Citation Codes

Equivalent Citations

citation codes

Case Number

Appeal(s) Involved: E/413/2006

Advocates

Mr. N. Jagdish, A.R.
Mr. G. Shivadass, Advocate,

Judges

S.S. Garg, Judicial Member
Ashok K. Arya, Technical Member

Acts

Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 along with Section 4 of the Central Excise Act, 1944
Rule 6 of the Central Excise Valuation Rules (supra) read with the provisions of Section 4(1) of the Central Excise Act, 1944,
Rule 6 of the Central Excise Valuation Rules, 2000 (supra) read with Section 4(1) of the Central Excise Act, 1944.
Section 4 of the Central Excise Act, 1944 read with Rule 6 of the Central Excise Valuation Rules, 2000.(c)The
Section 4(1) of the Central Excise Act, 1944 read with Rule 6 of Central Excise Valuation Rules (supra).
Section 4(1) of the Central Excise Act, 1944 and Rule 6 of the Central Excise Valuation Rules (supra).
Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000,
Section 4(1) of the Central Excise Act, 1944 and Rule 6 of the Central Excise Valuation Rules
provisions of Section 4(1)(a) of the Central Excise Act, 1944,
provisions of Rule 6 of Central Excise Valuation Rules
Section 4(1) of the Central Excise Act, 1944. Section 4(1)
Rule 6 of the Central Excise (Valuation) Rules, 2000
Section 4(1) of the Central Excise Act, 1944,
CENTRAL EXCISE ACT 1944
Valuation Rules, 2000 (supra), Central Excise
SECTION 4 A CENTRAL EXCISE ACT 1944
Section 4(1) of Central Excise Act, 1944
Central Excise Valuation Rules, 2000
Rule 6 of the Valuation Rules, 2000
provisions of Section 4(1)(a)
Section 4(1)

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Smart Summary

Concise Analytical Summary of the Tribunal Order (per Ashok K. Arya, Member (T))

Factual and Procedural Background

This appeal was filed by the Revenue against Order-in-Original No. 41/2005 dated 30-11-2005 passed by the Commissioner of Central Excise and Customs, Cochin. The respondents are M/s. Indian Oil Corporation Ltd. (IOCL), Cochin. The dispute concerns clearances of SKO (Superior Kerosene Oil) made for the Public Distribution System (PDS) for the period April 2002 to September 2004, involving a total duty (as in the notice) of Rs. 10,85,01,006/-. IOCL paid Central Excise duty at a subsidized price/value fixed under the Administrative Price Mechanism (APM), while IOCL reimbursed the manufacturer, Kochi Refineries Ltd. (KRL), via amounts received from the Oil Pool Account (referred to as Product Price Adjustment or differential/reimbursement amount). The Commissioner in the impugned order had held that the reimbursement component could not be added to the assessable value and accordingly dropped the demand. The Revenue has appealed against that order. The Tribunal heard written submissions and arguments of both sides and proceeded to decide whether the reimbursement/differential amount received by IOCL from the Oil Pool Account and paid to KRL is part of the value of the goods under Section 4 of the Central Excise Act, 1944, and whether duty is thereby chargeable on that amount.

Legal Issues Presented

Whether the differential amount (the difference between the subsidized price and the total price paid for SKO), received from the Oil Pool Account by IOCL and paid to the manufacturer (KRL), is part of the value of the goods under Section 4 of the Central Excise Act, 1944.
If yes, whether Central Excise duty is chargeable on that differential/reimbursement amount.
Whether the demand for duty for periods earlier than one year prior to the date of show cause notice is barred by limitation in the absence of proof of wilful suppression to evade duty.

Arguments of the Parties

Appellant (Revenue) — Arguments

The duty should be payable on the full price actually paid by IOCL to the manufacturer (KRL), because IOCL paid a price to KRL which was higher than the subsidized price at which IOCL cleared SKO to retail dealers.
The subsidized price on which IOCL discharged duty cannot be taken as the assessable value; instead the assessable value should include the full consideration paid to KRL.
With effect from 1-7-2000 the Central Excise Valuation Rules, 2000 introduced the concept of “transaction value”; the actual value paid to KRL constitutes the transaction value and duty is payable on the entire amount paid to KRL by IOCL.
The Revenue relied on several precedents (listed in its submissions) to support its contention that amounts actually paid/consideration constitute assessable value.

Respondent (IOCL) — Arguments

IOCL paid duty on the price fixed by the Government under APM and used that subsidized price as the transaction value for clearance to buyers; therefore duty on the amount paid to the refinery (KRL) should not be demanded.
IOCL received SKO from KRL under warehousing provisions and cleared warehoused SKO to retail dealers on payment of duty on the Government-fixed APM price; although IOCL paid KRL the RGP (Refinery Gate Price), the APM price was the sale price to buyers.
Valuation after 1-7-2000 is governed by the “transaction value” concept; the transaction value for IOCL’s sale to buyers is the subsidized APM price actually paid by buyers, and there is no additional consideration flowing from buyers to IOCL in respect of those sales.
The Product Price Adjustment (PPA) or reimbursement from the Oil Pool Account is not additional consideration received directly or indirectly from buyers; it cannot be added to assessable value under Rule 6 unless it is shown to flow from buyers to the seller.
Reliance was placed on several decisions (listed by IOCL) that, according to their submissions, support that subsidy to a manufacturer should not be added to determine the sale price.
The respondents also relied on Board clarifications (C.B.E. & C.) specific to their case and contended the Larger Bench ONGC decision was inapplicable; further, they argued limitation barred demands for periods prior to March 2004.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Oil & Natural Gas Corporation Ltd. v. Commissioner [2015-TIOL-1960-CESTAT-MUM-LB = 2015 (325) E.L.T. A147 (Tribunal)] (Larger Bench)	Principle that "the price actually paid or payable for the goods, when sold, in addition includes any additional consideration which is being received by seller or assessee on behalf of the buyer, by reason of, or in connection with, the sale."	The Court relied on this Larger Bench ONGC decision to support the view that additional consideration received by IOCL (reimbursement from Oil Pool Account) is to be treated as price-cum-duty and included in assessable value.
Oil & Natural Gas Corporation Ltd. v. Commissioner [2010-TIOL-1419-CESTAT-MUM] (Tribunal)	Referenced by parties in relation to valuation principles under Rule 6/transaction value concepts (as cited by the Revenue).	The Court noted it among the authorities relied upon by the Revenue in support of the proposition that price/cost paid constitutes assessable value and treated it as supportive of its conclusion.
Commissioner of Central Excise, Jaipur-II v. Super Synotex (India) Ltd. (Hon'ble Supreme Court)	Principle that the price or cost paid to the manufacturer constitutes the assessable value; emphasis on the words "actually paid".	The Court relied on this Supreme Court decision (paragraph 22 cited in the order) to support the proposition that the actual amount paid (here: subsidized price plus reimbursement) constitutes assessable value.
Commissioner of Central Excise, Jaipur v. Shree Rajasthan Syntex Ltd. (Hon'ble Supreme Court)	Authority on valuation principles indicating the price/cost paid to manufacturer constitutes assessable value.	The Court cited this decision as supportive authority for the proposition that amounts actually paid mount to assessable value; it is used to buttress the reasoning that reimbursement forms part of price.
Oil & Natural Gas Corporation Ltd. v. CCE, Surat (Tribunal - Ahmadabad)	Referenced in the list of authorities on valuation/transaction value issues (as relied upon by the Revenue).	The Tribunal recorded it among precedents relied upon by the Revenue; the general principle from such ONGC authorities was used in the Court's analysis to treat additional consideration as part of assessable value.
Coromandel International Ltd. v. CCE, Visakhapatnam (Tribunal - Bangalore)	Cited by respondents as an authority where courts held that subsidy given to a manufacturer is not to be added to determine sale price.	The Court noted this decision among those relied on by IOCL but ultimately found the respondents' cited cases not relevant to sustain their submissions in the circumstances of this case.
Madras Fertilizers Ltd. v. Asst. Commissioner (1994 (95) STC 134 (Ker.))	Cited by respondents for the proposition that subsidy to a manufacturer should not be added to sale price.	The Tribunal recorded the citation but concluded that the respondents' cited case law did not support their position in the present factual matrix.
Rashtriya Chemicals and Fertilisers Ltd. v. State of U.P. (1996 (101) STC 487 (All.))	Cited by respondents in support of the view that subsidy should not be added to sale price.	The Court noted the citation but did not find these authorities determinative for IOCL's submissions and proceeded to apply Section 4(1) and Rule 6 to the facts.
TISCO General Office Recreation Club v. State of Bihar (2002 (126) STC 547 (SC))	Cited by respondents as authority on subsidy/taxable value issues.	The Tribunal recorded the citation but treated the respondent-cited case law collectively as not persuasive for the outcome on the specific reimbursement issue.
Neyveli Lignite Corporation Ltd. v. CTO (2001 (124) STC 586)	Cited by respondents for the proposition that subsidies need not be added to determine sale price.	Noted by the Tribunal among respondent-cited authorities; the Court did not find these sufficient to override the statutory Explanation to Section 4(1) and Rule 6 applied to the facts.

Court's Reasoning and Analysis

The Tribunal's analysis followed from a close reading of Section 4(1) of the Central Excise Act, 1944, its Explanation, and Rule 6 of the Central Excise Valuation Rules, 2000. The Tribunal proceeded in discrete steps:

Statutory framework: The Tribunal reproduced Section 4(1) including the Explanation and observed that when duty is charged with reference to value, in the case of sales the transaction value applies where the buyer and seller are unrelated and price is the sole consideration. The Explanation clarifies that "price actually paid" and the "money value of additional consideration, if any, flowing directly or indirectly from the buyer to the assessee" constitute the price-cum-duty.
Identification of additional consideration: The Tribunal accepted the factual premise that IOCL received from the Oil Pool Account a reimbursement/differential amount (Product Price Adjustment) in respect of the same SKO sold to retail buyers under PDS and that IOCL paid that reimbursement to KRL (the manufacturer). The Tribunal characterized that amount as "additional consideration" connected with the sale of SKO.
Application of Explanation and Rule 6: The Tribunal held that the Explanation to Section 4(1) and Rule 6 of the Valuation Rules make clear that where price is not the sole consideration, the value is the aggregate of the transaction value and the money value of additional consideration flowing directly or indirectly from the buyer to the assessee. The Tribunal concluded the reimbursement received from the Oil Pool Account is to be treated as such additional consideration—deemed to be received on behalf of the buyers (even if paid by Oil Pool Account).
Rejection of IOCL's counter-arguments: IOCL's contentions—that the subsidized APM price alone constituted the transaction value, that the PPA was not received from buyers, that Board circulars said Oil Pool contributions should not be added, and that the Larger Bench ONGC decision was inapplicable—were examined and rejected. The Tribunal explained that the differential amount is functionally a part of the consideration for the same goods and not an "empty" transaction; it was therefore properly treated as consideration for valuation purposes despite the technical source being the Oil Pool Account or a government mechanism.
Precedential support: The Tribunal relied on the Supreme Court decisions (Super Synotex and Shree Rajasthan Syntex) and the Tribunal's Larger Bench ONGC decision for the principle that amounts actually paid/received on behalf of a buyer amount to assessable value/transaction value. The Tribunal quoted Super Synotex's observation that "actually paid" is significant and used it to support treating the subsidized price plus reimbursement as the actual amount paid.
Limitation issue: While concluding that reimbursement is chargeable as assessable value, the Tribunal examined the limitation plea. Because there was insufficient evidence of wilful suppression or misstatement to invoke extended limitation, the Tribunal held that extended period could not be applied. The show cause notice dated 21-3-2005 meant only clearances within one year prior to that date could be confirmed as recoverable; demands for earlier periods were time-barred.
Remand for quantification: The Tribunal remanded the matter to the original adjudicating authority to quantify duty, interest and determine penalty (if any) for the one-year period (prior to the SCN), giving the authority three months to complete the exercise after permitting hearings and document production.

Holding and Implications

Holding: The Tribunal held that the differential/reimbursement amount (Product Price Adjustment) received by IOCL from the Oil Pool Account and paid to the manufacturer KRL is part of the price-cum-duty under Section 4(1) of the Central Excise Act, 1944 and must be included in assessable value under Rule 6 of the Central Excise Valuation Rules, 2000. However, the Tribunal also held that the demand for duty is sustainable only for the period of one year prior to the date of the show cause notice (21-3-2005) because there was no sufficient evidence of wilful suppression to invoke extended limitation.

Implications:

Direct effect on parties: The liability to pay Central Excise duty on the reimbursement/differential amount is confirmed against IOCL, but only for the period of one year prior to the show cause notice. The demand for earlier periods is set aside as time-barred.
Remand and quantification: The matter was remanded to the original adjudicating authority to re-quantify duty, interest and to consider imposition of penalty (if applicable) for the limited one-year period. The adjudicating authority is directed to complete this exercise within three months of receipt of the Tribunal's order after giving the respondents opportunity for personal hearing and production of documents.
Precedential development: The Tribunal applied established statutory provisions (Explanation to Section 4(1) and Rule 6) and relied upon Supreme Court authority and the Tribunal's Larger Bench ONGC decision to treat additional consideration received on behalf of buyers as part of assessable value. The order modifies the impugned order to the extent indicated and disposes of the appeal by remand. The Tribunal did not set aside or overrule prior higher-court authority; it applied those authorities to the facts before it.

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Commissioner Of Central Excise v. Indian Oil Corporation Ltd.

[Order per : Ashok K. Arya, Member (T)]. - This appeal has been filed by the Revenue against the Order-in-Original No. 41/2005, dated 30-11-2005, passed by the Commissioner of Central Excise and Customs, Cochin. The respondents are M/s. Indian Oil Corporation Ltd. (IOCL), Cochin.

1.1 The matter pertains to clearance of SKO (Superior Kerosene Oil) by remitting Central Excise duty at subsidized price/value for Public Distribution System (PDS), when the respondents namely M/s. IOC Ltd. are reimbursing the manufacturers, M/s. Kochi Refineries Ltd. (KRL) with the Refinery Gate Price (RGP), which is more than the subsidized value adopted for paying duty. The period involved is from April, 2002 to September, 2004 and total duty involved is Rs. 10,85,01,006/-.

1.2 The impugned order has held that the amount reimbursed by the Oil Pool Account to the respondents and then in turn to Kochi Refineries Ltd. - KRL (the reimbursement component) cannot be added to the assessable value and therefore, dropped the demand of duty of Central Excise.

2. The appellant (Revenue) has been represented by Shri N. Jagdish, the learned AR and the respondents, M/s. IOC Ltd. have been represented by Shri G. Shivadass, the learned advocate.

3. The learned AR on behalf of the appellant-Revenue, based on the written submissions, inter alia, pleads as follows :

(i) The respondents (IOCL) are paying duty at a price which is much less than the price paid to the manufacturer, KRL.

(ii) The duty is payable on the full price paid by the respondent to KRL.

(iii) The subsidized value on which duty has been paid by the respondents cannot be taken as assessable value for the purpose of payment of Central Excise duty.

(iv) The period involved is after 1-7-2000, which is the date when the new Central Excise Valuation Rules, 2000 came into force. It brought the new concept of ‘transaction value’.

(v) Under the concept of ‘transaction value’, the actual value which has been paid to KRL becomes the transaction value and the duty is payable on the entire amount paid to KRL by IOCL, the respondents.

3.1 The learned AR in support relies on the following case laws :

(i) Oil & Natural Gas Corporation Ltd. v. Commissioner [2015-TIOL-1960-CESTAT-MUM-LB = 2015 (325) E.L.T. A147 (Tribunal)]

(ii) Oil & Natural Gas Corporation Ltd. v. Commissioner [2010-TIOL-1419-CESTAT-MUM = (Tribunal)]

(iii) Commissioner of Central Excise, Jaipur-II v. Super Synotex (India) Ltd. [ (S.C.)]

(iv) Oil & Natural Gas Corporation Ltd. v. CCE, Surat [ (Tri.-Ahmd.)].

4. The learned advocate, Shri G. Shivadass for the respondent (IOCL), based on the written submissions, inter alia, submits as follows :

(i) The appellants have rightly paid duty on the price fixed by the Government under the Administered Price Mechanism (APM) and the same is the price adopted for clearance to buyers and hence the question of demand of duty on the amount paid to the Refinery (KRL) does not arise :

(a) In the present case, the respondents were receiving SKO from refinery (KRL) without payment of duty under the warehousing provisions and clearing the said warehoused SKO to retail dealers on payment of duty on the price fixed by the Government under the APM. The respondents were paying KRL, the RGP (Refinery Gate Price), which is more than the price of SKO cleared to retail dealers.

(b) The Department is trying to demand duty on the purchase price of the SKO mainly on the ground that the refinery gate price paid to the KRL by the respondents is the consideration for the purpose of payment of duty in terms of Section 4 of the Central Excise Act, 1944 read with Rule 6 of the Central Excise Valuation Rules, 2000.

(c) The respondents submit that valuation of the excisable goods for the purpose of charging duty of excise after 1-7-2000 is determined in terms of the concept of “transaction value” that is adopted for each removal of the goods.

(d) The respondents, as an assessee liable to pay duty on the warehoused goods, have discharged the duty liability on the price fixed by the Government under the APM and the same is the value adopted for clearance of SKO to the retail dealers.

(e) The respondents further submit that in terms of Section 4(3)(d) of the Act, the consideration received by the assessee for sale of goods from the buyer is treated as ‘transaction value’ for the purpose of payment of duty. In the present case, the price reimbursed to the refinery towards cost of manufacture has nothing to do with the transaction value adopted by the respondents for sale of goods to the retail dealers and it is not the case of the department in the present case that the respondents have received any additional consideration from the buyers towards sale of goods.

(f) As long as the provisions of Section 4(1)(a) ibid are satisfied, the transaction value adopted should not be rejected unless there is any flow back of additional consideration from the buyer to the assessee.

(ii) Product Price Adjustment (PPA) is not additional consideration either directly or indirectly from buyer to respondents :

(a) In terms of Rule 6 of the Central Excise (Valuation) Rules, 2000 any additional consideration received directly or indirectly from the buyer to the seller is required to be added to the assessable value.

(b) In the case of SKO sold through the retail dealers, it is the admitted position that no amounts over and above the price fixed under the APM are charged/received by the respondents from the buyers.

(c) The show cause notice has only alleged that the price paid to KRL should be considered as the transaction value - which proposition is not governed by any of the valuation provisions.

(d) The PPA (Product Price Adjustment) received by the respondents from the Oil Pool Account cannot be considered as an additional consideration flowing either directly or indirectly from the buyers to the respondent as claimed in this appeal.

(e) Reliance is also placed on the following decisions wherein the courts have held that the subsidy given to a manufacturer is not to be added to determine the sale price :

¡ Coramandel International Ltd. v. CCE., Visakhapatnam - (Tri.-Bang.)

¡ Madras Fertilizers Limited v. Asst. Commissioner - Agricultural Income Tax and Sales Tax - 1994 (95) STC 134 (Ker.)

¡ Rashtriya Chemicals and Fertilisers Limited v. State of U.P. - 1996 (101) STC 487 (All.)

¡ TISCO General Office Recreation Club v. State of Bihar - 2002 (126) STC 547 (SC)

¡ Neyveli Liginite Corporation Ltd. v. CTO - 2001 (124) STC 586

(iii) The Board has issued clarification with specific reference to respondents’ own case.

(iv) The decision of the Larger Bench of the Mumbai Tribunal in the case of ONGC is not applicable to the facts of the present case.

(v) Demand for the period prior to March, 2004 is barred by limitation. If the decision of the Larger Bench of the Mumbai Tribunal is applicable to the facts of the present case, the said decision is per majority decision of two third members. Under these circumstances, longer period cannot be invoked. Thus, the duty demand of Rs. 8,61,84,702/- cannot be sustained.

5. The facts of the case on record, submissions of both the sides and case laws cited have been carefully considered.

6. The main issue is “whether differential amount (difference between subsidized price and total price paid for the goods namely SKO), received separately from Oil Pool Account by the respondents, M/s. IOC Ltd. and paid to the manufacturer of the subject goods, M/s. KRL, is part of the value of the goods under Section 4 of the Central Excise Act, 1944 and whether duty of Central Excise accordingly is chargeable for said differential amount or not?”

6.1 Duty of Central Excise is charged on the transaction value mentioned in Section 4(1) of the Central Excise Act, 1944. Section 4(1) is reproduced below for reference :

“4. Valuation of excisable goods for purposes of charging of duty of excise. - (1) Whereunder this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall -

(a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value.

…… …… ……

(b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed.

Explanation. - For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cum-duty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on such goods.”

6.2 The respondents argue that they rightly paid the duty on the price fixed by the Government under Administrative Price Mechanism (APM) and it is the price adopted for clearance to the buyers and there cannot be any question of demand of duty on the amount paid to the refinery. The respondents namely M/s. IOC Ltd. pleads that in their case, transaction value is subsidized price fixed under APM and it is the price paid by the buyer for the subject goods.

6.2.1 In this regard the Explanation appearing in Section 4(1) of the Central Excise Act, 1944 (which has been reproduced above) says that price actually paid and money value of the additional consideration, if any, for the subject goods received directly or indirectly from the buyer by the assessee shall be the price-cum-duty of the excisable goods. In other words, whatever is the total consideration received by the assessee for the subject goods which has been received directly or indirectly from the buyer will be the price-cum-duty where sale tax and other taxes, if any, actually paid, will be excluded and such price-cum-duty shall be deemed to include the duty payable on such goods. In terms of the contents of the Explanation to Section 4(1) of Central Excise Act, 1944, the differential price which has been received by the respondents for the subject goods namely SKO from the Oil Pool Account over and above the administrative price [fixed under Administrative Price Mechanism (APM)] will be taken/deemed as price-cum-duty. It means the ‘differential price’ received by the assessee, IOCL and reimbursed to the manufacturer, KRL will be deemed to include the duty payable for such goods. The argument of the respondents that they have received only subsidized price ‘from the buyer’ cannot exempt the goods from payment of duty on the ‘differential price component’ as the Explanation given under Section 4(1) is clear that the money value of the additional consideration being received directly or indirectly by the assessee from the buyer shall be deemed to include the duty payable on such goods.

6.2.2 The submission of the respondents that “the ‘differential price’ which is over and above the subsidized price (administrative price) is not being received directly from the buyer, who are receiving the goods under Public Distribution System (PDS), but is being received from Oil Pool Account” again cannot have much force as the differential price is deemed as indirectly being received on behalf of buyers only though it is being paid from the Oil Pool Account. This differential money is factually the compensation payable on account of the subject goods and is the additional consideration deemed to be paid on behalf of buyers.

6.2.3 In this case, the respondents, M/s. IOCL have replaced the manufacturer, and are the assessee for the purpose of Central Excise payment. When the respondents have taken the position of an assessee in place of the manufacturer, it is not an acceptable argument on behalf of the assessee that transaction value in their case is only the subsidized price, when it is on record and it is the fact that the assessee received additional consideration (differential price) from the Oil Pool Account for the same goods, the goods in questions and they paid the same to the manufacturer, who is M/s. Kochi Refineries Ltd. (KRL). It is again made clear that the additional consideration/differential price being received from Oil Pool Account is to be treated as price-cum-duty paid on behalf of the buyer and it is being received by the assessee, who is M/s. IOCL, who in turn reimburse the manufacturer, KRL by its payment to KRL.

6.2.4 It is to be noted that the provisions of Section 4(1)(a) of the Central Excise Act, 1944, require the following three conditions to be satisfied :

(i) The sale of the goods by the assessee for delivery at the time and place of removal;

(ii) The assessee and the buyer are not related; and

(iii) Price is the sole consideration for sale.

Here, if we consider the transaction of sale by the respondents to their buyers under PDS, we find that the 3rd condition - “price is the sole consideration for sale” is not completely satisfied as subsidized price on which the goods are delivered to buyer is not the sole or only consideration for the said goods. The assessee is receiving additional consideration in the form of reimbursement from the Oil Pool Account. Therefore, the Revenue refers to Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, in the show cause notice (SCN) dated 21-3-2005 issued for demanding duty of Central Excise from the respondents. Consequently, this value (subsidized value) which is being called ‘transaction value’ by the respondents and fixed by the Government under APM cannot be the value on which the liability of payment of duty could be completely fulfilled on behalf of the assessee. In order to discharge full obligation of payment of duty of Central Excise in terms of the provisions of Rule 6 of Central Excise Valuation Rules (supra) ‘value’ for the purpose of charging Central Excise duty has to be an aggregate of the said “transaction value” and the amount of money value of additional consideration flowing directly or indirectly to the assessee which in present case is the reimbursement amount being received from Oil Pool Account. This aggregate is the value for charging duty of Central Excise.

6.2.5 The argument by the respondents that the additional reimbursement is coming from Oil Pool Account and not from buyer is not tenable, when this consideration is in respect of the same goods which has been sold to and received by the buyers. Therefore, this reimbursement money from oil pool account has to be deemed to be received from buyers only, though indirectly. Here, the receipts by the assessee from Oil Pool Account of the Ministry of Petroleum which is the reimbursement money has been deemed as receipts from buyers only when this is on account of the subject goods only. This transaction between Oil Pool Account and the assessee cannot be called a transaction without any basis or an empty transaction, where the money is exchanged without any kind of consideration or without any basic exchange of the goods.

6.3 The show cause notice issued to the respondents, M/s. IOCL invokes Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 along with Section 4 of the Central Excise Act, 1944 for issuing the demand on the differential money/price paid by them to M/s. Kochi Refineries Ltd. (KRL). The said Rule 6 of the Valuation Rules, 2000 (supra) is reproduced below :

“Rule 6. Where the excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of Section 4 of the Act except the circumstance where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee.”

6.3.1 This Rule 6 makes the position further clear that the value of the goods shall be deemed to be the aggregate of the subsidized price and the reimbursement money (differential price/compensation being received from Oil Pool Account by the respondents). This aggregate is the actual value on which Central Excise duty is chargeable as this is the consideration which is flowing directly or indirectly to the assessee namely IOCL. The Explanation to Section 4(1) of Central Excise Act, 1944 reproduced earlier makes it clear that in case of reimbursement money or the differential price received from Oil Pool Account, it will be deemed to include the duty of such goods and is to be called price-cum-duty of such goods. Therefore, the differential price or reimbursement amount paid by the assessee respondents, M/s. IOCL to the manufacturer of subject goods, M/s. Kochi Refineries Ltd. (KRL) includes the Central Excise duty component also, which becomes payable to the National exchequer under the appropriate head of Central Excise duties.

6.3.2 The respondents’ submission that “Product Price Adjustment (PPA) or reimbursement money received from Oil Pool Account cannot be considered as an additional consideration flowing directly or indirectly from the buyers” is not tenable, when it is conspicuously clear that the amount which has been named as ‘Product Price Adjustment’ is nothing but part consideration for the subject goods sold by the respondents to their buyers and the respondents in turn have paid the same to M/s. KRL, who is the manufacturer of such goods. It is an undisputed facts that this Product Price Adjustment (PPA) money (reimbursement amount received from oil pool account) is in respect of the sale of the subject goods only. This reimbursement made by the respondents to M/s. KRL is not an empty transaction or a transaction in vacuum. This is substantial transaction and its basis is the purchase of the goods namely SKO from M/s. KRL; and thereafter their sale by the respondents to the buyers under PDS. In terms of the contents of Rule 6 of the Central Excise Valuation Rules (supra) read with the provisions of Section 4(1) of the Central Excise Act, 1944, this reimbursement amount received from Oil Pool Account by the respondents have to be added to such “transaction value” for charging duty of Central Excise on the subject goods sold to the buyers by the respondents. It is made again clear that in terms of the Explanation to Section 4(1) of the Central Excise Act, 1944, this reimbursement amount or the additional consideration is deemed to include the duty payable on such goods and this amount is required to be treated as price-cum-duty accordingly.

6.4 The respondents submit that the Central Board of Excise & Customs (C.B.E. & C.) issued clarification circulars saying that the contribution from the Oil Pool Account is not to be added to the assessable value. However, when the provisions relating to valuation given in the Explanation to Section 4(1) of the Central Excise Act, 1944 and Rule 6 of the Central Excise Valuation Rules (supra) are very clear this submission of the respondents does not have sufficient force and cannot be accepted.

6.5 The respondents submit that the Tribunal’s Larger Bench decision in the case of Oil and Natural Gas Corporation Ltd. (ONGC) v. Commissioner of Central Excise, Raigad [2015-TIOL-1960-CESTAT-MUM-LB = 2015 (325) E.L.T. A147 (Tri.-Mum.)] is not applicable in their case as the transaction in that case is between ONGC Refinery and the Oil Marketing Company (OMC); and in that case, Refinery has to discharge duty on transaction value collected from the Oil Marketing Company by raising commercial invoices. The respondents further argue that in the present case, transaction is between the respondents (who are not a refinery and also are not the manufacturer of the goods) and the retail buyers and the respondents paid the duty (not the Refinery) on the ‘transaction value’ of the goods sold.

6.5.1 The impugned liability for payment of duty cannot be successfully contested on the grounds that the respondents have not manufactured the goods and that they are paying the duty as an assessee and in their case, transaction value is the value fixed under APM on the goods sold to the retail buyers. In case of subject goods, the respondents received an additional consideration, though from the oil pool account, therefore, it is not successful argument before the Tribunal that this reimbursement money received from Oil Pool Account is not on behalf of the buyers, when this additional reimbursement money is on account of the same goods which were bought by the retail buyers and sold by the respondents. These transactions are definitely covered by the Explanation to Section 4(1) of the Central Excise Act, 1944 and Rule 6 of the Central Excise Valuation Rules (supra). Consequently, this reimbursement money is under the category of price-cum-duty of the subject goods; and it is deemed to include the duty payable on such goods. Therefore, the respondents’ submission that the Larger Bench decision of the Tribunal is not applicable to present case cannot be accepted.

6.6 The respondents submit that the demand for the period beyond one year i.e. prior to March, 2004 is barred by limitation as they are a Public Sector Undertaking unit and when the issue itself was not free from doubt, the allegation of suppression of facts with intention to evade payment of duty cannot be sustained against them.

6.6.1 From the facts on record, it cannot be proved that the respondents wilfully suppressed the facts from the Department with intention to evade payment of duty of Central Excise though the Department in the show cause notice has invoked the extended period clause citing the proviso to Section 11A of the Central Excise Act, 1944. When there is no sufficient evidence on record to prove wilful suppression, misstatement, etc., with intention to evade payment of duty on the part of the respondents, we hold that the demand of the duty can be sustained only for the clearances made during the period of one year prior to the date of show cause notice. The date of show cause notice is 21-3-2005, therefore, the demand for the period of one year prior to 21-3-2005 is only confirmed as recoverable against the respondents, M/s. IOCL.

6.7 We make note again that the additional reimbursement (consideration) is not an empty transaction. This is the transaction which is with reference to the subsidized sale of the subject goods by the assessee to the buyer under Public Distribution System (PDS) and for this sale the additional consideration received from Oil Pool Account has been further reimbursed to the manufacturer who is M/s. Kochi Refineries Ltd. (KRL) in this case. The Tribunal cannot accede to the logic of the respondents that transaction is complete just by delivery of the goods (SKO) to the buyers when part payment of goods still remains to be paid. In fact because of unique circumstances the payment of transaction value has been split into two parts - one part paid directly by buyers, other part paid by the Oil Pool Account, which is deemed indirect payment by the buyers. We may be permitted to say that ultimate buyers here are people of India who are receiving SKO on subsidized value/price. The people of India pay their direct/indirect taxes/levies/duties to National Exchequer. Therefore, money received from Oil Pool Account ultimately can be said to be sourced from people of India, who are the buyers of the subject goods, SKO.

6.8 It is also important to note that basic premise of law of Central Excise is that this duty/tax is levied on manufacturing of an excisable commodity. This duty/tax is an indirect tax where initial duty is charged from the manufacturer (tax being on the manufacturing of the excisable commodity), who charges it from his first stage buyers, the said first stage buyers thereafter can charge the said duty/tax from their (2nd stage) buyers and this chain goes on like this till the ultimate consumer pays levy of Central Excise duty on the said goods. In the present case the manufacturer has been replaced by the assessee respondents namely IOCL. The respondents have argued that under new Valuation Rules, 2000 (supra), Central Excise levy is chargeable on transaction value. M/s. IOCL has made the transaction of purchase from the manufacturer namely Kochi Refineries Ltd. (KRL). However, the facts are evident that this purchase from KRL is complete only when the respondents, IOCL have paid the reimbursement money (received over and above subsidized price from Oil Pool Account by the respondents, IOCL) to the manufacturer, KRL.

6.8.1 Respondents again argue that their liability of payment of Central Excise duty is complete by paying duty on the ‘transaction of purchase’ though this transaction cannot be called as ‘completed transaction’. This transaction has got various parts, where receipt and delivery of goods is one part and payment of whole price for such goods is one another part. When the respondents, IOCL made only the part payment for such goods, it cannot be said that their transaction was complete. Therefore one cannot say that the respondents have honoured their full liability of payment of Central Excise duty, when they paid the duty on part price (subsidized value) only. Their liability of payment of Central Excise duty would be complete only when the respondents pay duty to the National Exchequer on full price of the goods. In other words, the remaining duty for the other part of the payment, which the respondents paid to the manufacturer, KRL as reimbursement money (received over and above subsidized price from Oil Pool Account) is also payable to the Revenue. Consequently, their argument that there was no liability on them to pay further duty of Central Excise for the quantum of payments made later as reimbursement money to the manufacturer is wrong as per the law of Central Excise.

6.9 We take support for our conclusions made above from the Hon’ble Supreme Court’s decisions in the case of Commissioner of Central Excise, Jaipur-II v. Super Synotex (India) Ltd. [ (S.C.)] and in the case of Commissioner of C. Ex., Jaipur v. Shree Rajasthan Syntex Ltd. [ (S.C.)] and from the Tribunal’s Larger Bench decision in the case of Oil and Natural Gas Corporation Ltd. v. CCE [2015-TIOL-1960-CESTAT-MUM-L.B.]. In all these decisions, the ratio is that the price or cost paid/received to/by an assessee or manufacturer constitutes the assessable value/transaction value for the purpose of levy of Central Excise duty. The Hon’ble Supreme Court in the case of C.C.E., Jaipur-II v. Super Synotex (India) Ltd. (supra) in Paragraph 22 observes that the price or cost paid to the manufacturer constitutes the assessable value on which Central Excise duty is payable. Hon’ble Supreme Court further says that “the words that gain signification are “actually paid”“. In the present case, the ‘actual amount paid’ is the subsidized price plus the additional consideration (reimbursement money received from Oil Pool Account), which was in turn paid by the assessee respondents to the manufacturer, which in aggregation has to be treated as the value on which duty liability has to be discharged as per Rule 6 of the Central Excise Valuation Rules, 2000 (supra) read with Section 4(1) of the Central Excise Act, 1944. The Tribunal’s Larger Bench decision in the case of ONGC Ltd. (supra) also makes it clear that “the price actually paid or payable for the goods, when sold, in addition includes any additional consideration which is being received by seller or assessee on behalf of the buyer, by reason of, or in connection with, the sale. In the present case, additional consideration which is being received by the assessee by reason of or in connection with the sale is the reimbursement money being received from Oil Pool Account.

6.9.1 The case laws referred to by the respondents have not been found relevant to support their submissions.

7. Based on the above findings, it is clear that the duty of Central Excise is chargeable for the additional consideration (reimbursement) received and paid to the manufacturer, KRL by the assessee IOCL but this liability of payment of duty of Central Excise is limited to only for the period of one year prior to the issue of show cause notice and the demand of duty for the period beyond one year cannot be confirmed as recoverable, when there has been no wilful suppression or misstatement with intention to evade payment of duty on behalf of the respondents. We hold that the Central Excise duty on the reimbursement money amount is to be charged in terms of Explanation to Section 4(1) of the Central Excise Act, 1944 read with Rule 6 of Central Excise Valuation Rules (supra). The differential price (reimbursement received from Oil Pool Account which is paid to the manufacturer M/s. KRL) is called as price-cum-duty of the subject excisable goods sold by the assessee to the buyers under subsidized scheme of PDS and it shall be deemed to include the duty of Central Excise.

7.1 From above discussions it is concluded that the duty liability for the period beyond one year is held as time-barred.

7.2 For the period of one year, quantification of liability of duty along with interest and imposition of penalty as per law is also required to be decided, when the duty of Central Excise has not been paid on the differential price which includes the duty payable on the subject goods. For this limited purpose of re-quantification of duty and interest, and for imposition of penalty in case of the duty not paid during the period of one year, the matter is remanded to the original adjudicating authority, who shall complete this exercise within three months of receipt of this order and after giving opportunity of personal hearing and that of production of necessary documents, if any, to the respondents, M/s. IOCL.

8. Based on above discussions and the case laws quoted the liability of payment of Central Excise duty along with interest and penalty has been confirmed for the period of one year only and the liability of duty, etc., beyond one year has been set aside. The impugned order is modified to above extent.

9. The appeal is disposed off by way of remand to the original adjudicating authority in above terms.

(Pronounced in open Court on 5-10-2016)

Commissioner Of Central Excise v. Indian Oil Corporation Ltd.

Concise Analytical Summary of the Tribunal Order (per Ashok K. Arya, Member (T))

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant (Revenue) — Arguments

Respondent (IOCL) — Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of Central Excise v. Indian Oil Corporation Ltd.

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