In a recent case concerning the overpayment of freight charges, the Supreme Court ruled against the Railways, noting that they imposed an unlawful charge on the Indian Oil Corporation (IOC) for a distance of 444 kilometers when the actual relevant distance was approximately 334 kilometers.
Justices JB Pardiwala and Sandeep Mehta delivered the judgment in the appeals filed by the Railways, challenging the Allahabad High Court’s decision that favored IOC.
Between 2002 and 2005, the Indian Oil Corporation (IOC) transported furnace oil through the Railways along a specific route. The freight charges for this transportation were calculated based on a “total chargeable distance” of 444 kilometers, as per the prevailing distance table. However, in April 2004, the Railways revised the method for calculating the chargeable distance. This new method involved rounding off values and required the revision of distance tables.
IOC later discovered that there had been no alteration in the physical length of the track for the route in question, and the actual distance was 333.18 kilometers. However, the Railways continued to charge freight based on a chargeable distance of 444 kilometers. Initially, IOC sent a notice of claim to the Railways, seeking a refund for the difference of 110 kilometers in the freight charges. This claim pertained to 122 consignments. Unfortunately, the Railways rejected all of IOC’s claims.
Subsequently, IOC sought similar relief from the Railway Claims Tribunal. Following several meetings between the parties, approximately 45 claims were refunded. These refunds were granted because they were made within the 6-month statutory period outlined in Section 78B of the Railways Act, 1890 (now Section 106 of the Railways Act, 1989, which deals with notice for the claim of compensation and refund of overcharge).
The Tribunal rejected the remaining 77 applications as time-barred, stating that the claims notices were not submitted within the 6-month statutory period and that the refund was being requested for an ‘overcharge’. However, it acknowledged that the chargeable distance was actually only 334 kilometers, despite the fact that the freight charges had been calculated for 444 kilometers.
Against this background, IOC appealed to the Allahabad High Court, which upheld the appeals. The court reasoned that since the freight had been paid according to the officially notified chargeable distance, which was later discovered to be incorrect, it constituted an “illegal charge” rather than an “overcharge.” The Railways then challenged the High Court’s decision in the Supreme Court.
After considering the arguments presented, the Supreme Court delivered its verdict on three key questions:
(i) The Supreme Court deliberated on the scope of Section 106(3) of the Railways Act, 1989, and what qualifies as an “overcharge” within the context of this provision. Additionally, the court examined the distinction between an “overcharge” and an “illegal charge.”
(ii) The Supreme Court also considered whether IOC’s demand for the refund of the 110-kilometer difference in freight charges constituted an “overcharge” and fell within the purview of Section 106(3) of the Railways Act, 1989.
(iii) The Supreme Court examined whether the 110-kilometer difference in freight charges should be refunded. Essentially, the court deliberated on whether the officially notified chargeable distance of ‘444 kilometers’ amounted to an illegal charge.
Observations:
The Court noted that the strict requirements of Section 106(3), which stipulate a 6-month time limit for filing a notice of claim, apply only when the refund is related to an overcharge. Consequently, if the claim for a refund pertains to anything other than an ‘overcharge’, no notice of claim is necessary.
Whenever an application is filed under Section 16 of the Railway Claims Tribunal (RCT) Act for a refund, the crucial factor to consider is whether the application is seeking a refund for an overcharge. If the claim is indeed for an overcharge, then Section 106, sub-section (3) would be applicable.
After reviewing numerous judgments, the court concluded that an overcharge refers to any amount charged in excess of what was legally payable (the actual liability amount). In contrast, an illegal charge is any amount that is not permitted by law.
“…the term ‘charge’ refers to something that is legally permissible and payable. Therefore, ‘overcharge,’ which combines ‘over’ and ‘charge,’ signifies an amount that exceeds what is legally payable. Similarly, an ‘illegal charge’ would indicate a charge that violates the law, lacks legal authority, or is simply unlawful.”
The Court clarified that the application of an incorrect or higher slab-rate alone does not categorize it as an illegal charge, as long as the charge itself was not objectionable.
“…when the fundamental basis or nature of the charge was not legally payable, then any amount collected in relation to it would not be considered an overcharge but rather an illegal charge.”
Differentiating between an ‘overcharge’ and an ‘illegal charge,’ the Court stated, “For an excess amount to qualify as an ‘overcharge,’ the payment must be of the same nature as the basic charge or must fall within the same category of charge that was legally required to be paid. In contrast, for an illegal charge, the amount must not have been legally payable.”
It was also noted that while an ‘overcharge’ typically pertains to the specific parties involved and is contingent on the particular circumstances, an ‘illegal charge’ is unlawful for everyone, regardless of the parties or circumstances.
Regarding the issue of the notice of claims being time-barred in the current case, the court explained that for an amount to qualify as an overcharge, it must have been an overcharge at the time of payment. Otherwise, there would be a chilling effect.
“Section 106(3) explicitly mentions the terms ‘paid’ and ‘date of payment.’ This underscores the aforementioned observations, indicating that for an amount to be considered an ‘overcharge’ under Section 106(3) of the 1989 Act, it must have been an overcharge at the time of payment. If the amount in question was not an overcharge at the time of payment, it will not be deemed an ‘overcharge’ due to subsequent events, at least as per Section 106 of the 1989 Act.”
It was concluded that Section 106(3) cannot be interpreted to include “illegal charges,” and the application of the specified time-limit must be limited to claims for an ‘overcharge’.
“The true intent of Section 106(3) of the 1989 Act is not to categorize as time-barred those refund claims that, despite the claimants’ best efforts and diligence, could not have been discovered independently. A consignee cannot reasonably be expected to uncover such an obvious or egregious error in the initial calculation of the charge. This is knowledge that only the authority responsible for calculating, determining, and notifying the charge could be said to possess, or at the very least, should have been aware of.”
Since IOC’s objection was specifically to the chargeable distance of 444 kilometers and not to the amount of freight charged, and considering that the distance was charged in accordance with the prevailing law and not due to any misapplication or mistake, the court deemed the case to be one of an illegal charge.
Based on the facts, it was determined that a mere change in the methodology of computing the chargeable distance would not have resulted in a difference of 110 kilometers. Additionally, since the Railways could not establish that 444 kilometers was the correct chargeable distance, it was concluded that this computation was illegal. Consequently, the Railways’ appeals were dismissed.
