Facts of the Case

The petitioner, S. Saravanan, was declared the successful bidder in a tender conducted by the District Collector under the Tamil Nadu Minor Mineral Concession Rules for obtaining a mining lease to carry out rough stone quarry operations on Government Poramboke land for a period of five years. After the lease was granted and transport permits were issued, the Commercial Tax Department issued a notice directing the petitioner to register under the GST Act, 2017 and pay GST on the seigniorage charges paid to the Geology and Mining Department.

Aggrieved by the notice dated 23.05.2022, the petitioner approached the Madras High Court by filing a writ petition seeking its quashing.

Issues Involved

  1. Whether GST is payable on seigniorage charges/royalty paid for grant of mining lease.
  2. Whether the authorities were justified in issuing a notice requiring GST registration and payment on mining lease transactions.
  3. Whether the assessment proceedings should continue despite the pendency of the issue before the Supreme Court.

Petitioner’s Arguments

  • The petitioner contended that GST was being demanded on seigniorage charges paid for the mining lease, although the legality of such levy was already under challenge before the Hon'ble Supreme Court.
  • It was submitted that in M/s Lakhwinder Singh vs Union of India, the Supreme Court had granted interim protection regarding payment of GST on mining lease/royalty.
  • The issue relating to royalty and its taxability was also pending before a Nine-Judge Constitution Bench of the Supreme Court.
  • Since several High Courts, including the Madras High Court, had followed the interim protection granted by the Supreme Court, the impugned notice deserved to be quashed.

Respondent’s Arguments

  • The State contended that the petitioner had been granted the right to extract and use minerals in consideration of payment of seigniorage charges, which constituted consideration for supply of services.
  • Under Section 7 of the GST Act, such activity amounted to "supply".
  • As per Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017, GST on services supplied by the Government was payable by the recipient under the Reverse Charge Mechanism in terms of Section 9(3) of the GST Act, 2017.
  • The respondents further argued that only a show cause notice had been issued and the petitioner had neither submitted objections nor attended the personal hearing.
  • Therefore, the petitioner should first submit objections before the assessing authority instead of directly invoking writ jurisdiction.

Court Order / Findings

The Madras High Court observed that the Hon'ble Supreme Court had already granted interim protection in respect of GST payable on mining lease/royalty in the case of M/s Lakhwinder Singh vs Union of India, and similar protection had been consistently followed by various High Courts.

The Court further noted that the impugned communication was merely a show cause notice and not a final assessment order. Accordingly, instead of quashing the notice, the Court directed the petitioner to submit objections along with all supporting documents before the State Tax Officer within 30 days.

The assessing authority was directed to consider the objections and pass orders strictly in accordance with law while keeping in view the judgment and interim directions of the Hon'ble Supreme Court.

Until such consideration, the Court ordered that status quo shall be maintained by the respondents.

Accordingly, the writ petition was disposed of with the above directions.

Important Clarification

  • A show cause notice under the GST Act ordinarily should be responded to before invoking writ jurisdiction.
  • The Court recognised the pendency of the larger constitutional issue concerning GST on mining lease royalty before the Supreme Court.
  • The assessing authority must consider the taxpayer's objections while following the directions issued by the Supreme Court.
  • Status quo protection can be granted where identical issues are pending before the Supreme Court.
  • The decision does not finally determine the GST liability on mining lease royalty but protects the taxpayer until proper adjudication.

Sections Involved

  • Section 7 – Supply under the GST Act, 2017.
  • Section 9(3) – Reverse Charge Mechanism.
  • Section 62 – Best Judgment Assessment.
  • Section 63 – Assessment of Unregistered Persons.
  • Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017.
  • Article 226 of the Constitution of India.

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785400179_2356compressed.pdf

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