TMI Blog1998 (12) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for revenue. Hearings commenced on 10-11-1998 and remained part heard, therefore, continued and ended on 30-11-1998. 3. The appellants had also filed two Miscellaneous applications. First one dated 16-12-1997 seeks permission for filing additional documents regarding the tax paid, freight charges paid and invoices. The second one dated 18-1-1998 is for introducing new ground in their appeal namely that the Order-in-Original and Order-in-Appeal go beyond the scope of the show-cause notice, as the issue of related persons had not been agitated in the show-cause notice but has been introduced later by the adjudicating/appellate authority. The amount involved in Appeal No. 440/97 is duty of Rs. 6,44,629/- which has been fully pre-deposited. In the other ten appeals, the amount of duty involved is Rs. 5,70,28,531/-, out of which as per stay order of this Tribunal, an amount of Rs. 1 crore has been pre-deposited. 4. Basically, the issue concerns five items as follows :- (i) Whether M/s. Cochin Refineries Ltd. and M/s. Bharat Petroleum Corporation Ltd. (appellants) are related persons or not as held in the orders impugned but not alleged in the show-cause notice ? (ii) Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neries Ltd. and M/s. Bharat Petroleum Corporation Ltd. are related parties and their transactions not being at arms length. It is also held that the price fixed for petroleum products is by an executive order of Ministry of Petroleum not deriving any legal authority from any statute and therefore, it does not attract the provisions of Section 4(1)(a)(ii) and not been the price fixed by law, hence the valuation of these products would have to be done on the basis of the normal provisions of Section 4. On this basis, the demands noted above have been confirmed. Aggrieved, the appellants are now in appeal before us. 6. The learned Senior Advocate submitted that in para 8 of the order impugned, it has been held that the price was not at arms-length and the price was not the sole consideration and therefore, M/s. Cochin Refineries Ltd. and M/s. Bharat Petroleum Corporation Ltd. were related. Against this, he submitted that in the show-cause notice there is no allegation regarding the price not been at arms-length or the two parties were related persons, therefore, the order impugned has gone beyond the scope of the show cause notice. 7. He further submitted that in para 10 of the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by order of the Government and as the manufacturer merely as collection agent of the Government and such collections were handed over to the JPC as per law, therefore, the surcharges were not includible in the assessable value not being a part of consideration in sale. 11. He further submitted that as per the decision of the Third Member Bench in the case of Hindustan Petroleum Corporation Ltd. v. C.C.E., Bombay-I as reported in 1985 (19) E.L.T. 425 (Tribunal), wherein it has been held that where the prices were fixed by the Government, such price was the assessable value for the goods removed from the factory of the manufacturer. 12. The learned Senior Counsel also referred to para 84, on dealing with the assessable value of the Departmental Manual on valuation, which was available at page 77 exhibit as E in the paper book. In the said Departmental Manual, it is clearly laid down where the prices are fixed by the Government, the same shall be treated to be assessable value. 13. He then proceeded to submit arguments regarding the three deductions claimed namely RPO charges, RPO surcharges and State Taxes. In this connection, with regard to the State taxes, he submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to RPO charges, the learned Senior Advocate submitted that these included transport charges, when the goods delivered beyond 39 kms. from their depots and operational expenses of the retail pump outlet. These were clearly excludible from the assessable value being post-manufacturing expenses and that these were also fixed by the Government and transport charges were excludible as was held in the case of M/s. Dalmia Industries as reported in 1993 (66) E.L.T. 108 (Tribunal). As regards the operational expenses for the RPO, he submitted that the Government had fixed these charges in order to ensure that the said retail pump outlets function efficiently and the basic configuration of equipment required therein was installed by the distributing agents including the appellants and further that it was maintained properly, so that the customers were not inconvenienced and also there was no safety hazard. He further submitted that sales from these outlets represented retail sales as the petroleum products were sold to individual customers for their consumption in small quantities. Therefore, any charges levied for the maintenance of the retail pump outlet was having nexus only to the ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion cost and the dealers commission and this has resulted in excess duty per kilolitre as indicated therein. Therefore, the question of any payment on this issue does not survive and therefore, appeal merit favourable consideration. 17. Heard learned Additional Solicitor General of India, Shri N.R. Chandran, who submitted as follows :- (i) On the question of whether the petroleum products prices were fixed by law, he submitted that there was no judicial decision till date on this issue and while the sale price, the petroleum products was prescribed by the Under Secretary to the Government of India, Ministry of Petroleum, the RPO charges and RPO surcharges were fixed by the OCC, which is constituted by the Government of India and is, therefore, not even a Ministry/Department in the Government of India. He submitted that both these constituted at best administrative orders of either the Government body or authorised in this behalf (OCC). However, this was different from law, which required the authority of a statute passed by the legislature. The appellants have not been able to produce any statute which either directly fixes the said prices or which empowers the Ministry of P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of removal is known. He further submitted that the appellants relied on the case of MRF Ltd. (supra) was not correct, inasmuch as the said case-law did not deal with average transport charges but actual transport charges. However, in the appellants case what involved was average transport charges and therefore, the same were not available as permissible deductions. With respect to installation expenses, he reiterated the orders-in-original and order-in-appeal on this issue. (iv) With respect to RPO surcharges, he submitted that the appellants claimed it to be a commission but another commission has already been deducted in the invoices, therefore, the second commission is clearly not deductible. Further with respect to State surcharge, he submitted that since the appellants paid actual taxes to the sales tax department then collected a prescribed amount on this count from their dealers, therefore, in the guise of collecting State surcharges, they were also collecting irrecoverable taxes, even though of a lesser amount. Since the taxes were recovered back, he submitted that they were not available for deductions. 18. Continuing his argument on 30-11-1998, the learned Addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by law was not available in this case and also the three charges in question were not deductible except the transport charges. 20. Learned Senior Counsel Shri Habibullah Badsha countered and submitted that State surcharge was a surcharge on sales tax and charges of turnover tax are never recoverable from the customers. If they are recovered, it may be an offence under the Sales Tax Act, but these recoveries in the form of State surcharges fall under exclusive order of the Central Government and therefore, it does not in any way affect the value under the Central Excise Law. He further submitted that under Section 4(4)(d)(ii) of the Act mentions that the value does not include other taxes. He submitted that while legislating the law as there was no mention whether such taxes should be recoverable or irrecoverable, so this section applies and deductions are available. He further submitted that in the case of Peico Electronics as reported in 1994 (71) E.L.T. 1053 (Tribunal) (paras 31 40) it has been held that the taxes are deductible, even if, recoverable from the customers. With respect to RPO surcharges, the learned Senior Advocate submitted that the person to whom the petroleum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wering government to fix prices. Therefore, any administrative action by government in Ministry of Petroleum is at best an executive order but not a price fixed by Law ; (b) No doubt the said administrative order fixing prices etc. is enforced by Government, but enforceability alone is not the sole pre-requisite of law. Were it so, an extortionist in a powerful position to enforce his illegal demands would also claim legality! Fundamentally, only sovereign power can be the source of written law. Such sovereign power may delegate legislation under a statute. In the case of petroleum products, no evidence has been led to show this empowerment of the Ministry of Petroleum. Hence, the OCC, being a creature of this Ministry is also not so empowered and hence both fixation of prices and of RPO charges/surcharges and State surcharges are only administrative orders and not fixtures by law. (c) We also find great merit in the submission of learned Additional Solicitor General of India that the appellants submissions on custom and usage under Article 13 of the Constitution is misplaced as that is only in the context of Fundamental Rights. (d) The parallel of prices of vegetable p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tlets by M/s. Bharat Petroleum Corporation Ltd., another sale takes place, which we may for the sake of convenience label as second level wholesale . Now, we find that the law on exclusion of transport charges from beyond the factory gate of excisable goods is a clearly settled one, as can be seen from the following decisions :- 1979 (4) E.L.T. (J 490) (Ker.) 1980 (6) E.L.T. 193 (Bom.) 1980 (6) E.L.T. 220 (Bom.) Learned Additional Solicitor General of India also fairly conceded. Therefore, the freight element in this second level wholesale (from installation/depot to pump) is clearly deductible from the assessable value under Section 4 irrespective of whether quantum thereof is fixed by OCC or not. The Revenue s argument on averaging of transport costs also does not hold much water, as this issue is finally settled by the Hon ble Supreme Court in the case law of Baroda Electric Meters as reported in 1997 (94) E.L.T. 13 (S.C.) = 1998 (74) ECR 721 (S.C.). It is, therefore, now well-settled law, that where such freight charges are averaged on regional or national basis (to keep retail prices to specified levels throughout the country), then even such average freight is dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discounts for sales on payment by demand draft (where sale proceeds are available instantly) and on payment by cheques (whose liquidation takes time); (c) the exact rate of discount is announced by the appellants in advance in writing and with effect from a specified date; (d) it is available to all who qualify accordingly; (e) if some discount is given in invoices in addition, that, per se, does not prohibit the availability of this additional discount, particularly as revenue has not agitated against that discount before us; and (f) as per the case of Bombay Tyres International (supra), if the discount is known beforehand but paid later, they are deductible. 29. As far as State surcharges are concerned, it is not disputed that these concern only sales tax and turnover tax, that these are actually paid by appellants to the Kerala State Government, that monthly returns prescribed are used to do so and that proof of payment is on record now. The only point of dispute is that because they are recovered from buyers and paid to OCC, therefore, they are a part of the price. We find that this very issue was considered in the case of Peico Electronics Electricals Ltd. as r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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