Facts of the Case

The petitioner, N. Prakash, filed a writ petition challenging the notice dated 21 September 2022 issued by the second respondent, namely the State Tax Officer, Office of the Assistant Commissioner (ST), Theni-2.

The petitioner was carrying on quarry operations after 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 RC/159/Mines/2016 dated 19 July 2018.

According to the petitioner, the respondents were compelling him to register 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 challenged the sustainability of such levy on the ground that Seigniorage Fee itself constituted a tax on quarried minor minerals.

The petitioner further relied upon the pendency of the issue concerning the legality of GST on mining lease/royalty before the Supreme Court in M/s Lakhwinder Singh vs Union of India, W.P.(Civil) No. 1076 of 2021, in which an interim stay concerning payment of GST for grant of mining lease/royalty had been granted.

The petitioner also contended that the respondent was demanding tax on the Seigniorage Fee as well as on minerals quarried and disposed of.

Issues Involved

  1. Whether GST could validly be demanded on Seigniorage Fee paid by a quarry operator to the Geology and Mining Department.
  2. Whether Seigniorage Fee, alleged by the petitioner to be itself a tax on quarried minor minerals, could additionally be subjected to GST.
  3. Whether the interim protection granted by the Supreme Court in M/s Lakhwinder Singh vs Union of India and Others, concerning payment of GST on grant of mining lease/royalty, was relevant to the petitioner’s objections against the impugned GST notice.
  4. Whether levy and collection of tax or sales tax on minerals was permissible in view of the Supreme Court decision in India Cement Ltd. and Others vs State of Tamil Nadu and Others, reported in 1990 (1) SCC 12.
  5. Whether the true nature of royalty/dead rent payable on minerals produced, mined or extracted remained relevant in light of the reference to a larger Bench in Mineral Area Development Authority etc. vs M/s Steel Authority of India and Others, reported in 2011 (4) SCC 450.
  6. Whether the writ petition challenging a mere notice was premature.
  7. Whether coercive recovery proceedings should be restrained until the competent authority considered and disposed of the petitioner’s objections.

Petitioner’s Arguments

The petitioner submitted that he was operating a quarry after obtaining the requisite licence/permit under the Tamil Nadu Minor Mineral Concession Rules, 1959 for five years from the District Collector.

The petitioner contended that:

  • the respondents were compelling registration of the quarry operations under the GST Act, 2017;
  • GST was being demanded on the Seigniorage Fee paid to the Geology and Mining Department;
  • Seigniorage Fee itself constituted a tax on quarried minor minerals and, therefore, levy of GST thereon was unsustainable;
  • the legality of GST on Seigniorage Fee/mining lease/royalty was under consideration before the Supreme Court;
  • the Supreme Court had granted stay of payment of GST for grant of mining lease/royalty in M/s Lakhwinder Singh vs Union of India and Others;
  • the protection granted in the Lakhwinder Singh matter had been followed by various Courts;
  • the respondent was demanding tax on Seigniorage Fee as well as on minerals quarried and disposed of;
  • levy and collection of tax/sales tax on minerals was impermissible in view of India Cement Ltd. and Others vs State of Tamil Nadu and Others, reported in 1990 (1) SCC 12; and
  • the question concerning the true nature of royalty/dead rent payable on minerals produced, mined or extracted had been referred for consideration to a larger Bench of nine Judges in Mineral Area Development Authority etc. vs M/s Steel Authority of India and Others, reported in 2011 (4) SCC 450.

Respondents’ Arguments

The learned Government Advocate appearing for the respondents submitted that the impugned proceeding dated 21 September 2022 was only a notice.

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

The principal departmental objection was therefore based on the stage of proceedings: since no final adverse order had yet been passed and only a notice had been issued, direct interference under Article 226 of the Constitution of India was opposed.

Court’s Order / Findings

The Madras High Court considered the materials available on record and noted that the 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 in that case.

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

Accordingly, the Court did not quash the notice outright. Instead, it directed the petitioner to submit objections to the impugned notice within a period of 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 Court further directed that if such objections were filed, the second respondent should consider the objections and pass appropriate orders.

Importantly, the Court ordered that until disposal of the petitioner’s objections, the respondents should not resort to recovery proceedings.

The writ petition was disposed of with these directions. No costs were awarded, and the connected writ miscellaneous petition was closed.

Important Clarification

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

The Court specifically clarified that it had not expressed any view on the merits of the controversy.

Therefore, the judgment should not be understood as a final declaration that:

  • GST on Seigniorage Fee is unconstitutional;
  • GST on royalty or mining lease is automatically invalid;
  • Seigniorage Fee is conclusively a tax for all legal purposes; or
  • every GST demand connected with mining or quarry operations must be quashed.

The relief granted was procedural and protective in nature.

The petitioner was required to submit objections within 30 days. The competent authority was directed to independently consider the objections, including reliance upon the Lakhwinder Singh case and other judgments, and pass appropriate orders on merits.

The restraint against recovery proceedings operated only until disposal of the objections.

Sections and Legal Provisions Involved

  • GST Act, 2017 – Levy of GST in relation to quarry operations and Seigniorage Fee paid to the Geology and Mining Department.
  • Article 226 of the Constitution of India – Writ jurisdiction of the High Court.
  • Tamil Nadu Minor Mineral Concession Rules, 1959 – Licence/permit governing quarry operations.
  • Legal principles relating to levy of GST on mining lease, royalty and Seigniorage Fee.
  • Constitutional and statutory issues concerning the nature of royalty, dead rent, mineral levies and taxation of minerals.

Link to download the order - https://mytaxexpert.co.in/uploads/1783504662_1533compressed.pdf

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