2009 (6) TMI 166 - AT - Central Excise

Valuation reciprocal supply - arrangement of exchange of petroleum products so as to make available to an Oil marketing companies (OMCs), 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 such agreements could not be allowed price charged by them was less than price to their independent dealers and this difference was siphoned off by them from their duty liability to enhance their profits - In fact, if the method of valuation contained in the MOU is accepted, it will prompt manufacturers in other sectors valuation in such case is governed by Rule 4 of Central Excise (Valuation) Rules, 2002 appellant s argument that a PSU cannot be held to act with mala fide intent, is nt accepable - penalties can be imposed on the PSUs mandatory penalry is imposable u/s 11AC Further it is held that, Res judicata is not applicable in cases where fresh significant facts revealed in investigation held that law applicable uniformly to Public and private sector assessees unless an exception is provided by law itself

Issues Involved:
1. Dual Pricing Mechanism for Petroleum Products
2. Validity of Transaction Value under Section 4 of the Central Excise Act, 1944
3. Interpretation of the Memorandum of Understanding (MOU)
4. Applicability of Extended Time Limit for Demand
5. Imposition of Penalty under Section 11AC of the Central Excise Act, 1944

Issue-wise Detailed Analysis:

1. Dual Pricing Mechanism for Petroleum Products:
The primary issue was whether BPCL's practice of adopting two different assessable values for Motor Spirit (MS) and High-Speed Diesel (HSD) for sales to independent dealers and other Oil Marketing Companies (OMCs) was valid. The Central Excise Department found that BPCL was paying less duty on clearances to other OMCs compared to sales to independent dealers, based on a Memorandum of Understanding (MOU) that used Import Parity Price (IPP) for inter-OMC transactions. This practice resulted in a significant price difference, raising concerns about the legitimacy of the transaction value.

2. Validity of Transaction Value under Section 4 of the Central Excise Act, 1944:
The tribunal examined whether the lower price shown in supplies to other OMCs could be considered a 'transaction value' under Section 4. The MOU was deemed a barter arrangement with notional prices that did not reflect the actual transaction value. The tribunal concluded that the IPP-based price was an artificially fixed notional value and not the sole consideration for sale, thus rejecting it as the transaction value.

3. Interpretation of the Memorandum of Understanding (MOU):
The MOU facilitated the exchange of petroleum products among OMCs to ensure smooth supply and distribution. However, the tribunal found that the MOU's pricing mechanism did not have the sanction of the Government of India and was not a directive for adopting dual pricing. The MOU was intended to save transportation costs and optimize infrastructure use, not to establish different prices for duty payment purposes. The tribunal held that the MOU's notional prices could not be accepted for excise duty purposes.

4. Applicability of Extended Time Limit for Demand:
The tribunal upheld the extended time limit for issuing the show cause notice, as BPCL had not disclosed the MOU to the Department and misled it into believing that the dual pricing was a government directive. The tribunal found that withholding the MOU and misleading the Department constituted positive acts of omission/commission, justifying the invocation of the extended time limit.

5. Imposition of Penalty under Section 11AC of the Central Excise Act, 1944:
The tribunal upheld the imposition of a mandatory penalty under Section 11AC, rejecting the argument that a Public Sector Undertaking (PSU) could not act with mala fide intent. The tribunal cited several cases where penalties were imposed on PSUs and concluded that BPCL's actions warranted the penalty. The penalty was imposed for the same amount as the duty demand, amounting to Rs. 119,21,06,264/-.

Conclusion:
The appeal filed by BPCL was dismissed, and the order passed by the Commissioner was upheld. The tribunal confirmed the duty demand and interest, as well as the imposition of a penalty, concluding that BPCL's dual pricing mechanism was not in accordance with the provisions of the Central Excise Act, 1944.

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