The Gauhati High Court has held that purchasers of coal cannot be made liable to pay Clean Energy Cess or be penalized for confiscated coal unless the authorities establish that they knew, or had reason to believe, that the coal was liable to confiscation.
The Bench of Justice Michael Zothankhuma and Justice Shamima Jahan has observed that the tea companies merely purchased coal from sellers and did not produce the coal themselves. Consequently, they could not legally be saddled with liability for payment of the Clean Energy Cess.
The appellants/assessee, all tea-producing companies operating in Assam, had purchased coal from suppliers for use in their manufacturing activities. The excise authorities sought to recover liabilities from the purchasers after issues arose regarding payment of cess on the coal and also imposed penalties for release of confiscated coal.
Buy Now: 70+ Judgements Indirect Tax – July 2026 | E-Magazine
The dispute eventually reached the High Court under Section 35G of the Central Excise Act, 1944, raising two substantial legal questions: whether liability for payment of Central Excise duty or cess on coal could be transferred to the purchaser, and whether purchasers could be penalized in relation to confiscated coal.
The High Court carefully analysed the provisions of the Clean Energy Cess Rules, 2010, particularly the definitions of “producer” and “specified goods” as well as the rules governing registration and payment of cess.
The Court noted that the statutory framework explicitly requires only the producer of raw coal, raw lignite or raw peat to register and pay the cess at the time of removal of such goods from the mine. The liability is cast exclusively upon the producer and not on downstream purchasers or consumers of coal.
The Court also observed that this position had already been recognized in the CESTAT’s decision, leaving only the question of penalty for determination.
The High Court then turned to the question of penalties imposed upon the purchasers after confiscation of coal.
It first considered Rule 25 of the Central Excise Rules, 2002, which authorises confiscation and penalty against producers, manufacturers, warehouse operators or registered dealers who violate excise provisions.
The Bench found that none of these statutory categories applied to the appellant tea companies. They were neither producers nor manufacturers of coal, nor registered dealers or warehouse operators in relation to the coal purchased by them. Therefore, Rule 25 had no application to their case.
The Court further examined Rule 26 of the Central Excise Rules, 2002, which allows imposition of penalty on any person dealing with excisable goods if that person knows or has reason to believe that the goods are liable to confiscation.
The Bench emphasised that this statutory requirement is not a mere formality but an essential condition for imposing penalties on persons other than producers or manufacturers.
Upon examining the record, the Court found that the authorities had not recorded any finding whatsoever that the purchasers possessed knowledge, or had reason to believe, that the coal they had purchased was liable to confiscation under the Central Excise Act or the Rules.
In the absence of such findings, the Court held that the penalties imposed upon the tea companies could not be sustained in law.
The Court noted that the confiscated coal had already been released to the purchasers after payment of penalties and that the amounts collected continued to remain with the authorities.
Since the legal requirements for imposing penalties under Rule 26 had not been satisfied, the Bench directed that the penalties collected from the appellants be refunded.
The Gauhati High Court set aside the CESTAT’s final orders and the Assistant Commissioner’s consequential orders to the extent they made the appellants liable to pay penalties for obtaining release of confiscated raw coal.
The Court directed that the penalties already paid be returned to the appellants and allowed the appeals in full.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
