Facts of the Case

The petitioner, C. Manogaran, was declared the successful bidder in a tender floated by the District Collector under the Tamil Nadu Minor Mineral Concession Rules for obtaining a mining lease to conduct rough stone quarry operations over Government Poramboke land for a period of five years. After the lease was granted and quarry operations commenced, the State Tax Officer issued a notice directing the petitioner to register under the GST Act and pay GST on the seigniorage charges paid to the Department of Geology and Mining.

Aggrieved by the notice, the petitioner approached the Madras High Court seeking to quash the notice on the ground that the issue regarding levy of GST on mining royalty/seigniorage charges was already pending before the Hon'ble Supreme Court and interim protection had been granted in similar matters.

Issues Involved

  1. Whether GST can be demanded on seigniorage charges/royalty paid for mining leases while the issue is pending before the Hon'ble Supreme Court.
  2. Whether the State Tax Department could proceed with assessment against the petitioner without considering the pending judicial proceedings.
  3. Whether a writ petition is maintainable against a show cause notice issued under the GST law.

Petitioner's Arguments

  • The petitioner contended that he had already obtained a valid quarry lease through the prescribed tender process and was paying all statutory charges, including seigniorage fees.
  • It was argued that the respondents were unlawfully insisting upon GST registration and GST payment on the seigniorage charges.
  • The petitioner submitted that the issue of GST on mining royalty/seigniorage was already pending before the Hon'ble Supreme Court in M/s. Lakhwinder Singh vs. Union of India & Others, where interim protection had been granted.
  • It was further submitted that several High Courts had followed the interim protection granted by the Supreme Court and, therefore, issuance of the impugned notice was premature and unsustainable.

Respondent's Arguments

  • The Government contended that seigniorage charges represent consideration paid by the petitioner for obtaining the right to extract and quarry minerals, thereby constituting a supply of services under the GST law.
  • It was argued that under Section 7 of the GST Act, granting mining rights amounts to a taxable supply.
  • The respondents further submitted that GST is payable by the recipient under the Reverse Charge Mechanism in terms of Notification No. 13/2017-Central Tax (Rate) read with Section 9(3) of the GST Act.
  • It was also pointed out that the petitioner had failed to respond to earlier notices and did not attend the scheduled personal hearings, compelling the department to initiate assessment proceedings under Section 63 relating to unregistered persons.
  • According to the respondents, the impugned communication was merely a show cause notice providing an opportunity to file objections before any final assessment was made.

Court Order / Findings

The Madras High Court observed that the Hon'ble Supreme Court had granted interim protection regarding levy of GST on mining lease royalty/seigniorage charges and that similar orders had been consistently followed by various Courts.

However, the Court also noted that the impugned communication was only a show cause notice and no final assessment had yet been completed.

Accordingly, the Court:

  • Directed the petitioner to appear before the State Tax Officer within 30 days and submit detailed objections together with all supporting documents.
  • Directed the assessing authority to consider the objections in accordance with law while taking into account the interim orders passed by the Hon'ble Supreme Court.
  • Ordered that status quo shall be maintained until the objections are considered and appropriate orders are passed.
  • Disposed of the writ petition with the above directions without quashing the notice.

Important Clarification

  • A show cause notice issued under GST is ordinarily not liable to be quashed merely because legal issues are pending before higher Courts.
  • Taxpayers must ordinarily submit their objections before the assessing authority.
  • Where the issue is already pending before the Hon'ble Supreme Court and interim protection exists, the assessing authority must consider the taxpayer's objections in light of such judicial directions.
  • The High Court protected the petitioner by directing maintenance of status quo until the assessment proceedings are completed.

Sections Involved

  • Section 7 of the GST Act – Supply
  • Section 9(3) of the GST Act – Reverse Charge Mechanism
  • Section 63 of the GST Act – Assessment of Unregistered Persons
  • Notification No. 13/2017-Central Tax (Rate)
  • Article 226 of the Constitution of India

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