Facts of the Case

The petitioner, M/s. Royal Granite, Ganjam, a proprietorship engaged in decorative stone mining under the Orissa Minor Minerals (Concession) Rules, 2014 and registered under GSTIN 21AESPN0157K1ZD, paid total royalty of Rs. 1,34,72,988 to the State in FY 2017-18, which it did not disclose in its GST returns on the view that royalty was itself a tax on mining and not business turnover. In February 2020, the department demanded GST on this royalty under the reverse charge mechanism for 2017-18 to 2019-20, alleging wilful suppression; the petitioner paid Rs. 16,48,590/- under protest. A show cause notice dated 16.08.2021 was issued under Section 74 of the OGST Act, the demand was confirmed, and the first appeal was dismissed ex parte, raising a demand of Rs. 26,22,312/-. A prior writ petition (W.P.(C) No. 9491/2023) had directed the Appellate Authority to reconsider the petitioner's review application, but the Authority again passed an adverse order dated 17.06.2023 without a fresh hearing, prompting the present connected petitions.

Issues Involved

  1. Whether GST could be validly demanded under the reverse charge mechanism on royalty paid for mining rights, treating it as business turnover rather than a tax.
  2. Whether the assessment and appellate orders, based on internal departmental notifications never communicated to the petitioner, violated principles of natural justice.
  3. Whether the Appellate Authority complied with the earlier Court's direction to reconsider the review application after a proper hearing.

Petitioner's Arguments

  • Royalty paid to the State on mineral extraction is itself a tax on mining, not a business turnover, and was already on record with the Mining Department — there was no suppression, wilful or otherwise.
  • The show cause notice under Section 74 disclosed no specific violation and by-passed the mandatory scrutiny procedure under Section 61 of the Act, which required the officer to first seek an explanation via Form ASMT-10 before proceeding to Section 73 or 74.
  • The adjudicating and appellate authorities relied on internal departmental notifications (No. 11/2017 and an Odisha-AAR order) that were never communicated to the petitioner or referenced in the SCN, springing a surprise case on the petitioner in violation of natural justice.
  • Despite the Court's earlier direction in W.P.(C) No. 9491/2023 to reconsider the review application, the Appellate Authority passed its order dated 17.06.2023 without issuing notice or fixing a personal hearing.
  • The issue of whether royalty is exigible to GST under reverse charge is itself pending before a nine-judge Bench of the Supreme Court, making the demand premature.

Respondent's Arguments

  • The demand was justified on the ground that the petitioner had neither declared the royalty turnover nor paid tax on it under the reverse charge mechanism, amounting to wilful suppression warranting invocation of Section 74.
  • The Appellate Authority noted that the petitioner had not enclosed supporting documents proving payment as against the demand raised.

Court Order/Findings

  • The Court noted that whether royalty is a tax is a question pending before a nine-judge Bench of the Supreme Court, and on the facts, no wilful suppression could be attributed to the petitioner since royalty payment details were already available with the State's own Mining Department.
  • Reliance by the adjudicating and appellate authorities on internal departmental notifications never communicated to the petitioner was held to be beyond the principles of natural justice.
  • The Court was critical of the Department's approach, observing that it reflected a revenue-collection-driven attitude that ignored a judicious approach, particularly since the authorities had themselves overlooked that the demand under challenge could not be treated as proof required of the petitioner.
  • The impugned order dated 17.06.2023 rejecting the petitioner's review application was quashed, and all three connected writ petitions were disposed of accordingly.

Important Clarification

  • A GST demand cannot be sustained on the basis of departmental notifications or internal orders that were never disclosed to the taxpayer in the show cause notice — reliance on undisclosed material vitiates the proceedings.
  • Where royalty payment particulars are already available on government record (with the Mining Department), a charge of wilful suppression under Section 74 is difficult to sustain.

Sections Involved

  • Section 74 of the Odisha Goods and Services Tax Act, 2017 — deals with determination of tax not paid by reason of fraud or wilful misstatement/suppression of facts.
  • Section 61 of the OGST Act, 2017 — provides for scrutiny of returns and issuance of Form ASMT-10 before proceeding under Section 73 or 74.
  • Section 107 of the OGST Act, 2017 — governs the first appellate remedy before the Appellate Authority.
  • Section 9 of the Central Goods and Services Tax Act, 2017 — charging section, including the reverse charge mechanism.

Decision – In Favour of

In favour of the Assessee. The Orissa High Court quashed the impugned order rejecting the review application, holding the reliance on undisclosed departmental material and the alleged suppression finding unsustainable.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: Orissa High Court, Cuttack
  • Case No.: W.P.(C) No.30711 of 2023 (with W.P.(C) Nos.30716 and 30718 of 2023)
  • CNR: Not available on record
  • Coram: Dr. Justice S.K. Panigrahi and Justice G. Satapathy
  • Decision Date: 22.12.2023
  • Disposal Nature: Allowed

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