2015 (11) TMI 1659 - HC - Central Excise

Valuation - includibility - Royalty - royalty being a tax or not - the case of petitioner is that royalty is covered by the words other taxes as used in Section 4(3)(d) of the Act of 1944 and, therefore, royalty is not a part and parcel of transaction value and, therefore, no excise duty is leviable upon the royalty paid by these petitioners - Held that - There is a contract between the parties i.e. the petitioners and the respondents-Companies. These petitioners have participated in Spot E-auction Scheme for the purchase of coal. The terms and conditions of Spot e-Auction Scheme 2007 is binding to the parties to this agreement and looking to Clause 4.4 thereof, these petitioners are bound to make payment of statutory levies, surface transportation charges, sizing/beneficiation charges taxes, cess, royalty, stowing excise duty (SED) and other charges. Thus, the contract between the parties is not a statutory contract, but, it is a contract of commercial in nature. The traders-petitioners of coal shall make payment of differential excise duty to the respondents-Coal companies which is wholly owned, managed and controlled by the Central Government. Whenever such type of issues are referred to Larger Bench before the Courts and if the amount of tax is involved which is to be recovered by the Central Government companies or the Government companies by the traders, these differential excise duty is bound to be paid by the traders to the Government companies, even during pendency of the issue, before the Larger Bench so that there may not be any difficulty by the Government or for the Governmental companies for recovery of the differential sovereign dues. Otherwise, if, later on, the matter is decided against the traders or petitioners or private parties, it will be extremely difficult for the Government or by the Government Companies to recover the differential excise duty or sovereign dues. The companies, private or public, may be wound up, but, the Central Government and the instrumentalities of the Central Government will not be wound up. The amount of sovereign dues paid by the companies, public or private, is absolutely safe with the Central Government or with the Governmental companies. Keeping in mind this equilibrium and looking to Clause 4.4 and 11.12 of the terms and conditions of Spot e-Auction Scheme 2007 and also looking to the fact that the transaction between these petitioners and the respondents-Coal companies is not a statutory contract, but, it is purely a commercial transaction, we, hereby, direct the petitioners-Companies to make payment of differential excise duty to the respondents-Coal companies - petition disposed off - decided against petitoner-assessee.

Summary

Issues Involved:
1. Recovery of excise duty on coal including royalty.
2. Whether royalty is considered a tax under Section 4(3)(d) of the Central Excise Act, 1944.
3. Contractual obligations under the "Spot e-Auction Scheme 2007".
4. Arbitration clause applicability.
5. Payment of differential excise duty under protest and potential refund.

Detailed Analysis:

1. Recovery of excise duty on coal including royalty:
The petitioners challenged the action initiated by the respondents for the recovery of excise duty on coal. Excise duty on coal became leviable from 1st March 2011 on an ad valorem basis. The petitioners argued that the amount of royalty paid should not be included in the transaction value as defined under Section 4(3)(d) of the Central Excise Act, 1944. The Union of India demanded differential excise duty, which the respondents-Companies had already paid. The petitioners contended that royalty should be considered as "other taxes" and thus not part of the "transaction value", making the excise duty on royalty non-recoverable.

2. Whether royalty is considered a tax under Section 4(3)(d) of the Central Excise Act, 1944:
The counsels for the petitioners relied on several Supreme Court decisions, including India Cement Limited v. State of Tamil Nadu, where it was held that "royalty is a tax". This matter has been referred to a Larger Bench of the Supreme Court, and the petitioners requested that any amount deposited be kept in a separate account pending the Supreme Court's decision on whether royalty is a tax.

3. Contractual obligations under the "Spot e-Auction Scheme 2007":
The respondents-Companies argued that under the "Spot e-Auction Scheme 2007", the petitioners were liable for all statutory levies, including royalty and excise duty. Clause 4.4 of the scheme explicitly states that buyers must pay these charges. The court found that the terms and conditions of the scheme were binding on the parties, making the petitioners responsible for the payment of differential excise duty.

4. Arbitration clause applicability:
Clause 11.12 of the "Spot e-Auction Scheme 2007" provides for arbitration in case of disputes. The court noted that the contract between the parties was commercial rather than statutory and included an arbitration clause. However, given the pending Supreme Court decision, the court did not entertain the writ petitions at this stage.

5. Payment of differential excise duty under protest and potential refund:
The court directed the petitioners to pay the differential excise duty to the respondents-Coal companies by 25th February 2016, treating the payment as made under protest. The court emphasized that the payment would be subject to the outcome of the Supreme Court's decision on whether royalty is a tax. The court also noted that the issue of refund would depend on the Supreme Court's directions and the principle of "Unjust Enrichment".

Conclusion:
The court disposed of the writ petitions, directing the petitioners to pay the differential excise duty to the respondents-Coal companies by the specified date. The payment would be under protest, pending the Supreme Court's decision on the matter of royalty being a tax. The court emphasized the binding nature of the contractual terms under the "Spot e-Auction Scheme 2007" and the necessity of maintaining equilibrium in the recovery of sovereign dues.