Supreme Court of India
Bharat Petroleum Corporation Ltd vs Commissioner Of Central Excise Nashik … on 20 January, 2025
Author: Abhay S. Oka
Bench: Pankaj Mithal, Abhay S Oka
2025 INSC 84 Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5642 OF 2009
Bharat Petroleum Corporation Ltd. … Appellant
versus
Commissioner of Central Excise
Nashik Commissionerate … Respondent
with
CIVIL APPEAL NOS. 8025-27 OF 2010
CIVIL APPEAL NO. 5686 OF 2014
CIVIL APPEAL NO. 9838 OF 2017
CIVIL APPEAL NO. 5516 OF 2019
and
CIVIL APPEAL NO. 10890 OF 2024
JUDGMENT
ABHAY S. OKA, J.
FACTUAL CONTROVERSY
CIVIL APPEAL NO.5642 OF 2009
1.
Signature Not Verified
The appellant in Civil Appeal No. 5642 of 2009 is Bharat
Digitally signed by
ANITA MALHOTRA
Petroleum Corporation Ltd. (for short, ‘BPCL’). It is a public-sector
Date: 2025.01.20
18:48:23 IST
Reason:
Civil Appeal No.5642 of 2009 etc. Page 1 of 31
undertaking. BPCL has a refinery in Mumbai and an extensive
network of installations and depots nationwide. Similarly, Indian
Oil Corporation Ltd. (for short, ‘IOCL’), Hindustan Petroleum
Corporation Ltd. (for short, ‘HPCL’) and Indo-Burma Petroleum
Company Ltd. (for short, ‘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 (for short, ‘the OMCs’) for convenience.
2. On 30th June 2000, the Central Board of Excise & Customs,
Ministry of Finance, Department of Revenue, Government of India
(for short, ‘the Board’), 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 (for short, ‘the 1944
Act’). Up to 31st March 2002, the price of petroleum products was
fixed based on the Administered Price Mechanism (for short,
‘APM’). This system was done away with effect from 1st April 2002.
On 31st March 2002, a Memorandum of Understanding (for short,
‘the 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
Civil Appeal No.5642 of 2009 etc. Page 2 of 31
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 (for short, ‘IPP’), which is defined
as the landed cost of the products at the nearest port, plus the cost
of transportation from the said 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.
3. 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
Civil Appeal No.5642 of 2009 etc. Page 3 of 31
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 contends 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.
4. In the case of the show cause notices which were not
dropped, demands were confirmed, which led to the OMCs
approaching the Customs, Excise & Service Tax Appellate Tribunal
(for short, ‘the Tribunal’) after confirmation of the demands. In one
such appeal in Hindustan Petroleum Corporation Ltd. v.
Commissioner of Central Excise1, by judgment dated 28th
February 2005, the Tribunal set aside the Order-in-Original. This
judgment was carried before this Court by way of a civil appeal,
which was summarily dismissed vide order dated 3rd January
2006.
1
(2005) 187 ELT 479 (Tri-Bang)
Civil Appeal No.5642 of 2009 etc. Page 4 of 31
5. 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/-
(Rupees one hundred nineteen crores, eleven lakhs, forty-nine
thousand, four hundred and eighteen only). Demand for
education cess, interest, and penalty was also raised in the show
cause notice. BPCL filed its reply to the show cause notice.
6. The demand was confirmed by the Commissioner vide order
dated 8th December 2007. The extended period of limitation was
invoked, and a penalty was also imposed under Section 11AC of
the 1944 Act. Being aggrieved by the order of the Commissioner,
the appellant preferred an appeal before the West Zonal Bench of
the Tribunal. The Tribunal upheld the order dated 8th December
2007. That is how BPCL has preferred Civil Appeal No. 5642 of
2009.
Civil Appeal Nos. 8025-8027 of 2010
7. Civil Appeal Nos. 8025-8027 of 2010 have been preferred by
the Revenue. The respondent is IOCL. In this case, a show cause
Civil Appeal No.5642 of 2009 etc. Page 5 of 31
notice was issued on 30th March 2007 alleging that the assessee
had adopted two different assessable values for the same product
to compute excise duty. The first value taken was the price used
for sale to their own dealers, and the second was the IPP used for
sale to other OMCs. It was alleged that IOCL had suppressed the
MOU. The Commissioner invoked the extended period of limitation
and confirmed the demand. Being aggrieved by the demand, IOCL
preferred an appeal before the Tribunal. The Tribunal interfered
with the demand by the impugned judgment. The Tribunal relied
upon its own decision in the case of Hindustan Petroleum
Corporation Ltd.1 It was pointed out that this Court summarily
dismissed an appeal preferred by the Revenue against the decision
in Hindustan Petroleum Corporation Ltd.1 Therefore, in this
case, the Revenue is in appeal.
Civil Appeal No.5686 of 2014
8. Civil Appeal No.5686 of 2014 is also preferred by the
Revenue. The respondent is again IOCL. Even in this case, a
similar order was passed by the Commissioner where the extended
period of limitation was invoked, and the Commissioner confirmed
the demand. The Tribunal set aside the order of the Commissioner
on the basis of the decision of the Tribunal in the case of
Civil Appeal No.5642 of 2009 etc. Page 6 of 31
Hindustan Petroleum Corporation Ltd1. Therefore, the Revenue
is in appeal.
Civil Appeal No. 9838 of 2017
9. As far as Civil Appeal No. 9838 of 2017 is concerned, the
assessee is BPCL. Three show cause notices were served upon
BPCL, and the demand in the show cause notices was made
absolute by the Commissioner. It is to be noted that the
Commissioner invoked the extended period of limitation for one
such show cause notice bearing Sl. No. 10/2004 dated
26.10.2004. The Tribunal interfered by observing that in the facts
of the case, the adjudication on the basis of show cause notice has
travelled beyond the show cause notice. As the Tribunal
interfered, the Revenue is in appeal.
Civil Appeal No.5516 of 2019
10. Civil Appeal No.5516 of 2019 is again preferred by the
Revenue. A similar show-cause notice was issued to IOCL. The
demand in the show cause notice was made absolute under
Section 11A(2) of the 1944 Act, i.e., without invoking the extended
period of limitation. The Tribunal interfered in an appeal preferred
by IOCL again by relying upon its own decision in the case of
Civil Appeal No.5642 of 2009 etc. Page 7 of 31
Hindustan Petroleum Corporation Ltd1. Therefore, the Revenue
is in appeal.
Civil Appeal No.10890 of 2024
11. In Civil Appeal No.10890 of 2024, IOCL is the respondent,
and Revenue is the appellant. In this case, the Commissioner did
not confirm the demand under the show cause notices against
which the Revenue preferred an appeal before the Tribunal. While
the Commissioner did not adjudicate on the question of limitation,
it appears that the extended period of limitation was invoked in the
show cause notices for only parts of the demand. The order of the
Commissioner was confirmed by the Tribunal by relying upon the
decision in Hindustan Petroleum Corporation Ltd.1 and other
similar decisions. Therefore, the Revenue is in appeal.
12. We may note here that the MOU that is the subject matter of
these appeals is the same.
SUBMISSIONS
13. The learned senior counsel, Shri S.K. Bagaria, argued on
behalf of BPCL. Shri V. Lakshmikumaran appeared for OMCs, and
Shri Balbir Singh, ASG, represented the Revenue.
Civil Appeal No.5642 of 2009 etc. Page 8 of 31
14. In support of Civil Appeal no.5642 of 2009, learned senior
counsel pointed out that this Court is concerned with Section 4 of
the 1944 Act as amended with effect from 1st July 2000. He relied
upon the interpretation put by this Court to Section 4 in the case
of CCE v. Grasim Industries Ltd.2, CCE v. Ispat Industries
Ltd.3, and CCE v. CERA Boards and Doors4. He submitted that
by virtue of the substitution of Section 4 with effect from 1st July
2000, the concept of ‘normal value’ has given way to the concept
of ‘transaction value’. He submitted that the actual price paid or
payable on each removal of goods becomes a transaction value, as
defined in sub-section 3(d) of Section 4. It means the price actually
paid or payable for the goods. The submission of the learned senior
counsel is that Section 4 permits the assessee to charge different
prices from different buyers. He submitted that if different prices
were charged for different removals, prices actually paid or payable
for each removal become the value for the levy of excise duty.
Further submission of the learned senior counsel is that it is lawful
2
(2018) 7 SCC 733
3
(2016) 1 SCC 631
4
(2020) 9 SCC 662
Civil Appeal No.5642 of 2009 etc. Page 9 of 31
for BPCL to charge different prices to OMCs for sales made to them
vis-à-vis their own dealers.
15. The learned senior counsel relied upon the terms of the MOU,
which incorporate a price fixation formula in MOU based on IPP,
which is defined to mean the landed cost of a product at a
particular port, which would include all applicable elements.
16. The learned senior counsel relied upon a decision of this
Court in the case of D.J. Malpani v. CCE5 in the context of putting
narrow construction. The learned counsel submitted that, in
addition to the price actually paid or payable for the goods,
transaction value includes any additional amount the buyer is
liable to pay to the assessee. He submitted that in the instant
case, over and above the invoice price actually charged, no
amount, either in cash or otherwise, was paid or payable by the
OMCs to the appellant, and the price charged was always the sole
consideration for the sale. He submitted that the sales to OMCs
were made for delivery at the time and place of removal. He
submitted that the parties to the MOU were not related to each
other, and therefore, Section 4(1)(a) was squarely applicable. He
5
(2019) 9 SCC 120
Civil Appeal No.5642 of 2009 etc. Page 10 of 31
also relied upon a Circular dated 30th June 2000 issued by the
Board. He submitted that the MOU was entered into based on a
letter dated 21st August 2001 from the Additional Secretary,
Government of India. He also relied upon a Circular dated 14th
February 2007 issued by the Government of India, Ministry of
Finance, which records that the MOU was entered into between
different PSUs, i.e., OMCs herein, at the behest of the Ministry of
Petroleum and Natural Gas. He submitted that the decision in the
case of Hindustan Petroleum Corporation Ltd1, was affirmed by
this Court by summary dismissal of appeal preferred by Revenue
by a Bench of three Hon’ble Judges by order dated 3rd March 2006.
He submitted that in view of the judgment of this Court in the case
of V.M. Salgaocar and Bros. Pvt. Ltd. v. CIT6, the decision of the
Tribunal has merged into the order of this Court. Hence, the
Tribunal could not have made a departure from the view taken in
the said case as the Tribunal was bound by it. He pointed out that
the decision in the case of Hindustan Petroleum Corporation
Ltd1 has been followed by the Tribunal in several cases.
6
(2000) 5 SCC 373
Civil Appeal No.5642 of 2009 etc. Page 11 of 31
17. He submitted that the decision to invoke an extended period
of limitation under proviso to Section 11A (1) of the 1944 Act was
completely erroneous. He submitted that the instructions of the
Board dated 14th February 2007 referred to the MOU, and
therefore, there was no question of withholding the MOU from the
Department. He submitted that this was not a case of fraud,
collusion or any wilful mis-statement or suppression of facts and,
therefore, the extended period of limitation could not be invoked.
Hence, there was no reason to impose a penalty under Section 11
AC.
18. The learned counsel appearing for IOCL in Civil Appeal Nos.
8025-27 of 2010 has also made detailed arguments. He also
argued the issue of the merger of the decision of the Tribunal in
the case of Hindustan Petroleum Corporation Ltd1 with the
order of this Court summarily dismissing the appeal. In support
of his contention based on the merger, he relied upon a decision of
this Court in the case of Kunhayammed & Ors v. State of Kerala
& Anr.7.
7
(2000) 6 SCC 359
Civil Appeal No.5642 of 2009 etc. Page 12 of 31
19. He submitted that the sale price based on IPP when the
petroleum products are sold to OMC should be taken as
transaction value, especially when the transaction is on a
principal-to-principal basis at arm’s length. In his submission, this
would show that the price is the sole consideration for the sale. He
pointed out that as provided in Article 4 of the MOU, there was, in
fact, a sale of petroleum products. He submitted that the IPP is
not a notional price but an arm’s length price. Relying upon a
decision of this Court in the case of Commissioner of Central
Excise, Hyderabad v. Detergents India Ltd.8, he submitted that
it is permissible to sell the same product at different prices to
different parties. In such a case, the actual sale value will be taken
as transaction value. He submitted that apart from the fact that
no extra-commercial consideration flows from the MOU, the same
has been executed as per the directions of the Ministry of
Petroleum and Natural Gas. He also submitted that recourse
could not have been taken to the extended period of limitation as
there was no suppression of material facts by IOCL.
8
(2015) 7 SCC 198
Civil Appeal No.5642 of 2009 etc. Page 13 of 31
20. Shri Balbir Singh, learned ASG appearing for the Revenue
submitted that neither in the case of Hindustan Petroleum
Corporation Ltd1 nor in the case of Bharat Petroleum
Corporation Ltd. v. Commissioner of Central Excise, Nashik9,
the interpretation of various clauses in the MOU has been made.
Moreover, there is no finding recorded in both the decisions of the
Tribunal on the issue of whether the price was the sole
consideration for the sale. He submitted that even assuming there
was a merger of the decision in the case of Hindustan Petroleum
Corporation Ltd.1 with the order of the Supreme Court summarily
dismissing the appeal, the Tribunal has not considered whether
the price fixed under the MOU was the sole consideration for sale.
He submitted that in the impugned judgment that is the subject
matter of Civil Appeal no.5642 of 2009, the Tribunal had
considered the various clauses of the MOU in detail and has
recorded a finding of fact that the price was not the sole
consideration for sale. He pointed out that by the letter dated 21st
August 2001, the Ministry of Petroleum and Natural Gas has only
directed that there has to be an MOU for product sharing
arrangements between OMCs so that region-wise and company-
9
(2009) 242 ELT 358 (Mumbai)
Civil Appeal No.5642 of 2009 etc. Page 14 of 31
wise supply-demand balance could be arrived at. He submitted
that the question here is whether price is the sole consideration of
sale, even assuming that the MOU has been drawn in terms of the
directions of the Ministry. He submitted that the OMCs did not
produce a copy of the MOU, and, therefore, there was justification
for invoking the extended period of limitation on the ground of
suppression of material facts.
OUR VIEW IN CIVIL APPEAL NO.5642 OF 2009
21. The issues involved can be broadly summarised as under:
(i) Whether the price was the sole consideration of sale?
(ii) Whether the revenue was entitled to invoke an extended
period of limitation under the proviso to Section 11A(1) of
the 1944 Act?
(iii) Whether the revenue was entitled to levy a penalty under
Section 11AC of the 1944 Act?
WHETHER PRICE WAS THE SOLE CONSIDERATION FOR SALE
22. Section 4(1) of the 1944 Act reads thus:
“4. Valuation of excisable goods for
purposes of charging of duty of excise.— (1)
Where under this Act, the duty of excise isCivil Appeal No.5642 of 2009 etc. Page 15 of 31
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.”
(emphasis added)
23. Therefore, for applicability of clause (a) of Section 4(1), the
following conditions must be fulfilled:
a. The assessee sells the goods for delivery at time and
place of the removal;
b. The assessee and the buyer are not related; and
c. 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 the
transaction value. In a given case, if it is not proved that the price
Civil Appeal No.5642 of 2009 etc. Page 16 of 31
was the sole consideration for sale, clause (a) of Section 4(1) wouldnot apply. In that case, clause (b) of Section 4(1) would apply.
24. We have perused the MOU dated 31st March 2001. IOCL,
HPCL, BPCL and IBP are the parties to the MOU. As stated earlier,
IBP later merged with IOCL. Recital nos. (i), (ii) and (iii) are very
relevant, which read thus:
“(i) All the above Oil Marketing Companies except
IBP are engaged in the business of refining crude
.. and for this purpose have established
…./associate refineries and all the above Oil
Marketing Companies are engaged in the business
of marketing or petroleum products and for this
purpose have established large product handling
& marketing infrastructure.
(ii) All the above Oil Marketing Companies are
desirous to avail of product sharing/assistance
from each other in order to ensure smooth
supply and distribution of POL products and to
avoid any kind of disruption of supply all over
India.
(iii) At present, the parties to this Agreement
are Government of India Undertakings and for
their mutual benefit, the parties had various
discussions among themselves and reached
agreement of using the available product of
each other on the terms and conditions
contained hereinafter. Further, if during the
agreement period, any of the parties undergoes
disinvestment of their Government equity
holding, then subject to Government of India’s
residual equity holding continuing in theCivil Appeal No.5642 of 2009 etc. Page 17 of 31
party/parties, this Agreement shall hold
good.”(emphasis added)
As seen from clause (ii), the MOU has been executed so that the
OMCs can avail of product sharing/assistance from each other.
Product sharing/assistance was required to ensure the smooth
supply and distribution of petroleum products and to ensure that
there is no disruption in the supply of petroleum products to OMCs
all over India. Recital no. (iii) sheds light on the real nature of the
transaction reflected in the MOU. The object is to use the available
products of each OMC on the terms and conditions set forth in the
MOU. Thus, the object of the MOU 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.
25. Clause 2.10 defines “Group of Refineries” as IOCL and its
associates, including different companies/ refineries, as stated
Civil Appeal No.5642 of 2009 etc. Page 18 of 31
therein. The group of refineries also include Reliance Petroleum
Limited (for short, ‘RPL’). Clause 2.14 defines an “Industry
Logistics Plan (ILP)” as an All India Supply and Distribution Plan
jointly drawn by the OMCs based on the industry’s product
availability and market demands for particular months. Thus, the
All India Supply and Distribution Plan, known as ILP, was jointly
drawn by the OMCs, considering the market demand and
availability.
26. Clause 4.1 of the MOU provides that OMCs agree to sell and
purchase the products to each other in such quantities as
determined based on the principles laid down in the ILP procedure.
The ILP procedure is drawn jointly by the OMCs to ensure that
adequate supply for each one of them is available.
27. Clause 4.3 of the MOU reads thus:
“4.3 It is agreed that any shortfall in actual
upliftment quantity ex RPL versus Monthly
reassessed Quantity of Oil Marketing Companies,
shall be reduced by the excess quantity of the
Product that RPL has delivered in the month to
any other Oil Marketing Company against its
respective Monthly Quantity.”27.1 Clause 4.6 of the MOU reads thus:
“4.6 Coastal movement shall be as per the
detailed procedure, as mutually agreed, as placed
at Annexure B.”Civil Appeal No.5642 of 2009 etc. Page 19 of 31
Clause 4.6 refers to coastal movement. Clause 2.4 defines “CoastalPlan” which implies that a plan for tanker loading, movement and
discharge was prepared jointly by OMCs.
28. Therefore, after taking into consideration the aforementioned
parts of the MOU, it is crystal clear that the arrangement reflected
from the MOU is essentially for ensuring that every 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. Hence, we concur with the
conclusion in the impugned judgment that the price was not the
sole consideration for sale.
Civil Appeal No.5642 of 2009 etc. Page 20 of 31
THE DECISION OF THE TRIBUNAL IN HINDUSTAN
PETROLEUM CORPORATION LTD1.
29. Now, we turn to the decision of the Tribunal in Hindustan
Petroleum Corporation Ltd.1, an appeal against which has been
summarily dismissed by this Court. We have carefully perused the
said decision. Apart from mentioning that the MOU was executed
according to the direction of the Government of India, the Tribunal
has not looked into the contents of the MOU. There is a vague
reference to HPCL’s agreement with other oil companies. There is
no specific finding recorded therein, after considering the terms
and conditions of the MOU, that the price was the sole
consideration for the sale. Therefore, the decision of the Tribunal
ignores a crucial ingredient of Section 4(1)(a) of whether the price
was the sole consideration for the sale. The Tribunal has not
adverted to the question of whether the third condition in Section
4(1)(a) was complied with. Even assuming that there is a merger of
the decision in the case of Hindustan Petroleum Corporation
Ltd1 with the order of this Court, the order of this Court does not
constitute a binding decision on the issue of compliance with the
third condition in Section 4(1)(a) as the Tribunal had not decided
the said issue.
Civil Appeal No.5642 of 2009 etc. Page 21 of 31
THE CIRCULAR DATED 14TH FEBRUARY 2007
30. Now, we come to the Circular issued by the Board on 14th
February 2007. The circular refers to the decision in the case of
Hindustan Petroleum Corporation Ltd.1 Though the circular
mentions that pending cases and future assessments of the
product should be decided based on the said decision, it was
observed that the facts of the case decided by the Tribunal may be
gone through properly in order to apply to the pending cases as
well as future assessments. Therefore, even the Circular noted the
requirement of applying the ratio to the facts of each case. Thus,
the finding of the fact recorded by the Tribunal in Civil Appeal
No.5642 of 2009 that price was not the sole consideration cannot
be faulted with.
Was the extended period of limitation under the proviso to
Section 11-A(1) of the 1944 Act applicable?
31. Section 11A reads thus:
“Section 11A – Recovery of duties not levied or
not paid or short-levied or short-paid or
erroneously refunded-
(1) When any duty of excise has not been levied or
paid or has been short-levied or short-paid or
erroneously refunded, whether or not such non-levyCivil Appeal No.5642 of 2009 etc. Page 22 of 31
or non-payment, short-levy or short payment or
erroneous refund, as the case may be, was on the
basis of any approval, acceptance or assessment
relating to the rate of duty on or valuation of
excisable goods under any other provisions of this
Act or the rules made thereunder a Central Excise
Officer may, within one year from the relevant date,
serve notice on the person chargeable with the duty
which has not been levied or paid or which has been
short-levied or short-paid or to whom the refund has
erroneously been made, requiring him to show
cause why he should not pay the amount specified
in the notice :
Provided that where any duty of excise has not
been levied or paid or has been short-levied or
short-paid or erroneously refunded by reason of
fraud, collusion or any willful mis-statement or
suppression of facts, or contravention of any of
the provisions of this Act or of the rules made
thereunder with an intent to evade payment of
duty, by such person or his agent, the provisions
of this sub-section shall have effect as if, for the
words “one year”, the words “five years” were
substituted :
Explanation : Where the service of the notice is
stayed by an order of a Court, the period of such stay
shall be excluded in computing the aforesaid period
of one year or five years, as the case may be.”(emphasis added)
Show cause notice dated 12th March, 2007 was issued to BPCL.
The demand in the show cause notice was for the period from 1st
April, 2002 to 5th September, 2004. As per sub-section (1) of
Civil Appeal No.5642 of 2009 etc. Page 23 of 31
Section 11-A, a notice of demand could have been issued withinone year from the relevant date. The demand could be for a short
levy, short payment, non-levy, non-payment, or erroneous refund.
The period of one year is to be calculated from the relevant date as
defined in sub-section 3(ii) of Section 11-A. There is no dispute
that the demand notice was not issued within the stipulated period
provided under sub-section (1) of Section 11-A, and therefore, an
extended period of limitation was invoked by the revenue.
32. Under the proviso to sub-section (1) of Section 11-A, 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 High Court, in
the impugned order, has confirmed the extended period of
limitation by recording the following findings in paragraph 44:
Civil Appeal No.5642 of 2009 etc. Page 24 of 31
“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 has 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.”
(emphasis added)
33. Thus, the first ground is 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 also refers to the
decision of the Tribunal in the case of Hindustan Petroleum
Civil Appeal No.5642 of 2009 etc. Page 25 of 31
Corporation Ltd.1 by stating that the said decision records that
the sale price, as per the MOU, correctly represents the transaction
value. Therefore, the department was aware of the MOU even
before the date on which the show cause notice was issued. As
noted earlier, the date of the MOU is 31st March, 2002. Moreover,
as indicated in the said letter, MOU was referred to in the decision
of the Tribunal in the case of Hindustan Petroleum Corporation
Ltd.1. It is pertinent to note that the date of the said decision is
28th February, 2005. In fact, in the said decision, a submission of
the revenue has been recorded that the agreement between the oil
companies indicates that the price of petroleum products agreed
thereunder is not a normal price and, therefore, is not a
transaction value. Hence, the first ground taken to support the
invocation of the extended period of limitation cannot be
sustained.
34. The second ground is that BPCL made the department believe
that dual pricing was adopted as per the directions of the
Government. A careful perusal of the show cause notice shows that
it is not alleged that any such misrepresentation was made by
BPCL that the pricing as provided in the MOU was adopted by the
Civil Appeal No.5642 of 2009 etc. Page 26 of 31
BPCL as per the directions of the Central Government. The reply
to the show cause notice submitted by the BPCL contains no such
representation. In the show cause notice, statements recorded of
officers of BPCL and other OMCs have been referred to and relied
upon. 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.
WHETHER SECTION 11AC WAS APPLICABLE?
35. Then, we come to the penalty imposed under Section 11AC of
the 1944 Act. Section 11AC reads thus:
“11AC. Penalty for short-levy or non-levy of
duty in certain casesWhere any duty of excise has not been levied or
paid or has been short-levied or short-paid or
erroneously refunded by reasons of fraud,Civil Appeal No.5642 of 2009 etc. Page 27 of 31
collusion or any wilful mis-statement or
suppression of facts, or contravention of any of the
provisions of this Act or of the rules made there
under with intent to evade payment of duty, the
person who is liable to pay duty as determined
under sub-section (2) of section 11A, shall also be
liable to pay a penalty equal to the duty so
determined:
Provided that where such duty as determined
under sub-section (2) of section 11A, and the
interest payable thereon under section 11AB, is
paid within thirty days from the date of
communication of the order of the Central Excise
Officer determining such duty, the amount of
penalty liable to be paid by such person under this
section shall be twenty-five per cent. of the duty
so determined:
Provided further that the benefit of reduced
penalty under the first proviso shall be available if
the amount of penalty so determined has also
been paid within the period of thirty days referred
to in that proviso:
Provided also that where the duty determined to
be payable is reduced or increased by the
Commissioner (Appeals), the Appellate Tribunal
or, as the case may be, the court, then, for the
purposes of this section, the duty as reduced or
increased, as the case may be, shall be taken into
account:
Provided also that in case where the duty
determined to be payable is increased by the
Commissioner (Appeals), the Appellate Tribunal
or, as the case may be, the court, then, the benefit
of reduced penalty under the first proviso shall be
available, if the amount of duty so increased, the
interest payable thereon and twenty-five per cent.
of the consequential increase of penalty have also
been paid within thirty days of the communicationCivil Appeal No.5642 of 2009 etc. Page 28 of 31
of the order by which such increase in the duty
takes effect.
Explanation.–For the removal of doubts, it is
hereby declared that–
(1) the provisions of this section shall also apply
to cases in which the order determining the duty
under sub-section (2) of section 11A relates to
notices issued prior to the date on which the
Finance Act, 2000 receives the assent of the
President;
(2) any amount paid to the credit of the Central
Government prior to the date of communication of
the order referred to in the first proviso or the
fourth proviso shall be adjusted against the total
amount due from such person.”(emphasis added)
36. In this case, 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 above on the issue of the invocation of the extended
period of limitation, the penalty could not have been imposed.
37. In paragraph 40 of the impugned judgment, it is mentioned
that BPCL did not submit any argument on the valuation method
adopted by the Commissioner, who has adopted Rule 11 read with
Rule 7. However, the Tribunal found that Rule 4 of the Central
Civil Appeal No.5642 of 2009 etc. Page 29 of 31
Excise Valuation Rules, 2000, is the correct provision to be
applied for valuation.
38. Therefore, the said appeal preferred by the BPCL deserves to
be allowed by setting aside the entire demand on the ground that
the extended period of limitation could not be invoked.
OTHER APPEALS
39. As far as the other appeals are concerned, the OMCs have
succeeded before the Tribunal. Therefore, in the light of the
findings recorded by us in Civil Appeal No.5642 of 2009, these
appeals will have to be remanded to the Tribunal for fresh
adjudication.
40. Hence, we pass the following order:
i) Civil Appeal No.5642 of 2009 is hereby allowed. The
impugned orders, including the order dated 8th December
2007 passed by the Commissioner of Central Excise,
Nashik are hereby set aside;
ii) In the remaining appeals, the impugned judgments are
hereby quashed and set aside, and the appeals are
remanded to the concerned Tribunals to decide the same
Civil Appeal No.5642 of 2009 etc. Page 30 of 31
in accordance with the law laid down in this judgment andaccordingly, the appeals are partly allowed;
iii) We make it clear that after remand, the Tribunal will
decide the cases in the light of the findings recorded in
this judgment; and
iv) There will be no orders as to costs.
.……………………………….J.
(Abhay S Oka)
…………..……………………J.
(Pankaj Mithal)
New Delhi;
January 20, 2025.
Civil Appeal No.5642 of 2009 etc. Page 31 of 31