2015 (2) TMI 35 - HC - Central Excise

Demand of differential duty from the buyer of coal - Transactional value - Inclusion of royalty and stowing charges - Held that - 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 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 11-B. 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. - petition disposed of.

Summary

Issues:
1. Impugning legality of recovery notice by coal traders
2. Refund of collected or deducted amounts
3. Interpretation of transaction value under Central Excise Act, 1944
4. Dispute resolution mechanism in commercial contracts
5. Inclusion of royalty and stowing charges in transaction value for excise duty
6. Jurisdiction under Article 226 for interdicting recovery notices
7. Availability of arbitration remedy under the Spot E-Auction Scheme
8. Payment of excise duty by coal companies
9. Refund mechanism under section 11-B of the Act
10. Maintenance of separate statements of account by coal companies

Analysis:
The judgment concerns writ proceedings filed by 16 coal traders challenging a recovery notice issued by Central Coalfields Ltd. The traders sought to impugn the recovery notice and requested a refund of collected amounts. The traders were involved in commercial contracts under the Spot E-Auction Scheme, 2007, where excise duty became payable on coal due to the Finance Act, 2011.

The key issue revolved around the interpretation of "transaction value" under the Central Excise Act, 1944. The court examined the provisions of the Act and the terms of the Spot E-Auction Scheme, particularly focusing on clauses related to pricing and arbitration agreements. The court noted the ongoing dispute regarding whether royalty constitutes a tax and deferred the decision pending a reference to a larger bench of the Supreme Court.

Regarding the jurisdiction under Article 226 of the Constitution, the court considered the nature of the contracts between the coal companies and traders. The court highlighted the availability of the arbitration remedy under the Scheme and the payment of excise duty by the coal companies. The judgment emphasized the need for maintaining separate statements of account by the coal companies for equitable adjustments post the Supreme Court's decision.

Ultimately, the court declined to interfere with the recovery notice and memo issued by the first respondent. However, it directed the coal companies to maintain separate statements of account for recoveries and rights adjustment post the Supreme Court's decision. The judgment highlighted the importance of following legal remedies, including the refund mechanism under section 11-B of the Act, to address any future disputes.