Cost of Barrels Used at Depot Cannot Be Deducted from Sale Price of Barreled Bitumen for Excise Valuation: CESTAT in Nayara Energy Case [Read Order]

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal(CESTAT) ruled that barrels cost used for packing Bitumen at depots cannot be deducted from sale price of barreled Bitumen for determining assessable value for payment of excise duty.

Nayara Energy Limited is engaged in the manufacture of Bitumen at its refinery in Jamnagar, Gujarat. The appellant sold part of the Bitumen in bulk directly from the refinery to independent buyers and transferred the remaining quantity to its registered depots at Jamnagar. At these depots, the Bitumen was packed into barrels purchased on payment of duty and then sold to customers or transferred to other depots for further sale.

Up to May 2010, the appellant paid excise duty on the basis of the transaction value of barreled Bitumen sold from the depots. From June 2010 onwards, the appellant started deducting the cost of barrels from the depot sale price while paying duty, arguing that the packing activity took place outside the refinery and did not amount to manufacture.

The department issued show cause notices proposing to include the cost of barrels in the assessable value and to demand differential duty along with interest and penalty. The adjudicating authority confirmed the demand, holding that the deduction of barrel cost was not permissible. Aggrieved by the orders, the appellant approached the CESTAT.

The appellant argued that barreling was not carried out at the refinery and that bulk Bitumen cleared from the refinery and barreled Bitumen sold from the depots were different. They argued that the cost of barrels should be excluded from the assessable value since packing was not essential for the sale of bulk Bitumen at the refinery. They also relied on earlier decisions to support their claim that packing cost incurred outside the factory premises was not includible.

The revenue argued that the Bitumen was not sold at the factory gate but was transferred to depots for packing and sale, making the depot the relevant place of removal. The revenue contended that when goods are sold in packed condition from the depot, the transaction value at the depot, including the cost of packing, must be adopted for valuation. The department relied on the CESTAT decision in Clariant (I) Ltd. to support its case.

The two-member bench comprising Dr. Ajaya Krishna Vishvesha (Judicial Member) and Satendra Vikram Singh (Technical Member) agreed with the department’s view. The tribunal observed that barreled Bitumen was not cleared from the refinery and was sold only from the depots. The goods were not sold at the time of removal from the factory so the valuation could not be done under Section 4(1)(a) of the Central Excise Act.

The tribunal observed that bulk Bitumen sold from the refinery and barreled Bitumen sold from the depot could not be treated as the same goods for valuation purposes. It was observed that packing in barrels made the Bitumen marketable to a different class of buyers and formed an integral part of the sale transaction at the depot.

The tribunal explained that when goods are transferred to a depot for sale after clearance from the factory, valuation is required to be done under Rule 7 of the Central Excise Valuation Rules, 2000. Under this rule, the normal transaction value of goods sold from the depot must be adopted, and the cost of packing cannot be excluded.

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