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TMI Blog1989 (12) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... f India took a decision to keep prices of some of the petroleum products, which are consumed by the poorer sections of the Community, at lower levels. Two such products were Kerosene and Diesel Oil. To achieve this end, the Government evolved a mechanism by which to compensate under-recovery of prices, a scheme known as "Product Price Adjustment Account Scheme" was devised. Under this Scheme, oil companies are allowed to recover compensatory price increase on certain petroleum products which are not normally consumed by the poorer sections of the Community. The amounts thus recovered as compensatory price increases were to be pooled on an All-India basis and from this pool reimbursements were being made to oil companies for actual short recoveries in prices suffered by them in the sale of kerosene and diesel oil etc. at a price less than their cost of production. The salient features of this Scheme as explained by the appellants are as follows : (a) Oil Marketing Companies are to account for the over/under recoveries at rates and for the periods as shown in the scheme (para 2 of the Scheme). (b) M/s. Indian Oil Corporation, M/s. BPCL (formerly Burmah-Shell Oil Storage and Distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the compensatory price increase is nothing but a surcharge on lubricants and goes entirely to the pool account and no part of it goes to the Company. Therefore, according to them it is neither an element of manufacturing cost nor of manufacturing profit nor does it form part of wholesale cash price and therefore, can never be taken into account for determining the assessable value of the oil in question. 6. The Assistant Collector after due process rejected the appellants' arguments and confirmed the demands. These were upheld by the Appellate Collector. Hence the revision applications which are now appeals before us. 7. Shri Raghavan Iyer assisted by Shri R. Venkataraman submitted that a substantial part of the demand totalling around Rs. 63 lakhs was time-barred, the show cause notices demanding the differential duty having been issued beyond the period of limitation provided in Rule 10. The learned Representative submitted that it is Rule 10 that is applicable to these demands and not Rule 10-A of the Central Excise Rules, as, if at all there was any short recovery, it was due to error, inadvertence or mis-construction and not due to any other reason. He submitted that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellants who sold them. Denying any suppression of the information in these circumstances, the learned representative relied on the following two judgments: (i) C.C. Industries and Others v. H.N. Ray and Another -1980 E.L.T. 442 (Bom.) (ii) Collector of Central Excise v. Chemphar Drugs and Liniments - 1989 (40) E.L.T. 276 SC. 11. Shri Raghavan Iyer, therefore, submitted that the demands to the extent that they were issued beyond the period of limitation under Rule 10 were not sustainable. 12. The learned Representative submitted that even on merits the demands are not sustainable. Referring to the statement of demands (page 29 of the paper book) he stated that after 1-10-75 the sales were only to Burmah Shell and there was no sales to Castrol. He stated that with effect from 24-1-76, Burmah Shell Company was taken over by the Government of India and was vested in Bharat Petrol Corporation (BPC for short). Therefore, it was a Government Company from that date. Pointing out that two Show Cause Notices 11017 and 11019 relating to post period 1-10-75 were not hit by time- bar, Shri Iyer submitted that the arguments on merits were relevant especially to these appeals. He stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and development of each others - [1979 (4) E.L.T. J 407 Cibatul Limited v. Union of India and Others] and Ashok Leyland Ltd. v. Government of India - [1987 (30) E.L.T. 281 SC]. Shri Raghavan Iyer submitted that it is the totality of the terms and conditions which is decisive of whether the concept of related person is invokable or not. He pleaded that the agreements and the relationships between the appellants and the buyers do not show that there is any mutual interest and that they are related persons. 14. Referring to the product AG 140(Pack) sold during the period after October 1975, Shri Raghavan Iyer submitted that out of the two show cause notices (Sl. Nos. 4 & 7 of Table in para 4) one is time-barred. He submitted that there were some sales in Assam at the prices fixed by the Ministry of Petroleum (MOP for short) and these prices included surcharge. Outside Assam sales were exclusive to Shell Company till 24-1-76, in the same circumstances as in respect of product BOC 250. Posing the question as to whether the value of local sales should be the assessable value or the value of the sales to Burmah Shell, Shri Raghavan Iyer submitted that the local sales were made at price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentative relied on State of Karnataka v. Union of India reported in 1978 E.L.T. J 546 SC and in paragraph 29 of the Supreme Court's judgment in Union of India v. Bombay Tyre International - [1983 E.L.T. 1896 SC]. 19. In brief, Shri Iyer submitted that all the show cause notices for the periods prior to 1-10-1975 are not valid. Show Cause Notice No. 11021 (Appeal No. 528/81-A) was totally time-barred and Show Cause Notices No. 11013 and 11015 (Appeal No. 531/81-A and 527/81-A are within limitation for the periods 13-9-1975 to 30-9-1975. But even these notices cannot stand on merits. He reiterated that whatever amount was collected by the appellants from Castrol as excise duty on surcharge relating to the clearances of the products BOC 400, AG 140 and BOC 250 would be paid without any contest on time-bar. 20. Concluding his arguments Shri Iyer submitted that the impugned order of the Appellate Collector was not sustainable for the following reasons : 1. The order erroneously held that Shell are favoured buyers of AOC and they were mutually related persons merely because bulk of the goods were sold to them by AOC under an agreement. 2. The Appellate Collector did not apply the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reements between the appellants and Burmah Shell, etc., were not at arms-length. Shri Krishnamurthy argued that the first stream of sales was by Burmah Shell to their customers and it is that price that should be taken as the basis for assessment. 22. Answering the arguments that the show cause notices having been issued after 7-8-1977 (when Rule 10-A was deleted) and, therefore, the said rule is not applicable, Shri Krishnamurthy argued that though the show cause notice was issued later, the period of demand was one when the Rule was available. Referring to explanation to Section 4 the learned SDR argued that there could be no abatement of the amount paid into the account. 23. Shri Iyer in his rejoinder argued that the question of abatement arises only when cum-duty price is there. In these matters, the net price is known and duty is calculated on the same. He pointed out that the price of the appellants' products was exclusive of surcharge except in respect of sales to Castrol. He reiterated that there was no need on the part of the appellants to disclose the circular issued by the Ministry of Petroleum as the provisions of the same apply to marketing and the appellants sold th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emands made beyond the normal period of limitation are invalid. 27. With regard to clearance of the products viz. BOC 250/AG 140 (packed) between the period 1-10-1975 and 15-12-1977, the position is that there was no local sales on BOC 250 within Assam Territory. All the sales were made exclusively to Burmah Shell between the period 1-10-1975 and 24-1-1976 on which date Burmah Shell were taken over by the Government of India. We note the submission made by Shri Iyer that sales of the product by AOC to Shell/BPC were sales in the name of wholesale trade within the meaning of Section 4(4)(e) of the Act. Shell and BPC had commercial interest in the resale of the product. Sales were of substantial quantities of BOC Lube 250 and sales were made under an agreement between AOC and Shell. We perused the copy of the agreement in Appeal No. 530/81-A. The agreement in its prefactory part, and in Clauses 8, 10 and 16 shows that Shell were only buyers and nothing in the agreement makes them the legal agents of AOC nor gives them any Partnership or profit sharing agreement. This agreement was amended when Shell was taken over by the Government of India when Clause 10 of the agreement was substi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shell between 1-10-1975 and 24-1-1976 and after that date to BPC, the successor Government company. There was no sale to Castrol between 1-10-1975 and 15-12-1977. The sale of the product in Assam was regulated by the Ministry's circulars according to which surcharges were realised from the buyers. The appellants collected excise duty on the surcharge. 31. Nearly 95% of AG 140 was sold to Shell/BPC under an agreement at negotiated prices. Therefore, in the peculiar facts and circumstances of this case we hold that there were two categories of wholesale buyers one being the participating marketing companies (Burmah Shell and BPC) and the other being the wholesale dealers in Assam Territory. The assessable values, therefore, could be different between the two classes. 32. In these circumstances we hold that for the periods after 1-10-1975 show cause notices No. 11017 (Appeal No. 529/81-A) and 11019 (Appeal No. 532/81-A) dated 13-9-1976 and show cause notices No. 866 (Appeal No. 530/81-A) and 869 (Appeal No. 1028/81-A) dated 17-1-1980 are not sustainable on merits. The demands in Appeal Nos. 529/81-A (Show cause notice No. 11017) and No. 532/81-A (Show cause notice No. 11019) are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 2-3-1974 to 31-3-1979. 35. We have already held in the peculiar circumstances of these matters, there were two different wholesale prices. If a product is capable of being sold at a higher price by the buyer, the assessable value cannot be increased unless the transaction is not at arms length and unless it is held that there was deliberate manipulation. In these matters no such findings can be arrived at. The Supreme Court in Bombay Tyres Intemational - [1983 E.L.T. 1896] (para 39) laid down that what is contained in the new Section 4 is only a more comprehensive and precise statement of what the law has always been under the old Section and, therefore, the First proviso to the new Section 4(1)(c) must be read into old Section 4(a). In 1978 E.L.T. J 564, the Karnataka High Court held that the assessable value in major sales should not be disturbed by prices for small minority sales. 36. In this view we hold that the show cause notices for periods prior to 1-10-1975 are not valid. Appeal Nos. 527, 528 and 531/81-A (Show Cause Notice Nos. 11015, 11021 and 11013) are accordingly allowed on merits also. (Appeal No. 528/81-A is allowed on time-bar also and the two other appeals wer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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