State-owned oil marketing major Bharat Petroleum Corporation Limited (BPCL) has been slapped with a massive tax demand of ₹1,816.65 crore by the Commissioner of Central Tax and Central Excise, Kochi, the company disclosed in a regulatory filing to the BSE Limited on Monday.
The order, passed by the Adjudicating Authority on February 21, 2026, pertains to long-pending disputes under the Central Excise regime relating to valuation of petroleum products cleared from its Kochi refinery.
Table of Contents
Break-Up of the Demand
According to BPCL’s exchange filing, the total financial exposure of ₹1,816.65 crore includes:
- Excise duty demand: ₹476.94 crore
- Interest liability (till date): Approximately ₹1,339.70 crore
- Penalty: ₹95,000
While the penalty amount is nominal, the substantial interest component has significantly escalated the overall liability.
Dispute Linked to 19 Show Cause Notices
The case arises from 19 show cause notices issued by the Central Excise Department concerning the determination of “transaction value” under the Central Excise law. The period under scrutiny spans from September 2004 to May 2010.
A substantial portion of the confirmed demand relates to the pre-merger period of Kochi Refineries Ltd (KRL), specifically from September 2004 to August 2006. These proceedings had remained pending adjudication for several years.
Valuation Method at the Core of the Dispute
At the heart of the dispute lies the methodology adopted for excise valuation of petroleum products.
The Adjudicating Authority concluded that BPCL and KRL were “related parties” for valuation purposes. Consequently, it held that the Refinery Gate Price could not be adopted as the transaction value for determining excise duty.
The department instead validated its own valuation approach under:
- Rule 11 read with Rule 9 of the Central Excise Valuation Rules, 2000 (for the pre-merger period), and
- Rule 11 read with Rule 7 of the Central Excise Valuation Rules, 2000 (post-merger period).
Post-merger, BPCL–Kochi Refinery had adopted Rule 7, which permits valuation based on the highest-quantity depot price. However, the department applied the highest value prevailing during the entire fortnight to all clearances, leading to a higher assessable value and, consequently, increased duty demand.
BPCL to Challenge Order Before CESTAT
BPCL has stated that it is reviewing the detailed order and will file an appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), the appellate forum for indirect tax disputes under the erstwhile Central Excise regime.
The outcome of the appeal will be closely watched, as the case involves significant questions on related-party transactions and valuation principles under the Central Excise Valuation Rules, 2000 — issues that have historically led to substantial litigation in the petroleum sector.
Market Reaction
Despite the sizable demand, investor sentiment appeared resilient. Shares of BPCL closed 1.83% higher at ₹372.55 on the day of the disclosure.
The development adds to the list of legacy indirect tax disputes still being adjudicated years after the introduction of the Goods and Services Tax (GST) regime, underscoring how pre-GST excise matters continue to carry material financial implications for large corporations.
