Facts of the Case

The petitioner was declared the successful bidder in a Government tender conducted under the Tamil Nadu Minor Mineral Concession Rules for obtaining a five-year quarry lease over Government land for rough stone extraction. After execution of the lease and payment of statutory charges including seigniorage charges, the State Tax Department issued a notice directing the petitioner to obtain GST registration and pay GST on the seigniorage charges paid to the Geology and Mining Department.

Aggrieved by the notice, the petitioner approached the Madras High Court seeking quashing of the impugned notice.

Issues Involved

  1. Whether GST is payable on seigniorage charges/royalty paid for quarry and mining lease operations.
  2. Whether the GST authorities could proceed with assessment under Section 63 of the TNGST Act before considering the pending legal position regarding GST on mining royalty.
  3. Whether the impugned notice deserved to be quashed at the notice stage.

Petitioner's Arguments

  • The petitioner had lawfully obtained the quarry lease through the Government tender process.
  • GST was sought to be levied on the seigniorage charges already paid to the Mining Department.
  • The legality of GST on mining royalty was already under challenge before the Hon'ble Supreme Court in M/s Lakhwinder Singh vs Union of India & Others.
  • The Supreme Court had granted interim protection regarding payment of GST on mining lease/royalty, and similar protection had been followed by various High Courts.
  • Therefore, issuance of the impugned notice was premature and unsustainable.

Respondent's Arguments

The State submitted that:

  • Seigniorage charges represent consideration paid to the Government for granting the right to extract minerals.
  • Such permission amounts to a supply of service under Section 7 of the GST Act.
  • Under Entry No. 5 of Notification No. 13/2017-Central Tax (Rate), GST is payable by the recipient under the Reverse Charge Mechanism in terms of Section 9(3).
  • The petitioner neither filed objections nor appeared for the scheduled personal hearings despite receiving notice.
  • The impugned communication was only a show cause notice giving the petitioner an opportunity to submit objections before assessment under Section 63 of the TNGST Act.

Court Order / Findings

The Madras High Court observed that:

  • The Hon'ble Supreme Court had already granted interim protection in relation to GST on mining lease/royalty in M/s Lakhwinder Singh vs Union of India & Others.
  • Various High Courts had consistently followed the said interim protection.
  • The impugned communication was only a show cause notice and not a final assessment order.
  • The petitioner should first submit detailed objections before the assessing authority along with supporting documents and relevant judicial precedents.
  • The assessing authority was directed to consider those objections in accordance with law while keeping in view the Supreme Court's order.
  • Till disposal of the objections, the respondents were directed to maintain status quo.

Important Clarification

This judgment does not finally determine the taxability of GST on mining royalty or seigniorage charges. Instead, the High Court protected the petitioner's rights by directing the GST authority to consider the objections in light of the interim orders of the Hon'ble Supreme Court and ordered maintenance of status quo until such consideration.

Key Takeaways

  • GST disputes relating to mining royalty remain subject to the final decision of the Hon'ble Supreme Court.
  • A show cause notice should ordinarily be replied to before invoking writ jurisdiction.
  • Authorities must consider binding judicial precedents and interim orders while deciding GST disputes.
  • Assessment proceedings under Section 63 of the TNGST Act should be conducted after granting adequate opportunity to the taxpayer.
  • Status quo may be directed where the legal issue is pending before the Supreme Court.

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785402008_2364compressed.pdf

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