Facts of the Case

The petitioner, K. Jeganathan, was carrying on quarry operations after duly obtaining the necessary licence/permit under the Tamil Nadu Minor Mineral Concession Rules, 1959. The licence was granted for a period of five years by the District Collector through proceedings in R.C.No.1203/Mines/2018 dated 25.09.2020.

The petitioner challenged the notice dated 12.09.2022 issued by the second respondent. According to the petitioner, the respondents were compelling registration of the quarry operations under the GST Act, 2017 and requiring payment of GST on the Seigniorage Fee paid to the Geology and Mining Department.

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

The petitioner further relied upon the pendency of the issue concerning the legality of GST on Seigniorage Fee before the Hon’ble Supreme Court in M/s Lakhwinder Singh vs Union of India, W.P.(Civil) No.1076 of 2021, order dated 04.10.2021.

Issues Involved

  1. Whether GST can validly be demanded on Seigniorage Fee paid in relation to quarry/mining operations.
  2. Whether Seigniorage Fee is itself in the nature of a tax on quarried minor minerals, thereby rendering the further levy of GST unsustainable.
  3. Whether the impugned notice dated 12.09.2022 could be interfered with at the notice stage.
  4. Whether the petitioner was entitled to rely upon the interim protection granted by the Hon’ble Supreme Court in M/s Lakhwinder Singh vs Union of India & Others concerning payment of GST for grant of mining lease/royalty.
  5. Whether recovery proceedings could continue before consideration and disposal of the petitioner’s objections.

Petitioner’s Arguments

The petitioner submitted that:

  • The quarry was being operated pursuant to a valid licence/permit obtained under the Tamil Nadu Minor Mineral Concession Rules, 1959.
  • The respondents were compelling the petitioner to register the quarry operations under the GST Act, 2017.
  • The petitioner was being instructed to pay GST on the Seigniorage Fee paid to the Geology and Mining Department.
  • Seigniorage Fee was itself a tax on quarried minor minerals and, consequently, levy of GST thereon was unsustainable.
  • The legality of levy of GST on Seigniorage Fee was already pending consideration before the Hon’ble Supreme Court in M/s Lakhwinder Singh vs Union of India, W.P.(Civil) No.1076 of 2021.
  • The Hon’ble Supreme Court had granted stay concerning payment of GST for grant of mining lease/royalty, and such protection had been followed by various Courts.
  • The respondents were demanding tax on the Seigniorage Fee as well as on minerals quarried and disposed of.
  • Levy and collection of tax/sales tax on minerals was stated to be impermissible in view of the judgment of the Hon’ble Supreme Court in India Cement Ltd. and Others vs State of Tamil Nadu and Others, reported in 1990 (1) SCC 12.
  • The question concerning the true nature of royalty/dead rent payable on minerals produced, mined or extracted had also arisen in Mineral Area Development Authority etc. vs M/s Steel Authority of India & Others, reported in 2011 (4) SCC 450, where the matter was placed on the administrative side before the Chief Justice for appropriate orders in relation to consideration by a larger Bench of nine Judges.

Respondents’ Arguments

The learned Additional Government Pleader appearing for the respondents submitted that:

  • The impugned proceeding was only a notice.
  • Since only a notice had been issued, the writ petition was premature.
  • Accordingly, the writ petition was liable to be dismissed at that stage.

Court Order / Findings

The Madras High Court observed that the Hon’ble Supreme Court, in M/s Lakhwinder Singh vs Union of India & Others, had granted stay concerning payment of GST for grant of mining lease/royalty by the petitioner therein.

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

Accordingly, the Court issued the following directions:

  1. 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.
  2. The petitioner is at liberty to rely upon the judgment/order in M/s Lakhwinder Singh vs Union of India & Others.
  3. The petitioner may also rely upon any other judgments which he intends to place before the authority.
  4. If such objections are filed, the second respondent shall consider the same and pass appropriate orders.
  5. Until disposal of the objections, the respondents shall not resort to recovery proceedings.
  6. The Court expressly clarified that it had not expressed any view on the merits of the controversy.
  7. The respondents were left free to consider the issues raised independently and on their own merits.

The writ petition was accordingly disposed of without costs, and the connected writ miscellaneous petition was closed.

Important Clarification

The judgment does not finally decide that GST on Seigniorage Fee is valid or invalid.

The principal relief granted by the Court was procedural protection. The petitioner was permitted to submit objections and rely upon the Supreme Court proceedings in M/s Lakhwinder Singh vs Union of India & Others and other relevant judgments.

Most importantly, the High Court directed that no recovery proceedings should be initiated until the objections are disposed of.

The Court specifically recorded that it had expressed no opinion on the merits, leaving the competent authority to examine the issue independently.

Sections / Legal Provisions Involved

  • Article 226 of the Constitution of India – Writ jurisdiction of the High Court.
  • Goods and Services Tax Act, 2017 / GST Act, 2017 – Levy of GST in relation to quarry operations and Seigniorage Fee, as raised in the proceedings.
  • Tamil Nadu Minor Mineral Concession Rules, 1959 – Governing the quarry licence/permit referred to in the case.
  • Seigniorage Fee / Mining Lease / Royalty under the applicable mining and mineral regulatory framework – Central subject matter of the GST dispute.

Key Legal Takeaway

Where a GST demand concerning Seigniorage Fee/mining lease/royalty is raised through a notice, the notice recipient may place detailed objections before the Proper Officer and rely upon relevant Supreme Court proceedings and other binding precedents. In this case, the Madras High Court protected the petitioner against recovery until disposal of such objections, while expressly refraining from deciding the substantive validity of GST on Seigniorage Fee.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1783323934_1222compressed.pdf

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