TMI Blog2009 (6) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... o Public and private sector assessees unless an exception is provided by law itself - E/240/2008-MUM - A/220/2009-WZB/C-II/(EB), - Dated:- 17-6-2009 - S/Shri A.K. Srivastava, Member (T) and Ashok Jindal, Member (J) REPRESENTED BY : Shri M.H. Patil, Advocate, for the Appellant. Shri A.K. Prasad, Jt. CDR, for the Respondent. [Order per : A.K. Srivastava, Member (T)]. - The issue involved in the present proceedings relates to the period prior to 6-9-2004, from which date the facility of transfer of petroleum products from refinery to warehouse and from one warehouse to another, without payment of duty was discontinued by the Govt. vide Notification No. 17/2004-C.E. (N.T.), dated 4-9-2004. 2. Brief fact of the case are that M/s. Bharat Petroleum Corporation Ltd. (BPCL), a Public Sector Undertaking (PSU), have a terminal at Panewadi, Manmad, Dist. Nashik, where petroleum products, mainly, Motor Spirit (MS) and High Speed Diesel (HSD) were used to be received through pipelines from the refinery at Mumbai without payment of duty. From Panewadi, these were cleared to their own depots as well as to other Oil Marketing Companies (OMCs) on payment of duty. Enquiries conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is reproduced below : "NARESH NARAD ADDITIONAL SECRETARY D O.No 1612/AS/MOP NG/2001 Dated 21st August, 2001 Dear Shri Kapoor, This refers to my D.O. Letter No. 1250/AS(PNG)/2001, dated 10-7-2001 and discussions in Director (Marketing) meeting held on 16-8-2001, regarding MOU on product sharing amongst PSU Oil Companies. The product sharing arrangements for both POL LPG for the purpose of finalizing the MOU should be drawn on the basis of current SPM guidelines on production/allocation and distribution of products in the country. The regionwise and company wise supply demand balance therefore should be arrived at accordingly and linkages finalized on least transportation cost basis, as at present, for meeting the demand of the post de-regulated scenario. The draft MOU duly vetted by Director (Marketing) was to be sent to MOP and NG by 15-8-2001. We have yet to receive these. You are therefore requested to expedite the same to reach this Ministry positively by_____(not clear) 2001. Yours Sincerely Sd/ (Naresh Narad) Shri S.K. Kapoor Director (Marketing) M/s. Bharatpetroleum Corporation Ltd. New Delhi" 5. When die officers of BPCL were asked by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1 19,11,49,418/- + Rs. 9,56,846/- (education cess) - Rs. 119,21,06,264/-, was raised for the period 1-4-2002 to 5-9-2004. The extended time limit was invoked on the ground that the signing of the MOU had not been declared by BPCL to the Department and that the above modus operandi had been adopted with the sole intention to evade payment of duty. Interest and penal provisions were also invoked. 11. The Commissioner of Central Excise, Nashik, confirmed the demand in full vide her adjudication Order No. 41/CEX/2007, dated 8-12-2007 imposing mandatory penalty of equivalent amount under Section 11AC of the Central Excise Act, 1944. Interest under Section 11AB was also demanded. 12. The present appeal is against the said Order dated 8-12-12007 of the Commissioner Central Excise, Nashik. 13. M/s. BPCL have obtained the necessary COD clearance, being item no. 18 of Minutes of the meeting of the COD held on 21-8-2008. 14. Shri M.H. Patil, Ld. Counsel for the appellants (M/s. BPCL) has raised a number of points and contended that the Commissioner's Order needs to be set aside in toto. 14.1 The first point raised by the Ld. counsel is that the issue involved in the present case h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CCE - 2005 (186) E.L.T. 266 (S.C.) (ii) CCE v. Novapan Industries - 2007 (209) E.L.T. 161 (S.C.) (iii) Jayaswals Neco v. CCE - 2006 (195) E.L.T. 142 (S.C.) = 2007 (8) S.T.R. 305 (S.C.). (iv) Boving Fouress v. CCE - 2006 (202) E.L.T. 389 (S.C.) (v) CCE v. Bigen Industries - 2006 (197) E.L.T. 305 (S.C.) (vi) CCE v. Suntrack Electronics - 2003 (156) E.L.T. 163 (S.C.) (vii) CCE v. Titawi Sugar - 2003 (152) E.L.T. 21 (S.C.) 14.5 Ld. Counsel then referred to Board's letter F. No. 6/21/2003-CEX-I (Part-I), dated 14-2-2007, wherein it had been clarified that the decision in the case of HPCL v. CCE, Visakhapatnam-I (supra) has been accepted by the Govt. and that it should be followed by all Departmental officers in all pending cases and future assessments. For ease of reference, the Board's letter dated 14-2-2007 is extracted below : "F. No. 6/21/2003-CXI (Pt1) Government of India Ministry of Finance Department of Revenue Central Board of Excise and Customs Dated 14 February, 2007 To All Chief Commissioners, All Commissioners of Central Excise and Customs, DG'(Audit), DGCEI Sir, Sub. : Valuation of MS and HSD sold amongst OMCs-MOW regarding 1. I am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Drugs - 1989 (40) E.L.T. 276 (S.C.). (iii) Nestle India - 2009 (235) E.L.T. 577 (S.C.). 14.8 On the same grounds, he submitted that penalty cannot be imposed as a PSU cannot have a mala fide intention to evade duties. 14.9 Ld. Advocate further submitted that the mere fact that one value was less than another value of the same product, it cannot be a ground for rejecting the lower value as there are a number of judgments to the effect that sale price or the transaction value can be less than even the cost of production of a commodity. He relied on the following judgments in his support. (i) Guru Nanak Refrigeration - 2003 (153) E.L.T. 249 (S.C.) = 2003 (55) RLT 506 (SC) (ii) North East Gases - 1998 (24) RLT 534 (T) (iii) Upheld by Supreme Court - 2005 (185) E.L.T. A61 (S.C.) (iv) Godavari Manar - 2003 (158) E.L.T. 663 (T) 14.10 Shri Patil also argued that the Oil Marketing Companies, who had entered into an MOU, could not be considered as related persons to allow the Department to take the selling price of the receiving OMC as the transaction value. All the oil companies are public limited companies and in the following cases, the Supreme Court has held that two publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this price cannot be considered to be the sole consideration for sale and. therefore, it cannot be considered to be the transaction value. 15.3 It may be noted that in the price structure of the purported sale to the other OMCs, no element of profit was taken into account. This means that this value was not a commercial value, but only an artificial value, and that is why there was a difference of Rs. 2000 to 3000 per KL in the prices at which the supplies were made by the appellants to other OMCs and to their own dealers. 15.4 This is a form of a barter deal, where there is no sale of goods involved. If the artificial price, at which the barter was done with other OMCs, is accepted, it will lead to very serious consequences as, tomorrow, cartels could be formed between the manufacturers of major commodities like steel, tyres, cement, etc., where only commodities would be exchanged and the manufacturers would demand that any artificial price adjustment agreed between the cartel members, should be accepted as a transaction value of the goods. 15.5 If there are two prices for the same product, a lower price to a buyer with whom they have a reciprocal arrangement and a higher p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a). (ii) The transactions between HPCL and the other OMCs were not commercial as already discussed above since these were not based on the transaction value available for the same commodity sold to independent dealers, and, further, the artificial price agreed between the OMCs did not take into consideration the profit element at all. It was not the case of the appellants that the sales to OMCs were distress sales or that it was a buyers' market and, therefore, no profit element was added. This aspect was also not known to the CESTAT, while deciding the case of HPCL (supra). (iii) The OMCs, by buying the petroleum products at lower prices, were enhancing their profit margin, as has been brought out during the investigations, confirmed in the adjudication Order and not rebutted by the appellants, and there was a reciprocal similar enhancement of the profit margin of M/s. BPCL at other places. Thus, there was siphoning of money to increase the profit of M/s. BPCL in this case. This aspect was also not known at the time of the decision in the case of HPCL (supra). 15.9 Revenue cannot be bound by a CESTAT Order, which is based on wrong and incorrect facts, as held in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of UOI v. R.C. Fabrics(P) Ltd. reported in 2002 (139) E.L.T. 12 (S.C.). 15.17 The method of valuation adopted in the impugned O-I-O has not been contested by the appellants. The O-I-O proceeds to reject the transaction value vis-à-vis the OMCs and takes the route of Rule 11 of the Valuation Rules read with Rule 7 ibid. By following this route, the Department has come to the same value as was being charged by the appellants to its independent dealers. It is on record that the petroleum products, which were sold by the appellants to other OMCs at artificially depressed prices, were, in turn, sold by the buying OMCs to their independent dealers at the same price, at which M/s. BPCL were selling to their (BPCL's) independent dealers. 15.18 Further, all the OMCs, to whom the appellants were supplying the products under the MOU, are 'related persons', as the President of India holds more than 50% shares in all these PSUs. This is obvious from the definitions appearing in Sections 4(3)(b)(i) and 4(3)(b)(iv) of the Central Excise Act, 1944, read with Sections 2(g)(iii)(c), 2(g)(vi), 2(g)(vii)(v) and 2(g)(vii)(vii) of the MRTP Act, 1969. The relevant extracts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of HPCL v. CCE, Visakhapatnam is distinguishable and hence the letter dated 14-2-2007 does not help the case of the appellants. 15.20 Further, the Supreme Court has recently held in the case of CCE, Bolpur v. Ratan Melting and Wire Industries [2008 (231) E.L.T. 22 (S.C.) = 2008 (12) S.T.R. 416 (S.C.)] that a Circular contrary to statutory provisions has no existence in law. The earlier Supreme Court decision in the case of Dhiren Chemical Industries, cited by the appellants, was also discussed and clarified. 15.21 As regards time bar, the signing of the MOU between M/s. BPCL and the other OMCs was never disclosed to the Department, and this fact has not been contested/countered by the appellants. There is no ground to contend that the extended time limit cannot be invoked against a PSU. In the case of another PSU, Bharat Earth Movers Ltd., the extended time limit was upheld [2001 (136) E.L.T. 225 (Tri.-Bang.)]. Hence the extended time limit has been correctly invoked in the present case. 15.22 As regards penalty, there was no ground to contend that mercy because it is a Public Sector Undertaking (PSU), they cannot be penalized. There are innumerable instances of penalty bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinery as detailed below : Clause 5.4 — Basic price for sale ex-inland locations (oilier than refineries) including TOPs shall be the import parity price at the nearest port plus freight being recovered in the selling price at such inland location. Clause 5.5 — Basic price for sale ex non-refinery port locations shall be the import parity price at the nearest refinery port + coastal/pipelint freight from nearest refinery port being recovered in the price of such non refinery port. 18. From the above, it is clear that the MOU was basically an arrangement of exchange of petroleum products so as to make available to an OMC, petroleum products for which the particular OMC did not have a refinery on import facilities at the particular location. In other words, it was like a barter deal, where one oil company would supply petroleum products to another oil company at a particular location and this would be reciprocated by the receiving oil company to the supplying oil company at some other location. In a case of barter deal, price becomes irrelevant as only commodities are exchanged. This is the situation in the present case also. The import parity price is clearly a notional value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cement manufacturers all over India can enter into a similar arrangement with one another agreeing to provide cement to each other at a notional value of say. Rs. 5 per 50 Kg. bag and pay Central Excise duty on this price, when sales to independent dealers are at, say, Rs. 50 per 50 Kg. bag. Since equal quantities would be exchanged, there would be no loss to any manufacturer and the only loss would be to the Govt. on account of the Central Excise duty. How can such a transaction be given the legal cover of 'transaction value' under Section 4 of the Central Excise Act, 1944? 22. The other point raised by the Ld. Joint CDR is that the IPP based price did not take into consideration any profit element of the supplying oil company. It is not the case of the appellants that a glut in the demand of petroleum products necessitated selling the products at cost price. In fact, it is common knowledge that the market for petroleum products is supply - driven. It is also not the case of the appellants that the transaction value of sale to the independent dealers had always been at a loss. Thus, supplying a product in a market, which is supply-driven, without taking into consideration any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other Oil Companies are siphoning some extra amount to the appellant, which is not reflected in the value on which duty has been paid. Moreover, the price of the products supplied to OMCs is based on the Import Parity Price. There is nothing in the law stipulating that different prices to different buyers are not permissible. In other words transaction value can be challenged if conditions stipulated in Section 4(1)(a) are not fulfilled. In this case, the sale is complete at the time and place of removal, when the products are filled by the appellants in the tank/truck/wagon as nominated by the other oil companies for onward dispatch to their dealers. It should be appreciated that the agreement among the oil companies has been entered into on a directive from the Govt. of India. This results in an optimal utilization of the marketing facilities of the various companies in the country and reducing the cost of transportation. It is better for a refinery to market its products at a nearby marketing facility owned by another company than to send the same goods to its own marketing facility at a far off place. Alternatively, when the company having a refinery has a marketing outlet at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ole consideration for the sale. 26. Thus, the Tribunal decision in the case of HPCL was based primarily on the inability of the Revenue to counter the above presumptions. We find that in the present proceedings, the Revenue has investigated the matter in great detail and has been clearly able to establish the above assumptions as incorrect. 27. The statements of the officers of HPCL (the buying OMC, in the present case) have established that by getting the petroleum products from BPCL at lower value, they (HPCL) were enhancing their profits, and that similar profits were flowing back to M/s. BPCL at all other locations, where BPCL were the receiving OMC. Thus, the Revenue has been able to establish in the present case that the oil companies were siphoning extra amount to the appellants for amounts, which were not reflected in the value on which the duty was paid. As already indicated above, this amount was around Rs. 3000 per KL in respect of MS and around Rs. 2000 per KL in respect of HSD, on which the duty was not paid. 28. The other assumption on the basis of which the HPCL decision was delivered was that the MOU had been entered on the directive of the Govt. of India. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve not been able to cite any extenuating or exceptional circumstances necessitating an oil behemoth operating in a monopolistic environment, to transact on no profit basis. 31. On the aspect of price not being the sole consideration for the sale, it has rightly been pointed out by the Ld. Joint CDR that the MOU price was based on reciprocity, both in terms of quantity involved in the transaction and the value, and, therefore, it could not be considered as the sole consideration for the sale. In fact, it was a conditional sale having revenue implications. 32. The Ld. Joint CDR has rightly pointed out that if there are two prices for the same product, a lower price to a buyer, with whom they have a reciprocal arrangement and a higher price to another buyer, with whom there is no such reciprocal arrangement, it will be presumed that the agreement has influenced the price. The Hon'ble Supreme Court decision in the case of CCE, Mumbai-III v. ISPL Industries Ltd. [2003 (154) E.L.T. 3 (S.C.)] given in the context of interest free advances affecting the price, can be cited in support. It was held in that case that "where there are two prices, one for those who have made the advance and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a does not apply to cases, where the investigations reveal fresh and significant facts. 37. Further, in the case of Faridabad CT Scan Centre v. DG Health Services reported in 1997 (95) E.L.T. 161 (S.C.), it has been held by the Hon'ble Supreme Court that wrong orders issued in favour of some appellants cannot bar the Department from proceeding against others. 38. As regards the appellants' reliance on the Board's instructions dated 14-2-2007, we find that it is based on the HPCL decision (supra), which we have already distinguished. In fact, the Board's instructions clearly provide that the HPCL decision (supra), should not be blindly followed in all similar cases without first examining the facts of each case. The facts in the present proceedings have revealed a position, which is quite different from what was known, or presented, at the time of the HPCL decision (supra) and hence the Board's instructions cannot bind the Department against contesting this appeal Even otherwise, the Ld. Joint CDR has rightly pointed out that the Hon'ble Supreme Court in the case of Ratan Melting (supra) has modified/clarified their decision in the case of Dhiren Chemicals and has held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciding the matter at hand. 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 had 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 MOU from the Department, and making the Department believe that the dual pricing was adopted as per the directive of the Government cannot be considered to be innocent acts. This is definitely a positive act, for which the extended time limit has been rightly invoked. We have examined the Judgments cited by the Ld. Counsel. A perusal of these Judgments reveals that there can be no uniform guidelines for invoking the extended time limit. Each case will have to be determined on the facts present therein. In the case of Grauer and Weil (India) Ltd. v. CCE, Baroda [1994 (74) E.L.T. 481(S.C.)], a manu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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