Logic Traders Pvt. Ltd. vs Coal India Ltd.

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The writ proceedings before the Court have been filed by 16 coal traders seeking to impugn the legality of a recovery notice, dated 3 July 2014 issued by the Central Coalfields Ltd., a subsidiary of the first respondent, together with a memo of the first respondent, dated 5 March 2013. The petitioners also seek a refund of the amounts which have been collected or, as the case may be, deducted from their accounts in pursuance of the recovery memo. The petitioners are traders in coal who entered into commercial contracts with Eastern Coalfields Ltd. (respondent No. 3) and Central Coalfields Ltd. (respondent No. 6) under a Spot E-Auction Scheme, 2007. With effect from 1 March 20.11, as a result of the Finance Act, 2011, the central excise duty became payable on coal.

The expression "transaction value" in section 4(3)(d) of the Central Excise Act, 1944 provides as follows:

"''transaction value'' means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods."

The expression ''transaction value'' does not include the amount of excise duty, sales tax and other taxes, if any, actually paid or actually payable on such goods.

Under the terms and conditions governing the Spot E-Auction Scheme, 2007, the following provisions were made in clause 4.4:

"The Buyers while bidding shall quote their "Bid price" per tonne in Indian Rupee as base coal price on FOR/FOB colliery basis, exclusive of other charges like statutory levies, surface transportation charges, sizing/beneficiation charges, taxes, cess, royalty, SED, & any other charges as will be applicable at the time of delivery. These charges as well as freight etc. shall be on the Buyers'' account."

An arbitration agreement is contained in the following terms in clause 11.12:

"In the event of any dispute, Bidder/Buyer is necessarily required to represent in writing to the General Manager (Sales) of the concerned coal company, who would deal with the same in a period of one month from such representation. Thereafter, if required the matter be determined by the Director-In-Charge of Marketing of the concerned coal company. Any interpretation of any clause of this will be subject to clarification by CIL, which will be deemed as firm and final. All disputes arising out of this scheme, or in relation thereto in any form whatsoever shall be dealt exclusively by way of arbitration shall be conducted at Calcutta at a place to be notified by CIL. The arbitrator shall be appointed by the Chairman and Managing Director, CIL upon written request in this behalf. The award rendered by the Arbitrator shall be final and binding on the parties. (The place of arbitration & nomination of arbitrator be varied appropriately in view of the Coal Company involved)."

A summons was issued under Section 14 of the Act to the Director, Finance of the first respondent on the ground that royalty and stowing charges do not constitute a tax within the meaning of Section 4(3)(d) and hence were liable to be included in the definition of ''transaction value'' for the purpose of levy of excise duty.

In the counter affidavit, it has been stated that proceedings were initiated against the subsidiaries of the first respondent to recompute the transaction value of coal so as to include royalty and stowing charges, upon which differential excise duty would have to be paid. The first respondent states that, as a matter of fact, the dues of the central excise authorities were duly discharged and the differential excise duty has been paid. In paragraph 30(b) of the counter affidavit, it has been stated that the amounts of central excise duty on royalty and stowing charges have been duly deposited by the coal companies from 1 March 2011 to 28 February 2013 together with consequential value added tax. It was in view of this liability which has already been disbursed by the coal companies that a memo was issued on 5 March 2013 by the first respondent to its subsidiaries advising them to discharge the past central excise duty liability for the period between 1 March 2011 to 28 February 2013 immediately and to remit the challans evidencing payment to the exchequer, to the first respondent so as to enable the first respondent to transmit them to the Directorate General of the Central Excise Intelligence, New Delhi. Similarly a direction was issued to consider royalty and stowing charges (transcribed as Stowing Excise Duty) for the purpose of arriving at the assessable value for levy of central excise duty in all coal sales bills on and from 1 March 2013.

Following this, notices have been issued by the coal companies to coal traders, who have lifted coal between the period of March 2011 and February 2013, to deposit the differential excise duty on royalty as well as the sales tax thereon for the relevant period.

At the outset, it must be noted that the Supreme Court in its decision in Mineral Area Development Authority etc. Vs. Steel Authority of India and Others, has referred to a Bench of nine learned Judges, the core issue as to whether royalty is in the nature of a tax and whether the majority decision in the The State of West Bengal Vs. Kesoram Industries Ltd. and Others, could be read as departing from the law laid down in the seven Judge Bench decision in India Cement Ltd. and Others Vs. State Of Tamil Nadu and Others, .

The issue before the Court is as to whether at the present stage this Court, in the exercise of its extraordinary jurisdiction under Article 226 of the Constitution, should interdict the enforcement of the recovery notices. The basic issue as to whether royalty is in the nature of a tax will have to await adjudication before a Bench of nine learned Judges of the Supreme Court in view of the reference which has been made in Mineral Area Development Authority (supra).

At the present stage, it is not in dispute that for the period between 1 March 2011 and 28 February 2013, differential excise duty on royalty and stowing charges has been deposited with the Central Excise Authorities by the coal companies. There is a specific averment to that effect in paragraph 30(b) of the counter affidavit which has been filed in these proceedings. The contracts between the coal companies and coal traders such as the petitioners, are not in the nature of statutory contracts. Though in contractual arena, the exercise of the writ jurisdiction is not, as a matter of principle, excluded under Article 226 of the Constitution, the fact that the purchases were made not in pursuance of statutory contracts but contracts of a commercial nature is a factor which must be placed in the balance. The purchases have been made in pursuance of the Spot E-Auction Scheme, 2007, clause 4.4. of which required the buyers while quoting their bid price to submit the bid price as a base coal price on FOR/FOB colliery basis, exclusive of other charges like statutory levies, taxes, cess, royalty and stowing excise duty and other charges, as would be applicable at the time of delivery. These charges, were to be on the buyers'' account. At this stage, another circumstance which would have a bearing on whether the exercise of the writ jurisdiction under Article 226 is warranted is that the terms and conditions governing the Spot E-Auction Scheme specifically embodied an arbitration agreement in clause 11.12. The remedy of an arbitration application under clause 11 is thus available under the Arbitration and Conciliation Act, 1996, including a petition under Section 9 or, as the case may be, an application before the Arbitrator under Section 17.

The coal companies having made payment of differential excise duty after proceedings were initiated by the Central Excise Authorities, the ends of justice would not require, in our view, any injunction or interference on the recovery notices at this stage. If ultimately, it is held that royalty is in the nature of a tax and, therefore, lies outside the definition of the expression ''transaction value'' under Section 4(3)(d) of the Act, on the culmination of the reference which is pending before the Supreme Court, any payments which are made in the meantime, would necessarily have to abide by the remedies provided under the Act, including by way of an application for a refund under Section 11B. Hence, at this stage, the only direction, which would be necessary to issue, would be to direct that the coal companies shall maintain a separate statement of account, trader wise, of the amount which is recovered in pursuance of the recovery notices in order to facilitate the adjustment of equities and the working out of rights after the conclusion of the reference before the Supreme Court.

Our attention has been drawn to the order passed by a learned Single Judge of the High Court of Chhattisgarh at Bilaspur in Writ Petition (T) No. 65 of 2013 on 11 September 2013 declining to grant an ad-interim stay on recoveries but granting a period of three months for the making of deposit.

We, accordingly, decline to interfere in these proceedings under Article 226 of the Constitution with the recovery notice, dated 3 July 2014 and with the memo issued by the first respondent on 5 March 2013. However, we direct that the coal companies shall maintain separate statements of account, trader wise, of all recoveries which are made for the relevant period so as to facilitate the working out of equities and rights in accordance with law after the decision of the larger Bench of the Supreme Court in the pending reference before a Bench of nine learned Judges. The writ petition is, accordingly, disposed of.