Value Of Goods For Computation Of Excise Duty Will Be Transaction Value Only If All 3 Conditions U/S 4(1)(A) Central Excise Act Are Fulfilled: SC
The Supreme Court allowed an Appeal filed by Bharat Petroleum Corporation Ltd. (BPCL), a public sector undertaking.
The Supreme Court held that the value of the goods for the purpose of computation of excise duty will be the transaction value only if all three conditions under Section 4(1)(a) of the Central Excise Act, 1944 are fulfilled.
The Court held thus in a batch of Civil Appeals in which one of the Appeals was filed by Bharat Petroleum Corporation Ltd. (BPCL), a public sector undertaking.
The two-Judge Bench of Justice Abhay S. Oka and Justice Pankaj Mithal explained that the following conditions must be fulfilled for the applicability of Section 4(1)(a) of the 1944 Act –
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”, observed the Bench.
Senior Advocate S.K. Bagaria appeared on behalf of the Appellant-BPCL while ASG Balbir Singh and Advocate V. Lakshmikumaran appeared on behalf of the Respondents.
Brief Facts
Bharat Petroleum Corporation Ltd. (BPCL) and other Oil Marketing Companies (OMCs) had refineries, installations, and depots across India. In 2000, the Central Board of Excise & Customs clarified the meaning of "transaction value" under Section 4(3)(d) of the 1944 Act. On March 31, 2002, OMCs signed a Memorandum of Understanding (MOU) to sell and purchase petroleum products among themselves at the Import Parity Price (IPP). The MOU aimed to ensure smooth supply and distribution, avoid disruptions, and save transportation costs. Between 2002 and 2005, the Department issued show-cause notices to OMCs, proposing to calculate excise duty based on the price sold to dealers, not the IPP.
BPCL contested the notices, and some were dropped, while others were confirmed, leading to Appeals. The Customs, Excise & Service Tax Appellate Tribunal (Tribunal) set aside an Order-in-Original in a similar case (Hindustan Petroleum Corporation Ltd. v. Commissioner of Central Excise). The Supreme Court dismissed the Appeal against this Judgment. BPCL's Appeal against a show-cause notice was upheld by the Tribunal, leading to the Civil Appeal. BPCL, therefore, preferred a Civil Appeal before the Apex Court against the Tribunal's Order, challenging the calculation of excise duty and penalty imposed.
Reasoning
The Supreme Court in view of the above facts, noted, “As seen from clause (ii), the MOU has been executed so that the OMCs can avail of product sharing/assistance from each other. Product sharing/assistance was required to ensure the smooth supply and distribution of petroleum products and to ensure that there is no disruption in the supply of petroleum products to OMCs all over India. Recital no. (iii) sheds light on the real nature of the transaction reflected in the MOU. The object is to use the available products of each OMC on the terms and conditions set forth in the MOU.”
The Court added that the object of the MOU is not to sell petroleum products on a commercial basis to other OMCs, rather to ensure that each OMC gets a smooth supply of petroleum products and any disruption of supply is avoided. It said that, therefore, the emphasis is on allowing individual OMCs access to each other’s products and facilitating the sale of petroleum products to their respective dealers/customers.
“The sale of products under the MOU is for the benefit of the respective business activities of the OMCs”, it further noted.
The Court observed that under the proviso to sub-section (1) of Section 11-A, an extended period of limitation can be invoked when there is a non-levy or non-payment or 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. … In this case, there is no allegation made by the Revenue of fraud, collusion or any wilful mis-statement on the part of the appellant. The stand taken is that the MOU was suppressed, and therefore, Section 11AC will apply”, it also said.
The Court was of the view that the penalty could not have been imposed.
Accordingly, the Apex Court allowed the Civil Appeal and set aside the impugned Order.
Cause Title- Bharat Petroleum Corporation Ltd. v. Commissioner of Central Excise Nashik Commissionerate (Neutral Citation: 2025 INSC 84)
Appearance:
Appellant: Senior Advocate S.K. Bagaria, AORs Parijat Sinha, B. Krishna Prasad, and Mukesh Kumar Maroria.
Respondents: ASG Balbir Singh, AORs Gurmeet Singh Makker, E. C. Agrawala, Abhinav Agrawal, Parijat Sinha, Advocates V. Lakshmikumaran, Mahesh Agarwal, Rishi Agrawala, M.S. Ananth, and Abhinabh Garg.
