The Supreme Court while dropping the excise duty demand against the Bharat Petroleum (BPCL) held that the price was not sole consideration for sale.
The bench of Justice Abhay S. Oka has observed that the arrangement reflected from the MOU is essentially for ensuring that every Oil Marketing Companies (OMC) gets smooth and uninterrupted supply all over India, irrespective of whether an OMC has a refinery or otherwise in a particular part of India. Thus, from a plain reading of the MOU, we find that the real consideration for the MOU was to ensure an uninterrupted supply to all the OMCs at various places in India. The MOU incorporates mutual arrangements made by MNCs for an uninterrupted supply of petroleum products so that MNCs can further sell the products to their dealers. By no stretch of the imagination, it can be said that the price fixed under the MOU was the sole consideration for the sale by one OMC to the other.
The appellant, Bharat Petroleum Corporation Ltd (BPCL) has appealed against is a public-sector undertaking. BPCL has a refinery in Mumbai and an extensive network of installations and depots nationwide. Similarly, Indian Oil Corporation Ltd. (IOCL), Hindustan Petroleum Corporation Ltd. (HPCL) and Indo-Burma Petroleum Company Ltd. (IBP) also have refineries, installations and depots at different places in the country. Later on, IBP merged with IOCL. We refer to BPCL, IOCL and HPCL as the Oil Marketing Companies (OMCs) for convenience.
The Central Board of Excise & Customs, Ministry of Finance, Department of Revenue, Government of India, issued a circular clarifying the meaning of the expression ‘transaction value’ as defined under clause (d) of Section 4(3) of the Central Excise Act, 1944. Up to 31st March 2002, the price of petroleum products was fixed based on the Administered Price Mechanism (APM). This system was done away with effect from 1st April 2002.
On 31st March 2002, a Memorandum of Understanding (MOU), which was named as the Multilateral Product Sale- Purchase Agreement, was executed by and between the OMCs at the behest of the Ministry of Petroleum and Natural Gas for a period of two years commencing from 1st April 2002.
Under the MOU, it was mutually agreed that the OMCs should sell and purchase petroleum products among themselves and/or to one another at the Import Parity Price (IPP), which is defined as the landed cost of the products at the nearest port, plus the cost of transportation from the port to the storage point of the selling OMC. IPP also includes terminal charges.
Purchase and sale transactions of petroleum products between OMCs were to be made based on the MOU. The receiving OMC would further sell the petroleum products to their own dealers. The price fixed in accordance with the IPP was lower than the price at which the selling OMC sold its petroleum products directly to its own dealers.
It was alleged that the purpose of the said MOU was to ensure the smooth supply and distribution of petroleum products, to avoid any disruption in supply all over India, and to save on transportation costs of the OMCs, when compared with procuring petroleum products solely from their respective refineries.
Between 2002 and 2005, the Department issued several show-cause notices to the OMCs. The show cause notices proposed to arrive at the excise duty payable under the 1944 Act by referring to the price at which an OMC sold petroleum products to its own dealers rather than the price at which the OMCs sold petroleum products to one another and/or among themselves, i.e., the IPP.
The appellant contended that some show cause notices were dropped, and some were confirmed. In those cases where show cause notices were dropped, the Commissioners accepted the IPP as the ‘transaction value’, and the Department did not challenge the same.
On 12th March 2007, the Commissioner of Central Excise and Customs, Nashik, issued a show cause notice to BPCL alleging that provisions of the 1944 Act and Central Excise Rules, 2002 have been contravened. The differential duty payable from 1st April 2002 to 5th September 2004 was quantified at Rs. 119,11,49,418. Demand for education cess, interest, and penalty was also raised in the show cause notice. BPCL filed its reply to the show cause notice.
The court held that there is no allegation made by the Revenue of fraud, collusion or any wilful mis-statement on the part of the appellant. ThestandtakenisthattheMOUwassuppressed,and therefore, Section 11AC will apply. Based on the issue of the invocation of the extended period of limitation, the penalty could not have been imposed.
Case Details
Case Title: Bharat Petroleum Corporation Ltd. versus Commissioner of Central Excise Nashik Commissionerate
Case No.: Civil Appeal No. 5642 Of 2009
Date: 20/01/2025
