CESTAT Kolkata Clarifies Excise Duty Treatment of Royalty and Stowing Excise Duty for Coal Producers

Background and Case Framework

Mahanadi Coalfields Limited and its distinct registered Areas/Units, all engaged in manufacturing and clearing coal, were subjected to Central Excise proceedings concerning the valuation of coal cleared between March 2011 and February 2013. The central dispute was whether amounts realized from buyers towards “Royalty” and “Stowing Excise Duty (SED)” should form part of the Section 4 transaction value for levy of Central Excise duty.

For this common period, nine Show Cause Notices were issued covering eleven separately registered Areas/Units of Mahanadi Coalfields Limited. The notices:

• Alleged contravention of Section 4 of the Central Excise Act, 1944 by undervaluation.
• Contended that the assessee had not included “Royalty” and “SED” collected from customers in the assessable value.
• Invoked the extended period of limitation under the proviso to Section 11A(1)/Section 11A(4) on the basis of alleged wilful suppression with intent to evade duty.
• Proposed recovery of Central Excise duty on Royalty and SED, along with interest and penalty under Section 11AC.

The Principal Commissioner, CGST & Central Excise, Ranchi, clubbed these nine notices with seven similar notices issued to sister concerns M/s Bharat Coking Coal Limited and M/s Eastern Coalfields Limited. By a common Order-in-Original dated 18.08.2020, he:

• Confirmed the duty demands, including amounts attributable to Royalty and SED;
• Levied interest; and
• Imposed equivalent penalties under Section 11AC.

The Commissioner took the view that Royalty and SED did not qualify as “taxes” and were therefore liable to be included in the transaction value.

Aggrieved, Mahanadi Coalfields Limited and its Units approached the CESTAT Kolkata, challenging both the valuation on merits and the invocation of extended limitation, interest and penalty.

Arguments before the Tribunal

Submissions on behalf of Mahanadi Coalfields Limited

The assessee’s counsel highlighted that the matter was not res integra and relied heavily on previous CESTAT decisions on the same issue and same industry. Core submissions included:

• In Bharat Coking Coal Limited v Commissioner of CGST & Central Excise, Final Order No. 77849-77854/2025 dated 25.11.2025, the Tribunal had, in almost identical circumstances, set aside:

  • Demands relatable to the extended period; and
  • Penalties imposed under Section 11AC.

• The present Show Cause Notices were similarly based on interpretation of law rather than any concrete instance of suppression or misdeclaration.

• The assessee had already discharged Central Excise duty on Royalty and SED prior to issuance of all the Show Cause Notices; this fact was duly acknowledged in the Order‑in‑Original.

Accordingly, it was urged that, consistent with the previous orders of the Tribunal, the extended period and penalties should be quashed, and interest demands be re‑examined.

Stand of the Revenue

The Departmental Representative supported the Order‑in‑Original and argued that:

• The Commissioner had correctly held that Royalty and SED did not constitute “taxes” and were thus liable to be included in the transaction value.
• The extended period was rightly invoked on the ground of alleged undervaluation and non-disclosure of full transaction value.

Issues for Determination

The Tribunal structured the controversy into two broad dimensions:

1. Valuation / Merits

   • Whether Royalty collected from customers through sale-cum-excise invoices is deductible from the transaction value under Section 4(3)(d) as “other taxes”.
   • Whether SED qualifies for similar deduction as “other taxes”, and if excise duty is at all payable on SED.

2. Limitation, Interest and Penalty

   • Whether the extended period of limitation under the proviso to Section 11A(1)/Section 11A(4) had been correctly invoked.
   • Whether interest on duty demands, including those on Royalty, was sustainable.
   • Whether penalties under Section 11AC could be justified in light of the nature of the dispute and judicial precedents.