F. No. 473/1/99-LC

Circular No.8/1999-Cus date 4/3/99

It has been brought to the notice of the Board that the Customs Commissionerate, Pune has recently detected a case of Customs Duty evasion of over Rs. 27 crores by M/s HPCL, Loni, Pune, who receive petroleum products like HSD, Kerosene, etc. from M/s IOC through pipeline from Mumbai to Pune. It was found that the price declared by M/s IOC at Mumbai in the warehousing bill of entry was not considered by said M/s HPCL while paying Customs Duty which led to duty-evasion of more than Rs. 23 crores during the period from 1994 to 1998 of which recovery has already been effected. Verification of other records have brought to light instance of non-receipt of certain quantities of imported petroleum products in warehouse at destination and payment of only Excise Duty on the differential quantity.

2. A copy of the detailed note on manner in which the evasion occurred is enclosed for ready reference.

3. There is a possibility of similar practise being followed in other places as well for which you may initiate suitable action. A Report regarding action-taken and recoveries effected against any such case noticed under your jurisdiction may be forwarded to Board in fifteen days time.

4. Also, this may be brought to the notice of all your subordinate field formations with instructions for exercising checks against such instances leading to loss of revenue. Customs duty evasion of more than Rs. 27 crores by M/s HPCL, Loni.

M/s HPCL is having a Customs bonded warehouse for clearing imported petroleum products like HSD and kerosene at Loni, Pune. They receive the petroleum products through a pipeline from Mumbai to Pune. M/s IOC is the canalising agency for import of petroleum products and they in turn allocate the quantity to different oil companies like M/s HPCL., M/s Bharat Petroleum etc. M/s IOC files the warehousing bill of entry at Mumbai and the imported petroleum products are transferred to the storage tanks in the refineries at Mahul, Mumbai. The warehousing bill of entry of M/s IOC is assessed provisionally for determinations of exact quantity and sometimes due to the ascertainment or price. The pipeline between Mumbai and Pune is used for carrying imported petroleum products as well as petroleum products produced by oil refineries in Mumbai therefore at any stage it is not possible to verify whether the pipeline is carrying the imported or indigenous goods. As per the practice followed, when the imported petroleum products are transferred to Loni, the information about IGM no., vessels name and imported quantity is communicated from Mumbai to Loni office and on the basis of said information out of the total quantity received at Loni the said quantity is taken as imported and the balance is considered as indigenous goods on which Central Excise duty is paid while clearing from Loni. While clearing the imported goods exbond bill of entry is prepared and duty is paid. The records of M/s HPCL, Loni has been verified by the staff of Customs Commissionerate, Pune and following major discrepancies have been noticed regarding exbond clearances and payment of Customs duty.

i) the price declared in the warehousing bill of entry (declared by M/s IOC, Mumbai) have not been considered while preparing the exbond bill of entry and for payment of Customs duty. Infact, during the period 1994 to 1998 only 2 prices have been considered even though the price has varied with each consignment. For example in the case HSD the price considered during 1994 to 1996 for payment of duty was Rs. 4920 per KL, whereas the price declared by M/s IOC at Mumbai in the warehousing bill of entry ranges from Rs. 5800 to Rs. 6200 PMT.

The difference is in the range of 20% to 30%. Similarly for the period January, 1997 till September, 1998 they have considered the rate of Rs. 5514 per KL whereas the actual price declared by M/s IOC varied from Rs. 6000 to Rs. 7500 per MT leading to a variation of about 35%. On the basis of prices declared by M/s IOC at Mumbai verification for the period from 1994 to 1998 have been undertaken and duty evasion of more than Rs. 23 crores have been found. They have admitted the lapse and also paid the entire amount of Rs. 23 crores.

ii) Records maintained at Mumbai for transfer of goods to Loni is also under scrutiny in order to find out whether the quantity of imported petroleum products transferred from Mumbai has been shown received at Loni or not. The preliminary inquiries for some consignment of 1997 have shown that the full quantity supposed to have been sent from Mumbai have not been shown received at Loni. The investigation further revealed that on the said differential quantity, M/s HPCL, Loni has paid only Excise Duty treating the said petroleum products as indigenously produced goods and they have not paid the Customs duties (basic Customs Duty and special Customs duty). The differential duty on few consignments work out to be more than Rs. 4 crores alone. The scrutiny of record for entire period is under progress.

iii) As per the practise followed at M/s HPCL, Loni when the petroleum products (imported as well as indigenous) is cleared form Loni terminal for sale to the dealers or for inter depot transfer only the sales invoice showing payment of Excise duty is prepared. For imported goods they prepare exbond bill of entry and pay the duty but while removing from bonded area only sales invoice is prepared. The scrutiny has revealed that in number of cases the Excise duty shown on the sales invoice and recorded from the customers is much more than the additional duty of Customs (CVD) paid on exbond bill of entry.

This situation has arisen because the assessable value (assessable value under Section 14 of the Customs Act + basic Customs duty + special Customs duty) taken for payment of CVD has been much lower than the assessable value considered for collection of Excise duty from the Customer. This will lead to attraction of Section 22B of the Customers Act or Section 11D of the Central Excise Act. The duty differential on this account may be to the tune of Rs. 20 lakhs also.

M/s HPCL has paid Rs. 23 crores till now and the balance money is likely to be paid shortly.

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