Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise, Cochin ... vs M/S. Kochi Refineries Ltd on 7 February, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Appeal(s) Involved: E/734/2006-DB & E/333/2007-DB [Arising out of Order-in-Original No. 17/2006 dated 25.4.2006 passed by Commissioner of Central Excise & Customs, Cochin.] M/s. Kochi Refineries Ltd. Ambalamugal PO Kochi, Ernakulam District. Commissioner of Central Excise, Cochin Commissionerate, Cochin. Appellant(s) Versus Commissioner of Central Excise, Cochin Commissionerate, Cochin. M/s. Kochi Refineries Ltd. Ambalamugal PO Kochi, Ernakulam District. Respondent(s)
Appearance:
Mr. Sandeep Gopalakrishnan, Advocate For the appellant Mr. N. Jagadish, AR For the respondent Date of Hearing: 02/02/2017 Date of Decision: 07/02/2017 CORAM:
HON'BLE SHRI S.S GARG, JUDICIAL MEMBER HON'BLE SHRI V. PADMANABHAN , TECHNICAL MEMBER Final Order No. 20217 - 20218 / 2017 Per : V. PADMANABHAN The present appeals have been filed by assessee as well as Revenue against the Order-in-Original dated 25.4.2006 passed by the Commissioner of Central Excise, Cochin.
2. The assessee viz., Kochi Refineries Ltd. (hereinafter referred as KRL) is a manufacturer of petroleum products falling under Chapter 27, 29 and 39 of the 1st Schedule to the Central Excise Tariff Act, 1985. During the disputed period, KRL affected sale of Poly Iso Butane (PIB) to various Oil Marketing Companies (OMCs) pursuant to the competitive bidding procedure in which various suppliers including the KRL took part. KRL accordingly paid Central Excise duty on the transaction value (tender price) paid by the OMCs. The appellant is a subsidiary of BPCL and transaction value in the sale of PIB to BPCL is fixed by tender procedure just as the case with respect to other OMCs. The Department disputed the transaction value between KRL and BPCL on the ground that both are related parties as per Section 4 of the Act and issued show-cause notice (proposing to reassess the transaction value) in terms of Rule 9 read with Rule 8 (Cost Construction Method) of the Central Excise Valuation Rules, 2000. After the process of adjudication, the learned Commissioner in the impugned order confirmed demand of differential excise duty amounting to Rs.1,61,03,027/- along with a direction to pay interest under Section 11AB. Further, he imposed a penalty of Rs.15,00,000/- on KRL under Section 11AC of the Central Excise Act. Against the impugned order, Revenue has filed an appeal on the ground that the learned Commissioner has imposed penalty under Section 11AC only to the extent of Rs.15,00,000/-, as against the mandatory penalty under Section 11AC for an amount equal to the Central Excise duty not paid.
3. The grounds on which KRL has challenged the impugned order are summarised below:
(i) The price of the goods sold to BPCL was based on the contract awarded to KRL consequent upon KRL being the lowest bidder in the tender procedure for supply of PIB. The same commodity is also being sold by KRL to various OMCs, which are all Public Sector Undertakings (PSUs). They submitted a chart showing that the prices of PIB are sometimes less than the price at which the goods have been sold to BPCL. There are also instances of the prices being at the comparable level as that of BPCL during the disputed period. Accordingly, it cannot be said that the price at which PIB was sold to BPCL was influenced because of the relationship.
(ii) Since the price for supply to BPCL was pursuant to competitive bidding done at the directions of Central Vigilance Commission, the transaction value needs to be accepted. The valuation adopted by the learned Commissioner in the impugned order for arriving at the differential duty demand is beyond the proposal made in the show-cause notice. The show-cause notice proposes to determine the value in accordance with the Rule 8 and 9 of the Valuation Rules, however, in the impugned order, Rule 11 has been adopted. Further, the Commissioner has adopted the highest of the prices at which KRL has sold the same product to other OMCs as the assessable value, which is unfair. The KRL was not given an opportunity to rebut such a proposal in the show-cause notice.
(iii) A substantial part of the demand is also hit by time bar since KRL has been filing price declarations under Rule 173C of the erstwhile Central Excise Rules, periodically.
(iv) Any duty paid by KRL will be available to their customer BPCL as CENVAT credit, consequently, the situation will be revenue neutral.
3.1 They also relied on several case laws to support their submissions. In particular, they relied upon:
(i) Aquamall Water Solutions Ltd. vs. CCE, Hyderabad: 2005 (182) ELT 196 (Tri.-Bang.) which was confirmed by the Supreme Court in 2006 (193) ELT A197 (SC).
(ii) CCE, Chandigarh vs. Bharti Telecom Ltd.: 2008 (226) ELT 3 (SC)
(iii) CCE, Mumbai vs. Universal Luggage Mfg. Co. Ltd.: 2005 (190) ELT 3 (SC)
4. With above background, we heard Shri Sandeep Gopalakrishnan, advocate for the assessee (KRL) and Shri Parashiva Murthy, DR appearing for the Revenue.
5. The learned advocate reiterated the grounds of appeal in detail. He argued that even though both KRL as well as BPCL are related parties, the transaction value merits to be accepted inasmuch as the supply to BPCL has been made at prices determined through competitive bidding process.
6. Learned DR supported the impugned order and argued that once the demand has been confirmed by the adjudicating authority invoking the extended period, penalty equal to the duty evaded should have been imposed under Section 11AC, as has been held by the apex court in the case of UOI vs. Dharamendra Textile Processors: 2008 (231) ELT 3 (SC).
7. M/s. KRL is a manufacturer of petroleum products. The dispute pertains to valuation of a product i.e., Poly Iso Butane (PIB). KRL is a subsidiary of BPCL and only on account of this fact, the Commissioner in the impugned order has disregarded the transaction value under Section 4 of the Central Excise Act. Thereafter, he has proceeded to the Central Excise Valuation Rules and arrived at the assessable value and demanded the differential duty. KRL has challenged the impugned order on the ground that the transaction value cannot be ignored only for the reason that the buyer BPCL is a related person in terms of Section 4 of the Central Excise Act. They have elaborately argued that the price at which the goods have been supplied to BPCL is decided on the basis of tender procedure adopted by BPCL in which competitive bidding has been resorted to. KRL was awarded the contract by BPCL when the price quoted by them was lowest among the bids received. The tender procedure is transparent and the price quoted by various suppliers including KRL is uninfluenced by any relationship.
The various public sector units including OMCs are mandated by the Central Vigilance Commissioner to adopt the open tender procedure for procurement of goods. Such procedure is mandated with the objective of transparency in procurement and the possibility of lowest price discovery by open competition. Since the price of procurement of PIB for supply to BPCL has been decided by such an open tender procedure, it cannot be said that the transaction value has been influenced by the relationship between KRL and BPCL. From the chart submitted by KRL, it is seen that KRL has supplied the same product PIB not only to BPCL but also to other OMCs such as IOCL, HPCL, IBP, etc. It is further seen that during the disputed period, the product has been supplied at the same price to various other OMCs as for BPCL. Further, there are also instances where KRL has supplied the same product at lesser prices than that to BPCL. It is also noted that the price of the product is also volatile as in the case of most petroleum products whose prices are ultimately depending on the price of crude oil. In the above circumstances, it cannot be said that the price at which KRL has supplied to BPCL is a preferential price influenced because of the special relationship between KRL and BPCL. In any case, Revenue has not brought on record any evidence to indicate that price is not the sole consideration for sale of the product to the BPCL. Under the circumstance, we do not find justification in ignoring the transaction value of the transactions. We also note that clearance of the same product has been made during the disputed period to other independent buyers at prices which are equal to that at which it has been supplied to BPCL or even lower. Therefore, we are of the view that transaction value has to be accepted for the transactions between KRL and BPCL in the disputed period.
7.1 KRL has elaborately argued that the procedure adopted by the learned Commissioner in the impugned order by following the Central Excise Valuation Rules is incorrect. They have also pointed out that the impugned order has travelled beyond the scope of show-cause notice wherein proposal has been made for determination of value in accordance with Rules 8 and 9 of Valuation Rules. In the impugned order, the differential duty has been determined on the basis of Rule 11 (best judgment Rule). Commissioner has adopted the highest of the prices at which KRL has sold the same commodity to other OMCs.
As discussed earlier, we are taking the view that the transaction value is acceptable during the disputed period in respect of clearances made to BPCL. Accordingly, in our view there is no necessity to resort to determination of value under Section 4(i)(b) read with Central Excise Valuation Rules. Consequently, we do not consider it necessary to discuss in detail the grievance of KRL in terms of the procedure adopted in the impugned order. For the same reason, we are also not discussing the arguments raised on the ground of time bar.
8. In view of the above discussions, the impugned order is set aside and the appeal filed by KRL is allowed. Consequently the Revenue appeal is dismissed.
(Order is pronounced in Open Court on 07/02/2017.) V. PADMANABHAN TECHNICAL MEMBER S.S GARG JUDICIAL MEMBER rv 9