Coal Beneficiation constitutes a manufacturing process mandating maintenance of cost records and audit under the Companies Act.

The Petitioner, Aryan Energy Pvt. Ltd., is a company engaged in the "beneficiation of coal" (washing) for mineral-producing subsidiaries of Coal India Limited

The Registrar of Companies (ROC) issued a Show Cause Notice on 05.12.2016 for failure to appoint a Cost Auditor and non-submission of Cost Audit Reports for the FY 2015-16 as required under Section 148 of the Companies Act, 2013

The Petitioner contended that it neither produces nor extracts mineral/coal, but merely provides a service, and its auditors had reported that no maintenance of cost records was prescribed for its activities

The Respondents filed a criminal complaint (No. 13222/2017) under Section 148(8)(a) read with Section 147(1) of the Act, in which the Magistrate issued notice and directed framing of charges

The Petitioner moved the High Court under Section 482 Cr.P.C. to quash the complaint

1. Whether the activity of "Coal Beneficiation" (washing) falls within the ambit of "production/processing of goods" or "mineral fuels" as specified under Rule 3 and Rule 4 of the Companies (Cost Records and Audit) Rules, 2014, thereby mandating the appointment of a Cost Auditor

2. Whether a criminal complaint for non-compliance with Section 148 of the Companies Act, 2013, can be quashed on the grounds that the company's activities do not constitute manufacturing

Section 148 of the Companies Act, 2013, which empowers the Central Government to direct the audit of cost records for specific classes of companies

Rules 3 and 4 of the Companies (Cost Records and Audit) Rules, 2014, which list "Mineral products" and "Mineral fuels" (ITC Code 27011910) as categories subject to audit

The "transformation test" from Anheuser-Busch Brewing Assn. v. United States and Union of India v. J.G. Glass Industries Ltd., which defines "manufacture" as a process resulting in a new and different article with a distinctive name, character, or use

Tata Steel Ltd. v. Union of India to determine that coal beneficiation improves the quality, heating value, and weight of the raw material

The Court examined the Petitioner’s Memorandum of Association, which stated the company’s business included the "working of minerals" and their "production"

It noted that the Petitioner had itself declared ITC Code 27011910 (Mineral Fuels) in its regulatory filings

Relying on Tata Steel Ltd., the Court observed that the process removes impurities, increases the Gross Calorific Value, and results in value addition and weight increase, thereby transforming "raw coal" into "beneficiated coal"

The Court reasoned that under the definitions of "production" and "process" established in Tara Agencies, any operation that subjects raw material to treatment to make it marketable or yields a higher-quality product constitutes processing/manufacturing

Therefore, beneficiation is an integral part of the coal value chain and falls under the regulatory scope of Cost Audit Rules

The Court concluded that whether the specific steps followed by the Petitioner retained the original characteristics of coal is a mixed question of fact and law to be determined during trial; finding no merit in the petition to quash the criminal proceedings, the Court dismissed the petition