By TIOL News Service

MUMBAI, MAR 23, 2015: DURING the period in dispute, when goods were being cleared from the refinery, no duty was paid and the goods were stored in the approved warehouse without payment of duty. When the goods were being cleared from the warehouse duty was being paid.

The appellant had a warehouse within the Nhava Sheva Port premises. They were clearing the petroleum products on payment of duty at the said warehouse. In addition to the said warehouse, the appellant had another depot in Nhava and the said depot was meant to cater to the needs of operations relating to ONGC. Thus the appellant had made the storage depot in Nhava. They had installed pipelines from the said depot to certain places in jetties and from such jetties the petroleum products were pumped into barges and in other vessels as per the requirement. The petroleum products were being transferred from the warehouse to the depot by tanker trucks.

While clearing/stock transferring the goods from the warehouse to depot, the duty was paid. For this purpose, the goods were valued as applicable to various customers in Nhava Sheva warehouse. It is to be noted that in the case of goods being transferred from warehouse to depot in Nhava, no sale was taking place and it was a case of stock transfer to their own depot.

The dispute is relating to the valuation of such stock transfer. The appellant was selling the goods from the depot at a price which was higher than that charged in the warehouse. For sale from the depot, the appellant was collecting “other charges” at the rate of Rs.172.54 per kilolitre. These charges were meant to recover the additional cost that the appellant was incurring in transporting the goods from warehouse to depot, storing the goods in the depot and for the investment made in the storage tanks and pipelines upto the jetties.

The dispute or the point of difference is whether this amount will form part of the assessable value or not.

SCN was issued on 01/02/2006 for the period January 2001 to 05/09/2004 demanding Central Excise duty of Rs. 43,72,070/-.

It is to be noted that Warehousing facility for petroleum products was withdrawn vide Notification No. 17/2004 (NT) dated 04/09/2004.

The adjudicating authority confirmed the duty demand of Rs. 36,36,525/- and the amount paid by the appellant was appropriated. This order was upheld by the Commissioner(A).

Before the CESTAT the appellant submitted that during the period prior to 14/05/2003, the depot was not a place of removal under Section 4(3)(c) and, therefore, the warehouse from where the goods were cleared is the ‘place of removal' and hence, the stock transfer price at the warehouse would be relevant for the purpose of demand of duty. Thus, a demand of Rs. 22,25,057/- pertaining to the period prior to 14/05/2003 would not be sustainable in law.

Further, the additional recovery of amounts for the sales effected at ONGC Nhava Depot is on account of transportation charges from the warehouse to the depot and the same is not includable in the assessable value of the goods sold under Rule 7 of the Valuation Rules.

The aspect of time bar and cum-duty benefit was also claimed. That the appellant being a Public Sector Undertaking no motives can be attributed for evasion of duty and hence, penalty is not imposable under Section 11AC was submitted.

The AR submitted that a flat rate is charged from the buyers and it is not indicated therein that the extra amounts collected is towards handling or transportation. Therefore, the total amount charged by the appellant from the buyers is the transaction value and therefore, the appellant is rightly liable to discharge duty liability on the total consideration received.Reliance is placed on the decision in VIP Industries Ltd. - 2013-TIOL-943-CESTAT-MUM, Madras Refineries Ltd. - 2006-TIOL-1726-CESTAT-MAD.

Whereas the Member (T) adverted to rule 7 of the Valuation Rules, 2000 and rejected the appeal, the Member (J) observed that the depot price concept was not applicable as from 30.6.2000 depot was not legally a place of removal, which was only again made a place of removal w.e.f. 14.5.2003 and, therefore, in view of the provisions Rule 5 read with Rule 7 read with section 4(1)(b) of the Act the transport/handling charges incurred from the place of removal to place of delivery are to be excluded. The Member (J) further held that the matter needs to be remanded and that no element of suppression is attributable on the part of the appellant so as to invoke the extended period.

This order was pronounced in October, 2014. On account of difference in opinion, the matter was referred to the President for appointment of the third Member.

The third Member (Technical) on reference has pronounced his decision recently.

After narrating the facts in detail, the Member (T) observed that the dispute can be divided into two periods - from July 2000 to 13 th May 2003 and from 14 th May 2003 to 3 rd September, 2004 (when depot was defined as a place of removal - clause (iii) in s.4(3)(c) added by FA, 2003 w.e.f 14.05.2003).

The third Member further observed -

Period prior to 14.05.2003:

++ Before 14.5.2003, depot was not considered as the place of removal and it was the warehouse which was the place of removal but in respect of the goods under dispute, these were not sold at the place of removal, i.e warehouse. Thus, valuation will be as per Section 4(1)(b) and we have to take recourse to the Central Excise Valuation (Determination of Price of Excisable Goods)Rules, 2000. It is seen that Member (Technical) has taken the view that the value has to be determined under Rule 7 of the said Rules while Member (Judicial) is of the view that the value has to be determined under Rule 5 read with Rule 7.

++ A reading of Rule 5 indicates that the said Rule is applicable where the excisable goods are sold for delivery at a place (other than the place of removal). A combined reading of Section 4(1)(a) and Rule 5 would thus indicate that this Rule is applicable when the goods are sold at the place of removal but delivery of the goods is to be given at a place other than the place of removal. In the present case there is no dispute that during the period 1 st July 2000 to 13 th May 2003, the goods were not sold at the place of removal (which is warehouse in this case). In my view, Rule 5 is, therefore, not applicable to the present case. Further, Rule 7 is applicable when the goods are not sold by the assessee at the time and place of removal but are transferred to depot, etc. from where the excisable goods are to be sold. This is precisely the situation in the present case. The appellant has not sold the goods at the time and place of removal but stock transferred to their depot where the goods were stored and later on sold. In view of the above analysis, in my view, Rule 5 of the Central Excise Valuation Rules, 2000 will not be applicable, but the Rule 7 would applicable. Further, Rule 7 very clearly indicates that the value shall be the normal transaction value of such goods sold from such other place at or about the same time. Thus the transaction value prevailing at the depot will be taken as the transaction value while clearing the goods from the warehouse. In view of the above analysis, I concur with Member (Technical).

Period from 14.05.2013:

A bare reading of Section 4(1) would indicate the essential criteria for determining the value is the place where the goods are sold by the assessee. If goods are sold at the place of removal, then the sale value is the transaction value for assessment purpose. This is clear from Section 4(1)(a) itself and I need not go to the rules. Thus for the period from 14.5.2003 onwards since the depot was considered as the place of removal, the value at which the goods are sold from the depot will be the assessable value and duty has to be charged accordingly. There is no dispute about the fact that the other charges were collected by the appellant and these were not included in the assessable value while making the payment of duty at the warehouse. There can be no doubt that for all such clearances, they were required to pay the duty at the sale price at the depot.

Case laws cited by Members having differing opinion:

Negating the reliance placed by the Member (J) on the decisions in VIP Industries Ltd. 2003-TIOL-36-SC-CX and VIP Industries Ltd. 2011-TIOL-1130-CESTAT-MUM as being catering to the old section 4 provisions (prior to transaction value concept w.e.f 01.07.2000) when deemed value concept was prevalent, the third Member observed that the Tribunal decision in Madras Refineries Ltd. 2006-TIOL-1726-CESTAT-MAD would be squarely applicable.

Limitation:

In this case, a very important thing to be noted is the appellant has been paying the duty at their warehouse and such invoices were for stock transfer. Normally in such cases, one would expect that the appellant would be collecting the same amount from the buyers. The fact that the appellant was collecting extra amount in the invoices issued from the depot was clearly suppressed from the Revenue and this is a very important aspect. Since there was suppression of the actual sale price from the Revenue, the ingredients of proviso to Section 11A are satisfied and, therefore, extended period of time is invokable. Similarly, penalty under Section 11AC is also leviable as there is a clear cut suppression of facts which are very material in determining the assessable value. …I concur with Member (Technical) that extended period of time is rightly invoked and penalty under Section 11AC is also leviable.

And so, the Majority order is that the appeal is dismissed as being devoid of merits.

(See 2015-TIOL-539-CESTAT-MUM)