By TIOL News Service

MUMBAI, SEPT 15, 2015: FIVE years ago the matter came to be referred to the Larger Bench. Please see 2010-TIOL-1419-CESTAT-MUM.

The dispute relates to the valuation of LPG (domestic) cleared in bulk from the appellant's factory (refinery) to Oil Marketing Companies (OMCs), namely, Hindustan Petroleum Corporation Ltd. (HPCL), Bharat Petroleum Corporation Ltd. (BPCL) and Indian Oil Corporation Ltd. (IOCL) during the period from June 2002 to December 2004.

The appellant sold the goods to the OMCs at a price which was referred to as Import Parity Price and the OMCs sold the same, after bottling in cylinders, to their dealers at a price fixed, under a scheme called Administered Price Mechanism (APM), by the Oil Co-ordination Committee under the Ministry of Petroleum, Government of India, and the dealers, in turn, supplied the goods in cylinders at the same APM price to domestic consumers.

The clearance of LPG (domestic) in bulk from the refinery to the OMCs were effected under cover of Central Excise invoices and on payment of duty on the APM price which was shown as the assessable value in such invoices. In respect of these sales, however, the appellant collected the higher price (net of statutory levies and admissible deductions like freight and insurance), namely, import parity price (IPP) from the OMCs by issuing commercial invoices.

The department viewed that the price actually collected by the appellant from the buyer is the correct assessable value being the “transaction value” defined under Section 4(3)(d) of the CEA, 1944.

The demands for recovery of differential amounts of duty were raised for different periods, all post 1.7.2000 and the same came to be confirmed by the CCE, Raigad who also imposed equivalent penalties.

Before the CESTAT, the appellant explained the scheme of Administrative Price Mechanism (APM) for controlled petroleum products. Inasmuch as it was informed that the prices of LPG (domestic), both ex-refinery and ex-storage, were determined by the competent authority which was the 'Oil Co-ordination Committee' (OCC) prior to 1.4.2002 and the 'Petroleum Planning & Analysis Cell (PPAC) from 1.4.2002. It was also submitted that the quantum of excise duty payable on the goods was also determined by the said authority, whether it be for the period prior to 1.7.2000 or from 1.7.2000 to 31.3.2002 or from 1.4.2002; that it was not open to any petroleum refinery to determine the assessable value of LPG (domestic) differently. It was particularly pointed out that any subsidy given by the Government to compensate any loss due to APM was not includable in the assessable value.

The Division Bench, after considering a plethora of case laws observed [para 8.5] that - although the facts of the present case are similar to those of MRPL's case [CESTAT Bangalore Final Order No. 1893/2006 dt. 10.11.2006 in Appeal No. E/647/06], the apex court's order in MRPL's case having been passed sub silentio in respect of the substantive valuation issue cannot, in our view, be followed as a binding precedent under Article 141 of the Constitution for the present case.

And, therefore, the Bench placed the matter before the President for constitution of a larger Bench to consider and decide on the following substantive issue, on which the view taken by the Bench happened to be contrary to the view taken by a co-ordinate bench in MRPL's case –

"Whether a manufacturer of LPG selling the product in bulk, post-1.7.2000, to an OMC for further sale in packed form to dealers/ domestic consumers and recovering ex-refinery price from the OMC as sale consideration is entitled to adopt ex-storage price(APM price) as the assessable value of the said product in bulk by ignoring the provisions of Section 4 of the Central Excise Act as amended w.e.f. 1-7-2000.

As mentioned, we reported this order as 2010-TIOL-1419-CESTAT-MUM. This order was passed in September 2010.

The Larger Bench heard the matter in May 2015 and the order has been issued the day before.

The Member (Judicial) observed that identical issue was considered by the Tribunal in respect of the very same assesse vide Final order dated 06.08.2008 [2008-TIOL-2849-CESTAT-AHM] and where it was held that –

“4. We have considered the arguments advanced by both sides in detail. We find that the issue already stands decided in the cases of Reliance Industries & MRPL cited above by the Tribunal in favour of the parties and facts and circumstances are the same. There is no dispute that additional consideration which is paid by the oil marketing companies has been paid out of the subsidy from oil pool account and not received from ultimate consumers. In view of the fact that the Larger Bench has already decided the issue and two Benches of this Tribunal have followed the same. We respectfully follow the same and allow the appeals filed by ONGC.”

Inasmuch as in view of the Board Circular 796/29/2004-CXdated 4.9.04 adverted by the Bench it would mean that even after amendment of section 4, in the case of goods which are subjected to APM of the Govt. of India, assessment practice will have to continue as existed prior to amendment of section, the Member (Judicial) viewed. It was also observed that in view of the peculiar facts and circumstances of the case, the Referral Bench should have followed the view expressed by the Tribunal in the appellant’s own case.

However, both the Technical Members constituting the Larger Bench, in a thirty-page order, came to the following conclusion –

“…it has to be held that the appellant was required to discharge its duty liability on the basis of ‘transaction value’ which it collected from the OMCs by issuing commercial invoices during the disputed period in terms of provisions of section 4 of the Central Excise Act as amended w.e.f 01/07/2000. In other words, post 01/07/2000, the provisions of new section 4 cannot be ignored for determination of assessable value of LPG sold in bulk to OMCs for further sale in packed form to dealers/domestic consumers. Therefore, the views expressed by the referral Bench are correct and the same are endorsed.”

In view of the Majority order, it is held that the appellant has to discharge the excise duty on the transaction value which is collected from the Oil Marketing Company by issuing commercial invoices during the disputed period.

(See 2015-TIOL-1960-CESTAT-MUM-LB)