Facts of the Case

The petitioner, Meenatchisundaram, was carrying on quarry operations after obtaining the necessary licence/permit under the Tamil Nadu Minor and Mineral Concession Rules, 1959.

The licence/permit had been granted for a period of five years by the District Collector through proceedings in R.C. No. 123/Mines/2017 dated 22 December 2017.

The petitioner challenged a notice dated 9 September 2022 issued by the second respondent, the State Tax Officer.

According to the petitioner, the respondents were compelling him to register the quarry operations under the GST Act, 2017 and were instructing him to pay GST on the Seigniorage Fee paid to the Geology and Mining Department.

The petitioner disputed the legality of such levy.

The petitioner’s principal contention was that Seigniorage Fee was itself a tax on quarried minor minerals and, therefore, levy of GST on such Seigniorage Fee was unsustainable.

The petitioner further relied upon pending proceedings before the Supreme Court concerning GST on mining lease/royalty and referred to the interim protection granted in M/s Lakhwinder Singh vs Union of India.

The petitioner also submitted that the respondents were demanding tax on Seigniorage Fee as well as on minerals quarried and disposed of.

Aggrieved by the notice dated 9 September 2022, the petitioner approached the Madurai Bench of the Madras High Court seeking its quashing.

Issues Involved

The principal issues arising from the proceedings were:

  1. Whether GST could validly be demanded on Seigniorage Fee paid to the Geology and Mining Department in connection with quarry operations.
  2. Whether Seigniorage Fee, alleged by the petitioner to be itself a tax on quarried minor minerals, could be subjected to GST.
  3. Whether the petitioner could rely upon the Supreme Court proceedings in M/s Lakhwinder Singh vs Union of India concerning GST on grant of mining lease/royalty.
  4. Whether the principles arising from India Cement Ltd. and Others vs State of Tamil Nadu and Others were relevant to the petitioner’s challenge concerning levy and collection of tax/sales tax on minerals.
  5. Whether the pending larger-bench issue concerning the true nature of royalty/dead rent in Mineral Area Development Authority etc. vs M/s Steel Authority of India & Others had relevance to the controversy.
  6. Whether the writ petition challenging a mere notice was premature.
  7. Whether recovery proceedings should remain restrained until the petitioner’s objections to the notice were considered and disposed of.

Petitioner’s Arguments

The learned counsel for the petitioner submitted that the petitioner was operating a quarry under a valid licence/permit obtained under the Tamil Nadu Minor and Mineral Concession Rules, 1959.

It was contended that the respondents were compelling the petitioner:

  • to register the quarry operations under the GST Act, 2017; and
  • to pay GST on the Seigniorage Fee paid to the Geology and Mining Department.

The petitioner argued that Seigniorage Fee was itself a tax on quarried minor minerals and, consequently, levy of GST on such fee was unsustainable.

The petitioner further submitted that the legality of levy of GST on Seigniorage Fee was pending consideration before the Supreme Court in:

M/s Lakhwinder Singh vs Union of India, W.P.(Civil) No. 1076 of 2021, order dated 4 October 2021.

It was contended that the Supreme Court had granted stay of payment of GST for grant of mining lease/royalty by the petitioner in that proceeding and that the said order had been followed by various Courts.

The petitioner also submitted that the respondents were demanding:

  • tax on Seigniorage Fee; and
  • tax on minerals quarried and disposed of.

Reliance was placed upon:

India Cement Ltd. and Others vs State of Tamil Nadu and Others, 1990 (1) SCC 12

for the proposition advanced by the petitioner regarding levy and collection of tax/sales tax on minerals.

The petitioner further referred to:

Mineral Area Development Authority etc. vs M/s Steel Authority of India & Others, 2011 (4) SCC 450

and submitted that the issue concerning the true nature of royalty/dead rent payable on minerals produced, mined or extracted had been referred for consideration to a larger Bench consisting of nine Judges.

Respondents’ Arguments

The learned Government Advocate appearing for the respondents submitted that the impugned proceeding dated 9 September 2022 was only a notice.

On this basis, the respondents contended that the writ petition was premature and liable to be dismissed.

The essential objection of the respondents was therefore procedural: since no final order had yet been passed and only a notice was under challenge, the petitioner should not obtain writ interference at that stage.

Court Order / Findings

The Madras High Court considered the materials available on record.

The Court noted that, in M/s Lakhwinder Singh vs Union of India and Others, the Supreme Court had granted stay for payment of GST for grant of mining lease/royalty by the petitioner therein.

At the same time, the High Court also observed that the impugned proceeding before it was only a notice.

Instead of finally deciding the substantive legality of GST on Seigniorage Fee, the Court directed the petitioner to submit objections to the notice.

The Court ordered that:

The petitioner shall submit objections to the impugned notice within 30 days from the date of receipt of a copy of the High Court’s order.

The Court expressly permitted the petitioner to rely upon:

  • the judgment/order in M/s Lakhwinder Singh vs Union of India and Others; and
  • any other judgments which the petitioner intended to rely upon.

The High Court further directed that, if such objections were filed:

The second respondent shall consider the objections and pass appropriate orders.

Most importantly, the Court granted protection against coercive recovery by directing that:

Until disposal of the objections, the respondents shall not resort to recovery proceedings.

The writ petition was accordingly disposed of.

No costs were awarded.

The connected Writ Miscellaneous Petitions were also closed.

Important Clarification

1. The High Court Did Not Finally Hold That GST on Seigniorage Fee Is Invalid

The judgment should not be reported as a final declaration that GST on Seigniorage Fee is unconstitutional, illegal or automatically unsustainable.

The High Court did not finally adjudicate the substantive taxability issue.

Instead, it directed the petitioner to file objections and required the second respondent to decide those objections on their own merits.

2. Recovery Protection Was Temporary and Linked to Disposal of Objections

The Court directed that the respondents should not resort to recovery proceedings until disposal of the petitioner’s objections.

Therefore, the protection was not an unconditional or permanent stay against GST liability.

3. Petitioner Was Expressly Permitted to Rely on Lakhwinder Singh

The Court expressly allowed the petitioner to place reliance upon M/s Lakhwinder Singh vs Union of India and Others and any other judgments the petitioner intended to rely upon.

This is a significant procedural protection because the adjudicating authority was required to consider the objections and authorities placed before it.

4. No Opinion Was Expressed on Merits

The High Court expressly clarified that it had not expressed any view regarding the merits.

The respondents remained free to consider the issue raised on its own merits.

Accordingly, the judgment is principally a procedural-remedial order concerning:

  • filing of objections;
  • consideration of relevant precedent;
  • adjudication by the tax authority; and
  • protection from recovery until disposal of objections.

5. Challenge Was Against a Notice, Not a Final Tax Order

The respondents specifically argued that the writ petition was premature because the impugned proceeding was merely a notice.

The High Court’s ultimate directions reflect this procedural posture: rather than quashing the notice on merits, it allowed the petitioner to respond and directed the authority to decide the matter.

Sections and Legal Provisions Involved

Article 226 of the Constitution of India

The writ petition was filed under Article 226 seeking issuance of a writ of certiorari to call for the records relating to the notice dated 9 September 2022 and quash the same.

The High Court did not finally quash the notice on substantive taxability grounds. Instead, it provided a structured opportunity to file objections and granted interim protection from recovery until those objections were disposed of.

GST Act, 2017

The petitioner alleged that the respondents were compelling registration of quarry operations under the GST Act, 2017 and demanding GST on Seigniorage Fee paid to the Geology and Mining Department.

The uploaded order does not identify a specific charging, valuation, reverse-charge or registration section of the CGST/TNGST enactments as the provision finally adjudicated by the Court.

Accordingly, no specific GST section should be invented or attributed to the judgment.

Tamil Nadu Minor and Mineral Concession Rules, 1959

The petitioner was carrying on quarry operations after obtaining the necessary licence/permit under these Rules.

The permit was stated to have been granted for five years by the District Collector through proceedings dated 22 December 2017.

Link to Download the Order-https://mytaxexpert.co.in/uploads/1783492800_1510compressed.pdf

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