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Determination of assessable value (AV) of petroleum products
Circular
No. 223
dated 21st June 1996
I
am directed to say that clarifications have been sought regarding computation of
assessed value (AV) on petroleum products attracting ad valorem rate. In the
budget for 1994-95 excise duty on petroleum 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)
Formula 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 'Free 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, numbers
of petroleum products falling under this category are also generally transported
from the refineries to the warehouses, known 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 Excise 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:
(i)
State Surcharge
(ii)
Retail Pump Outlet (RPO) Charge
(iii)
RPO Surcharge
(iv)
Railway Siding/ Shunting Charges
(v)
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 the Central
Excise Department for the purpose of levy of excise duty, oil companies are also collecting
specified amount from the buyers under the head 'State Surcharge'. The amount
collected under this head is surrendered to the 'Oil Pool Account'. Though this
amount is collected as 'State Surcharge', it has not actually been remitted to
the concerned Sales Tax Department. Sales Tax Act specifically prohibits the
seller from collecting surcharge form 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 paying the surcharge, they claim reimbursement of the
same from the Oil Pool Account. According to Section-4 of Central Excise 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 had 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
hand 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 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 form 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 possible to exclude any amount
collected from the buyer at the time of sale for sale of products. If this
amount in independent of the sale price of the product, it should have been
de-linked 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
verification.
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 heir turnover. The 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 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
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 warehouses 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 form 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 may 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 to transportation
incurred for delivering the product from the warehouses to the storage point,
subject to verification,
6.
All pending assessments/ disputes may be finalised in view of the above
clarification. All field formation may be advised suitably.
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