2026 (2) TMI 430 - AT - Central Excise

Transaction value inclusion of taxes and royalty in central excise: royalty includible for normal period, other levies excluded.

Transaction value disputes concern whether specified levies form part of 'other taxes' for assessable value. The Tribunal held royalty is includible in ... Transaction value - exclusion of other taxes from transaction value - royalty not a tax - stowing excise duty as duty of excise - forest transit fee as tax - rural infrastructure and road tax as tax - entry tax - terminal tax - development and environment cess as tax - excise duty on captive consumption - extended period of limitation u/s 11A - penalty u/s 11AC - waiver of interest in light of Mineral Area Development Authority - Whether the amount received by the appellant under ‘b’ to ‘g’ of the chart is also includible in the definition of ‘other taxes’ under section 4(3)(d) of the Central Excise Act. - Stowing Excise Duty - HELD THAT:- Section 8 of the Act provides that the duty of excise levied under section 6 shall be collected by such agencies and in such manner as may be prescribed. Section 9 of the Act deals with utilization of proceeds of duties levied and collected under section 6 and section 7 of the Act. Chapter III of the Coal Mines (Conservation and Development) Amendment Rules 2011 deals with collection of excise duty. Rule 8 provides for collection and assessment of excise duty while rule 9 provides for the review of assessment of excise duty. It has, therefore, to be held, that the amount received by the appellant towards the stowing excise duty has to be excluded from the transaction value. The Commissioner, therefore, committed an error in holding that it would be includible in the transaction value. Forest Transit Fees - HELD THAT:- In the present case, the burden of the regulatory forest transit fee is passed on to the buyers on actual basis. Such regulatory fee charged under the provisions of the Rules and Indian Forest Act, 1927 would, therefore, be in nature of a ‘tax’ and so cannot be included in the assessable value in terms of section 4(3)(1) of the Central Excise Act. Madhya Pradesh Rural Infrastructure and Road Tax - HELD THAT:- The Madhya Pradesh High Court in Neogy & Sons vs. The State of M.P. and Another., examined the constitutional validity of the Madhya Pradesh Rural Infrastructure and Road Development Act, 2005. The petitioners had challenged the constitutional validity of the Act conferring power on the State Government to levy Rural Infrastructure and Road Development tax upto 20% of the annual value of the annual value of mineral bearing land leased for carrying out mining operation. It is seen that the High Court has held that the levy imposed under the said act is a tax on land bearing mineral. Thus, the amount collected under this head would not be included in the transaction value in terms of section 4(3)(d) of the Central Excise Act. Entry Tax - HELD THAT:- As the demand of excise duty on entry tax has been dropped for the subsequent period by order dated 24.05.2016 and this order has attained finality as the order dated 24.05.2016 has not been challenged by the department, the demand of excise duty confirmed in the impugned order is liable to be set aside. Terminal Tax - HELD THAT:- Terminal Tax is a tax imposed by the Municipality/Municipal Corporation under the Statute on goods or animal exported from the limits of the Corporation/Municipal Council. Thus, the levy of ‘terminal tax’ is a compulsory levy in the nature of ‘tax’ and, therefore, cannot be included in the assessable value in terms of section 4(3)(d) of the Central Excise Act. CG Development and Environment Cess - HELD THAT:- It is, evident that the Cess levied is in the nature of compulsory extraction of money by public authority for public purposes enforceable by law. Further, the Rules provide for a complete machinery for collection, assessment and recovery of tax. The infrastructure development Cess and environment Cess are, therefore, in nature of tax and, therefore, not liable to be included in the assessable value in terms of section 4(3)(d) of the Central Excise Act. Duty demand on captive consumption - HELD THAT:- This issue has been decided by the Tribunal in favour of the appellant in South Eastern Coalfields Ltd. vs. CCE, [2018 (1) TMI 1579 - CESTAT NEW DELHI]. The entitlement of exemption under the Notification has been held to be justified in respect of coal captively consumed within the mines for use in further production of coal. The said decision has also been followed by the Commissioner (Appeals), Ranchi in Order-in-Appeal No. 286/RAN/2018 dated 03.07.2018 in the appeal filed by the sister company M/s. Bharat Coking Coal Ltd. Thus, the demand of duty of coal captively consumed in the aforesaid three Excise Appeals cannot be sustained. Extended Period of Limited - HELD THAT:- It would be seen from a perusal of sub-section (4) of section 11A of the Central Excise Act that where any excise duty has not been levied or paid, the Central Excise Officer may, within one year from the relevant date, serve a notice to the person chargeable with the duty requiring him to show cause why he should not pay the amount specify in the notice. Sub-section (4) of section 11A, however, provides that where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, by reason for fraud; or collusion; or any wilful mis-statement; or suppression facts; or contravention of any of the provisions of the Act or Rules made thereunder with intent to evade payment of duty, the Central Excise Officer shall, within five years from the relevant date service notice on such person requiring into show cause why he should not pay the amount specified in notice with interest and penalty. The contention of the appellant that it bonafide believed that it was not liable to pay excise duty on the amount of royalty and also on the other amount mentioned from ‘b’ to ‘g’ of the chart deserves to be accepted. At the relevant time the judgment of the Supreme Court in India Cement did hold that royalty was in the nature of tax and, therefore, in terms of section 4(3)(d) of the Central Excise Act, the amount of royalty was not required to be included in the transaction value. It is subsequently that the judgment of the Supreme Court in India Cement [1989 (10) TMI 53 - SUPREME COURT] was reversed by the Supreme Court in Mineral Area Development Authority [2024 (8) TMI 956 - SUPREME COURT (LB)] and it was held that royalty is not in the nature of a tax. In respect of the amount collected from Serial No. ‘b’ to ‘g’ of the chart, it has been found that they are in the nature of ‘other taxes’ contemplated under section 4(3)(d) of the Central Excise Act. It can, therefore, safely be said that the appellant, a Government of India undertaking, could have bonafide believed that it was not liable to pay central excise duty and, therefore, there cannot be any intent to evade payment of duty. The extended period of limitation, therefore, could not have been invoked in the facts and circumstances of the case. Penalty under section 11AC is imposed for short payment of duties by reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act or the Rules made there under with an intent to evade payment of duty. This penalty is equal to the duty determined. Conclusion - 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; and 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 CG Development and Environment Cess and captive consumption is set aside. Accordingly, the imposition of penalty and interest are also set aside. The matter is, therefore, remitted to the Adjudicating Authority only to determine the duty to be paid by the appellant in terms of this decision. Issues: (i) Whether amounts received by the assessee towards royalty, stowing excise duty, forest transit fees, Madhya Pradesh rural infrastructure and road tax, entry tax, terminal tax and Chhattisgarh development and environment cess qualify as 'other taxes' excluded from transaction value under section 4(3)(d) of the Central Excise Act, 1944; (ii) Whether excise duty is leviable on captive consumption of coal within mining premises; (iii) Whether the extended period of limitation (section 11A) and penalty under section 11AC and interest could be invoked/confirmed.Issue (i): Whether the listed levies/charges are excluded from transaction value as 'other taxes' under section 4(3)(d) of the Central Excise Act, 1944.Analysis: The Court construed section 4(3)(d)'s exclusion of duty of excise, sales tax and other taxes narrowly with reference to the statutory source and nature of each impost. It reviewed statutory schemes and precedents: the Supreme Court's Constitution Bench in Mineral Area Development Authority (royalty characterized as contractual consideration, not a tax) and tribunal/high-court decisions on stowing excise duty, forest transit fees, Madhya Pradesh rural infrastructure and road tax, entry tax, terminal tax and Chhattisgarh cess. The Tribunal held stowing excise duty to be a duty of excise and therefore excluded from transaction value; regulatory forest transit fee was held to be a tax because its burden was passed to buyers; the Madhya Pradesh rural infrastructure and road tax and terminal tax were held to be taxes by reference to statutory scheme and judicial decisions; entry tax and Chhattisgarh cesses were held to be statutory taxes/cesses and not includible in assessable value.Conclusion: Royalty is not a tax and is includible in transaction value; stowing excise duty, forest transit fees, Madhya Pradesh rural infrastructure and road tax, entry tax, terminal tax and Chhattisgarh development and environment cess are not includible in the assessable value (they qualify as taxes/cesses or duties excluded from transaction value) and the confirmed excise demands in respect of these amounts are set aside.Issue (ii): Whether excise duty can be levied on coal captively consumed within the mines.Analysis: The Tribunal applied its earlier decision (and subsequent appellate precedent) holding that exemption under Notification No. 67/95-C.E. covers coal captively consumed within mines for use in further production of coal. The Commissioner's disallowance of that exemption was examined against the Tribunal's precedent and related appellate orders.Conclusion: Excise duty on captive consumption of coal within the mines is not sustainable and such demands are set aside.Issue (iii): Whether the extended period of limitation under section 11A, penalty under section 11AC and interest could be invoked/confirmed.Analysis: The Tribunal analysed the ingredients required for invoking the extended period - wilful suppression of facts with intent to evade duty - and surveyed Supreme Court and High Court authorities establishing that mere omission or an honestly held but erroneous legal view does not constitute wilful suppression. The assessee (a PSU) had a bona fide belief based on earlier Supreme Court authority (India Cement) and related positions; subsequently the law changed by the larger Constitution Bench (MADA). The Tribunal found no evidence of deliberate suppression or intent to evade and noted precedents disfavoring invocation of extended limitation and penalties where bona fide beliefs or disputed legal interpretations exist. It also applied the Supreme Court's balancing direction in MADA regarding waiver of outstanding interest.Conclusion: The extended period of limitation could not be invoked; penalty under section 11AC and interest on the amounts set aside could not be imposed and are set aside. Penalty and interest confirmed only to the extent of duty validly sustained for the normal limitation period have been set aside as well.Final Conclusion: The impugned adjudication is partly set aside: excise liability on royalty is confirmed only for the normal period of limitation but penalty and interest in respect thereof are set aside; all other demands (stowing excise duty, forest transit fees, Madhya Pradesh rural infrastructure and road tax, entry tax, terminal tax, Chhattisgarh development and environment cess and captive consumption) are set aside. The matter is remitted to the Adjudicating Authority to determine duty payable in accordance with this decision within four months.Ratio Decidendi: Amounts that are statutory taxes, cesses or duties levied by legal authority and whose burden is borne by buyers fall within the exclusion 'other taxes' under section 4(3)(d) and are excluded from transaction value; royalty as contractual consideration (per the Constitution Bench in MADA) is not a tax and is includible in transaction value, and invocation of extended limitation and penalties requires proof of wilful suppression with intent to evade which is absent where a bona fide legal belief existed.