Bharat Petroleum Corporation Ltd. v. Commr. Of C. Ex., Nasik

[Order per : A.K. Srivastava, Member (T)]. - The issue involved in the present proceedings relates to the period prior to 6-9-2004, from which date the facility of transfer of petroleum products from refinery to warehouse and from one warehouse to another, without payment of duty was discontinued by the Govt. vide Notification No. 17/2004-C.E. (N.T.), dated 4-9-2004.

2. Brief fact of the case are that M/s. Bharat Petroleum Corporation Ltd. (BPCL), a Public Sector Undertaking (PSU), have a terminal at Panewadi, Manmad, Dist. Nashik, where petroleum products, mainly, Motor Spirit (MS) and High Speed Diesel (HSD) were used to be received through pipelines from the refinery at Mumbai without payment of duty. From Panewadi, these were cleared to their own depots as well as to other Oil Marketing Companies (OMCs) on payment of duty. Enquiries conducted by the Central Excise Department revealed that M/s. BPCL were paying less duty on clearances of MS and HSD made to other OMCs as compared to sales made to their own independent dealers/buyers. In other words, M/s. BPCL were paying duties on the same products but at two different assessable values.

3. Enquiries further revealed that 4 oil companies viz. M/s. BPCL, Indian Oil Corporation Ltd. (IOCL), Hindustan Petroleum Corporation Ltd. (HPCL) and Indo Burma Petroleum (IBP) had entered into the MOU w.e.f. 1-4-2002, so as to ensure smooth supply and distribution of petroleum products by sharing their infrastructure so as to avoid any kind of disruption of supply anywhere in India. The agreement basically was that if, say, IOCL did not have their own refinery or import facilities near Mumbai, they could get the petroleum products from another oil company having a refinery or import facilities in Mumbai, viz. BPCL, which M/s. IOCL could then sell to IOCL’s own independent dealers. The MOU also provided for a reciprocal arrangement in the sense that IOCL would provide the same facility to BPCL at places where IOCL had their refinery or import facility but not BPCL. The sharing of petroleum products would be based on an Industry Logistic Plan (ILP) drawn by OMCs based on industry’s product availability and market demand for a particular month. In respect of supplies to other OMCs, the duty was paid on a value based on, what was called, the Import Parity Price(IPP). The assessable value in these cases was taken as IPP + freight + terminating charges (if through pipeline). The Import Parity Price was defined as the landed cost of the petroleum product at a particular port and would include all applicable elements. An all-India monthly settlement used to be done amongst these oil companies based on joint certificates issued by them.

4. Preliminary enquiries by the Central Excise Department with BPCL indicated that the MOU had been signed at the instance of the Government of India (Ministry of Petroleum & Natural Gases-MOP&NG) after the dismantling of the Administered Price Mechanism (APM) w.e.f. 1-4-2002. Senior officers of BPCL referred to a Letter No. 1612/AS/MOP, dated 21-8-2001 from the Ministry of Petroleum, New Delhi, in support of their contention that the MOU have been entered into at the instance of the Govt. of India. For ease of reference, the letter is reproduced below :

“NARESH NARAD ADDITIONAL SECRETARY

D O.No 1612/AS/MOP&NG/2001

Dated 21st August, 2001

Dear Shri Kapoor,

This refers to my D.O. Letter No. 1250/AS(PNG)/2001, dated  10-7-2001 and discussions in Director (Marketing) meeting held on 16-8-2001, regarding MOU on product sharing amongst PSU Oil Companies.

The product sharing arrangements for both POL & LPG for the purpose of finalizing the MOU should be drawn on the basis of current SPM guidelines on production/allocation and distribution of products in the country. The regionwise and company wise supply demand balance therefore should be arrived at accordingly and linkages finalized on least transportation cost basis, as at present, for meeting the demand of the post de-regulated scenario.

The draft MOU duly vetted by Director (Marketing) was to be sent to MOP and NG by 15-8-2001. We have yet to receive these. You are therefore requested to expedite the same to reach this Ministry positively by_____(not clear) 2001.

Yours Sincerely

Sd/

(Naresh Narad)

Shri S.K. Kapoor

Director (Marketing)

M/s. Bharatpetroleum Corporation Ltd.

New Delhi”

5. When die officers of BPCL were asked by the Central Excise officers to peruse the above letter and to comment as to whether the said letter contained any directions for adopting 2 prices, one for sale to independent dealers and another for supply to other OMCs, they replied in the negative.

6. Based on the enquiries, the two values adopted by BPCL for paying duty were found to be as under :

AS ON 16-3-2003

7. From the above, it appeared that in respect of MS, the price difference was nearly Rs. 3000 per KL and in respect of HSD, it was nearly Rs. 2000 per KL. On being asked, the officers of the buying OMC, M/s. HPCL (who were receiving the petroleum products from M/s. BPCL as per the MOU) clarified that the difference between the two prices formed a part of their gross profit margin as oil industries were required to maintain the same selling price at a particular location.

8. It, therefore, appeared to the Central Excise Department that the MOU was merely a barter arrangement and the price adjustment amongst the OMCs was on a notional basis and had no relation with the transaction value as per Section 4 of the Central Excise Act, 1944. The Department, therefore proposed to determine the value under Rule 11 read with Rule 7 of the Central Excise (Valuation) Rules, 2000, on the ground that the goods supplied to other OMCs were not sales and the sale actually took place from the depots of the OMCs to their own independent buyers.

9. It was also observed by the Central Excise Department that sales tax was being discharged at the point of sale from the depots of the receiving OMCs and not at the point of transfer from BPCL to other OMC.

10. A show cause notice dated 12-3-2007 demanding duty of Rs. 1 19,11,49,418/- + Rs. 9,56,846/- (education cess) - Rs. 119,21,06,264/-, was raised for the period 1-4-2002 to 5-9-2004. The extended time limit was invoked on the ground that the signing of the MOU had not been declared by BPCL to the Department and that the above modus operandi had been adopted with the sole intention to evade payment of duty. Interest and penal provisions were also invoked.

11. The Commissioner of Central Excise, Nashik, confirmed the demand in full vide her adjudication Order No. 41/CEX/2007, dated 8-12-2007 imposing mandatory penalty of equivalent amount under Section 11AC of the Central Excise Act, 1944. Interest under Section 11AB was also demanded.

12. The present appeal is against the said Order dated 8-12-12007 of the Commissioner Central Excise, Nashik.

13. M/s. BPCL have obtained the necessary COD clearance, being item no. 18 of Minutes of the meeting of the COD held on 21-8-2008.

14. Shri M.H. Patil, Ld. Counsel for the appellants (M/s. BPCL) has raised a number of points and contended that the Commissioner’s Order needs to be set aside in toto.

14.1 The first point raised by the Ld. counsel is that the issue involved in the present case had also been raised earlier on a number of occasions and in all cases the matter has been decided in favour of the oil companies. The following judgment; were cited by him.

(i)      HPCL v. CCE, Visakhapatnam-I [].

(ii)    Above order upheld by the Supreme Court. [(S.C.)].

(iii)   IOCL v. CCE&C, Goa [Order No A/360-361/08/C-I/EB, dated  1-4-2008 - (Tribunal).

(iv)   HPCL v. CCE, Pune-II [Order No A/478/07/C-I/EB, dated  26-6-2007].

14.2 The Ld. Advocate carried us through the whole judgment in the case of HPCL v. CCE, Visakhapatnam-I (supra) pointing out that all the issues raised by the Revenue in the present proceedings had been deliberated upon, and, thereafter, it was held by the Tribunal that the dealings between the oil companies were at an arm’s length and, therefore, the transaction value could not be rejected. Shri Patil submitted that this decision had been upheld by the Supreme Court by dismissal of the Civil Appeal No. D-22493 of 2005 filed by the Department as reported in (S.C.). He further submitted that on dismissal of the Civil Appeal, the Tribunal’s order merged with the Supreme Court decision and it should now be considered as the law of the land. In support of this, he relied upon the following decisions :

(a)     V.M. Salgaocar - 2000 (38) RLT 619 (SC)

(b)     Kunhayammed - (S.C.)

(c)     S. Kumars Ltd. - (Tri.-LB)

14.3 Shri Patil furnished a list of other Orders, where similar demands raised against IOCL, BPCL, HPCL and IBP had been dropped.

(i)      Order-in-Original No. 2-6/COMMISSIONER/2005, dated  28-1-2005 in the case of M/s. BPCL/IOCL/HPCL/IBP.

(ii)    Order-in-Original No. 13/2007, dated 27-7-2007 in the case of M/s. BPCL, Athur, Karur.

(iii)   Order-in-Original No. 19/2005, dated 31-8-2005 in the case of M/s. BPCL, Mahul.

(iv)   Order-in-Original 36 to 38/BRC-II/Demand/2004, dated 15-12-2004 in the case of M/s. IOCL , Dumad.

(v)     Order-in-Appeal No. PD/250/M-IV/2003, dated 17-12-2008 in the case of M/s. IOCL.

14.4 He relied on the following decisions of the Supreme Court in support of his stand that when Department has not challenged the Orders-in-Original in BPCL’s own case and in case of other Oil companies on the same issue, it could not now argue against these Orders-in-Original.

(i)      Birla Corporation v. CCE - (S.C.)

(ii)    CCE v. Novapan Industries - (S.C.)

(iii)   Jayaswals Neco v. CCE - (S.C.) = (S.C.).

(iv)   Boving Fouress v. CCE - (S.C.)

(v)     CCE v. Bigen Industries - (S.C.)

(vi)   CCE v. Suntrack Electronics - (S.C.)

(vii)  CCE v. Titawi Sugar - (S.C.)

14.5 Ld. Counsel then referred to Board’s letter F. No. 6/21/2003-CEX-I (Part-I), dated 14-2-2007, wherein it had been clarified that the decision in the case of HPCL v. CCE, Visakhapatnam-I (supra) has been accepted by the Govt. and that it should be followed by all Departmental officers in all pending cases and future assessments. For ease of reference, the Board’s letter dated 14-2-2007 is extracted below :

“F. No. 6/21/2003-CXI (Pt1)

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise and Customs

Dated 14 February, 2007

To

All Chief Commissioners,

All Commissioners of Central Excise and Customs,

DG’(Audit), DGCEI

Sir,

Sub. : Valuation of MS and HSD sold amongst OMCs-MOW regarding

1. I am directed to say that with effect from 1-4-2002, the APM was dismantled and Oil Coordination Committee (OCC) was dissolved. In view of the infrastructural, operational and logistic constraints and to ensure the regular supply of the petroleum products, the Oil PSUs entered into MOUs at the behest of Ministry of Petroleum and Natural Gas, whereby any Oil Company having a warehouse/refinery at any location was obliged to exchange the products with other Oil companies as per logistic plan at mutually agreed price.

2. CERA had raised objection and SCNs were issued to the Oil PSUs on the ground that the transactions of inter PSU sale were not at arms length and that the sale price as per the MOU did not represent the transaction value under Section 4 of the Central Excise Act, 1944.

3. CESTAT, Bangalore, in the case of CCE, Visakhapatnam v. HPCL, has held vide Order No. 306,307, dated 28-2-2005 [ (Tri-Bang.)] that the sale price as per the MOU correctly represented the transaction value. SC has dismissed the Civil Appeal filed by the Department against the CESTAT order.

4. It has been decided that said pending cases and future assessment of said products should be decided based on above order. Cases pending in call book may also be decided accordingly. However, the facts of the case decided by the Tribunal may be gone through properly in order to apply to these pending cases, as well as to future assessments.

Sd/

(Gaurav Sinha)

Under Secretary (CX.I)”

14.6 The Ld. Advocate submitted that the Revenue could not argue against the above CBEC instructions as held by the Supreme Court in the following cases :

(i)      Dhiren Chemicals - (S.C.).

(ii)    Dhiren Chemcials - (S.C.).

(iii)   IOCL - (S.C.).

14.7 On the question of time bar, Shri Patil submitted that there was no case for invoking the extended time limit as the appellants are a PSU, who could have no mala fide intention in avoiding taxes. It was his contention that to invoke the extended period, there has to be a positive act on the part of the manufacturer other than mere inaction or failure and there must be conscious or deliberate withholding of the information by a manufacturer. In support he relied upon the following Supreme Court decisions.

(i)      Padmini Products - (S.C.).

(ii)    Chemphar Drugs - (S.C.).

(iii)   Nestle India - (S.C.).

14.8 On the same grounds, he submitted that penalty cannot be imposed as a PSU cannot have a mala fide intention to evade duties.

14.9 Ld. Advocate further submitted that the mere fact that one value was less than another value of the same product, it cannot be a ground for rejecting the lower value as there are a number of judgments to the effect that sale price or the transaction value can be less than even the cost of production of a commodity. He relied on the following judgments in his support.

(i)      Guru Nanak Refrigeration - (S.C.) = 2003 (55) RLT 506 (SC)

(ii)    North East Gases - 1998 (24) RLT 534 (T)

(iii)   Upheld by Supreme Court - (S.C.)

(iv)   Godavari Manar - (T)

14.10 Shri Patil also argued that the Oil Marketing Companies, who had entered into an MOU, could not be considered as related persons to allow the Department to take the selling price of the receiving OMC as the transaction value. All the oil companies are public limited companies and in the following cases, the Supreme Court has held that two public limited companies cannot be considered as related persons :-

(i)      Alembic Glass Industries - (S.C.)

(ii)    Besta Cosmetics Ltd. - (S.C.)

(iii)   Ranbaxy Laboratories - (Tri.)

(iv)   Utkal Alloys (P) Ltd. - (Tri.)

(v)     Saci Allied Products Ltd. - (S.C.)

(vi)   Manan Agrawal - (Tri.)

15. Shri A.K. Prasad, the Ld. Jt. CDR, arguing on behalf of Revenue submitted at the first stage that though the present dispute relates to a PSU, this fact should not influence or prejudice the Tribunal. The law as laid down by Parliament has to be applied uniformly to all entities, whether these are in the public sector or in the private sector. In the present case, the issue involved is interpretation of Section 4 of the Central Excise Act, 1944. This Section makes no exception regarding its application to a PSU. In other words, this Tribunal should decide the legal issues, without being influenced by the fact that the appellants in this case are a PSU.

15.1 The Ld. Joint CDR submitted that as per Section 4(1)(a) of the Central Excise Act, 1944, the transaction value is to be accepted provided it is the sole consideration for sale. In the instant case, price is not the sole consideration in the transaction between the OMCs and BPCL, since the agreement (MOU) is subject to the condition that if, say, BPCL supplies HSD to M/s. HPCL at the notional value of Rs. 13450.95 per KL at Mumbai, M/s. HPCL in turn, will supply the same quantity of HSD to M/s. BPCL at another station, say, Visakhapatnam, at the same price. Thus, the price shown for these transactions is entirely artificial and they could have even done these transactions at 50% value of the current agreement or even at ‘zero’ value and claimed that the transactions are on principal to principal basis and they would pay duty on the artificial 50% price or even “zero’ price. This clearly brings out the serious revenue implications in accepting the specious logic of M/s. BPCL.

15.2 Further, the Ld. Joint CDR submitted that M/s. BPCL would not have agreed to transfer the products to the other OMCs, if the buying OMCs, in turn, had not agreed to do the same for BPCL at other places. Thus, it was a conditional agreement and there were other considerations involved apart from the price. Hence, this price cannot be considered to be the sole consideration for sale and. therefore, it cannot be considered to be the transaction value.

15.3 It may be noted that in the price structure of the purported sale to the other OMCs, no element of profit was taken into account. This means that this value was not a commercial value, but only an artificial value, and that is why there was a difference of Rs. 2000 to 3000 per KL in the prices at which the supplies were made by the appellants to other OMCs and to their own dealers.

15.4 This is a form of a barter deal, where there is no sale of goods involved. If the artificial price, at which the barter was done with other OMCs, is accepted, it will lead to very serious consequences as, tomorrow, cartels could be formed between the manufacturers of major commodities like steel, tyres, cement, etc., where only commodities would be exchanged and the manufacturers would demand that any artificial price adjustment agreed between the cartel members, should be accepted as a transaction value of the goods.

15.5 If there are two prices for the same product, a lower price to a buyer with whom they have a reciprocal arrangement and a higher price to another buyer, with whom there is no such reciprocal arrangement, it will be presumed that the agreement has influenced the price. For this, the Jt CDR relied on the decision of the Supreme Court in the case of CCE, Mumbai-III v. ISPL Industries Ltd. [ (S.C.)], given in the context of interest free advances affecting the price. It was held that “where there are two prices, one for those who have made the advance and the other who have not, it would require no further proof of the lower price having been influenced by the interest free advance made by the buyer.

15.6 The Ld. Joint CDR submitted that the supply of petroleum products by M/s. BPCL to other OMCs, at the artificially depressed price, was not sale as no sales tax was being paid on these transactions. Sales tax was only being discharged at the point of sale by the buying OMCs to their independent dealers. [This has been brought out in Para 16 of the O-I-O]. There were only adjustments in quantities of dealings between all the OMCs on an all-India basis, monthly, through debit notes and monetary transactions were made only for any excess/short drawals of a company.

15.7 Ld. Joint CDR further submitted that the reliance of the appellants on the decision of HPCL v. CCE, Visakhapatnam-I [ (Tri.-Bang.)] is misplaced as the same is clearly distinguishable on account of the following reason :

(i)      The decision was given on the assumption that the IPP based price fixed in the MOUs between the OMCs was as per the directions of the Central Government,

(ii)    That the transactions between M/s. HPCL and the other OMCs were commercial transactions and,

(iii)   The Revenue had not been able to establish that by the said MOUs. the other OMCs were siphoning some extra amount to M/s. HPCL.

15.8 As per the Ld. Joint CDR the above assumptions were incorrect on the following grounds :

(i) the Central Government (Ministry of Petroleum) had merely directed the oil companies to enter into an MOU to save on transportation cost and to ensure proper use of common facilities. There was no direction from the Central Government about adopting dual pricing mechanism or even suggesting that the transactions between the OMCs should be at a value lesser than that sold to their independent dealers. This aspect was not brought to the notice of the CESTAT in the HPCL case (supra).

(ii) The transactions between HPCL and the other OMCs were not commercial as already discussed above since these were not based on the transaction value available for the same commodity sold to independent dealers, and, further, the artificial price agreed between the OMCs did not take into consideration the profit element at all. It was not the case of the appellants that the sales to OMCs were distress sales or that it was a buyers’ market and, therefore, no profit element was added. This aspect was also not known to the CESTAT, while deciding the case of HPCL (supra).

(iii) The OMCs, by buying the petroleum products at lower prices, were enhancing their profit margin, as has been brought out during the investigations, confirmed in the adjudication Order and not rebutted by the appellants, and there was a reciprocal similar enhancement of the profit margin of M/s. BPCL at other places. Thus, there was siphoning of money to increase the profit of M/s. BPCL in this case. This aspect was also not known at the time of the decision in the case of HPCL (supra).

15.9 Revenue cannot be bound by a CESTAT Order, which is based on wrong and incorrect facts, as held in the case of GMR Energy Ltd. v. CC, Bangalore reported in (Tri.-Bang.).

15.10 The CESTAT decision in the case of HPCL (supra) was based more on the fact that the company was a PSU and less on analysis of law points involved. It was submitted that law has to be uniformly applied to all, and it should make no difference whether the unit is a PSU or a private sector unit.

15.11 Section 4 of the Central Excise Act, 1944, as it existed prior to  1-7-2000, had a specific provision for accepting a value fixed under any law, as the assessable value. There is no such provision in Section 4 after 1-7-2000, which is the provision relevant for the instant proceedings. Hence shelter cannot be taken of any purported directions of the Govt. to deviate from the valuation principles.

15.12 Thus the decision of the Tribunal in the case of HPCL v. CCE Visakhapatnam-I, is distinguishable and, therefore, not binding.

15.13 All the other decisions relied upon by the appellants are based on the above decision in the case of HPCL and are, therefore, also distinguishable.

15.14 Alternatively, even if the said decision of HPCL is applicable, it is not binding on the present Division Bench of the CESTAT, as the said decision is based on factually incorrect presumptions and without noticing the specific provisions of Section 4(1)(a) of the Central Excise Act, 1944. The said judgment is, therefore, per incuriam.

15.15 The Civil Appeal against the said CESTAT decision in the case of HPCL was dismissed by the Supreme Court through a one line Order “Delay condoned. The Civil Appeal is dismissed”, without giving any reasoning. It has been held by the Supreme Court in the case of CCE, Ahmedabad v. Ramesh Food Products [ (S.C.)] that dismissal of Civil Appeal summarily at the preliminary hearing stage, cannot be held to be affirmation of the views of the Tribunal.

15.16 If the Department has not filed appeals in some cases decided by the field Commissioners or against other CESTAT decisions, there is no bar in pursuing/contesting appeal in other proceedings, as in the present case, as held by the Supreme Court in the case of C.K. Gangadharan v. Commissioner of Income Tax reported in (S.C.).

15.16 If any new facts come to the knowledge of the Department, fresh proceedings can be initiated even in the same case, as held by the Supreme Court in the case of UOI v. R.C. Fabrics(P) Ltd. reported in (S.C.).

15.17 The method of valuation adopted in the impugned O-I-O has not been contested by the appellants. The O-I-O proceeds to reject the transaction value vis-à-vis the OMCs and takes the route of Rule 11 of the Valuation Rules read with Rule 7 ibid. By following this route, the Department has come to the same value as was being charged by the appellants to its independent dealers. It is on record that the petroleum products, which were sold by the appellants to other OMCs at artificially depressed prices, were, in turn, sold by the buying OMCs to their independent dealers at the same price, at which M/s. BPCL were selling to their (BPCL’s) independent dealers.

15.18 Further, all the OMCs, to whom the appellants were supplying the products under the MOU, are ‘related persons’, as the President of India holds more than 50% shares in all these PSUs. This is obvious from the definitions appearing in Sections 4(3)(b)(i) and 4(3)(b)(iv) of the Central Excise Act, 1944, read with Sections 2(g)(iii)(c), 2(g)(vi), 2(g)(vii)(v) and 2(g)(vii)(vii) of the MRTP Act, 1969. The relevant extracts are reproduced below :-

Central Excise Act, 1944.

Section 4.

……………

“(3) For the purpose of this section,-

……………

(b) persons shall be deemed to be “related” if

……………

(i) they are inter-connected undertakings,

……………

(iv) they are so associated that they have interest, directly or indirectly, in the business of each other. “

Explanation :– In this clause -

(i) ‘Interconnected undertakings’ shall have the meaning assigned to it in clause (g) of Section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969)

MRTP Act, 1969.

Section 2.

“(g) inter-connected undertakings means two or more undertakings which are inter-connected with each other in any of the following manner, namely:-

……………

(iii) where the undertakings are owned by bodies corporate, -

……..

(c) if the bodies corporate are under the same management, or

……..

(vi) if the undertakings are owned or controlled by the same person or by the same group.

(vii) if one is connected with the other either directly or through a number of undertakings which are inter-connected undertakings within the meaning of one or more of the foregoing sub-clauses.

……………

Explanation I For the purpose of this Act two bodies corporate shall be deemed to be under the same management, -

……………

(v) if the same individual or individuals belonging to a group, while holding (whether by themselves or together with their relatives) not less than one fourth of the equity shares in one such body corporate also hold (whether by themselves or together with their relatives) not less than one fourth of the equity shares in the other, or

……………

(vii) if not less than one fourth of the total voting power in relation to each of the two bodies corporate is exercised or controlled by the same individual (whether independently or together with his relatives) or the same body corporate (whether independently or together with its subsidiaries); or

……………“

15.19 The Board’s letter dated 14-2-2007 does not lay down any law, but merely states that the decision in the case of HPCL v. CCE, Visakhapatnam (supra) should be followed, but goes on to say that .....however, the facts of the case decided by the Tribunal may be gone through properly in order to apply to these pending cases, as well as to future assessments. It has already been brought out, as to how the decision in the case of HPCL v. CCE, Visakhapatnam is distinguishable and hence the letter dated 14-2-2007 does not help the case of the appellants.

15.20 Further, the Supreme Court has recently held in the case of CCE, Bolpur v. Ratan Melting and Wire Industries [ (S.C.) = (S.C.)] that a Circular contrary to statutory provisions has no existence in law. The earlier Supreme Court decision in the case of Dhiren Chemical Industries, cited by the appellants, was also discussed and clarified.

15.21 As regards time bar, the signing of the MOU between M/s. BPCL and the other OMCs was never disclosed to the Department, and this fact has not been contested/countered by the appellants. There is no ground to contend that the extended time limit cannot be invoked against a PSU. In the case of another PSU, Bharat Earth Movers Ltd., the extended time limit was upheld [ (Tri.-Bang.)]. Hence the extended time limit has been correctly invoked in the present case.

15.22 As regards penalty, there was no ground to contend that mercy because it is a Public Sector Undertaking (PSU), they cannot be penalized. There are innumerable instances of penalty being imposed on PSUs. In fact, in a separate proceeding against the same appellants, M/s. BPCL, a penalty of Rs. 10 lakhs was upheld by CESTAT, Mumbai [ (Tri.-Mumbai)].

15.23 In view of the above, the Ld. Joint CDR submitted that the present appeal deserved to be dismissed.

16. We have carefully considered the rival contentions and perused the records. We agree with the Ld. JCDR at the outset that so far as interpretation of law is concerned, it has to be applied uniformly to both the public sector and the private sector, unless the law itself provides for an exception. It is nobody’s case that in the present proceedings, where we have been called upon to interpret the provisions of Section 4 of the Central Excise Act, 1944, any exception has been carved out for PSUs.

17. The first and foremost issue to be decided is whether the lower price shown in respect of supplies made by the appellants to the other OMCs can be considered as a ‘transaction value’ as per Section 4 of the Central Excise Act, 1944, in the sense that it is a deal between two legal entities at an arm’s length, where price is the sole consideration for the transaction. For this, it will be necessary to study the terms of the MOU signed by the oil companies. Some relevant clauses of the MOU are reproduced below :

Clause 2.11 — ‘Import Parity Price’ means landed cost of the product at particular port which would include all applicable elements.

Clause 2.14 — ‘Industry Logistics Plan (ILP)’ means all India supply and distribution plan jointly drawn by oil marketing company based on the industry’s product availability and market demand for particular month(s).

Clause 4.1 — The parties hereby agree to sell and purchase the products to/from each other of the quantities to be determined from month to month based on the principles laid down in ILP (Industry Logistics Plan) Procedures.

Clause 5.1 — Basic price of products for road, rail and pipeline delivery ex-coastal refineries shall be the Import Parity Price at the dispatching refinery port, to be calculated as per the formula given in the Annexure — D of MOU as applicable on the date of completion of loading.

Clause 5.3 — Basic price of products ex-inland refinery shall include, in addition to Import Parity Price as per Annexure D of the MOU at the nearest port, the freight from such nearest port to the inland refinery as detailed below :

Clause 5.4 — Basic price for sale ex-inland locations (oilier than refineries) including TOPs shall be the import parity price at the nearest port plus freight being recovered in the selling price at such inland location.

Clause 5.5 — Basic price for sale ex non-refinery port locations shall be the import parity price at the nearest refinery port + coastal/pipelint freight from nearest refinery port being recovered in the price of such non refinery port.

18. From the above, it is clear that the MOU was basically an arrangement of exchange of petroleum products so as to make available to an OMC, 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, where one oil company would supply petroleum products to another oil company at a particular location and this would be reciprocated by the receiving oil company to the supplying oil company at some other location. In a case of barter deal, price becomes irrelevant as only commodities are exchanged. This is the situation in the present case also. The import parity price is clearly a notional value adopted by the signatories to the MOU for their accounting purposes and it had no relationship with the actual selling price of the product to independent buyers. The price to independent buyers, in other words, ‘the transaction value’ was known to BPCL as they were selling the same products to their independent dealers. There was, therefore, no reason for not adopting the same value in their MOU instead of adopting the cost plus method based on the assumed landed cost of the product.

19. We, therefore, agree with the Ld. Joint CDR that the IPP based price could not be considered as the transaction value, as it was an artificially fixed notional value. In such an arrangement, price was definitely not the sole consideration for sale, as one of the important considerations was that the receiving OMCs would supply similar quantities at reduced notional prices to the supplying oil companies at another location. The price agreed as per the MOU could have been accepted as a transaction value at an arm’s length, had there not been any conditions attached on the receiving OMCs. Such a conditional transaction cannot be said to have been done at an arm’s length and in which case, the price cannot be considered to be the sole consideration for sale. Would the appellants have agreed to the MOU, if the buying OMC did not agree to reciprocate the gesture? The answer is obviously ‘no’.

20. We note that, notwithstanding the MOU, nothing prevented the signatories to MOU to adopt a uniform value for the purposes of paying Central Excise duty for all their transactions, though continuing to adopt their IPP based price for internal accounting purposes, especially when transaction value of sale to independent buyers, without any pre-conditions, was available and known to them. It is not uncommon to have two prices, one for purposes of paying Central Excise duty and, the other, for accounting in one’s books. Cases of inter-unit transfers, sales to related persons, manufacture on job-work basis, free supplies as marketing strategy, can be cited as obvious instances. The adopting of the IPP based price indicated in the MOU for payment of Central Excise duty also, was , therefore, not correct on the part of the oil companies.

21. In fact, if the method of valuation contained in the MOU is accepted, it will prompt manufacturers in other sectors to follow suit. For example, the cement manufacturers all over India can enter into a similar arrangement with one another agreeing to provide cement to each other at a notional value of say. Rs. 5 per 50 Kg. bag and pay Central Excise duty on this price, when sales to independent dealers are at, say, Rs. 50 per 50 Kg. bag. Since equal quantities would be exchanged, there would be no loss to any manufacturer and the only loss would be to the Govt. on account of the Central Excise duty. How can such a transaction be given the legal cover of ‘transaction value’ under Section 4 of the Central Excise Act, 1944?

22. The other point raised by the Ld. Joint CDR is that the IPP based price did not take into consideration any profit element of the supplying oil company. It is not the case of the appellants that a glut in the demand of petroleum products necessitated selling the products at cost price. In fact, it is common knowledge that the market for petroleum products is supply – driven. It is also not the case of the appellants that the transaction value of sale to the independent dealers had always been at a loss. Thus, supplying a product in a market, which is supply-driven, without taking into consideration any profit element, clearly indicates that the said transaction is not a commercial transaction and is not at an arm’s length.

23. The Ld. Counsel for the appellants has tried to argue relying on a number of Court decisions, that the price, which is lower than the cost price can also be considered as a transaction value. In the cases cited by him, there was no instance of supply of goods in a supply-driven market or a case, where the same manufacturer had two prices, one at a profit and the other, only at cost. It is also not the case of the appellants that the transactions with the other OMCs were distress sales, where profit could not be considered. As such, the decisions cited by the Ld. Counsel on this issue are clearly distinguishable and not applicable to the present facts of the case. In the case of Gurunanak Refrigeration (supra), the issue relates to the provisions of Section 4 as it existed prior to 1-7-2000 and further there was no evidence to suggest that the price was not the sole consideration. In the case of North East gases, the appellants was selling their goods at a loss, as they wanted to establish themselves in the market and further, price was the sole consideration for the sale. In the case of Godavari Manar SSK Ltd., molasses were sold against tenders and again the sale price was the sole consideration for the sale. In the present proceedings, none of these case laws are applicable as the facts are different.

24. The Ld. Counsel for the appellants has laid great stress on the  CESTAT decision in the case of HPCL v. CCE, Visakhapatnam-I (supra). We note that all the other CESTAT decisions and Orders-in-Original cited by the Ld. Counsel rely on the said decision in the case of HPCL. It is, therefore, necessary to examine the ratio decidendi of the said case. It will be appropriate to reproduce Para 6 of the Judgment, which brings out the reasons for the Tribunal to allow the appeal of M/s. HPCL.

“6. We have gone through the rival submissions. With effect from  1-7-2000, the value to be adopted for excise duty purposes is the transaction value. The transaction value represents the value at which the transaction is effected. This transaction value can be assailed, if there is flow back from the buyer to the seller, which is not reflected in the transaction value declared to the Department. In this case Revenue has not established that the other Oil Companies are siphoning some extra amount to the appellant, which is not reflected in the value on which duty has been paid. Moreover, the price of the products supplied to OMCs is based on the Import Parity Price. There is nothing in the law stipulating that different prices to different buyers are not permissible. In other words transaction value can be challenged if conditions stipulated in Section 4(1)(a) are not fulfilled. 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 Govt. of India. This results in an optimal utilization 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 the 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 art not at arm‘s 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. In fact it would be worthwhile to quote from Board’s Circular dated 30-6-2000.

“4. The definition of “transaction value “ needs to be carefully taken note of as there is fundamental departure from the erstwhile system of valuation that was essentially based on the concept of ‘Normal Wholesale Price’, even though sales were effected at varying prices to different buyers or class of buyers from factory gate or Depots etc., had to be determined.

5. The new Section 4 essentially seeks to accept different transaction values, which may be charged by the assessee to different customers, for assessment purposes so long as these are based upon purely commercial consideration where buyer and the seller have no relationship and price is the sole consideration for sale. Thus, it enables valuation of goods for excise purposes on value charged as per commercial practices rather than looking for a notionally determined value.””

25. From the reading of the above Order of the CESTAT it is observed that it is based on the following 3 assumptions, viz.

(i)      the Revenue could not establish that the other oil companies were siphoning some extra amounts to the appellant, which is not reflected in the value on which the duty was paid.

(ii)    the agreement (MOU) is as per the directive of the Govt. of India.

(iii)   the Revenue could not show that the MOU transaction was not at an arm’s length and that the MOU was based on purely commercial consideration, where the buyer and the seller had no relationship and price was the sole consideration for the sale.

26. Thus, the Tribunal decision in the case of HPCL was based primarily on the inability of the Revenue to counter the above presumptions. We find that in the present proceedings, the Revenue has investigated the matter in great detail and has been clearly able to establish the above assumptions as incorrect.

27. The statements of the officers of HPCL (the buying OMC, in the present case) have established that by getting the petroleum products from BPCL at lower value, they (HPCL) were enhancing their profits, and that similar profits were flowing back to M/s. BPCL at all other locations, where BPCL were the receiving OMC. Thus, the Revenue has been able to establish in the present case that the oil companies were siphoning extra amount to the appellants for amounts, which were not reflected in the value on which the duty was paid. As already indicated above, this amount was around Rs. 3000 per KL in respect of MS and around Rs. 2000 per KL in respect of HSD, on which the duty was not paid.

28. The other assumption on the basis of which the HPCL decision was delivered was that the MOU had been entered on the directive of the Govt. of India. In the course of the present investigations, the Revenue has been able to establish that what the Govt. of India (Ministry of Petroleum) had directed was to merely enter into an MOU to save on the transportation cost and to make optimum use of the common infrastructure facilities of the oil companies. The Govt. of India had at no stage directed the oil companies to adopt two different prices for payment of duty. Thus, the adoption of two prices, one as per the MOU and the other for sale to independent dealers, was not as per the directive of the Govt. of India.

29. In the written submissions filed subsequently by the appellants, it has been mentioned at one point that the Govt. of India (Ministry of Petroleum) vide letter dated 13-6-2006 had informed all OMCs that the Rangarajan Committee’s recommendation to adopt the import parity price for petroleum product has been accepted by the Government. This letter has no relevance as the present proceedings cover the period upto September, 2004 and further, it is not clear as to what was the scope and implication of the Rangarajan Committee’s recommendations. In fact, this only goes to prove beyond doubt that at the time of signing of the MOU in March, 2002, the import parity price based agreement did not have the sanction of the Govt. of India and it was a notional price agreed between the OMCs for their mutual convenience and for accounting purposes.

30. The next point noted by the Tribunal in the HPCL case was that the Revenue had not been able to establish that the dealings between the OMCs were not based on purely commercial consideration and that the price was not the sole consideration for the sale. Investigations in this case have clearly brought out that the price indicated in the MOU did not take into consideration the profit margin (ever, a notional one) of the supplying company. As per Central Excise Valuation Rules, 2000, even for captive consumption, an element of profit (though notional) is taken into consideration. As such, by not factoring in my profit element in the IPP based MOU price, the same could not be considered as based on purely commercial considerations. No one engages in any commerce for charity. The basic aim of any commercial transaction is to earn profit, unless it can be shown that there are some exceptional circumstances necessitating transactions without profit. The appellants have not been able to cite any extenuating or exceptional circumstances necessitating an oil behemoth operating in a monopolistic environment, to transact on no profit basis.

31. On the aspect of price not being the sole consideration for the sale, it has rightly been pointed out by the Ld. Joint CDR that the MOU price was based on reciprocity, both in terms of quantity involved in the transaction and the value, and, therefore, it could not be considered as the sole consideration for the sale. In fact, it was a conditional sale having revenue implications.

32. The Ld. Joint CDR has rightly pointed out that if there are two prices for the same product, a lower price to a buyer, with whom they have a reciprocal arrangement and a higher price to another buyer, with whom there is no such reciprocal arrangement, it will be presumed that the agreement has influenced the price. The Hon’ble Supreme Court decision in the case of CCE, Mumbai-III v. ISPL Industries Ltd. [ (S.C.)] given in the context of interest free advances affecting the price, can be cited in support. It was held in that case that “where there are two prices, one for those who have made the advance and the other who have not, it would require no further proof of the lower price having been influenced by the interest free advance made by the buyer.

33. Thus, since the Revenue has been able to establish all the three points, which they could not establish in the case of HPCL (supra), the case of HPCL becomes clearly distinguishable and cannot be considered as a binding precedent in view of the new facts brought out and established by Revenue in the present proceedings.

34. In fact, we find that the decision in the HPCL case was based more on the consideration that appellants were a PSU, who had acted strictly as per the directive of the Govt. of India and the Central Excise Department could not question the same.

35. The Ld. Counsel for the appellants has raised another point that in similar situations, a number of other Orders-in-Original/Order-in-Appeal have been passed by the other Commissioners of Central Excise, which have not been challenged, and hence the Department is barred from agitating the said issue in the present proceedings. For this proposition, he relied upon the case laws referred to in para 14.4. We find that in all the cases cited by the learned Counsel for the appellants, the facts were identical in the subsequent appeals and, therefore, the Supreme Court held that the Department is barred from agitating the same issue based on the same facts, once more. In the present case, it has been established that the significant propositions, on which the CESTAT decision in the case of HPCL (supra) was based, have been found to be wrong or incorrect. The Department is free to agitate an issue, if fresh facts come to light. We have already discussed above as to how the important facts were not brought to the notice of either the adjudicating authorities or the Tribunal, which could have had significant bearing on the outcome of the case. One additional fact can make a lot of difference between two decisions. We may quote the observations of the Hon’ble Supreme Court in the case of Escorts Ltd. v. CCE, Delhi-II reported in (S.C.)

“10. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper.”

36. The Ld. Joint CDR has rightly pointed out that even the principle of res judicata does not apply to cases, where the investigations reveal fresh and significant facts.

37. Further, in the case of Faridabad CT Scan Centre v. DG Health Services reported in (S.C.), it has been held by the Hon’ble Supreme Court that wrong orders issued in favour of some appellants cannot bar the Department from proceeding against others.

38. As regards the appellants’ reliance on the Board’s instructions dated 14-2-2007, we find that it is based on the HPCL decision (supra), which we have already distinguished. In fact, the Board’s instructions clearly provide that the HPCL decision (supra), should not be blindly followed in all similar cases without first examining the facts of each case. The facts in the present proceedings have revealed a position, which is quite different from what was known, or presented, at the time of the HPCL decision (supra) and hence the Board’s instructions cannot bind the Department against contesting this appeal Even otherwise, the Ld. Joint CDR has rightly pointed out that the Hon’ble Supreme Court in the case of Ratan Melting (supra) has modified/clarified their decision in the case of Dhiren Chemicals and has held that the Board’s instructions, contrary to law, cannot prevent the Department from arguing against it.

39. This is a clear case of profiteering where, through one channel of transaction i.e. the M.O.U., the OMCs were enhancing their profits through artificial reduction in the assessable value of the petroleum products. The appellants have admitted during the course of investigations that through this dual mode of pricing, the profit of buying OMC was increased. It is not the case of any of the OMCs that they had passed on this profit or relief to their independent dealers/buyers.

40. Though the appellants have not submitted any arguments on the method of valuation adopted by the Commissioner, who has adopted Rule 11 of the Central Excise Valuation Rules read with Rule 7 ibid yet their argument is merely that their transactions were on the basis of transaction value and there was no need to resort to the Valuation Rules. We have, however, given our considered thought to the valuation provision adopted by the Commissioner. We are of the view that the correct Rule to apply is Rule 4 of the Central Excise Valuation Rules, 2000, which is reproduced below :-

Rule 4 : The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment , as may appear reasonable.

41. In the present case, though goods were being transferred to the buying OMCs at a notional value, at around the same time, the same goods were also being sold at the transaction value to the independent dealers of the appellants. Thus, Rule 4 of CE Valuation Rules, 2000 is the appropriate rule to invoke for valuing the goods, which were transferred to the buying OMCs.

42. We, therefore, hold that in respect of supplies by the appellants to the buying OMCs, the transaction value would be the value at which the appellants were selling their products to their independent dealers.

43. We have not given any opinion on the contention of the Ld. Joint CDR that the Oil PSUs are related persons as per Section 4 of the Central Excise Act, 1944, and the counter arguments submitted by the Ld. Counsel on this, since this issue is not relevant for deciding the matter at hand.

44. On the question of time bar, we find that the show cause notice has alleged that the contents of the MOU were not brought to the notice of the Commissionerate and that M/s. BPCL had misled the Department into believing that the dual pricing adopted by them has been done on the directive of the Govt. of India. This has not been contested by the appellants. Their only defence is that mere non-submission of the MOU cannot be a ground for invoking the extended time limit and there should be some positive act of omission/commission for the same. Withholding the MOU from the Department, and making the Department believe that the dual pricing was adopted as per the directive of the Government cannot be considered to be innocent acts. This is definitely a positive act, for which the extended time limit has been rightly invoked. We have examined the Judgments cited by the Ld. Counsel. A perusal of these Judgments reveals that there can be no uniform guidelines for invoking the extended time limit. Each case will have to be determined on the facts present therein. In the case of Grauer and Weil (India) Ltd. v. CCE, Baroda [(S.C.)], a manufacturer had not informed the Central Excise Department about a second unit belonging to the same company situated on the same plot of land. Even though the party had filed a declaration regarding the second unit, the Court held that the said declaration was found to be in a different context under a separate notification and it was, therefore, held that it was not a case of simple inaction or failure but one of wilful and deliberate mis-statement and suppression. In the present case, the appellants had not informed the Department about the contents of the MOU wherein, a transaction price with buying OMCs was agreed to, which was much less than their sale price to independent buyers. It cannot be said that they were unaware of the revenue implications, specially when the MOU resulted in increase in the profit of all the signatories to the MOU including the appellants and less payment of duty.

45. In this context, we would like to note that the appellants are not a small Undertaking, who would be unfamiliar with the Central Excise laws. They ought to be aware that Section 4 of the Central Excise Act, 1944 does not provide for accepting any price as the transaction value, even if it is presumed (for argument’s sake) to have been adopted on the directions of the Government,. Earlier, in Section 4, as it existed prior to 1-7-2000, there was a provision for accepting a value fixed under any law, for purposes of payment of Central Excise duty. No such provision exists after 1-7-2000. The appellants could not be ignorant of such changes and, even if for argument’s sake, it is accepted that it was the Govt. of India, which has directed them to adopt the dual pricing policy, then also the appellants were duty bound to pay duty as per the provisions of Section 4 of the Central Excise Act, 1944. We uphold the duty demand of Rs. 119,21,06,264/- (Rupees One hundred Nineteen Crores Twenty One Lakhs Six Thousand Two hundred Sixty Four only) confirmed by the Commissioner and the interest on this confirmed amount.

46. On the question of penalty, the Ld. Counsel has argued that a PSU cannot be held to act with mala fide intent. The Ld. Joint CDR has rightly countered this argument relying on a number of decisions, where substantial penalties have been imposed on the PSUs. In fact, one of the cases cited by the ld. Joint CDR relates to the appellants themselves, though in another case. Once the invoking of the extended time limit has been upheld, mandatory penalty is imposable under Section 11AC of the Central Excise Act, 1944 [Dharamendra Textile Processors reported in (S.C.)]. We uphold the penalty of Rs. 119,21,06,264/- (Rupees One hundred Nineteen Crores Twenty One Lakhs Six Thousand Two hundred Sixty Four only) imposed on the appellants by the Commissioner.

47. In view of the above findings, the appeal filed by the appellants is dismissed. The impugned Order passed by the Commissioner is upheld

(Pronounced in the court on 17-6-2009)