Mahanadi Coalfields Ltd. Vs Commissioner of CGST & Central Excise (CESTAT Kolkata)
The appellants, Mahanadi Coalfields Limited and its separately registered Area/Units, were engaged in production of coal. The proceedings concerned the assessable value of coal cleared during the period from March 2011 to February 2013 and, specifically, whether amounts collected towards “Royalty” and “Stowing Excise Duty” (SED) were required to be included in the transaction value for levy of Central Excise duty.
Nine Show Cause Notices were issued to eleven separately registered Area/Units of the appellant company for the common period from March 2011 to February 2013. The notices invoked the extended period of limitation and proposed recovery of Central Excise duty on Royalty and SED under the proviso to Section 11A(1)/Section 11A(4), together with applicable interest and equivalent penalty under Section 11AC of the Central Excise Act, 1944.
The learned Principal Commissioner, CGST & Central Excise, Ranchi, adjudicated the nine notices along with seven other identical notices issued to the appellant’s sister concerns, M/s Bharat Coking Coal Limited and M/s Eastern Coalfields Limited. By common Order-in-Original dated 18.08.2020, the demand, interest and equivalent penalty were confirmed. The Commissioner observed that Royalty and SED were not “taxes” and were therefore includible in the transaction value.
Before the Tribunal, the appellants relied upon the Tribunal’s decision in Bharat Coking Coal Limited v Commissioner of CGST & Central Excise, Final Order No. 77849-77854/2025 dated 25.11.2025, submitting that, on identical facts involving invocation of the extended period, the demand falling outside the normal limitation period and the penalty had been set aside. The Revenue supported the impugned order.
On merits, the Tribunal identified the principal issue as whether Royalty and SED recovered through the sale-cum-excise invoices were deductible from the “transaction value” under Section 4(3)(d) of the Central Excise Act, 1944, as “other taxes”. The Tribunal recorded that the appellant had paid excise duty on Royalty and SED before issuance of all the Show Cause Notices.
The Tribunal noted that the two substantive issues had already been decided in M/s Mahanadi Coalfields Limited v Commr. of Central Excise, Customs & Service Tax, Rourkela, Excise Appeal No. 75808 of 2016, Final Order No. 75699/2025 dated 11.03.2025, and M/s Eastern Coalfields Limited v Commr. of Central Excise, Bolpur, Excise Appeal No. 75694 of 2015, Final Order No. 75656-75666/2025, both dated 11.03.2025.
In relation to Royalty, the Tribunal referred to the nine-Judge Constitution Bench decision in Mineral Area Development Authority vs. Steel Authority of India. On the basis of that decision, the Tribunal held that Royalty was not in the nature of a tax. Consequently, Royalty was not deductible while computing the transaction value under the exclusion for “other taxes” in Section 4(3)(d) of the Central Excise Act, 1944, and was exigible to excise duty.
In relation to SED, however, the Tribunal held that SED was a duty of excise and was deductible under the exclusion of “other taxes”. Accordingly, no excise duty was payable on the amount of SED.
The Tribunal separately considered limitation. It found that in almost all the cases the Show Cause Notices had been issued after one year from the relevant period, whereas the normal limitation period at the relevant time was one year. Since the issue had been litigated up to the Supreme Court, the Tribunal treated it as a matter of interpretation and found that the Revenue had not established suppression of facts on the part of the appellants. It therefore set aside the confirmed demand pertaining to the extended period of limitation. The demand, if any, falling within the normal period was held sustainable.
The Tribunal also set aside the penalties, considering the factual circumstances and the interpretational nature of the dispute. It further referred to the decision of the Principal Bench in South Eastern Coalfields Ltd. Vs. Commr. CCE & ST, Raipur, Final Order No. 50227-50256/2026 dated 06.02.2026, which had considered the issue of extended limitation and penalty under Section 11AC on identical facts.
On interest, the Tribunal relied upon the decision in South Eastern Coalfields Ltd., which had taken note of the Supreme Court’s decision in Mineral Area Development Authority vs. Steel Authority of India and held that the demand of interest deserved to be set aside. Following that reasoning, the Tribunal held that no interest was payable by the appellants.
The Tribunal accordingly directed that duty on Royalty was payable only within the normal period of limitation and that the demand relating to the extended period was to be set aside. No interest was payable. It further held that SED, being a duty, had been rightly deducted from the assessable value and no duty was payable on the SED amount. No penalties were imposed.
The appeals were consequently disposed of in these terms. ([TaxGuru][1])
Cases Discussed
- South Eastern Coalfields Limited Vs Commissioner of Central Excise and Service Tax — considered on invocation of the extended period of limitation, penalty under Section 11AC and the question of interest in the context of the Supreme Court’s ruling on Royalty.
- Mineral Area Development Authority & Anr. Vs Steel Authority of India & Anr Etc. — considered on the nature of Royalty and the Supreme Court’s holding that Royalty is not in the nature of a tax.
- M/s Mahanadi Coalfields Limited v Commr. of Central Excise, Customs & Service Tax, Rourkela, Excise Appeal No. 75808 of 2016, Final Order No. 75699/2025 dated 11.03.2025 — followed on the merits of the treatment of Royalty and Stowing Excise Duty.
- M/s Eastern Coalfields Limited v Commr. of Central Excise, Bolpur, Excise Appeal No. 75694 of 2015, Final Order No. 75656-75666/2025 dated 11.03.2025 — followed on the treatment of Royalty and Stowing Excise Duty.
- Bharat Coking Coal Limited v Commissioner of CGST & Central Excise, Final Order No. 77849-77854/2025 dated 25.11.2025 — relied upon by the appellants in relation to the extended period of limitation and penalty.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The appellants are in appeals against the impugned orders wherein the demand of duty has been confirmed along with interest and an equivalent amount of penalty has also been imposed on the appellants.
2. The facts of the case in brief are that the appellants are engaged in the production of excisable goods, namely, coal. It was alleged that they have contravened the provisions of Section 4 of the Central Excise Act, 1944 as they have short paid Central Excise duty under “duty amount” by way of undervaluation of their finished goods and by suppressing the actual transaction value and also by not including the element of “Royalty” and “Stowing Excise Duty” charges collected from their customers into the assessable value of coal cleared during the period March, 2011 to February, 2013 and thus, the appellants did not pay the proper Central Excise duty on the correct assessable value as well as on the element of “Royalty” and “Stowing Excise Duty” charges collected from their customers during clearance by reasons of willful suppression of facts with intent to evade payment of central excise duty, which is recoverable from them. 2.1 Nine Show Cause Notices were issued to eleven separately registered Area/Units of the appellant company for the common period, March 2011 to February 2013, by invoking the extended period of limitation and proposing the demand of excise duty on royalty and SED under proviso to Section 11A(1)/11A(4) along with applicable interest and equivalent penalty under Section 11AC of the Act. 2.2 The Ld. Principal Commissioner, CGST & Central Excise, Ranchi, adjudicated all the nine SCN‟s along with seven other identical SCN‟s issued to two sister concerns, namely, M/s Bharat Coking Coal Limited (Five SCN‟s) and M/s Eastern Coalfields Limited (Two SCN‟s), by a common order impugned herein dated 18.08.2020 wherein he has confirmed the demand, interest and equivalent penalty on the appellant. The Ld. Commissioner in his adjudication order observed that Royalty and SED are not „taxes‟ and therefore. includible in the transaction value. Against the said order, the appellants are before us.
3. The ld.Counsel appearing on behalf of the appellants, submits that on identical facts of the case, where the SCN‟s were issued by invoking the extended period of limitation, this Tribunal in the case of Bharat Coking Coal Limited v Commissioner of CGST & Central Excise, Final Order No.77849- 77854/2025 dated 25th November 2025 has set aside demand confirmed falling outside the normal period of limitation along with penalty.
4. The ld.A.R. for the Revenue has justified the impugned order.
5. Heard both the parties and considered the submissions.
6. On merit, we find that the issue involved in the appeals, is principally with respect of the deduction or otherwise, from the “transaction value” defined under Section 4(3)(d) of the Central Excise Act, 1944, under the exclusion of “other taxes”, on the following amounts recovered by the appellant in its sale cum excise invoice: a. Royalty b. Stowing Excise Duty (SED) The appellant had paid the excise duty on Royalty and SED, before issuance of all the show-cause notices, and this fact has been noted and acknowledged in the impugned Order-in-Original. 6.1 That the two issues, involved in these present appeals, on merit, have been decided by this Tribunal in the case of M/s Mahanadi Coalfields Limited v Commr. Of Central Excise, Customs & Service Tax, Rourkela, Excise Appeal No.75808 of 2016, Final Order No.75699/2025 dated 11.03.2025 and in the case of M/s Eastern Coalfields Limited v Commr. Of Central Excise, Bolpur, Excise Appeal No 75694 of 2015, Final Order No.75656-75666/2025, both dated 11.03.2025.
6.2 On merit of the case with respect to “Royalty”, this Tribunal, on the issue of whether payment of royalty is in the nature of a “tax” or not has, after taking note of the judgment of the Constitutional Nine Judges Bench of the Hon‟ble Supreme Court in Mineral Area Development Authority vs. Steel Authority of India (2024) 21 Centax 378 (SC), pronounced on 25.07.2024, held that Royalty is not in the nature of tax and therefore is not deductible in computing the transaction value under the exclusion of “other taxes” under Section 4(3)(d) of the Act and consequently exigible to excise duty. 6.3 On merits of the case with respect to SED, the Tribunal has held that SED is a duty of excise and deductible under the exclusion of “other taxes” and no excise duty is payable on SED. 6.4 From the above Table, we find that in almost all these cases, the Show Cause Notices were issued after one year from the relevant period. The normal period to issue SCN during that point of time was one year. Since the matter was being litigated upto Supreme Court, it is a case of interpretation. Hence, we do not find that the Revenue has made out any case of suppression on the part of the appellant. Accordingly, we set aside the confirmed demand for the extended period in respect of all the impugned orders and allow the appeals to this extent. The demand for the normal period, if any, would sustain for which the interest at the applicable rate will be payable. However, considering the factual details and the issue of interpretation, the penalties imposed are set aside. This Principal Bench of this Tribunal, New Delhi in the case of South Eastern Coalfields Ltd Vs. Commr CCE & ST, RaipurS (Final Order No.50227-50256/2026 dated 06.02.2026) on identical facts, examined the issue of invocation of extended period of limitation and penalty under Section 11AC and held that extended period of limitation could not have been invoked and penalty under Section 11AC could not have been imposed. Therefore, we hold that except for Appeal No E/75650/2020, where the demand falls outside the normal period of limitation be set aside with consequential relief of interest and penalty to the appellant-assessee. 6.5 In this connection, we relies on the judgment in the case of South Eastern Coalfields Ltd supra, wherein this Tribunal has taken note of the observations made by the Hon‟ble Supreme Court in the case of Mineral Area Development Authority vs. Steel Authority of India (2024) 21 Centax 313 (SC), pronounced on 14.08.2024, and held that demand of interest deserves to be set aside. In this view of this judgment of the Supreme Court in Mineral Area Development Authority,, the demand of interest is set aside.
7. We find that as it has been held that the appellants are liable to pay service tax on “Royalty”, but demand pertaining to the extended period of limitation is not sustainable and no interest is payable by the appellants.
8. We further hold that no excise duty is payable on the amount of SED as held by this Tribunal
9. In view of this, the following orders are passed:
(a) Demand of duty on “Royalty” is payable by the appellants within a period of limitation and no interest is payable;
(b) Demand of duty pertaining to the extended period of limitation towards demand of “Royalty”, is set aside;
(c) As SED is a part of the duty, therefore, the same has been rightly deducted from the assessable value and hence, no duty is payable by the appellants on the amount of SED;
(d) In the facts and circumstances of the case, no penalties are imposed on the appellants.
10. In these terms, the appeals are disposed off.
(Operative part of the order was pronounced in the open Court)
