Facts of the Case

The Petitioner, M. Chinnaraja, was running a quarry after duly obtaining the necessary licence/permit under the Tamil Nadu Minor and Mineral Concession Rules, 1959.

The quarry licence/permit had been granted for a period of five years by the District Collector through proceedings in Na.Ka.No.127/Mines/2018 dated 25.01.2019.

The Petitioner approached the Madras High Court challenging the notice dated 09.09.2022 issued by the second Respondent, namely the State Tax Officer.

According to the Petitioner, the Respondents were compelling him to register the quarry operations under the GST Act, 2017 and directing him to pay 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, the levy of GST on such Seigniorage Fee was unsustainable.

The Petitioner further relied upon the pendency of the issue concerning the legality of levy of GST on mining lease/royalty before the Hon’ble Supreme Court in M/s Lakhwinder Singh vs Union of India, W.P.(Civil) No. 1076 of 2021, in which an order dated 04.10.2021 had been passed.

The Petitioner also contended that the Respondents were demanding tax on the Seigniorage Fee as well as on minerals quarried and disposed of.

The writ petition was therefore filed under Article 226 of the Constitution of India seeking issuance of a Writ of Certiorari to call for the records relating to the impugned notice dated 09.09.2022 and quash the same.

Issues Involved

  1. Whether GST can be levied on Seigniorage Fee paid to the Geology and Mining Department in connection with quarry operations.
  2. Whether Seigniorage Fee is itself in the nature of a tax on quarried minor minerals, thereby rendering a further levy of GST legally unsustainable.
  3. Whether the Petitioner could rely upon the interim protection granted by the Hon’ble Supreme Court in M/s Lakhwinder Singh vs Union of India and Others concerning payment of GST on grant of mining lease/royalty.
  4. Whether levy and collection of tax or sales tax on minerals was permissible in light of the decision 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.
  5. What was the relevance of the larger-bench reference concerning the true nature of royalty/dead rent payable on minerals produced, mined or extracted in Mineral Area Development Authority etc. vs M/s Steel Authority of India & Others, reported in 2011 (4) SCC 450.
  6. Whether the writ petition challenging a mere notice was premature.
  7. Whether recovery proceedings should remain restrained until the competent authority considered and disposed of the Petitioner’s objections.

Petitioner’s Arguments

The Petitioner submitted that he was carrying on quarry operations after obtaining the necessary licence/permit under the Tamil Nadu Minor and Mineral Concession Rules, 1959 for a period of five years from the District Collector.

The Petitioner contended that 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.

It was specifically argued that Seigniorage Fee was itself a tax on quarried minor minerals and, therefore, the levy of GST on such fee was unsustainable.

The Petitioner submitted that the issue regarding legality of GST levy on Seigniorage Fee was 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 Petitioner relied upon the fact that the Hon’ble Supreme Court had granted stay of payment of GST for grant of mining lease/royalty by the petitioner in that matter and that the said position had been followed by various Courts.

The Petitioner further submitted that the Respondents were demanding tax on:

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

The Petitioner also relied upon 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, to contend that levy and collection of tax/sales tax on minerals was not permissible.

Further reliance was placed upon Mineral Area Development Authority etc. vs M/s Steel Authority of India & Others, reported in 2011 (4) SCC 450, concerning the true nature of royalty/dead rent payable on minerals produced, mined or extracted, where the matter had been placed on the administrative side before the Hon’ble Chief Justice for appropriate orders concerning consideration by a larger Bench consisting of nine Judges.

Respondents’ Arguments

The learned Government Advocate appeared for the Respondents and opposed the writ petition.

The principal submission made on behalf of the Respondents was that the impugned proceeding dated 09.09.2022 was only a notice.

Accordingly, it was contended that the writ petition was premature and liable to be dismissed.

The Respondents’ position was therefore that the Petitioner should not invoke writ jurisdiction at the notice stage before the competent authority had completed the adjudicatory process.

Court’s Findings

The Madras High Court considered the materials available on record.

The Court specifically noted that the Hon’ble Supreme Court, in M/s Lakhwinder Singh vs Union of India and 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 also took note of the fact that the impugned proceeding challenged before it was only a notice.

Instead of quashing the notice at that stage, the Court provided the Petitioner an opportunity to submit objections before the competent authority.

The Court directed the Petitioner to submit objections to the impugned notice within a period of thirty 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 upon which the Petitioner intended to place reliance.

The High Court further directed that if such objections were filed, the second Respondent should consider the same and pass appropriate orders.

Court Order

The Madras High Court disposed of the writ petition with the following substantive directions:

  1. The Petitioner shall submit objections to the impugned notice within thirty days from the date of receipt of a copy of the High Court’s order.
  2. The Petitioner is permitted to rely upon the judgment/order in M/s Lakhwinder Singh vs Union of India and Others.
  3. The Petitioner may also rely upon any other judgments that he intends to place before the authority.
  4. If objections are filed, the second Respondent shall consider the objections 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 remain free to consider the issues raised by the Petitioner on their own merits.
  8. The writ petition was disposed of with the above directions.
  9. No costs were awarded.
  10. The connected Writ Miscellaneous Petition was closed.

Important Clarification

The High Court did not finally decide whether GST on Seigniorage Fee was valid or invalid.

The Court also did not quash the impugned notice merely because the Petitioner relied upon the Supreme Court proceedings in Lakhwinder Singh.

The principal reason for adopting this course was that the impugned proceeding was only a notice. Therefore, the Court permitted the Petitioner to raise detailed objections before the competent authority.

The most significant interim protection granted by the High Court was that until disposal of the Petitioner’s objections, the Respondents were restrained from resorting to recovery proceedings.

The Court expressly stated that it had not expressed any view on the merits and that the Respondents were free to consider the issues raised on their own merits.

Accordingly, this judgment should not be interpreted as a final declaration that GST is either payable or not payable on Seigniorage Fee. It is principally a procedural and protective order requiring consideration of objections while restraining recovery until such objections are disposed of.

Sections / 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 quash the impugned notice dated 09.09.2022.

GST Act, 2017

The controversy concerned the Respondents’ alleged insistence that the Petitioner register the quarry operations under the GST Act, 2017 and pay GST on Seigniorage Fee paid to the Geology and Mining Department.

Important Note: The judgment does not specify a particular section number of the GST Act as the charging provision under challenge. Therefore, no specific GST section should be attributed to the judgment beyond what is expressly recorded in the order.

Tamil Nadu Minor and Mineral Concession Rules, 1959

The Petitioner’s quarry operations were stated to be carried on under a licence/permit duly obtained in accordance with the Tamil Nadu Minor and Mineral Concession Rules, 1959.

Link to download the order - https://mytaxexpert.co.in/uploads/1783501440_1524compressed.pdf

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