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Synopsis

The Supreme Court has allowed an appeal filed by the Bharat Petroleum Corporation Limited against the excise duty demand and penalty to the tune of over Rs 119 Cr imposed by the revenue department upon the oil marketing company for a period between 2002 and 2005 alleging they sold their products to each other at a lower price and to their dealers at a higher price.

A bench of Justices Abhay S Oka and Pankaj Mithal referred to 2001 Memorandum of Understanding (MOU) among the oil marketing companies, and clause (a) of Section 4(1) of the Central Excise Act, 1944 to point out the value of the goods for the purpose of computation of excise duty will be the transaction value only if the assessee sells the goods for delivery at time and place of the removal; the assessee and the buyer are not related; and the price is the sole consideration for the sale.

"Only if all three conditions are fulfilled, the value of the goods for the purpose of computation of excise duty will be transaction value. In a given case, if it is not proved that the price was the sole consideration for sale, clause (a) of Section 4(1) would not apply. In that case, clause (b) of Section 4(1) would apply," the bench said.

Referring to the MoU, the court said its object is not to sell petroleum products on a commercial basis to other OMCs.

"The real object is to ensure that each OMC gets a smooth supply of petroleum products and any disruption of supply is avoided. Therefore, the emphasis is on allowing individual OMCs access to each other’s products and facilitating the sale of petroleum products to their respective dealers/customers. The sale of products under the MOU is for the benefit of the respective business activities of the OMCs," it said.

The court held that 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 bench also examined whether the extended period of limitation under the proviso to Section 11-A(1) of the 1944 Act was applicable here. Section 11A related to recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded.

The court said the extended limitation period applies only if there is fraud, collusion, or willful suppression of facts. It found no evidence of such misconduct by BPCL, as the MoU was a publicly known document.

Under the proviso to sub-section (1) of Section 11-A, the court said, an extended period of limitation can be invoked when there is a non levy or non-payment or short levy or short payment of the excise duty by a reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of 1944 Act or the rules made thereunder with the intent to evade payment of duty.

The show cause notice referred to the statements recorded of BPCL officers and other OMCs. No detailed reasons have been recorded in support of invoking the extended period of limitation by the Commissioner in his order, the court pointed out.

The first ground was withholding or suppressing the MoU. "We are dealing with a public sector undertaking. It is pertinent to note that the impugned judgment incorporates the letter dated 14th February, 2007 issued by the Board. The letter itself records that to ensure a regular supply of petroleum products, the Oil PSUs (OMCs) entered into an MOU at the behest of the Petroleum and Natural Gas Ministry," it pointed out.

The department was aware of the MoU even before the date on which the show cause notice was issued. Hence, the first ground taken to support the invocation of the extended period of limitation cannot be sustained, the court said.

The second ground was that BPCL made the department believe that dual pricing was adopted as per the directions of the Government.

"However, it is not alleged that any of the officers stated that the price of the goods sold under the MOU was fixed as per the directives of the Central Government. We have also carefully perused the order passed by the Commissioner on the show cause notice. Even in the order, no specific reference has been made to any such contention raised by BPCL or other OMCs. Even the order also refers to statements of the officers of BPCL and other OMCs. Hence, both the grounds in support of invoking an extended period of limitation cannot be sustained, and only on that ground, the demand cannot be sustained," the bench said.

With regard to penalty imposed under Section 11AC of the 1944 Act, the bench said, "There is no allegation made by the Revenue of fraud, collusion or any wilful mis-statement on the part of the appellant. The stand taken is that the MoU was suppressed, and therefore, Section 11AC will apply. In view of the findings recorded on the issue of the invocation of the extended period of limitation, the penalty could not have been imposed."

In this case, the bench said, the absence of fraud or suppression invalidated the penalty imposed under Section 11AC.

The court allowed the appeal preferred by the BPCL by setting aside the entire demand on the ground that the extended period of limitation could not be invoked.

It set aside the impugned orders, including the order of December 8, 2007 passed by the Commissioner of Central Excise, Nashik. The court remanded other appeals with regard to other OMCs to the Customs, Excise & Service Tax Appellate Tribunal for fresh consideration.