2005 (2) TMI 357 - AT - Central Excise

Valuation (Central Excise) - Transaction value - Petroleum products - Price fixed on the basis of Administered Price Mechanism (APM) - huge price difference between the price adopted for sale to dealers and that to the Oil Companies - duty demand - HELD THAT - In this case, the sale is complete at the time and place of removal, when the products are filled by the appellants in the tank/truck/ wagon as nominated by the other oil companies for onward dispatch to their dealers. It should be appreciated that the agreement among the oil companies has been entered into on a directive from the Government of India. This results in an optimal utilisation of the marketing facilities of the various companies in the country and reducing the cost of transportation. It is better for a refinery to market its products at a nearby marketing facility owned by another company than to send the same goods to its own marketing facility at a far off place. Alternatively, when the company having a refinery has a marketing outlet at some other place, nearer to a refinery of a different company, then it would be better for that marketing outlet to purchase the product from that refinery rather than receive from their own refinery. This arrangement definitely, reduces the transportation cost and is only in public interest. The Central Excise authority cannot question this. Excise men better do not enter into territories alien to them. Even if the agreement between the companies results in mutual benefit, we don't understand why the Excise Department should feel unhappy as long as duty is paid on the transaction value. On going through the agreement we do not find any ground to hold that the transactions are not at arms length. It should also be borne in mind that the days of the concept of normal price are over when the concept of transaction value was introduced in the year 2000. Moreover, invocation of longer period in this case is utterly unjustified. In a similar case, the Commissioner of Central Excise, Mangalore has dropped the demand on the ground that the agreement is only to ensure smooth distribution of the products and the formula arrived at therein for fixing the selling price of the petroleum products is genuine selling price. Thus, the OIOs have no merits. Hence we allow both these appeals with consequential relief, if any.

Summary

Issues:
1. Proper valuation of petroleum products under Central Excise Act, 1944 based on an agreement between oil companies.
2. Application of Rule 11 of the Central Excise Valuation Rules.
3. Duty demands, interest, and penalties imposed under relevant sections of the Central Excise Act, 1944.
4. Interpretation of the agreement between oil companies and its impact on transaction value for excise duty purposes.

Analysis:

1. The issue involved in this case revolves around the proper valuation of petroleum products under the Central Excise Act, 1944 concerning an agreement between oil companies. The Revenue contended that the agreement between the companies was for mutual benefit, leading to a price not in accordance with Section 4(1)(a) of the Act. The Adjudicating Authority confirmed duty demands, interest, and penalties under the relevant sections due to the perceived misdeclaration of prices and non-payment of correct duty.

2. The Adjudicating Authority invoked Rule 11 of the Central Excise Valuation Rules to determine the transaction value for excise duty, considering the agreement between the oil companies. It was held that the price at which the products were sold to dealers would be the basis for calculating the excise duty, as the transaction under the agreement was not considered a commercial relationship due to mutual benefits among the parties.

3. The duty demands, interest, and penalties were confirmed under Section 11A(1), Section 11AB, Section 11AC of the Central Excise Act, 1944, and Rule 25 of the Central Excise Rules. The penalties were imposed based on the duty amounts determined in the original orders.

4. The Tribunal analyzed the arguments presented by both parties. The Appellant's counsel argued that the agreement between oil companies was in public interest and commercial in nature. They emphasized that the transaction value to the retail outlet and oil companies alone should be considered for duty payment. The JCDR contended that the price adopted by the Appellant to the Oil Companies did not represent the transaction value and was not based on commercial considerations. However, the Tribunal found that the agreement among the oil companies was in line with the government's directive to optimize marketing facilities and reduce transportation costs, serving public interest. The Tribunal concluded that the transaction value for excise duty purposes should be based on commercial considerations, and the agreement did not violate Section 4(1)(a) of the Act.

In conclusion, the Tribunal allowed both appeals, stating that the agreement between the oil companies was genuine and aimed at ensuring smooth distribution of products, with the pricing formula being a genuine selling price. The invocation of a longer period for duty demands was deemed unjustified, and the Tribunal ruled in favor of the Appellants, providing consequential relief.