Coal Royalty Includible For Excise Valuation, Other Statutory Levies Excluded: CESTAT New Delhi

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has partly allowed a batch of appeals filed by South Eastern Coalfields Limited, holding that royalty collected on coal sales is includible in the assessable value for levy of central excise duty, but only for the normal period of limitation.

The tribunal, however, set aside excise duty demands on other statutory levies and quashed the invocation of extended limitation, penalty and interest.

A coram comprising President Justice Dilip Gupta and Technical Member P.V. Subba Rao held that while royalty is not in the nature of a tax, several other imposts collected by the coal PSU qualify as taxes or duties and are therefore excludable from “transaction value” under Section 4 of the Central Excise Act.

"Levy of central excise duty on the amount received towards royalty is confirmed for the normal period of limitation, as this amount is includible in the transaction value. It is set aside for the extended period of limitation. However, even for the normal period, the imposition of penalty and demand of interest is set aside. The demand of central excise duty on stowing excise duty, forest transit fees, Madhya Pradesh rural infrastructure and road tax, entry tax, terminal tax and Chhattisgarh development and environment cess, as well as on captive consumption, is set aside. Accordingly, the imposition of penalty and interest are also set aside.", it said.

Central excise duty on coal was introduced with effect from March 1, 2011. Thereafter, the department issued multiple show cause notices to South Eastern Coalfields Limited alleging undervaluation and short payment of duty, claiming that the assessee had excluded royalty and various statutory charges from the transaction value.

These charges included stowing excise duty, forest transit fee, entry tax, terminal tax, Madhya Pradesh rural infrastructure and road development tax, and Chhattisgarh development and environment cess.

The Commissioner of Central Excise confirmed the demands, holding that royalty and other levies were not “taxes” and were therefore includible in the assessable value, relying on the Supreme Court's decision in Kesoram Industries. He also invoked the extended period of limitation and imposed penalty equal to the duty demanded.

On appeal, the tribunal noted that the law on royalty now stands settled by the Supreme Court's nine-judge Constitution Bench ruling in Mineral Area Development Authority, which clarified that royalty is not in the nature of tax. In view of this, it upheld inclusion of royalty in the transaction value for the normal limitation period, but set aside the demand for the extended period.

“It has, therefore, to be held that as royalty is not in the nature of tax, it would be includible in the transaction value,” the Bench observed.

The tribunal, however, held that stowing excise duty, being a duty of excise levied under a separate statute, must be excluded from transaction value. It also ruled that the forest transit fee, entry tax, terminal tax, rural infrastructure and road development tax, and Chhattisgarh development and environment cess are statutory imposts in the nature of taxes and cannot form part of the assessable value.

Demands raised on coal captively consumed within mining premises were also set aside.

On limitation, the bench held that the dispute involved interpretation of law and that there was no willful suppression or intent to evade duty. Under the Central Excise Act, the normal period for raising a duty demand is one year from the relevant date, while the extended period of five years can be invoked only in cases involving fraud, wilful suppression or intent to evade duty.

“It can safely be said that the appellant, a Government of India undertaking, could have bona fide believed that it was not liable to pay central excise duty,” the tribunal said.

As a result, only limited excise liability on royalty for the normal period survives, with all other duty demands, penalties, and interest quashed.

For Appellant: Advocates Rajeev Agarwal and Shri Sanjay

For Respondent: Advocates Bhagwat Dayal