2014 (5) TMI 899 - HC - Indian Laws

Court clarifies royalty not a tax, maintains writ despite arbitration, suspends excise duty pending larger bench decision.

Arpa Fuel Private Limited & Others Versus Coal India Limited & Others

Arpa Fuel Private Limited & Others Versus Coal India Limited & Others - TMI 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.