Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs
21st December, 2000
Sub:- Excise Duty payment on LPG Bulk Movements on stock transfer to Bottling Plants.
I am directed to say that in relation to production and marketing of LPG (Liquified Petroleum Gas) in packed form for Domestic use, disputes have been persisting for quite some time between the Department and the assesses as to the price to be adopted for assessment purposes. L.P.G. is obtained in Petroleum Refinery or in Gas Extraction Plant of oil fractionators, and the marketing companies in the public sector handle the supply and distribution of LPG in packed cylinders for domestic consumers and also in bulk or in packed cylinders for industrial consumers. Major part of the LPG is not bottled in cylinders in the premises where these are produced and the same is removed in bulk form to various bottling plants The Oil Co-ordination Committee (OCC) has been fixing from time to time different prices for LPG bulk and the LPG packed (domestic or industrial) which is meant for domestic or industrial supply. The price for LPG bulk is always higher than the price for LPG packed (domestic). As far as LPG cleared in packed form (generally in cylinders) from the refinery/extraction plant itself is concerned, these were assessed to duty on the price fixed by the CCC for LPG (packed domestic or industrial, as the case may be) and no disputes / difficulties arose in these cases. Similarly for LPG bulk cleared from the refinery/extraction plant for industrial users, duty was being charged and paid at the higher price fixed for LPG bulk. Difference of opinion however arose between the Department of Revenue and the Oil Companies/Extraction Plants about value to be taken for assessment purposes in respect of LPG cleared in bulk , but meant for packing in cylinders in separate bottling units for domestic use subsequently. The Audit and the Department took the view that as per section 4 of the Central Excise Act. the duty has to be charged on the goods in the form in which they are cleared at the time and place of production/The OCC had fixed the price both for packed LPG for domestic purpose and the bulk LPG. and since the goods were cleared in bulk from the factory (i.e. refineries/extract in plants), they had to discharge duty at the prices fixed for the LPG in bulk.
2. The refineries/extraction plants on the other hand contended that the sate of the LPG is governed by the prices fixed by the OCC under the guidelines fixed by Ministry of Petroleum and Natural Gas.. The LPG cleared in bulk from the factory and packed into cylinders subsequently in bottling unite Is sold only at the lower price for packed LPG for domestic use, as fixed , by the OCC. Therefore, they should not be asked 10 discharge duty liability on the price fixed for the bulk, when they were actually selling the L.P.G after clearance and packing in a bottling unit (though in an out side premises), at tower price as per administered price regime and collecting duty from customers accordingly.
3. The Commissioners of Central Excise, Vadodara, indore and Surat aahad raised the demands against different parties (IOc/GAIL/ONGC) in their jurisidiction for short payment of duty for they had cleared the LPG in bulk but paid duty at the price fixed by OCC for LPG packed meant for domestic purposes. These demands were also duly confirmed holding interalia that duty was chargeable on value applicable to the form LPG at the time of clearance from the factory. Against these orders of Commissioners of Central Excise, Vadodara Indore & Surat, the IOC, GAIL and ONGC had filed appeals after taking Committee on Disputes clearance in the Tribunal, The Tribunal allowed their appeals taking notice of several considerations put forward by the appellants including the intentions behind the conversion from specific to advalorem duty, various aspects of administrative price regime applicable to certain bulk Petroleum products including LPG, the Instructions by a Circular issued by Ministry of Petroleum as to how price should be calculated and duty paid for LPG when it was cleared for packing in bottling units etc. Tribunal ultimately held that the assessable value for the LPG cleared in bulk by the appellants, for bottling for domestic consumption, should be assessed at the lower value-fixed by OCC for that category. [ Please see Tribunal judgement report in 2000.
4 As the view taken by Tribunal did not appear to be strictly in accordance with the provisions of Sec.4. the Department filed a Civil Appeal In the Supreme Court, after obtaining the clearance from the Committee on Disputes and also after obtaining the opinion of the learned Attorney General. The Hon”ble Supreme Court, however, during the course of hearing, desired that the matter should be resolved by the two Departments I.e. Department of Revenue and Ministry of Petroleum. The matter was accordingly recently discussed first in the Board and thereafter in a meeting held between the representatives of Department of Revenue and Department of Petroleum & Natural Gas .The various aspects of tile dispute were examined and it was interalia noted that the product was being marketed under administered price regime and the products/ /marketing oil Companies had no choice but to sell the products at price fixed by OCC. It was also a fact that LPG whether it was cleared in packed condition from refinery or when packed in an outside bottling unit, was sold at same price to consumers as fixed by OCC. It was felt. therefore, that it may not be appropriate to insist on Supreme Court”s ruling as to whether as per section 4 higher value (and resultant excise duty) in second category of cases is legally justified. Both the departments agreed that even if Supreme Court agreed with revenue view point the, Oil Companies will not be able to recover any duty. After discussions with representatives of Ministry of Petroleum and considering Hon”ble Apex Court direction to resolve the dispute essentially between Govt. and PSUs. it has been decided by the Govt. that in the special circumstances of production and marketing of LPG with Administered Price regime, we may accept the order of the CEGAT vide their order no, 1528 to 1538/99A dated 27.10.99 in the case of M/s Gas Authority of India Ltd Vs Commissioner of Central Excise Vadodara, subject to the condition that the refineries / oil companies who have already paid up the demands raised by Central Excise department and consequently may be entitled for refund will not be paid any interest on the refund amount held admissible subject to the principle of unjust enrichment being satisfied. It has also been agreed that the oil companies will scrutinize their records and wherever LPG has been cleared at lower price meant for LPG packed (Domestic) but actually sold in bulk, they will forthwith pay differential duty on such LPG bulk .
5. Department has moved Supreme Court for withdrawal of its appeal based upon the above decision.
6. The above principle agreed in the particular CEGAT judgement on the issue of LPG valuation for excise duty purposes, will apply also in all other disputes on same issue including those at show cause notice stage or where assessment of LPG were being made on provisional basis as per Board”s instructions, or other reasons pending settlement of the issue before CEGAT. These cases may be decided accordingly.
7. Receipt of this Circular may please be acknowledged.
8. Hindi version will follow.