Barreled Bitumen Cost Included In Excise Valuation: CESTAT Ahmedabad

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 22 January upheld the inclusion of the cost of barrels for bitumen sold from depots. It clarified that barrelled bitumen is different from bulk clearances from a refinery and therefore, the two cannot be treated the same.

A Bench comprising Judicial Member Dr. Ajaya Krishna Vishvesha and Technical Member Satendra Vikram Singh was examining whether the cost of barrels used for packing bitumen by Nayara Energy (formerly Essar Oil) formed part of the assessable value for levy of central excise duty.

Emphasising that bitumen becomes tradeable only after being packed in barrels at the depot, the Tribunal held that:

“the goods in packed condition cleared from the depot are liable to be assessed under Rule 7 of the Central Excise Rules, 2000 without deducting the cost of barrel.”

Nayara Energy was clearing bitumen in bulk from its refinery for sale to independent buyers and was also transferring a portion of the production to its Jamnagar depots for further sale or transfer to other depots. At the depot, the bitumen was packed in barrels before being sold.

While it paid duty on the depot sale value up to May 2010, from June 2010 the company began deducting the cost of barrels on a monthly basis, based on a chartered accountant's certificate.

The Department alleged that this resulted in undervaluation and contended that the cost of barreling was required to be added to the assessable value even though the packing activity did not take place at the refinery. On this basis, it raised a demand for excise duty of about Rs. 2 crore through three show cause notices.

The Tribunal upheld the Department's stand, noting that where bitumen is packed in barrels at the depot to make it saleable or marketable, the cost of packing is includible in the assessable value, though the manufacturer would be entitled to CENVAT credit on the packing materials used.

It followed the reasoning adopted by the Delhi Bench in Century Laminating and the Mumbai Bench in Clariant (India) Ltd., and held that packing costs are included where such packing is necessary to put the goods in a condition in which they are ordinarily sold.

Further, the Bench applied Rule 7 of the Central Excise Valuation Rules and held that depot clearances of packed goods must be valued accordingly and that the cost of barrels could not be excluded from the assessable value.

Accordingly, the Tribunal remanded the matter for recalculation of duty. However, it restricted the demand to the normal period of limitation while directing that CENVAT credit on the packing materials be allowed.

For Appellant: Advocates Vishal Agarwal, Dimple Gohil, Ambarish Pandey

For Respondent: Mr. Rajesh K Agarwal (Authorized Representative)