legal | IST

DG GST Intelligence books cases against IOC, HPCL for alleged tax evasion

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The director general (DG) of goods and services tax (GST) Intelligence has booked cases against Indian Oil Corporation (IOC) and Hindustan Petroleum Corporation Ltd (HPCL), sources told CNBC-TV18.

In a bid to reduce tax leakages, the directorate general of goods and services tax (GST) Intelligence (DG GI) has booked cases against oil marketing majors—Indian Oil Corporation Limited (IOCL) and Hindustan Petroleum Corporation Limited (HPCL).
“The two cases were booked in April where DG GI alleges HPCL evading Central excise duty amounting to around Rs 346.34 crore and IOCL for evading central excise duty amounting to Rs 4000 crore approximately," sources told CNBC-TV18.
However, both the companies are contesting the claims with the tax authorities.
What's The Case?
The DG GI’s Vishakhapatnam zonal office is understood to have alleged that HPCL Vishakhapatnam has evaded central excise duties by transfer of petrol, diesel, kerosene via their Vishakhapatnam-Vijaywada-Secunderabad pipeline. The view of the tax authorities is that HPCL didn't pay duty at the higher rate as it is required to when products being carried intermix.
“HPCL are manufacturers of various petroleum products. M/S HPCL clear their goods i.e. motor spirit (MS) and high speed diesel (HSD) through pipeline transfers through their Vishakhapatnam-Vijaywada-Secunderabad pipeline (VVSPL) that connects them with their four marketing locations. Both MS and HSD are transported through the said single pipeline and to prevent the mixing of MS and HSD, superior kerosene oil (SKO) is placed in between batches of MS and HSD by them in the process. Some quantity of SKO is transgressed into MS and HSD, resulting in gain of MS and HSD due to SKO intermix during the course of clearances effected through VVSPL to their four terminals connected by the pipeline by violating the clarification issued by the central board of indirect taxes and customs,” sources added.
Sources further said that as per the rules of the government in the event of intermixing of the products, the higher of the two duties shall be payable for the intermixed/interface quantity.
“HPCL has voluntarily paid Rs 5 crore towards their liability so far,” said a  senior DG GI official.
Similarly, DG GI’s Pune zone office has booked a case against IOCL, Mumbai. “IOCL is engaged in the business of refining of petroleum crude oil into petroleum products and selling  the same. The refinery division of M/S IOCL consists of refineries where crude is refined into motor spirit(MS), high speed diesel (HSD) etc. and the same are sold from their deposits/terminals to their dealers. In addition to the sales of MS and HSD, ethanol-blended motor spirit (EBMS) was also sold which is formed by blending 90 percent unbranded MS and EBMS at the same price, they collected Central excise duty for entire quantity of products.
"However, IOCL has deposited the central excise duty only for the quantity of MS sold by them. Thus, evading excise duty by collecting duty on ethanol quantum (excise duty as per specific rate of duty on MS) contained in EBMS which has not been paid by them to the government," sources said.
Companies' View
When approached by CNBC-TV18, IOCL and HPCL, both said that they are contesting the claims with the tax authorities. MK Surana, CMD of HPCL told CNBC-TV18: “We do not agree with the contentions in the show cause notice. We are replying to the same.”
IOCL said that the tax evasion case stems from a differing interpretation of the rules
"The case booked by the excise department against Indian Oil for an alleged evasion of tax, stems from a difference in interpretation in the provisions of the central excise act. Indian Oil, which is a responsible corporate , would never evade taxes," the company said.
Indian Oil further clarified: "Ethanol-blended Motor Spirit (EBMS) is an exempt product for the purpose of levy of excise duty. The amount on the invoice is towards the price of the EBMS. Therefore Indian Oil has not collected/recovered any amount representing as ‘excise duty’ on sale of EBMS.
"Whether the price of EBMS is high or lower or equal to Motor Spirit, this cannot be the ground to hold that Indian Oil has collected the amount representing excise duty."
IOCL added that the company contesting the show cause notice.
"Indian Oil is contesting this show cause notice since the demands of the Excise department is not tenable as per the settled legal provisions."
Experts' Say
Even as the two cases are in front of the tax authorities, experts are of a view that this could be an anomaly in the law which the government might have to get clarity on soon to avoid litigation.
“Since the case is almost similar for both the companies, it could be that the government might have to come with an explainer on the law to avoid such misinterpretation of the law by the companies,” an expert said on the condition of anonymity.
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