Calcutta High Court (Appellete Side)
Arpa Fuel Private Limited & Ors vs Coal India Limited & Ors on 11 April, 2014
Author: Harish Tandon
Bench: Harish Tandon
In The High Court At Calcutta
Constitutional Writ Jurisdiction
Appellate Side
Present :
The Hon'ble Justice Harish Tandon.
W. P. No. 20522 (w) of 2013
Arpa Fuel Private Limited & Ors.
-vs-
Coal India Limited & Ors.
With
W. P. No. 21000 (w) of 2013
Vijay Garodia & Ors.
-vs-
Coal India Limited & Ors.
With
W. P. No. 21377 (w) of 2013
Kailash Kumar Khedia & Ors.
-vs-
Coal India Limited & Ors.
With
W. P. No. 20518 (w) of 2013
Rahul Goyal & Ors.
-vs-
Coal India Limited & Ors.
With
W. P. No. 21642 (w) of 2013
Ankit Agrawal & Ors.
-vs-
Coal India Limited & Ors.
With
W. P. No. 27462 (w) of 2013
Paras Power & Coal Benefication Limited & Anr.
-vs-
Coal India Limited & Ors.
With
W. P. No. 26230 (w) of 2013
Sanjay Agrawal & Ors
-vs-
Coal India Limited & Ors.
With
W. P. No. 25180 (w) of 2013
Sushil Kumar Verma
-vs-
Coal India Limited & Ors.
With
W. P. No. 25176 (w) of 2013
Sumit Agrawal & Ors.
-vs-
Coal India Limited & Ors.
With
W. P. No. 23596 (w) of 2013
Dhirendra Kumr Jaiswal & Ors.
-vs-
Coal India Limited & Ors.
With
W. P. No. 24487 (w) of 2013
M/s. Katni Minerals Pvt. Ltd. & Ors.
-vs-
Coal India Limited & Ors.
With
W. P. No. 17268 (w) of 2013
Sachin Kumar Jain
-vs-
Coal India Limited & Ors.
With
W. P. No. 17255 (w) of 2013
Jai Balaji Urja Products Pvt. Ltd. & Ors.
-vs-
Coal India Limited & Ors.
With
W. P. No. 12474 (w) of 2013
M/s R.S. Fuel Pvt. Ltd. & anr.
-vs-
Coal India Limited & Ors.
With
W. P. No. 16781 (w) of 2013
Supar Smelters Ltd. & Anr.
-vs-
Coal India Limited & Ors.
With
W. P. No. 22309 (w) of 2013
M/s. R.K. Enterprises & Ors.
-vs-
Coal India Limited & Ors.
Mr. K.K. Bandopadhyay,
Mr. Rajesh Kumar Gupta,
Ms. Nibedita Pal.
.....For the petitioners
in
W.P. 21000 (w) of 2013,
W.P. 21377 (w) of 2013.
Mr. Bikash Ranjan Bhattacharya,
Mr. Ram Anand Agrawala,
Ms. Nibedita Pal.
.....For the petitioners
in
W.P. 20518 (w) of 2013,
W.P. 12474 (w) of 2013.
Ms. Nibedita pal,
Mr. Ananda G. Mukherjee.
.....For the petitioners
in
W.P. 23596 (w) of 2013
Mr. K.K. Bandopadhyay,
Mr. Ram Anand Agrawala,
Ms. Nibedita Pal.
.....For the petitioners
in
W.P. 20522 (w) of 2013
Mr. Ram Anand Agrawala,
Ms. Nibedita Pal.
.....For the petitioners
in
W.P. 21642 (w) of 2013
Ms. Nibedita Pal,
Mr. K.K. Naskar.
.....For the petitioners
in
W.P. 27462 (w) of 2013
Ms. Nibedita Pal,
Mr. Ramesh Dhara.
.....For the petitioners
in
W.P. 26230 (w) of 2013
Ms. Nibedita Pal,
Mr. Anando G. Mukheree.
.....For the petitioners
in
W.P. 25180 (w) of 2013
Mr. K.K. Bandopadhyay,
Ms. Nibedita Pal.
.....For the petitioners
in
W.P. 25176 (w) of 2013
Mr. Proshit Deb,
Mr. Pavan Kumar Maheshwari,
Ms. Urmi Roy Choudhury.
.....For the petitioners
in
W.P. 22309 (w) of 2013
Mr. S. Naganand,
Mr. R.N. Majumder,
Mr. Partha Basu,
Mr. Nikhil Kumar Roy.
.....For the respondent nos. 1 &2
in
W.P. 20522 (w) of 2013
W.P. 25180 (w) of 2013
W.P. 25176 (w) of 2013
W.P. 17268 (w) of 2013
W.P. 17255 (w) of 2013
W.P. 12474 (w) of 2013
W.P. 16781 (w) of 2013
W.P. 22309 (w) of 2013
Mr. Partha Basu,
Mr. Nikhil Kumar Roy.
......For the respondent nos. 1 &2
in
W.P. 21000 (w) of 2013
W.P. 21377 (w) of 2013
W.P. 20518 (w) of 2013
W.P. 21642 (w) of 2013
W.P. 27462 (w) of 2013
W.P. 26230 (w) of 2013
Mr. Rajarshi Bharadwaj,
Mr. K. K. Maiti.
......For the Central Excise
Department
Heard On : 01.10.2013
Judgment on : 11.04.2014
HARISH TANDON, J.:
The Council for the respective parties have debated on the issue whether the royalty is a tax or not. Two judgments rendered by the Supreme Court in case of India Cement Ltd. & Ors., -vs- State of Tamil Nadu & Ors., reported in (1990) 1 SCC 12 and State of W.B. - vs- Kesoram Industries Ltd. & Ors., reported in (2004) 10 SCC 201 are relied by both the parties on the aforesaid core issue. The Seven Judge Bench in case of India Cement (supra) while considering the issue as to whether the Cess can be imposed on the royalty held that the royalty is a tax. The Five Judge Bench in case of Kesoram Industries (supra) clarifies the judgment of the India Cement that there is a typographical omission as the Seven Judge Bench intended that the Cess on royalty is a tax and because of the omission of the words "Cess On" before the word "royalty" is a tax. It has been brought to the notice of this Court that subsequently the Supreme Court in case of Mineral Area Development Authority -vs- Steel Authority of India reported in (2011) 4 SCC 450 have referred the matter to Nine Judge Bench because of the aforesaid two conflicting decisions operating in the field.
In addition to the questions being the core issue, in the instant writ petition, the respondent nos. 1 to 5 agitates further points relating to the entertainment of the writ petition under Article 226 of the Constitution of India firstly, the issue involved is contractual in nature and the High Court should seldom interfere secondly, there is an alternative efficacious remedy by way of an arbitration provided under the contract.
Before addressing the aforesaid issues, the salient admitted facts are adumbrated herein below:
The respondent no.1 is a Government of India Undertaken and the respondent nos. 3 & 5 are its subsidiaries producing the coal and selling it through Spot e-Auction Scheme to various traders dealing in coal. To facilitate the sale of the coal on uniform basis, Spot e-Auction Scheme is framed by the respondent no.1 which applies to all its subsidiaries as well. The terms and conditions of the Spot e-Auction Scheme are posted in the web site which contains the various clauses wherein clause 4.4 under the broad head "bidding process" requires the buyer to quote their 'bid price' per tonne in India 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 and any other charges as will be applicable at the time of delivery. It is also specifically mentioned in the said clause that those charges as well as the freight shall be on the Buyers' account. On payment of the price of the coal as well as the other taxes, levies or charges as applicable, a debit advice is issued by the respective coal companies that it is onward transportation between the period from 1st March, 2011 to 28th February, 2013. 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.
It is not in dispute that the Central Excise Duties is applicable on the transaction value as defined under Section 4 (3) (b) of the Central Excise Act, 1944 which was, in fact, charged by the Coal Companies on all component except on royalty and stowing excise duty. The Excise Authorities issued a summon under Section 14 of the Central Excise Act on the director of the respondent no.1 for non-payment of the excise duty on royalty and stowing charges. It was brought to the notice by the Excise Authorities that the excise duties is also payable on the said components and the Coal Companies are liable to pay the same. By a letter dated 5th March, 2013, the respondent no.1 informed all its subsidiaries to discharge the past Central Excise Duty liability for the period between 1st March, 2011 to 28th February, 2013 within 14 March, 2013 and to levy the Central Excise Duty on royalty and stowing excise duty component as well on and from 1st March, 2013. On the basis of the aforesaid instruction, the respondent no.3 issued instruction to its official on 8.03.2013 to take steps to raise supplementary bills on word wise and party wise basis from the period of 01.03.2011 to 28.02.2013 for payment of the excise duty on the royalty and stowing excise duty component. It was further expressed therein that the said amount might be recoverable from the parties after adjusting the quantities in the future sales. The petitioners in the aforesaid writ petitions have assailed the aforesaid memo dated March 5, 2013 and March 8, 2013 on the plea that the said respondent-authorities cannot deduct any amount in respect of the past completed transactions with the future transactions and have further took a plea that the royalty is a tax and, therefore, cannot be included within the definition of a transaction value enshrined under Section 4 (3) (b) of the Central Excise Act.
Mr. Kalyan Kumar Bandopadhyay and Mr. Bikash Ranjan Bhattacharya, the learned Advocates appearing for the writ petitioners in the aforesaid writ petitions submit that the action of the respondent nos.
1 to 5 to relies the excise duty on the royalty and stowing excise duty is contrary to the decision of the Supreme Court rendered in case of India Cement (supra). It is further submitted that the bench of lesser quorum in case of Kesoram Industries (supra) have taken a contrary view to the bench of larger quorum who decided the case of India Cement which was noticed in a subsequent judgment rendered in case of Mineral Area Development Authority -vs- Steel Authority of India reported in (2011) 4 SCC 450 by the Supreme Court referring the matter to a larger bench and, therefore, is not binding precedent. It is audaciously submitted that so long the bench of larger quorum than the quorum who decided India Cement's case took a contrary view. The ratio of the India Cement's Case operates the field and have not lost his binding efficacy.
It is further submitted that each auction on successful exclusion becomes a complete transaction and it is not open to the aforesaid respondents to release the amount from the future contract. By referring the definition of transaction value engrafted under Section 4 (3) (b) of the Central Excise Act excludes the "other taxes" and the royalty being a tax cannot be brought within the said definition. It is strenuously submitted that the said respondents themselves were averred of the aforesaid possession and in fact, have not imposed the excise duty on the component of royalty and the stowing excise duty. It is succinctly argued that the decision of the Excise Authorities to impose excise duty on the royalty and stowing excise duty was passed on concession and, therefore, cannot bind the writ petitioners. To controvert the stand of the aforesaid respondents that the judicial review is not permissible in respect of the contractual matters. It is submitted that the aforesaid respondents being an authority within the meaning of Article 12 of the Constitution of India, all auctions are amenable under the power of judicial review and, therefore, the writ petition is very much maintainable.
Mr. Naganand, the learned Advocate appearing for the respondent nos. 1 to 5 submits that the power under Article 226 of the Constitution of India should not be readily exercised in contractual matters unless the decision of the authority is malafide or intended to favour someone or arbitrary and irrational, smacks unreasonablity, dehors the law and affects the public interest. In support of the aforesaid contention, the reliance is placed upon a judgment of the Supreme Court in case of Michigan Rubber(India) Ltd. -vs- State of Karnataka & Ors. reported in (2012) 8 SCC 216 and Jagdish Mandal -vs- State of Orissa & Ors., reported in (2007) 14 SCC 517 and National Highways Authority of India -vs- Ganga Enterprises & another reported in (2003) 7 SCC 410. It is further submitted that writ jurisdictions should not be allowed to be invoked for resolving the controversy relating to the interpretation of the terms of the contract by placing reliance upon a judgment of the Delhi High Court rendered in case of Innovative B2B Logistics Solutions Ltd
-vs- Union of India & Another (w.p. no. 4814 of 2011 decided on 20.07.2011). Mr. Naganand further submits that the agreement contains an arbitration clause and the present controversy relates to the interpretation of a contract and, therefore, the Court should not exercise a writ jurisdiction because of the availability of the alternative efficacious remedy and placed reliance upon a division bench judgment of the Andhrapradesh High Court in case of NCC-IVRL-SMC -vs- Andhra Pradesh Industrial Infrastructure Corporation Ltd., reported in 2013 (2) Arbitration Law Report 150 (AP) and in case of M/s Indian Oil Corporation -vs- Sh. Baba Lal Ji Filling Station & Another reported in 2012 (1) RCR (Civil) 648. On the point of jurisdiction of the writ court in a matter where alternative efficacious remedies are available, Mr. Naganand has placed reliance upon the following judgments:
1. Har Shankar & Others v. Deputy Excise and Taxation Commissioner & Others reported in (1975) 1 SCC 737
2. M/s Titagarh Paper Mills Ltd. -v- Orissa State Electricity Board & Another reported in (1975) 2 SCC 436
3. Titaghur Paper Mills Co. Ltd. & Another v. State of Orissa & Others reported in (1983) 2 SCC 433
4. Smt. Rukmanibai Gupta -vs- Collector, Jabalpur & Others reported in (1980) 4 SCC 556
5. State of U.P & Others -vs- Bridge & Roof (Co. (india) Ltd.
reported in AIR 1996 SC 3515
6. United Bank of India -vs- Satyawati Tondon & Others reported in (2010) 8 SCC 110
7. Commissioner of Income Tax & Others v. Chhabil Dass Agarwal reported in (2013) 36 Taxmann 36 (SC)
8. CIT, Gujarat -vs- Vijaybhai N. Chandrani, Civil Appeal No. 5888/2013, order dated 18.07.2013 Mr. Naganand relies upon the following unreported judgments of the various High Court where the same notices are challenged in support of his contention that the said demand cannot be said to be an illegal Act:
13. Order dated 21.06.2013 in W.P. (C) No. 3391/2013 before the Gauhati High Court BEHL Coal Fuel Pvt. Ltd. & 6 Others -vs-
North Eastern Coalfields Limited & 3 Others
14. W.P. ( C) No. 3335/2013 before the Gauhati High Court Mahalaxmi Associates Pvt. Ltd. & 12 Others v- North Eastern Coalfields Limited & 3 Others, disposed of on 27.06.2013
15. Order dated 11.09.2013 in WP (T) 65/2015 before the High Court of Chattisgarh: M/s Hind Energy & Coal Beneficiation (India) Ltd. v. South Eastern Coal Fields Ltd.
Mr. Naganand strenuously argues that Section 64A of the Sale of Goods Act provides that the seller may add any imposition by law either on the form of a taxes or the charges or the levies or the increase thereof and placed reliance upon a judgment of the Madras High Court in case of N. Sundareswaran v. M/s. Sri Krishna Refineries reported in AIR 1977 Madras 109, Jardine Henderson Ltd. v. The State Trading Corporation of India Ltd., reported in (1988) 2 CLT 377 (SC) and Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd. reported in (2007) 8 SCC 466.
In reply it is submitted that the Court should not wait for a decision of the larger bench and by keeping the issue in abeyance but should have proceeded to decide the same on the ratio which operates the field and placed reliance upon the judgment of the Supreme Court delivered in case of Harbhajan Singh & another -vs- State of Punjab & another reported in (2009) 13 SCC 608 and Ashok Sadarangani & anr.
-vs- Union of India & ors., reported in AIR 2012 SC 1563. It is submitted that the writ petitions should not be thrown out on account of an arbitration clause and placed reliance upon a judgment of the Supreme Court in case of Union of India & others -vs- Tantia Construction Private Ltd. reported in (2011) 5 SCC 697. Lastly it is submitted that the decision of larger quorum still operates the field and the reference by a larger bench has not been answered as yet.
Having considered the respective submissions as narrated herein above, there is no dispute that the entire price of the coal including all tax components are paid by the writ petitioners during the said relevant period. The aforesaid respondent did not charge the excise duty on the component of royalty and stowing excise duty, as they were uncertain whether imposition of the excise duty can be made thereupon. Although a proceeding was initiated by the excise authorities upon the aforesaid respondents for non-payment of the excise duty on the aforesaid components and the impugned letters/memos would reveal that the said respondents have pre-agreed to pay the excise duty leviable upon the said components. It is not a case of a debtor-waiver of the excise duty on the sale price but it was calculated barring the royalty and the stowing excise duty.
Section 43 (b) of the Central Excise Act, 1944 which defines the transaction value excludes the tax components if the contention of the writ petitioner is accepted that the royalty is a tax, there is no hesitation to hold that levy of excise duty within the definition of a transaction value is impermissible. The 7th Judge Bench of the Supreme Court in India Cement's Case was considering whether Cess on royalty can be termed as taxes while providing the reasons it is held that the royalty is a tax in following words:
"34. In the aforesaid view of the matter, we are of the opinion that royalty is a tax, and as such a cess on royalty being a tax on royalty, is beyond the competence of the State legislature because Section 9 of the Central Act covers the field and the State legislature is denuded of its competence under Entry 23 of List II. In any event, we are of the opinion that cess on royalty cannot be sustained under Entry 49 of List II as being a tax on land. Royalty on mineral rights is not a tax on land but a payment for the user of land."
In a later decision, the Five Judge Bench in deciding the case of Kesoram Industries observed that there has been a typographical omission in the finding arrived by the Seven Judge Bench deciding India Cement's case and clarified with the categorical finding that what was intended that the cess on royalty is a tax in following words:
"56. We would like to avail this opportunity for pointing out an error, attributable either to the stenographer's devil or to sheer inadvertence, having crept into the majority judgment in India Cement Ltd. case. The error is apparent and only needs a careful reading to detect. We feel constrained -- rather duty-bound -- to say so, lest a reading of the judgment containing such an error -- just an error of one word -- should continue to cause the likely embarrassment and have adverse effect on the subsequent judicial pronouncements which would follow India Cement Ltd. case, feeling bound and rightly, by the said judgment having the force of pronouncement by a seven-Judge Bench. Para 34 of the Report reads as under: (SCC p. 30) "34. In the aforesaid view of the matter, we are of the opinion that royalty is a tax, and as such a cess on royalty being a tax on royalty, is beyond the competence of the State Legislature because Section 9 of the Central Act covers the field and the State Legislature is denuded of its competence under Entry 23 of List II. In any event, we are of the opinion that cess on royalty cannot be sustained under Entry 49 of List II as being a tax on land. Royalty on mineral rights is not a tax on land but a payment for the user of land."
57. In the first sentence the word "royalty" occurring in the expression "royalty is a tax", is clearly an error. What the majority wished to say, and has in fact said, is "cess on royalty is a tax". The correct words to be printed in the judgment should have been "cess on royalty" in place of "royalty" only. The words "cess on" appear to have been inadvertently or erroneously omitted while typing the text of the judgment. This is clear from reading the judgment in its entirety. Vide paras 22 and 31, which precede para 34 abovesaid, Their Lordships have held that "royalty" is not a tax. Even the last line of para 34 records "royalty on mineral rights is not a tax on land but a payment for the user of land". The very first sentence of the para records in quick succession "... as such a cess on royalty being a tax on royalty, is beyond the competence of the State Legislature...." What Their Lordships have intended to record is "... that cess on royalty is a tax, and as such a cess on royalty being a tax on royalty, is beyond the competence of the State Legislature ...". That makes correct and sensible reading. A doubtful expression occurring in a judgment, apparently by mistake or inadvertence, ought to be read by assuming that the Court had intended to say only that which is correct according to the settled position of law, and the apparent error should be ignored, far from making any capital out of it, giving way to the correct expression which ought to be implied or necessarily read in the context, also having regard to what has been said a little before and a little after. No learned Judge would consciously author a judgment which is self-inconsistent or incorporates passages repugnant to each other. Vide para 22, Their Lordships have clearly held that there is no entry in List II which enables the State to impose a tax on royalty and, therefore, the State was incompetent to impose such a tax (cess). The cess which has an incidence of an additional charge on royalty and not a tax on land, cannot apparently be justified as falling under Entry 49 in List II.
69. In India Cement (vide para 31, SCC) decisions of four High Courts holding "royalty is not tax" have been noted without any adverse comment. Rather, the view seems to have been noted with tacit approval. Earlier (vide para 21, SCC) the connotative meaning of royalty being "share in the produce of land" has been noted. But for the first sentence (in para 34, SCC) which we find to be an apparent error, nowhere else has the majority judgment held royalty to be a tax.
70. How the above-noted inadvertent error in India Cement has resulted in throwing on the loop line the movement of later case-law on this point may be noticed. In State of M.P. v. Mahalaxmi Fabric Mills Ltd. (decision by a Bench of three learned Judges) and Saurashtra Cement and Chemical Industries Ltd. v. Union of India (decision by a Bench of two learned Judges) para 34 (of SCC) in India Cement has been quoted verbatim and dealt with. In Mahalaxmi Fabric Mills Ltd. case the Court noticed several dictionaries defining royalty and also the decisions of High Courts available and stated that traditionally speaking, royalty is an amount which is paid under contract of lease by the lessee to the lessor, namely, the State Governments concerned and it is commensurate with the quality of minerals extracted. But then (vide para 12), the Court felt bound by the view taken in India Cement reiterated in Orissa Cement to hold that royalty is a tax. The point that there was apparently a "typographical error" in para 34 in India Cement was specifically raised but was rejected. In Saurashtra Cement and Chemical Industries too the Court felt itself bound by the decision in Mahalaxmi Fabric Mills Ltd. backed by India Cement and therefore held royalty to be a tax.
71. We have clearly pointed out the said error, as we are fully convinced in that regard and feel ourselves obliged constitutionally, legally and morally to do so, lest the said error should cause any further harm to the trend of jurisprudential thought centring around the meaning of "royalty". We hold that royalty is not tax. Royalty is paid to the owner of land who may be a private person and may not necessarily be a State. A private person owning the land is entitled to charge royalty but not tax. The lessor receives royalty as his income and for the lessee the royalty paid is an expenditure incurred. Royalty cannot be tax. We declare that even in India Cement it was not the finding of the Court that royalty is a tax. A statement caused by an apparent typographical or inadvertent error in a judgment of the Court should not be misunderstood as declaration of such law by the Court. We also record our express dissent with that part of the judgment in Mahalaxmi Fabric Mills Ltd. which says (vide para 12 of SCC report) that there was no "typographical error" in India Cement and that the said conclusion that royalty is a tax logically flew from the earlier paragraphs of the judgment."
Because of the conflicting decisions, the subsequent bench of the Supreme Court referred the matter to the Hon'ble Chief Justice of India to constitute a larger bench and it is uniformly submitted at the bar that the reference to the larger bench has not been decided as yet.
In case of Harbhanjan Singh (supra), the point evolved was whether the application under Section 319 is maintainable until the cross-examination of the witness is complete. The bench took note of the judgment rendered in case of Md. Shafi -vs- Md. Rafiq & another reported in (2007) 14 SCC 544 deciding the said point and a later decision rendered in case of Hardeep Singh -vs- State of Punjab & ors., reported in (2009) 16 SCC 785 which differs from the decision rendered in Md. Shafi and refers the matter to a larger bench and proceeded to decide the issue pending the decision by a larger bench with these observations:
"15. Even if what is contended by the learned counsel is correct, it is not for us to go into the said question at this stage; herein cross- examination of the witnesses had taken place. The Court had taken into consideration the materials available to it for the purpose of arriving at a satisfaction that a case for exercise of jurisdiction under Section 319 of the Code was made out. Only because the correctness of a portion of the judgment in Mohd. Shafi has been doubted by another Bench, the same would not mean that we should wait for the decision of the larger Bench, particularly when the same instead of assisting the appellants runs counter to their contention."
The same view is reiterated in a later decision rendered in case of Ashok Sadnangani (supra) with following observation:
"19. As was indicated in Harbhajan Singh's case (supra), the pendency of a reference to a larger Bench, does not mean that all other proceedings involving the same issue would remain stayed till a decision was rendered in the reference. The reference made in Gian Singh's case (AIR 2011 SC (Cri) 30: 2011 AIR SCW 305) (supra) need not, therefore, detain us. Till such time as the decisions cited at the Bar are not modified or altered in any way, they continue to hold the field"
The Seven Judge Bench in India Cement was poised with the question whether the levy or cess on royalty is within the competence of the state legislature. The dispute in the said matter arose whether the imposition of cess as royalty under Section 115 of the Madras Panchayats' Act is within the competence of the State on the mining activities can be justified or sustained under Entry 45,49,50 of list II of the 7th Schedule. It was sought to be contended in support of the validity of the legislation that the levy is justifiable under Entry 45 of list II of the 7th Schedule which deals with the land revenue which was turned down that the explanation and the amendment which was brought subsequently marks a distinction between the land revenue and the royalty and, therefore, the royalty cannot be included within the broader meaning of the land revenue by making a following observations:
"It is, therefore, recognised by the very force of that Explanation and the amendment thereto that the expression 'royalty' in Sections 115 and 116 of the Act cannot mean land revenue properly called or conventionally known, which is separate and distinct from royalty."
It was further sought to be argued on behalf of the state- respondents that the imposition of cess can also be justified under Entry 49 of list II of the 7th Schedule as taxes on lands and buildings. The aforesaid contention was turned down with the categorical finding that the royalty which may be indirectly connected with the land but cannot be said to be a tax directly on the land as an unit with the following observations:
"23. In Asstt. Commissioner of Urban Land Tax v. Buckingham & Carnatic Co. Ltd. this Court reiterated the principles laid down in S.C. Nawn case and held that Entry 49 of List II was confined to a tax that was directly on land as a unit. In Second Gift Tax Officer, Mangalore v. D.H. Nazareth it was held that a tax on the gift of land is not a tax imposed directly on land but only on a particular user, namely, the transfer of land by way of gift. In Union of India v. H.S. Dhillon, this Court approved the principle laid down in S.C. Nawn case as well as Nazareth case. In Bhagwan Dass Jain v. Union of India this Court made a distinction between the levy on income from house property which would be an income tax, and the levy on house property itself which would be referable to Entry 49 List II. It is, therefore, not possible to accept Mr. Krishnamurthy Iyer's submission and that a cess on royalty cannot possibly be said to be a tax or an impost on land. Mr. Nariman is right that royalty which is indirectly connected with land, cannot be said to be a tax directly on land as a unit. In this connection, reference may be made to the differentiation made to the different types of taxes for instance, one being professional tax and entertainment tax. In the Western India Theatres Ltd. v. Cantonment Board, Poona Cantonment it was held that an entertainment tax is dependent upon whether there would or would not be a show in a cinema house. If there is no show, there is no tax. It cannot be a tax on profession or calling. Professional tax does not depend on the exercise of one's profession but only concerns itself with the right to practice. It appears that in the instant case also no tax can be levied or is leviable under the impugned Act if no mining activities are carried on. Hence, it is manifest that it is not related to land as a unit which is the only method of valuation of land under Entry 49 of List II, but is relatable to minerals extracted. Royalty is payable on a proportion of the minerals extracted. It may be mentioned that the Act does not use dead rent as a basis on which land is to be valued. Hence, there cannot be any doubt that the impugned legislation in its pith and substance is a tax on royalty and not a tax on land."
The Apex Court held that the royalty is directly relatable to the mineral extracted and would be relatable to Entries 23 and 50 of list II in following observations:
"33. In any event, royalty is directly relatable only to the minerals extracted and on the principle that the general provision is excluded by the special one, royalty would be relatable to Entries 23 and 50 of List II, and not Entry 49 of List II. But as the fee is covered by the central power under Entry 23 or Entry 50 of List II, the impugned legislation cannot be upheld. Our attention was drawn to a judgment of the High Court of Madhya Pradesh in Miscellaneous Petition No. 410 of 1983) Hiralal Rameshwar Prasad v. State of Madhya Pradesh which was delivered on March 28, 1986 by a Division Bench of the High Court. J.S. Verma, Acting Chief Justice, as His Lordship then was, held that development cess by Section 9 of the Madhya Pradesh Karadhan Adhiniyam, 1982 is ultra vires. It is not necessary in the view taken by us, and further in view that the said decision is under appeal in this Court, to examine it in detail.
34. In the aforesaid view of the matter, we are of the opinion that royalty is a tax, and as such a cess on royalty being a tax on royalty, is beyond the competence of the State legislature because Section 9 of the Central Act covers the field and the State legislature is denuded of its competence under Entry 23 of List II. In any event, we are of the opinion that cess on royalty cannot be sustained under Entry 49 of List II as being a tax on land. Royalty on mineral rights is not a tax on land but a payment for the user of land."
While delivering the concurrenting judgment Justice Oza in Paragraph-40 of the said judgment held:
"40. Whether royalty is a tax or not is not very material for the purpose of determination of this question in this case. It is admitted that royalty is charged on the basis of per unit of minerals extracted. It is no doubt true that mineral is extracted from the land and is available, but it could only be extracted if there are three things:
(1) Land from which mineral could be extracted. (2) Capital for providing machinery, instruments and other requirements.
(3) Labour.
It is therefore clear that unit of charge of royalty is not only land but Land + Labour + Capital. It is therefore clear that if royalty is a tax or an imposition or a levy, it is not on land alone but it is a levy or a tax on mineral (land), labour and capital employed in extraction of the mineral. It therefore is clear that royalty if is imposed by the Parliament it could only be a tax not only on land but on these three things stated above."
It admits no quarrel to the proposition of law that in case of conflicting decisions operating in the field, the decision rendered by a larger quorum is binding on the High Court. The ratio laid down in case of Harbhajan Singh & Ashok Sadarangani can be aptly referred to the proposition that mere pendency of an issue before the larger bench does not deter the Court to decide the issue.
The three Judge Bench in case of Mineral Area Development Authority (supra) faced with the similar question noticed the aforesaid two conflicting decisions rendered in case of India Cement Ltd (supra) and Kesoram Industries (supra) and made request to the Hon'ble Chief Justice of India to constitute a Nine Judge Bench to answer the reference, one of the reference referred thereto is whether the royalty is in the nature of a tax. The reference has not been answered as yet by the Nine Judge Bench and the answer whether the royalty is a tax has not been conclusively decided. Although in Hardeep Singh & Md. Shafi (supra), the Apex Court held that the Court should not wait till the reference is answered but such observation came in the context of the factual matrix involved therein.
This Court, therefore, does not feel that when the matter is res integra, any attempt to decide the same would be proper in judicial discipline.
The present case in hand concerns the imposition of excise duty on the royalty and stowing excise duty which the said respondents were uncertain about its applicability. There is no factual disputes involved in the writ petition which requires a scrutiny of the various documents. The action of the respondent to charge the excise duty on the aforesaid components is challenged as according to the writ petitioners, they do not come within the ambit of the definition of transaction value given under Section 4 (3) (b) of the Central Excise Act, 1944. This Court, therefore, does not find that the judgments so relied upon by the aforesaid respondents can have any manner of applicability in the present arena of disputes. The impugned notices itself suggest that the questions whether the excise duty could be levied on the royalty and the stowing excise duty is not crystallized as the matter has been referred to a larger bench to be constituted by the Hon'ble Chief Justice of India. The concession made before the excise authorities to pay the excise duty does not entitle the aforesaid respondents to claim the same from its buyers and it is within the competence of the buyers to challenge the imposition of the excise duty on such components. The concession made in a proceeding does not bind the third party to make him liable to pay such amount. This Court, therefore, finds that the writ petitions can very well be maintained at the instance of the writ petitioners challenging the action of the said respondent authorities to recover an amount on account of excise duty on royalty and stowing excise duty.
The respondent nos. 1 to 5 were very much vocal that the writ petition is not entertainable because of the existence of an alternative efficacious remedy by way of an arbitration. According to the said respondents, Clause 11.12 of the terms and conditions contains an arbitration clause in the event of any dispute arising or in relation to any form to be delved by an arbitrator to be appointed by the Chairman and Managing Director of the Coal India Ltd. The reliance is heavily placed on a division bench judgment of the Andhrapradesh High Court in case of NCC-IVRL-SMC (supra) wherein the division bench refused to entertain the writ petition on the ground of alternative efficacious remedy by way of an arbitration. In the said report, an agreement was entered into between the Andhrapradesh Industrial Infrastructure Corporation Ltd; with the appellant therein for executing the work of Somasila Drinking Water Supply Scheme to be completed within 12 months. According to the appellant therein, the said respondent suspended the work during the month of December, 2009 by that time 34% of the total work was already executed. Out of the several running account bills, two of them were released and, thereafter, the said respondent did not make any payment. A writ petition was filed for direction upon the said respondent i.e. Andhrapradesh Industrial Infrastructure Corporation Ltd; to release the payments of the said R.A. Bills. The writ petition was dismissed by the single bench as Clause 73 thereof provides for an arbitration. It is sought to be argued at the instance of the said respondent that the said contract is in the realm of a private law and is not a statutory contract and, therefore, the remedy of the appointment, if there be any, is to invoke the arbitration clause and not by filing a writ petition. The Division Bench took note of the judgment of the Supreme Court rendered in case of Tantia Construction Pvt. Ltd (supra) and distinguished the same on facts. The Division Bench held that in the case in hand, the dispute relates to stoppage of work by the appointment which is essentially a factual dispute and the writ court should not exercise the power of judicial review to resolve such disputes. The order of the division bench was carried to the Supreme Court and the same was affirmed upon dismissal of the special writ petition. The Division Bench did not unequivocal term laid down the proposition of law that the moment, the agreement contains an arbitration, the writ jurisdiction cannot be invoked; rather it held that if the disputes relates to the violation of contract or an agreement which is in the realm of a private law, the writ court should seldom entertain the petition when it can be effectively and completely resolved by a Court for a chosen by the parties. The Punjab & Haryana High Court in case of Indian Oil Corporation (supra) refused to exercise the extraordinary jurisdiction, such dispute involved therein relating to cancellation of the dealership agreement is essentially a dispute relating to facts and the parties should have approached the arbitrator in terms of an arbitration clause in these words:
"10. Mr. Amar Vivek, Learned Counsel for respondent No.1/petitioner has placed firm reliance on a judgment rendered by Hon'ble the Supreme Court in the case of Tantia Construction Pvt. Ltd. (supra) and argued that arbitration clause may not always be a barrier to the existence of equitable jurisdiction. There cannot be any quarrel with the aforesaid proposition. In fact Hon'ble the Supreme Court in para 27 has virtually reiterated the view taken in the earlier judgments. It would be profitable to read para 27 which is as under:-
27. Apart from the above, even on the question of maintainability of the writ petition on account of the Arbitration Clause included in the agreement between the parties, it is now well-established that an alternative remedy is not an absolute bar to the invocation of the writ jurisdiction of the High Court or the Supreme Court and that without exhausting such alternative remedy, a writ petition would not be maintainable. The various decisions cited by Mr. Chakraborty would clearly indicate that the constitutional powers vested in the High Court or the Supreme Court cannot be fettered by any alternative remedy available to the authorities. Injustice, whenever and wherever it takes place, has to be struck down as an anathema to the rule of law and the provisions of the Constitution.
We endorse the view of the High Court that notwithstanding the provisions relating to the Arbitration Clause contained in the agreement, the High Court was fully within its competence to entertain and dispose of the writ petition filed on behalf of the Respondent Company.
11. A perusal of the aforesaid para would show that a writ Court could reach the injustice where it lies unfairness, unreasonable, injustice and patent illegality (s) are various facets. There is no difficulty to exercise jurisdiction if principles of natural justice have not been followed or the conscious of the Court suffers a shock. In this case transaction is commercial in nature and there are allegations/counter allegations concerning breach of contract. In such cases functions of an arbitration clause is more pronounced and significant. It is not possible for the Court to fathom the injustice because neither there is any patent illegality nor there is any violation of fundamental rights. Therefore, we have no hesitation in rejecting the aforesaid submission of the learned counsel."
In case of Innovative B2B Logistics Solution Private Ltd.(supra), the Delhi High Court was also considering a matter relating to the termination of an agreement on account of breach committed by the erring party and refused to entertain the writ petition as the case involves the adjudication of a serious disputed question of facts in following words:
" 11. Applying the aforesaid principles to the facts of the present case, it would be quite evident that the present case also involves interpretation of the terms of the contract cannot be agitated by invoking the writ jurisdiction of this Court under Article 226 of the Constitution of India. It is also evident that the dispute does not merely involve the interpretation of the terms of the contract, but there are other serious disputed questions of facts which too cannot be adjudicated upon by the writ Court. So far the contention raised by counsel for the petitioner that the existence of an alternative remedy provided in the Concession agreement through the forum of arbitrator will not debar the remedy of the Petitioner to invoke the writ jurisdiction is concerned, this Court does not dispute this legal position as it is well established that when the State or instrumentality of the State acts contrary to the public good and public interest unfairly, unjustly and unreasonably in its discharge of constitutional or statutory obligations then in the given facts of the case the existence of an alternative remedy will not be an absolute bar tot he invocation of the writ jurisdiction of the Court, but the controversy before this Court relates to the interpretation of the terms of the contract for which the public law remedy of the writ Court cannot be invoked."
Other judgments relied upon by the respondents are more or less on similar and identical facts where either the termination of the agreement on the breach of the terms and conditions or enforcement of an obligation under the said agreement were sought to be challenged under the writ jurisdiction when the agreement contains an arbitration clause. The Court refused to entertain the writ petition on the ground of existence of an alternative efficacious remedy.
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 in these words:
"33. Apart from the above, even on the question of maintainability of the writ petition on account of the arbitration clause included in the agreement between the parties, it is now well established that an alternative remedy is not an absolute bar to the invocation of the writ jurisdiction of the High Court or the Supreme Court and that without exhausting such alternative remedy, a writ petition would not be maintainable. The various decisions cited by Mr Chakraborty would clearly indicate that the constitutional powers vested in the High Court or the Supreme Court cannot be fettered by any alternative remedy available to the authorities. Injustice, whenever and wherever it takes place, has to be struck down as an anathema to the rule of law and the provisions of the Constitution.
34. We endorse the view of the High Court that notwithstanding the provisions relating to the arbitration clause contained in the agreement, the High Court was fully within its competence to entertain and dispose of the writ petition filed on behalf of the respondent Company. We, therefore, see no reason to interfere with the views expressed by the High Court on the maintainability of the writ petition and also on its merits."
As indicated above, 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.
With these observations, all these writ petitions are disposed of. However, there shall be no order as to costs.
Urgent photostat certified copy of the judgment, if applied for, be given to the parties on priority basis.
(Harish Tandon, J.) Later After delivery of the judgment today in Court, the learned Advocate appearing on behalf of the Coal India Limited, prays for stay of the operation of the order.
Upon considering the above submission, this Court does not find that the prayer made above can be allowed.
The prayer is thus refused.
(Harish Tandon, J.)