Tariff Classification Must Follow Transaction, Not Reputation: Orissa High Court Slams Railways’ ₹58 Lakh DBC Levy on KIOCL’s Domestic Ore Movement

“The end-use of the consignment is not a mere ancillary fact but a constitutive element of tariff classification” —  In a latest ruling Orissa High Court, Cuttack, upheld the Railway Claims Tribunal’s judgment directing Indian Railways to refund ₹58,01,110.80 to KIOCL Limited, holding that the levy of Distance Based Charges (DBC) on a domestic iron ore consignment was not only contrary to the applicable tariff but legally unsustainable. The case — Union of India (East Coast Railway, Bhubaneswar) vs. KIOCL Limited, Bangalore — revolved around the misapplication of export freight rates on a purely domestic movement of raw materials, with the Court ruling that the consignment’s actual end-use, not the company’s export status, must dictate tariff classification.

The Court dismissed both FAOs filed by the Railways and affirmed the Tribunal’s direction to refund the DBC component with 6% simple interest from 2 December 2015 until the actual date of refund, to be processed within two months.

“Rate Circular is Binding Fiscal Law — Not Subject to Administrative Whim”: Court Rejects Railways’ Retrospective Levy Power

The High Court began its judgment by squarely addressing the misuse of Sections 78 and 83 of the Railways Act, 1989, which the Appellant invoked to justify the reassessment of freight charges. These provisions, the Court held, are procedural and corrective, and cannot be weaponized to reclassify tariff heads after a transaction has concluded.

The Court observed: “Sections 78 and 83 are procedural and ancillary... They do not create a substantive head of charge, nor do they vest any discretion to alter the character of the levy or reclassify traffic contrary to the tariff instrument applicable at the time of booking.”

Rejecting the Railways’ attempt to retrospectively recharacterize the iron ore consignment under the export category, the Court made it clear that freight charges cannot be altered post-facto under the guise of administrative correction. The judgment emphasised that the freight liability crystallizes at the time of booking, based on the applicable circular and demonstrable end-use, not historical assumptions or commercial profiles.

“Substance Over Form — Domestic Use Proven, Procedural Lapses Cannot Defeat Entitlement”: Court Applies Doctrine of Substantial Compliance

The central controversy stemmed from the Railway’s classification of KIOCL’s December 2012 consignment under the export tariff, which attracted a higher freight rate (Class-180 + DBC) under Railway Board’s Rate Circular No. 36 of 2009. However, the Tribunal, and later the High Court, found on the basis of excise records that no pellets were exported in the quarter October to December 2012, and the entire output was sold domestically.

The Court observed, “Once the foundational fact of domestic end-use stands established through contemporaneous records, a purely technical deficiency in paperwork cannot serve as juridical basis for transmuting a domestic consignment into an export one.”

Invoking the doctrine of substantial compliance, the Court clarified that minor procedural lapses — such as delay in filing the indemnity or affidavit — cannot justify denying the benefit of a lower tariff when the substantive conditions are fulfilled.

This principle, according to the judgment, “preserves the equilibrium between administrative discipline and substantive justice, recognising that procedural form is a means to an end, not an end in itsel

“Tariff Must Follow Facts, Not Labels” — Court Rejects Export-Oriented Unit Argument as Irrelevant

In what it called a misapprehension of fiscal jurisprudence, the Railways argued that since KIOCL was a 100% Export-Oriented Unit (EOU), any consignment must be presumed to be export-linked. The Court called this argument doctrinally flawed and held that the tariff classification must be based on the specific consignment’s end-use, not the company’s historical or institutional identity.

The Court ruled, “Tariff classification is conceived as transaction-specific rather than reputation-based, attaching legal consequence to the particular consignment and its contemporaneous end-use, not to the general business profile or historical conduct of the consignor.”

Accordingly, past exports made by KIOCL between 2008 and 2011 could not retroactively justify classifying a December 2012 domestic shipment as export-related. The Court emphasized that the Railway’s logic, if accepted, would violate the principle of temporal specificity in tax and tariff laws.

“Appellate Court Not a Court of Second Guessing” — High Court Respects Tribunal’s Fact-Finding

The Orissa High Court reaffirmed the doctrine of appellate restraint, noting that the Railway Claims Tribunal’s judgment was based on credible contemporaneous evidence and deserved deference. The Tribunal had relied on excise returns that clearly showed zero export of pellets in the relevant quarter, and the Railways failed to present any counter-evidence.

Stating that the judgment revealed no perversity, patent illegality, or procedural irregularity, the High Court held, “In the absence of any perversity or material misdirection, this Court finds no warrant or justification for appellate interference, the judgment being juridically sound and evidentially unassailable.”

“Pending SLP No Bar to Justice” — Court Says No Stay from SC, Adjudication Must Proceed

The Railways also sought to rely on the pendency of SLP (C) No. 15869 of 2015 and connected TPs before the Supreme Court regarding the constitutional validity of DBC. The High Court dismissed this defence outright, noting that the SLP in question did not concern this particular matter, nor was any stay granted affecting the Tribunal's or High Court’s jurisdiction.

The Court said: “Mere pendency of an SLP does not ipso facto translate into prohibition. In the absence of a specific stay, the adjudicatory process must proceed unhindered.”

Court’s Final Direction: Refund Must Be Made Within Two Months

Summing up its findings, the Orissa High Court directed the East Coast Railway to refund ₹58,01,110.80 — collected as DBC under RR No. 261002668 dated 15.12.2012 — to KIOCL Limited. The refund is to be made with simple interest at 6% per annum from 02.12.2015 (the date of application) until the actual date of payment, to be completed within two months from the date of judgment.

The Court further affirmed that no costs were to be imposed, aligning with the Tribunal’s order that recognised the "peculiar circumstances" of the case.

This decision marks a significant affirmation of rule-based freight classification, and a warning to administrative authorities against arbitrary or retrospective tariff recharacterizations. It underscores the legal imperative that tariff liability must arise from verified facts, not assumptions based on business models or past conduct. By invoking the doctrine of substantial compliance, the Court ensured that procedural technicalities do not eclipse substantive justice, reinforcing the primacy of fairness, transparency, and legal certainty in fiscal governance.

Date of Judgment: 7 November 2025