In a landmark ruling, the Supreme Court of India quashed excise duty demands against Bharat Petroleum Corporation Limited (BPCL), establishing that the price under a Multilateral Product Sale-Purchase Agreement (MOU) among Oil Marketing Companies (OMCs) was not the sole consideration for the sale.
The case revolved around excise duty demands made by the Commissioner of Central Excise, Nashik, for the period from April 2002 to September 2004. The central issue was whether the “transaction value” under Section 4(1)(a) of the Central Excise Act, 1944, was applicable. The Court emphasized that for the price to qualify as the transaction value, it must be the sole consideration of the sale, with the buyer and seller unrelated.
The MOU among BPCL, IOCL, and HPCL—implemented at the behest of the Ministry of Petroleum and Natural Gas—focused on ensuring the smooth supply of petroleum products, avoiding disruptions, and saving logistics costs. The agreement fixed prices based on Import Parity Price (IPP), which included transportation and terminal charges. The Court found that the purpose of the MOU was primarily logistical rather than commercial.
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The judgment, authored by Justice Abhay S. Oka, noted that the excise authorities incorrectly invoked an extended limitation period and imposed penalties. The Court held that the OMCs did not commit suppression or willful misstatements. The invocation of the extended limitation period was deemed unjustified, and penalties under Section 11AC of the Central Excise Act were struck down.
While allowing BPCL’s appeal, the Supreme Court remanded similar cases involving IOCL and HPCL to the respective tribunals for fresh adjudication based on this ruling.
This decision is a significant precedent for the petroleum industry, reaffirming the principle that excise duties must consider the genuine nature of transactions rather than purely the price mechanisms in inter-company agreement.
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