Circular No. 223/57/96-CX dated 21/6/96
I am directed to say that clarifications have been sought regarding computation
of assessable value (AV) on petroleum products attracting ad valorem rate. In the
budget for 1994-95. excise duty on pvtrolctim products was prescribed on ad valorem
basis as against specific rates of duty existing prior to budget. As far as pricing
of petroleum products is concerned, they can be divided into two categories, namely,
(a) Forrnula products; and
(b) Free pricing products
2. The prices of petroleum products falling under the category of "Formula Products"
are determined by the Ministry of Petroleum & Natural Gas. The prices of petroleum
products in the category of Tree Pricing Products" are examined by the individual oil
companies. In the case of "free pricing petroleum products" generally ex-factory price
is available and there may not be problem to determine the assessable value (AV) of
such products. Selling price "Formula products" is determined taking into account
number of factors. Moreover, number of petroleum products falling under this category
are also generally transported from the refineries to the warehouses, Imown as storage
points. The central excise duty is discharged at the time of removal from the storage
points. It has been reported that in respect of petroleum products sold from the
storage points, excise duty was paid on the assessable value declared as ex-storage
point selling price. But the value declared for this purpose does not include certain
amounts collected under various heads from the buyers. As a result. Show Cause Notices
(SCNs) have been issued asking the oil companies to explain as to why the assessable
value should not be determined in accordance with the provisions of Central Excises
and Salt Act by including amounts collected by them under different heads. The oil
companies have thus been asked to) show cause as to why the amount collected by them
but not included in the assessable value should not be included in the assessable
value and duty on such differential amounts should not be collected. It is felt that
the issue of inclusion or exclusion of various elements of price for the purpose of
determining the assessable value for levy of excise duty on petroleum products need
to be clarified to the field formations so as to ensure uniform practice of assessment
of petroleum products.
3. The following elements of price are considered for inclusion or exclusion in the
assessable value:
- State Surcharge
- Retail Pump Outlet (RPO) Charge
- RPO Surcharge
- Railway Siding/Shunting Charges
- Air Field Charges
4. The matter has been considered and as regards determination of assessable value for
petroleum products, where excise duty is paid at the ex-storage point, I am directed
to clarify as follows:
4.1 State Surcharge
4.1.1 In addition to ex-storage point selling price declared to tlie Central Excise
Department for the purpose of levy of excise duty, oil companies are also. collecting
specified amounts ifotn the buyers under the 1-iead "State Surcharge". The amount
collected underliiSs head is surrendered to tlie "Oil Pool Account". Though this
amount is collected as "State Surcharge", it has not actually bc«."n remitted to the
concerned Sales Tax Department. Sales Tax Act specifically prohibits the seller from
collecting surcharge from the buyers. Surcharge is not recoverable from the buyers and
it is required to be borne by the marketing companies. Basically, irrecoverable
surcharge element is being collected by the oil companies under the specific head
"State Surcharge". These amounts having been transferred to the "Oil Pool Account" and
it has been stated that whenever the oil companies required to pay the surcharge, they
claim reimbursement of the same from the Oil Pool Account. According to Section-4 of
Central Excises and Salt Act, assessable value does not include the amount of Sales
Tax and other taxes, if any, payable on such goods. However, in the present context,
State Surcharge is not a tax payable on sale of goods. Therefore, State Surcharge does
not appear to fall under the category of taxes payable on goods. Moreover, this amount
is being collected from the dealers without indicating anywhere " that this is in lieu
of tax on the said goods and the entire amount collected under this head also has not
been paid to Sales Tax Departments of the respective States. There does not appear to
be any nexus between the amount collected under this head and the surcharge.
4.1.2 In view of the above, the amount collected under this head is liable to be
included in the assessable value.
4.2. Retail Pump Outlet (RPO) Charge
4.2.1 The oil companies are collecting specified amounts under the head RPO charges.
This is reported to contain two elements:
(a) Transportation charges for delivering the product from the ex-storage
point to their dealers" premises; and
(b) Operating cost of the RPO and return on investments.
The oil companies supply Motor Spirit (petrol) and HSD oil at the RPOs without
charging additional amount for transportation as long as the RPOs are situated within
the limit known as free delivery zone. Actual cost of transportation incurred from
warehouses to the delivery point is liable to be excluded from the assessable value
subject to verification. As regards the portion of the amount collected under the head
Operating cost and return on investments" the fact remains that the buyer has got no
option except to pay these amounts as determined by the oil companies and in the
absence of any explicit arrangement and declaration by the oil companies it may not be
possible to exclude any amount collected from the buyer at the time of sale for sale
of products. If this amount is independent of the sale price of the product, it should
have been delinked and collected separately with explicit arrangements. The fact that
this portion of the amount is not related to the actual cost of transportation and is
collected uniformly from all buyers at the time of sale, makes it liable to be
included in the assessable value as it should be treated as consideration for sale.
4.2.2 In view of the above, the amount of RPO charges, after deducting the amount
relating to transportation charges, subject to verification is liable to be included
in the assessable value. The amount relating to cost of transportation is liable to be
excluded from the assessable value subject to vertification.
4.3. Retail Pump Outlet (R.P.O). Surcharge
4.3.1 Specified amounts are collected from all buyers of Motor Spirit (petrol) and HSD
oil under the head "RPO Surcharge". This amount has not been included in the
assessable value declared by the oil companies. It has been reported that this amount
is being utilised subsequently for payment of discount or commission to dealers based
on their turnover. Tlie amount under this head is being collected uniformly from all
dealers irrespective of the fact that whether the dealer is eligible for turnover
discount or not. The amount under this head is reported to be pooled together which in
turn is used to meet the expenditure of this incentive scheme. Quantity discount
discount is a discount given uniformly to all the buyers based on the quantity. In the
present case, the-said amount is collected uniformly from all the dealers. How and
for"what purpose this amount is utilised may not be material to determine the
inclusion of this in the assessable value. So long as the amount is collected from the
buyer, such amount is liable to be included in the assessable value. Discount is an
amount allowed to be deducted from the normal price and not the amount collected from
the buyer for any specified purposes.
4.3.2 In view of the above, the amount collected under the head "RPO Surcharge" is
liable to be included in the assessable value.
4.4 Railway Siding Charges/Shunting Charges
4.4.1 Some charges also incurred while handling petroleum products within the premises
of warehouse. When duty is paid on warehouse all expenditures incurred within the
warehouse premises and before clearance are liable to be included in the assessable
value. As these charges are incurred before clearance and within the warehouses, these
amounts are liable to be included in the assessable value.
4.4.2 In view of the above, the charges incurred before clearances from the warehouses
are liable to be included in the assessable value.
4.5. Air Field Charges
4.5.1 In the case of Aviation Turbine fuel (ATF) and aviation gasoline, certain
specified amounts are included under the head Air Field Charges. As in the case of RPO
charges, this element also reportedly contain two aspects:
(a) Cost of transportation; and
(b) Operating cost and return on investment
The portion of cost relating to transport of goods from the warehouses to the point of
delivery is liable to be excluded from the assessable value but the other portion
which is collected from the buyers at the time of sale is liable to be included in the
assessable value on the similar reasons explained in the case of RPO charges.
4.5.2 In view of the above, the charges collected from the buyers of Aviation Turbine
fuel (ATF) and aviation gasoline relating to operating cost and return on investment,
is liable to be included in the assessable value. Cost of transportation m.iy be
considered for exclusion subject to verification.
5. In view of the foregoing, it is hereby clarified that the following amounts
collected by the oil companies from the buyers on the sale of petroleum products are
liable to be included in the assessable value:
(a) State Surcharge;
(b) RPO Charge, excluding the amount relating to cost of transportation
incurred for delivering the products from the warehouses to the storage
point, subject to verification;
(c) RPO Surcharge;
(d) Railway siding charges/shunting charges; and
(e) Air field charge, excluding the amount relating to cost of
transportation incurred for delivering the products from the warehouses
to the storage point, subject to verification,
6. All pending assessments/disputes may be finalised in view of the above
clarifications. All field formations may be advised suitably.
Sd/-
(R. Sekar)
Deputy Secretary to the Govt. of India
F. No. 332/86/94-TRU Presented by eximkey.com