2014 (5) TMI 899 - HC - Indian Laws

Classification of royalty - whether the royalty is a tax or not - determination of price of coal - The writ petitioners after having adjusted successful bidders purchased the coal upon deposit of the price of the coal as well as the charges, levies & taxes as imposed by the Coal Companies. - maintainability of writ petition being the contract is mutual agreement - alternative remedy - Held that - The invocation of power of judicial review is a discretionary relief with certain self-imposed restrictions and/or limitations by the Court itself. Ordinarily the writ court does not go into the serious disputed questions on fact when the same is amenable to the other remedies provided either under the contract or under a relevant statute. - The Apex Court in case of Tantia Construction Pvt. Ltd. clearly held that the existence of an alternative remedy is not an absolute bar to the invocation of the writ jurisdiction by the High Court. The identical issue is pending before the larger bench of the Supreme Court and have not been finally decided as yet. This Court, further, does not feel that the action of the said respondents by issuing the aforesaid notices/memos could at all be sustained. The Authorities are, therefore, directed to suspend their action for realization of the said amount from the future contracts, if to be awarded to the writ petitioners at this moment. Since the respondents have themselves chosen to deposit the excise duty on the royalty and stowing excise duty and in fact, paid the same and in the event, the larger bench of the Supreme Court decides the matter holding that the royalty is not a tax, the writ petitioners are certainly bound to pay the excise duty over the royalty. This Court, therefore, feels that equilibrium is required to be maintained. - The writ petitioners are, therefore, directed to give an indemnity bond to the aforesaid respondents indemnifying their obligations to pay the excise duty in such eventuality. Such indemnity bond shall be furnished within two weeks from the date.

Summary

Issues Involved:
1. Whether royalty is a tax.
2. Maintainability of the writ petition under Article 226 of the Constitution of India.
3. Applicability of Central Excise Duty on royalty and stowing excise duty.
4. Availability of alternative efficacious remedy by way of arbitration.
5. Judicial review in contractual matters.

Detailed Analysis:

1. Whether Royalty is a Tax:
The core issue debated was whether royalty constitutes a tax. The Supreme Court's decisions in India Cement Ltd. & Ors. vs. State of Tamil Nadu & Ors. and State of W.B. vs. Kesoram Industries Ltd. & Ors. were pivotal. The Seven Judge Bench in India Cement held that "royalty is a tax." However, the Five Judge Bench in Kesoram Industries clarified that the correct interpretation should be "cess on royalty is a tax." This typographical error led to conflicting interpretations. The matter was referred to a Nine Judge Bench in Mineral Area Development Authority vs. Steel Authority of India due to these conflicting decisions, and the reference remains unresolved.

2. Maintainability of the Writ Petition under Article 226:
The respondents argued that the writ petition should not be entertained as the issue is contractual and an alternative remedy by arbitration exists. However, the court held that the writ petition is maintainable. The court observed that the invocation of judicial review is discretionary and not barred by the existence of an alternative remedy, especially when the matter involves public law elements and statutory obligations.

3. Applicability of Central Excise Duty on Royalty and Stowing Excise Duty:
The petitioners contended that excise duty on royalty and stowing excise duty is contrary to the Supreme Court's decision in India Cement. The court noted that the Central Excise Act, 1944, defines "transaction value" under Section 4(3)(b), excluding tax components if royalty is considered a tax. The court found that the respondents' action to charge excise duty on these components was uncertain and not crystallized, as the issue was pending before a larger bench.

4. Availability of Alternative Efficacious Remedy by Way of Arbitration:
The respondents emphasized the arbitration clause in the contract, suggesting that disputes should be resolved through arbitration. The court referenced judgments, including Tantia Construction Pvt. Ltd. vs. Union of India & Ors., which established that the existence of an arbitration clause does not absolutely bar the invocation of writ jurisdiction. The court held that the writ petition could be maintained despite the arbitration clause, particularly when the dispute involves statutory obligations and public law elements.

5. Judicial Review in Contractual Matters:
The respondents cited several judgments to argue that contractual disputes should not be entertained under writ jurisdiction. However, the court distinguished these cases, noting that the current dispute involved statutory interpretation and public law elements, making it appropriate for judicial review. The court emphasized that judicial review is a discretionary relief and can be invoked to address unfairness, unreasonableness, and patent illegality.

Conclusion:
The court directed the respondents to suspend their action for realizing the excise duty from future contracts and allowed the writ petitioners to furnish an indemnity bond. The court maintained that the issue of whether royalty is a tax remains unresolved and pending before the larger bench of the Supreme Court. The writ petitions were disposed of with no order as to costs. The court refused the respondents' request for a stay of the order's operation.