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Informist, Tuesday, Jan. 21, 2025

 

NEW DELHI - In a relief to oil marketing companies such as Bharat Petroleum Corp. Ltd., Hindustan Petroleum Corp. Ltd. and Indian Oil Corp. Ltd., the Supreme Court has said that prices under the Memorandum of Understanding for inter-supply of petroleum products for smooth distribution across the country, do not constitute "transaction value" and are exempt from excise duty due to their non-commercial nature.

 

The MoU between the government and the oil marketing companies, signed in 2002, incorporates mutual arrangements made by the companies for uninterrupted supply of petroleum products so that they can further sell the products to their dealers, the court said. By no stretch of imagination, it can be said that the price fixed under the memorandum was the sole consideration for the sale by one marketing company to the other, it said. Under the memorandum, it was mutually agreed that the oil marketing companies should sell and purchase petroleum products among themselves or to one another at the import parity price.

 

The court rejected the Customs, Excise & Service Tax Appellate Tribunal's order to confirm differential duty demand and penalties to be payable by Bharat Petroleum Corp. The Commissioner of Central Excise and Customs, Nashik, had in 2007 issued a show cause notice to the company alleging that provisions of the Central Excise Act, 1944 and Central Excise Rules, 2002 had been contravened. The differential duty payable from Apr. 1, 2002 to Sept. 5, 2004 was quantified at INR 1.19 billion.

 

The commissioner had confirmed the demand and invoked the extended period of limitation against the company. Further, it had also levied a penalty against BPCL. In 2007, the appellate tribunal had confirmed the commission's order. 

 

An extended period of limitation can be invoked when there is a non-levy or non-payment or short levy or short payment of the excise duty for a reason of fraud or collusion with the intent to evade payment of duty, the court said. It rejected the excise department's argument of invoking extended periods of limitation for oil marketing companies.

 

In this case, there is no allegation made by the revenue of fraud, collusion or any wilful mis-statement on the part of the oil companies, the court said. "In view of the findings recorded above on the issue of the invocation of the extended period of limitation, the penalty could not have been imposed," the court ruled.  

 

At 1207 IST, shares of BPCL were up 2.2% at INR 283.40 on the National Stock Exchange, while the shares of HPCL were 3% up at INR 371. Indian Oil shares were up 1.5% at INR 132.45.  End 

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Surya Tripathi

Edited by Vandana Hingorani

 

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