleum products by paying Central Excise duty on Motor Spirit (M.S.) and High Speed Diesel (H.S.D.) on the assessable value fixed by Oil Coordination Committee under Administered Price Mechanism which remained same irrespective of the facts whether the products were sold through their depot or cleared to other Oil Marketing Companies prior to 01.04.2002. W.e.f. 01.04.2002 appellant's P.M. was dismantled and all other O.M.Cs. i.e. appellant and other public sector companies entered into a Memorandum of Understanding (MOU) for product sharing whereby any oil company having warehouse/ refinery at any given location were obliged to exchange the product with other oil companies on the assessable v....
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....ecisions. Tribunal in the case of Hindustan Petroleum Corpn. Ltd. vs. CCE 2005 (187) ELT 479 (Tri-Bang)] has held in favour of the assessee. Revenue's appeal filed against the assessee was dismissed by the Hon'ble Supreme Court as reported in [2006 (196) ELT A 72 (SC)]. Another decision, which is in the same appellants case is Indian Oil Corpn. Ltd. vs. CCE Goa [2009 (235) ELT 702 (Tri-Mum)] 3. At this stage, learned DR appearing for the Revenue has also brought to our notice contra decision of the Tribunal in the case of Bharat Petroleum Corpn. Ltd. [2009 (242) ELT 358 (Tri-Mum)]. However, we find that said decision was taken note of by the Tribunal in a subsequent matter in the case of Commissioner of Central Excise Cochin vs. M/s. Kochi Refineries Ltd. [2011-TIOL-276-CESTAT-Bang] and was distinguished. Inasmuch as there are decisions in the appellants own case as also in other cases which stand confirmed by the Hon'ble Supreme Court, we deem it fit to follow the same. Accordingly, we set aside the impugned order and allow the appeal with consequential relief to the appellant." 2.6 Aggrieved form the above order, revenue has filed appeal before Hon'ble Supreme....
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....025. ⮚ Once the adjudicating authority has choosen to not give any finding in respect of rule 6 then it will be deemed that that ground was found not fit to be used against the appellant and in absence of any appeal by the department or any cross objection in the appeal of the appellant, now that issue is not open for consideration at any stage. ⮚ Further, the impugned show cause notice is vague as it was not clear to the officer who issued the impugned show cause notice what provisions will be applicable and such vague show cause notice is not sustainable. ⮚ Without prejudice to the submissions made above, value for the additional consideration cannot be quantified, making rule 6 unworkable. Therefore, there cannot be any addition to the ipp charged by the appellant from the omcs. ⮚ In the instant case, in the absence of any additional consideration received in monetary terms from the OMCs to the Appellant, the machinery of the valuation Rule 6 of the Valuation Rules fails and thus, no further value can be added to the IPP in the instant case. Reliance is placed on the following decisions:- o CIT v. B.C. Srin....
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....shall- (a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value; (b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed." (emphasis added) 23. Therefore, for applicability of clause (a) of Section 4(1), the following conditions must be fulfilled: a. The assessee sells the goods for delivery at time and place of the removal; b. The assessee and the buyer are not related; and c. The price is the sole consideration for the sale. Only if all three conditions are fulfilled, the value of the goods for the purpose of computation of excise duty will be the transaction value. In a given case, if it is not proved that the price was the sole consideration for sale, clause (a) of Section 4(1) would not apply. In that case, clause (b) of Section 4(1) would apply. 24. We have perused the MOU dated 31st March 2001. IOCL, HPCL, BPCL and IBP are the parties to t....
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....fineries" as IOCL and its associates, including different companies/ refineries, as stated therein. The group of refineries also include Reliance Petroleum Limited (for short, 'RPL'). Clause 2.14 defines an "Industry Logistics Plan (ILP)" as an All India Supply and Distribution Plan jointly drawn by the OMCs based on the industry's product availability and market demands for particular months. Thus, the All India Supply and Distribution Plan, known as ILP, was jointly drawn by the OMCs, considering the market demand and availability. 26. Clause 4.1 of the MOU provides that OMCs agree to sell and purchase the products to each other in such quantities as determined based on the principles laid down in the ILP procedure. The ILP procedure is drawn jointly by the OMCs to ensure that adequate supply for each one of them is available. 27. Clause 4.3 of the MOU reads thus: "4.3 It is agreed that any shortfall in actual upliftment quantity ex RPL versus Monthly reassessed Quantity of Oil Marketing Companies, shall be reduced by the excess quantity of the Product that RPL has delivered in the month to any other Oil Marketing Company against its respective Monthly ....
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....this Court does not constitute a binding decision on the issue of compliance with the third condition in Section 4(1)(a) as the Tribunal had not decided the said issue. THE CIRCULAR DATED 14TH FEBRUARY 2007 30. Now, we come to the Circular issued by the Board on 14th February 2007. The circular refers to the decision in the case of Hindustan Petroleum Corporation Ltd.1 Though the circular mentions that pending cases and future assessments of the product should be decided based on the said decision, it was observed that the facts of the case decided by the Tribunal may be gone through properly in order to apply to the pending cases as well as future assessments. Therefore, even the Circular noted the requirement of applying the ratio to the facts of each case. Thus, the finding of the fact recorded by the Tribunal in Civil Appeal No.5642 of 2009 that price was not the sole consideration cannot be faulted with. Was the extended period of limitation under the proviso to Section 11-A(1) of the 1944 Act applicable? 31. Section 11A reads thus: "Section 11A - Recovery of duties not levied or not paid or short-levied or short-paid or erroneously....
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....short levy or short payment of the excise duty by a reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of 1944 Act or the rules made thereunder with the intent to evade payment of duty. The show cause notice referred to the statements recorded of BPCL officers and other OMCs. No detailed reasons have been recorded in support of invoking the extended period of limitation by the Commissioner in his order. The High Court, in the impugned order, has confirmed the extended period of limitation by recording the following findings in paragraph 44: "44. On the question of time bar, we find that the show cause notice has alleged that the contents of the MOU were not brought to the notice of the Commissionerate and that M/s. BPCL has misled the Department into believing that the dual pricing adopted by them has been done on the directive of the Govt. of India. This has not been contested by the appellants. Their only defence is that mere non-submission of the MOU cannot be a ground for invoking the extended time limit and there should be some positive act of omission / commission for the same. Withholding the MO....
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....OU was fixed as per the directives of the Central Government. We have also carefully perused the order passed by the Commissioner on the show cause notice. Even in the order, no specific reference has been made to any such contention raised by BPCL or other OMCs. Even the order also refers to statements of the officers of BPCL and other OMCs. Hence, both the grounds in support of invoking an extended period of limitation cannot be sustained, and only on that ground, the demand cannot be sustained. WHETHER SECTION 11AC WAS APPLICABLE? 35. Then, we come to the penalty imposed under Section 11AC of the 1944 Act. Section 11AC reads thus: "11AC. Penalty for short-levy or non-levy of duty in certain cases Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made there under with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of section 11A, shall also be liable to pay a penalty equ....
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....d of limitation, the penalty could not have been imposed. 37. In paragraph 40 of the impugned judgment, it is mentioned that BPCL did not submit any argument on the valuation method adopted by the Commissioner, who has adopted Rule 11 read with Rule 7. However, the Tribunal found that Rule 4 of the Central Excise Valuation Rules, 2000, is the correct provision to be applied for valuation. 38. Therefore, the said appeal preferred by the BPCL deserves to be allowed by setting aside the entire demand on the ground that the extended period of limitation could not be invoked." 4.3 Impugned order records the findings as follows:- "(a) I have carefully gone through the S.C.N., defence submissions dt. 13.4.05 and dt. 18.5.05 and all other relevant records. After going through the case, I have come to a point that the pivotal question for my consideration is whether I.O.C.L and other O.M.Cs are interconnected undertakings and are covered under the term "related person" as defined under Sec.4(3)(b) of Central Excise Act, 1944. I find that in the show cause notice computation of assessable value is proposed in terms of Sec.4(1)(b) of the Act read with Rule 9 of C....
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....d function under common control of administration and operation of the Ministry of Oil and Natural Gases, Govt. of India. In the memorandum of undertakings also at article (2), it has been defined as :- 2.1 associate' means any entity or entitles controlled by, or under common control with concerned party, where control means possession direct or indirect, of the power to direct or cause the direction of the management and noticees of a person of entity, whether through the ownership of voting securities, by contract or otherwise". As long the I.O.C.L and O.M.Cs. are guided by the said memorandum and function under common control of Govt. Of India for their common interest, there is no ground why the sales to O.MCs should not be treated as sale made to related person. In that circumstances the I.O.C.L. should have sold the petroleum product to O.M.Cs. and paid Central Excise duty on the value at which they sold their products to their own dealers in terms of Rule 9 of Central Excise (Valuation) Rules, 2000. The I.O.C's contention on the issue of related/ interconnected undertakings that O.M.Cs. including I.O.C.L have no direct and indirect control in any m....
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....ore so they can not adopt two formulae to derive transaction value of same product one formula when the products are sold to their own dealers and other when the products are sold to O.M.Cs.. Mutual interest of O.M.Cs cannot be denied as long as they are guided by the terms and conditions of M.O.U. for sharing and exchange of their products. The gain on account of short payment of duty shall be enjoyed by all of them, hence the money value of such gain flowing indirectly is to be added in the transaction value. The case laws cited by the I.O.C.L have been studied in depth and it is pertinent to say that those decisions are relevant if the benefit is passed on to last consumer. But in the instant case as discussed above the price of M.S and H.S.D for consumer remains same irrespective of the fact whether the said products are sold through their own dealers or through O.M.Cs. Therefore, the demand of duty is lawful and I hold I.O.C.L liable to pay duty short paid by them. As regard the invocation of proviso to Sec. 11A(1) of the Act, the contention of the party that they have been paying duty on the transaction value calculated in terms of MOU after APM has been dismantled a....
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....ion of impugned goods, need to be done as per the provisions of Section 4 (1)(b) of the Central Excise Act, 1944 and in terms of Central Excise Valuation (Determination of Price of the Excisable Goods) Rules, 2000. 4.7 We note that the assessable value in the present case has been determined by taking into account the import parity price on the particular date. Show cause notice itself records as follows: "2. Whereas prior to 01.04.02, the pricing of petroleum products was as per the Administered Price Mechanism (APM) and the prices were fixed by the Oil Co-ordination" Committee (OCC). For the purpose of excise duty, the ex storage sale prices fixed by OCC from time to time were considered. In this case, the assessable value of the petroleum products remained the same irrespective of the facts whether it were sold through the depot of a particular oil company which had the product in its bonded warehouse or the same were cleared to the depot of other petroleum companies. However, the APM was dismantled with effect from 01.04.02. Thereafter, the-four oil companies namely viz. IOCL, HPCL, BPCL and IBP have entered into a Memorandum of Understanding (MOU) for product shari....
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.... of Section 4 of the Central Excise Act, 1944 and the lower value at which duty is paid by them while transferring the petroleum products to other companies in terms of MOU is not a transaction value within the meaning of Section 4 (1) (a) of the Act. The assessable value in such tases is therefore required to be determined in terms of Section 4(1)(b) of the Act, by resorting to the provisions of Rule 9 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 by adopting normal transaction value at which petroleum products are sold to the dealers by such companies. 5 (ii) Without prejudice to above, even otherwise also the price at which duty is paid by these companies on account of transfer of Petroleum products in terms of MO.U. cannot be considered as a sole consideration of sale as the benefit ef lower value and lower duty is not passed on to the buyers but is retained by these companies and additional consideration in the form of huge profits on account of this flows in directly to them from each other. Thus the amount of money value of such additional consideration should form the part of assessable value in terms of Rule 6 of the Centra....
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....OMCs, though all the OMCs including M/s Reliance Petroleum Ltd. are independently separately constituted companies having no share holding among each other. At the best they could have termed as interconnected companies in terms of the MOU entered between them. However, even without establishing the mutuality of interest between OMCs the show cause notice and impugned order conclude that the value should be determined in terms of Rule 9. Relevant provisions of the Central Excise Act, 1944 and Central Excise Valuation Rules, are reproduced below: Central Excise Act, 1944. Section 4 Valuation of excisable goods for purpose of charging of duty of excise: (3) For the purpose of this section,- (b) persons shall be deemed to be "related" if- (i) they are inter-connected undertakings; (ii) they are relatives; (iii) amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor; or (iv) they are so associated that they have interest, directly or indirectly, in the business of each other. Explanation- In this clause- (i) "inter-connected undertakings' s....
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....value was to be determined as if they were not related persons. Impugned order records the finding that the oil marketing companies are interconnected companies but have not recorded any finding to effect that they fulfill the requirement of either of clause (ii), (iii) or (iv) of the Section 4 (3) (b) of the Central Excise Act, 1944. In absence of any finding to the effect that OMC's which are interconnected undertakings, and also fulfill the conditions specified by the (ii), (iii) or (iv) of the Section 4 (3) (b) of the Central Excise Act, 1944, the value could not have been determined by application of Rule 9, in view of the rule 10 of the valuation rules. 4.11 In the case of M/s Denso India Ltd. Final Order No.70500 of 2024 dated 05 August, 2024 this Tribunal has observed as follows:- "4.7 The above fact of sale to unrelated person is not disputed by the revenue either in the show cause notice or in the impugned order. Rule 9 of the Valuation Rules, 2000 as it existed during the relevant time clearly stated "When the assessee so arranges that the excisable goods are not sold by an assessee except to or through a person who is related in the manner specified in eithe....
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....tegra as can be seen from the various decisions quoted by the Counsel for appellants. Out of the four decisions quoted by ld. AR for Revenue, the first three relate to the old valuation Rules and is not quite relevant in the context of the new Rules notified in 2000. The decision of the Apex Court is in the context of an assessee who has been selling goods at prices substantially lower than cost price to capture the market. In this case, no case is made out that the price at which goods are sold to M/s. Jayakumar Fabrics is less than cost price. So, we do not find that the said decision would apply in the facts of this case. So, we go by the decisions of the Tribunal already given in the matter to the effect that when prices of goods sold to independent buyers are available there is no scope for invoking provisions of Rule 9 read with Rule 8." 4.8 In case of Chennai Petroleum Corporation Ltd [2009 (240) E.L.T. 372 (Tri. - Chennai)] following has been held: "2. Heard both sides. On a careful consideration of the case records and the submissions by both sides we find that in terms of Rule 10(a) of the Valuation Rules, when the excisable goods are not sold except thr....
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....e entire production was being captively consumed, the Rule would have simply stated "where excisable goods are consumed by an assessee himself or on his behalf in the manufacture of other articles" instead of preceding the above expression with the words "where the excisable goods are not sold". This view is also supported by the judgment of the jurisdictional High Court in the case of Indian Drug Manufacturers Association v. Union of India, wherein the Court held that Rule 8 applies in a situation where goods are not sold but are cleared 'exclusively' to be used in consumption or for manufacture of other articles. We also agree with the contention of the assessee that Rule 8 will apply only in two situations, (a) where the goods are consumed by him in the same factory (captive consumption) or (b) where such goods are transferred to another factory for consumption in the manufacture of other articles on behalf of the assessee. In this case, it is not the case of the revenue that the goods were transferred to other units for manufacture of other articles on behalf of the assessee/appellant, i.e. the Dolvi Unit. We agree with the assessee's contention that the expression 'assessee', ....
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....if there are two possible interpretations of a rule, one which subserves the object of a provision in the parent statute and the other which does not, we have to adopt the former, because adopting the latter will make the rule ultra vires the Act. 27.................. 36. In our opinion, the Gunapradhan principle is fully applicable to the interpretation of Rule 9(2). Rule 9(2) is subservient to Section 14. We must, therefore, interpret it in such a way as to make it in accordance with the main object that is contained in Section 14 of the Customs Act. It may be that in isolation Rule 9(2) conveys some other meaning, but when it is read along with Section 14 of the Act, it must be given a meaning which is in accordance with the object of Section 14. The object of Section 14 is 'primary' whereas the conditions in Rule 9 (2) are the 'accessories'. The 'accessory' must, therefore, serve the 'primary'." 9. In view of what we have observed above, we answer the reference in the following terms : (a) the provisions of Rule 8 of the Valuation Rules will not apply in a case where some part of the production is cleared to independent buyers; (b) t....
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....ollowed. In the said provisions, Rule 4 of the Valuation Rules clearly indicates that the value of excisable goods shall be based on such goods sold by the assessee. In order to appreciate the correct position of law, we reproduce the said Rule." 4. Rule 8 of valuation Rules provides the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value of such goods that are consumed shall be one hundred and ten per cent of the cost of production or manufacture of such goods. In the present case, the appellants sold the goods partly and therefore, Rule 8 as it stood during the relevant period would not be applicable. We have noticed that the Rule 8 of the Valuation Rules was amended, by Notification No. 14/2013-C.E. (N.T.), dated 22-11-2013." 4.12 In case of Sterlite Optical Technologies Ltd [2018 (359) E.L.T. 723 (Tri. - Mumbai)] Mumbai bench held as follows: "2. Ld. AR for the Revenue argued that the respondents were supplying certain goods to their own subsidiary and they were also selling the said goods in the open market to unrelated buyers. He argued that the res....
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.... goods. Under Section 4(1)(a), the value of goods for the purposes of excise duty, is deemed to be the 'normal price' of the goods that are 'ordinarily sold' in the course of business, and where the price is the 'sole consideration' for the transaction. It is only when this cannot be gleaned from the set of transactions available on record that we resort to Section 4(1)(b). 34. The presumption under Section 4(1)(a) is that the sale from an Assessee to an independent party is the proper valuation to be used for determining excise duty. Conversely, a rebuttable presumption can be drawn regarding related party transactions and the value at which goods are sold in such situations. Rule 9 would be sufficient to resolve this issue when sales are made only to related entities, but where both independent and related parties are involved, we must refer to other means. In this context, Rule 11 obliges the Revenue to use "reasonable means" consistent with the principles under Section 4(1) of the CEA to arrive at the appropriate value. We observe that the show cause notice and the order of the Commissioner proceed along the basis that Section 4(1)(b) is applicable as the Assessee and ....
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....he value of the sales made by the Respondent-Assessee to its sister concerns on the basis of the value of its sales to independent parties. In our considered view, this is entirely consistent with the actual intent of the Circular dated 01.07.2002, which we have already held is not in contravention with either the CEA or the CEVR." 4.12 Appeal filed by the revenue against this order has been dismissed by Hon'ble Supreme Court vide Order dated 27th January, 2025 in Civil Appeal No.1423 of 2025. 4.13 We find that in the remand proceedings in the same case in the case of same appellant for Barauni Refinery Kolkata Bench vide Final Order No.76060/2025 dated 01 May, 2025 in Excise Appeal No 59/2009 observed as follows:- "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 excisable goods with reference to their value, then, on each removal of the g....
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....rmed 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 invoked and applied to the facts of this case as it has not ....
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.... 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 showcause 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. 15-17 ---------------------- 18. As the appellant paid excess duty in whole of the period in dispute, therefore, the impugned demand ....