Overcharge v. Illegal Charge: Supreme Court Dismisses Railways' Appeals Against Indian Oil Over Refund Of Freight Charges

In a case involving excess payment of freight charges, the Supreme Court recently held against the Railways', observing that it levied an illegal charge on Indian Oil Corporation (IOC) for 444 kms when the actual relevant distance was only about 334 kms.

The Bench of Justices JB Pardiwala and Sandeep Mehta passed the judgment in appeals filed by the Railways, against order of the Allahabad High Court which held in favor of IOC.

Factual Background

IOC had booked consignments of furnace oil between 2002-2005 via Railways over a certain route. The freight for the same was calculated on the basis of 'total chargeable distance' of 444 kms (as per prevailing distance table). In April 2004, the Railways modified the method of calculating chargeable distance. The new method involved rounding off of values and necessitated revision of distance tables.

Eventually, IOC learnt that there had been no change in the physical track length for the subject route and the actual distance was in fact 333.18 km, yet Railways was charging freight at chargeable distance of 444 kms. At first, a notice of claim was sent to Railways to demand refund of the difference of 110 kms in the freight charges. This demand was in relation to 122 consignments, however, the Railways denied all claims.

Thereafter, IOC approached the Railway Claims Tribunal for similar relief. In response to some meetings held between the parties, about 45 claims were refunded considering that they were made within the 6-month statutory period under Section 78B of Railways Act, 1890 (now Section 106 of Railways Act, 1989; dealing with notice for claim of compensation and refund of overcharge).

The Tribunal dismissed the remaining 77 applications as time-barred, observing that claims notices were not sent within the 6-month statutory period and the refund was sought for an 'overcharge'. It however noted that the chargeable distance was only 334 kms, albeit the freight charges had been levied for 444 kms.

In this backdrop, IOC appealed before Allahabad High Court, which allowed the appeals, taking a view that since the freight had been paid as per the notified chargeable distance which was later found to be incorrect, it was a case of “illegal charge” and not that of “overcharge”. Against the High Court order, the Railways approached the Supreme Court.

Issues

Taking into account the submissions, the Supreme Court rendered its decision on three questions:

(i) What is the scope of Section 106(3) of Railways Act, 1989 and/or what constitutes an “overcharge” within the meaning of the provision? Further, what is the difference between an “overcharge” and an “illegal charge”?

(ii) Whether IOC's claim towards refund of difference of 110 kms in freight charges was for refund of an 'overcharge' and/or covered by Section 106(3)?

(iii) Whether the difference of 110 kms in freight was liable to be refunded? In other words, whether the notified chargeable distance of '444 kms' was an illegal charge or not?

Observations

The Court observed that the rigors of Section 106(3), in relation to the 6-month time period for making a notice of claim, are only attracted when refund is for an overcharge. As a necessary corollary, where the claim for refund is for anything but an 'overcharge', no notice of claim is required. 

"Whenever, an application is made under Section 16 of the RCT Act for refund, what needs to be seen is whether the same is for a refund of an overcharge or not? If the claim is for an overcharge, Section 106 sub-section (3) would be applicable."

Going through a plethora of judgements, it discerned that an overcharge is any sum charged in excess or more than what was payable as per law (the actual quantum of liability). Per contra, an illegal charge is any sum which is impermissible in law. 

"...the term “charge” means something which in the eyes of law is permissible and payable, and therefore the term “overcharge” which is a conjunction of “over” and “charge” would mean something more than or beyond what is payable in the eyes of law. Same way, an “illegal charge” would mean a charge which is contrary to the law or lacks the authority of law or simplicter is unlawful."

The Court further clarified that merely because an incorrect or higher slab-rate has been applied, does not make it an illegal charge, as long as the charge was not itself open to objection.

"...when the very basis or genus of the charge was not payable as per law then any sum which is collected in respect of the same will not be an overcharge but would be an illegal charge".

Distinguishing between 'overcharge' and 'illegal charge', the Court said, "for an excess sum to be an “overcharge” the sum paid must partake the same character as the basic charge, or must belong to the same genus of charge which was payable or required to be paid by law. Whereas, for an illegal charge, the sum must not have been payable by law."

It was also recorded that while an 'overcharge' is generally inter-se the specific parties involved and in peculiar facts, an 'illegal charge' is illegal for everyone irrespective of the parties or facts. 

Insofar as the proposition of notice of claims in the present case being time-barred, the court explicated that for a sum to be an overcharge, it must be such on the date of payment, otherwise there will be a chilling effect.

"Section 106(3) specifically uses the words “paid” and “date of payment”. This clearly fortifies the above observations, that for a sum to be an “overcharge” within the meaning of Section 106(3) of the Act, 1989, it must be an overcharge on the date when such sum was paid. If on the date when the payment was made, the sum in question was not an overcharge, it will not become an 'overcharge” due to intervention of subsequent events at-least in terms of Section 106 of the Act, 1989."

It was concluded that Section 106(3) cannot be said to encompass “Illegal Charges”, and the applicability of the prescribed time-limit must be confined only to claims for an 'overcharge'.

"The true purport of Section 106(3) of the Act, 1989 is by no stretch to render even those claims of refunds as time-barred which despite the best of efforts and diligence could not have been discovered by the claimants on their own accord...A consignee cannot be reasonably expected to be capable of discovering such patent or perverse error in the very genesis of the charge. It is something which only the authority that calculates, determines and notifies the levy of the charge could be said to know or at the very least ought to have known."

As IOC's objection was to the chargeable distance of 444 kms, and not the incidental quantum of freight levied on it, as well as considering that the distance was admittedly charged as per prevailing law and not due to any misapplication or mistake, the court held the case to be one of illegal charge.

On facts, it was opined that a mere change in methodology of computing chargeable distance would not have resulted in a difference of 110 kms. Considering that Railways also failed to establish that 444 kms was the correct chargeable distance, it was declared that the said computation was illegal. The appeals of the Railways were accordingly dismissed.

Case Title: Union of India v. M/s Indian Oil Corporation Ltd., Civil Appeal Nos. 1891-1966 of 2024

Citation : 2024 LiveLaw (SC) 256

Click here to read the judgment