2022 (2) TMI 90 - AT - Central Excise

Valuation - related party transaction - mutuality of interest - petroleum products cleared by the Appellant to the other OMCs are to be valued at Import Parity Price or not - SCNs alleged that the Appellant and the OMCs were mutually interested in the business of each other inasmuch as the MoU permitted the Appellant to use the marketing network of the other OMCs, and OMCs also benefited from the MoU - HELD THAT - The Appellant and the other OMCs are independent parties and are not related to each other. Though the SCN alleged the mutuality of interest on the ground that the MoU entered into between the parties benefitted each of them mutually, however, the said ground was relinquished by the adjudicating authority itself, while passing the impugned order. Further, even in our view, merely entering into a mutually beneficial arrangement like MoU in the instant case, cannot make the parties related for the purposes of Section 4(3)(b)(iv) of the Central Excise Act, 1944. There are no hesitation in holding that the findings of the adjudicating authority in the impugned order, to the effect that the transaction between the Appellant and other OMCs is not sale but a product sharing arrangement on load/ debt basis, wherein whatever supply is made by the Appellant/ BPCL to the other three OMCs, they i.e. BPCL get back the same quantity from the respective OMCs, are factually incorrect and do not bear from the terms of the MoU - once the adjudicating authority found that the mutuality of interest is not relevant to the instant case, the only conclusion ought to be dropping the SCNs. However, the adjudicating authority went beyond the scope of SCN and made observations which were never alleged in the SCN and have been proved to be incorrect by the Ld. Counsel for the appellant. Such approach of the adjudicating authority of travelling beyond the scope of SCN is legally untenable and held to be a violation of natural justice. The Appellant has correctly valued the goods supplied to the other OMCs at transaction value, viz. the Import Parity Price under the MoU - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Valuation of petroleum products cleared by the appellant to other Oil Marketing Companies (OMCs).
2. Mutuality of interest between the appellant and other OMCs.
3. Legality of the adjudicating authority's findings beyond the scope of the Show Cause Notices (SCNs).

Detailed Analysis:

1. Valuation of Petroleum Products Cleared by the Appellant to Other OMCs:
The appellant, a Public Sector Undertaking (PSU) and subsidiary of Bharat Petroleum Corporation Limited (BPCL), was engaged in the production and sale of petroleum products during 2002-03 to 2003-04. The valuation of goods cleared to BPCL was accepted by the department, but the valuation for other OMCs (like IOCL, IBP, HPCL) was challenged. The department proposed adopting the value at which excise duty was paid on clearances made to BPCL as the assessable value for clearances made to other OMCs. The appellant contested this, arguing that the transaction value arrived at in terms of the Multilateral Product Sale Purchase Agreement (MPSPA) or MoU, viz. Import Parity Price (IPP), should be the assessable value. The tribunal held that the appellant correctly valued the goods supplied to other OMCs at transaction value, i.e., the Import Parity Price under the MoU.

2. Mutuality of Interest Between the Appellant and Other OMCs:
The SCNs alleged mutuality of interest between the appellant and other OMCs, suggesting that they were mutually interested in each other's business due to the MoU. However, the adjudicating authority relinquished this ground in the impugned order, and the tribunal observed that merely entering into a mutually beneficial arrangement like the MoU does not make the parties related under Section 4(3)(b)(iv) of the Central Excise Act, 1944. The tribunal relied on prior decisions, including Hindustan Petroleum Corporation Ltd. v. Commissioner of C. Ex., Visakhapatnam-I, to support this view.

3. Legality of the Adjudicating Authority's Findings Beyond the Scope of the SCNs:
The tribunal noted that the adjudicating authority's findings were not based on the facts and case made out in the SCNs. The SCNs only alleged mutuality of interest to treat the appellant and other OMCs as related, but the adjudicating authority did not give any finding on this aspect and observed that mutuality of interest was irrelevant for determining prices. The tribunal held that the adjudicating authority's approach of traveling beyond the scope of the SCNs was legally untenable and a violation of natural justice, citing Supreme Court cases such as CCE, Nagpur v. Ballarpur Industries Ltd. and CCE v. Champdany Industries Ltd.

Conclusion:
The tribunal concluded that the appellant had correctly valued the goods supplied to other OMCs at transaction value, i.e., the Import Parity Price under the MoU. The impugned order dated 26.12.2005 was set aside, and the appeal was allowed with consequential relief to the appellant.