By TIOL News Service

MUMBAI, MAY 15, 2018: THE appellants are selling Motor Spirit (MS) and High Speed Diesel (HSD) in the form of plain MS and HSD on ex-factory basis. The goods are sold on stock transfer basis to various terminals from where they are either sold as such or are being sold after addition of 'octane boosters' (Multi Functional Fuel Additives (MFFA) under the brand name 'Speed'.

The appellants are discharging excise duty under Rule 7 of Valuation Rules, 2000, according to which irrespective whether the plain MS/HSD sold from their terminal/depot or as Speed MS/HSD, they are applying the sale price of plain HSD and MS nearest to the time of removal of goods from the factory. The case of the Department is that in case of Speed MS/HSD, the sale price of Speed MS/HSD at which the goods are sold from their depot should be applied.

Alleging under-valuation, demand of differential duty was raised and confirmed.

In appeal, it is submitted that the sale price of those goods which are cleared from the factory should be applied and not the price of the goods cleared in different form from depot. Inasmuch as from the factory, all the goods i.e. MS/HSD are cleared only in plain form and not in the form of Speed MS/HSD, therefore, the sale price of plain MS/HSD shall be applicable for the assessment of duty; that any value addition due to conversion from MS/HSD after removal of the goods, the same cannot be added in the assessable value of the manufactured goods cleared from the factory.

The AR reiterated the findings of the impugned order and emphasized on the usage of the words "such goods" to justify the demand.

The Bench extracted rule 7 of the CE Valuation Rules, 2000 and observed thus –

++ In the present case, the goods cleared from the factory is plain MS/HSD but the same goods are sold from the depot as Speed MS/HSD. Therefore, all the goods which are cleared as plain MS/HSD, which was subsequently sold as Speed MS/HSD, the sale price of such plain MS/HSD shall apply.

++ The contention of the appellant that such goods means the plain MS/HSD, hence in any case, sale price of Speed MS/HSD shall not apply is clearly in conformation to interpretation of Rule 7 for the reason that it is admitted fact that the goods cleared as plain MS/HSD are sold from depot as Speed MS/HSD.

++ Therefore, we are of the opinion that whatever the plain MS/HSD cleared from the factory and the same was sold from the depot as Speed MS/HSD, the price of plain MS/HSD at which the goods were sold at the same time or at the time nearest to removal of goods shall apply.

++ In our interpretation, term "such goods" appearing in Rule 7 is the goods which originally cleared from the factory, in the present case it is plain MS/HSD, therefore, sale price of plain MS/HSD shall apply. The goods under assessment is plain MS/HSD and not Speed MS/HSD.

Setting aside the impugned order, the appeals were allowed.

In passing: A chapter note in Chapter 27 might have made the difference. In the case of the appellant and the two other petro giants, the CESTAT, Delhi in - 2008-TIOL-2668-CESTAT-DEL held –

"4.3… as mentioned above, the MS and the HSD after blending with MFA remain MS and HSD only and except for a brand name being added to their names, there is no change in their basic characteristics and usages. As mentioned above, there is no separate ISI specification for branded MS or branded HSD and both branded as well as unbranded MS/HSD have to conform to the same ISI specifications. Similarly, there is no change in their use. Thus applying the above-mentioned criteria laid down by the Hon'ble Supreme Court as to what constitutes manufacture, the process of blending ordinary MS or HSD with MFA to make branded MS or branded HSD, does not amount to manufacture.

4.4… In the present case, it is not the case of the Respondents that MS/HSD without blending with MFA are not usable. Blending of MS/HSD with MFA to make branded MS/HSD which sell at a premium only improves the quality of the product, and this process, as discussed above, would not amount to manufacture."

(See 2018-TIOL-1517-CESTAT-MUM)