Facts of the Case

The petitioner, P. Vediramasamy, was carrying on quarry operations after obtaining the necessary licence/permit under the Tamil Nadu Minor Mineral Concession Rules, 1959. The licence/permit had been granted for a period of five years by the District Collector through proceedings in Na.Ka.No.61/Mines/2018 dated 25 January 2019.

The petitioner challenged the notice dated 09 September 2022 issued by the second respondent, the State Tax Officer, and sought issuance of a Writ of Certiorari to call for the records relating to the impugned notice and quash the same.

According to the petitioner, the respondents were compelling registration of 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 contended that Seigniorage Fee itself constituted a tax on quarried minor minerals and, therefore, levy of GST on such Seigniorage Fee was unsustainable.

The petitioner further relied upon pending proceedings and judicial authorities concerning the nature of royalty, mining lease payments, Seigniorage Fee and the permissibility of taxation in relation to minerals.

Issues Involved

  1. Whether GST could legally be levied on Seigniorage Fee paid by a quarry operator to the Geology and Mining Department.
  2. Whether Seigniorage Fee, being asserted by the petitioner to constitute a tax on quarried minor minerals, could again be subjected to GST.
  3. Whether the petitioner could rely upon the Supreme Court’s interim order in M/s Lakhwinder Singh vs Union of India, W.P.(Civil) No. 1076 of 2021, dated 04 October 2021, concerning payment of GST for grant of mining lease/royalty.
  4. Whether the principle discussed in India Cement Ltd. and Others vs State of Tamil Nadu and Others, reported in 1990 (1) SCC 12, had relevance to the petitioner’s challenge concerning levy and collection of tax/sales tax on minerals.
  5. What was the impact of the larger-bench reference concerning the true nature of royalty/dead rent payable on minerals in Mineral Area Development Authority etc. vs M/s Steel Authority of India & Others, reported in 2011 (4) SCC 450.
  6. Whether the writ petition was premature because the impugned proceeding dated 09 September 2022 was only a notice and no final adjudication had yet taken place.
  7. Whether coercive recovery proceedings could continue before the petitioner’s objections to the notice were considered and disposed of.

Petitioner’s Arguments

The petitioner submitted that:

  • The petitioner was lawfully carrying on quarry operations under a valid licence/permit granted under the Tamil Nadu Minor Mineral Concession Rules, 1959.
  • The respondents were compelling the petitioner to register the quarry operations under the GST Act, 2017.
  • The petitioner was being instructed to pay GST on the Seigniorage Fee paid to the Geology and Mining Department.
  • Seigniorage Fee itself constituted a tax on quarried minor minerals and, consequently, levy of GST on the same was unsustainable.
  • The legality of levy of GST on Seigniorage Fee was pending consideration before the Supreme Court in M/s Lakhwinder Singh vs Union of India, W.P.(Civil) No. 1076 of 2021, dated 04 October 2021.
  • The Supreme Court had granted stay of payment of GST for grant of mining lease/royalty by the petitioner in that matter, and the said approach had been followed by various Courts.
  • The respondents were demanding tax on Seigniorage Fee and also on minerals quarried and disposed of.
  • Levy and collection of tax/sales tax on minerals was not permissible in view of the judgment of the Supreme Court in India Cement Ltd. and Others vs State of Tamil Nadu and Others, reported in 1990 (1) SCC 12.
  • The issue 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 & Others, reported in 2011 (4) SCC 450.

Respondents’ Arguments

The learned Government Advocate appearing for the respondents submitted that:

  • The impugned proceeding was only a notice.
  • Since no final order had yet been passed, the writ petition was premature.
  • On that ground, the writ petition was liable to be dismissed.

Court 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 issued the following directions:

  1. The petitioner was directed 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.
  2. The petitioner was permitted to rely upon the judgment/order in M/s Lakhwinder Singh vs Union of India and Others.
  3. The petitioner was also permitted to rely upon any other judgments which the petitioner intended to place before the authority.
  4. If objections were filed, the second respondent was directed to consider the same and pass appropriate orders.
  5. Until disposal of the objections, the respondents were restrained from resorting to recovery proceedings.
  6. The High Court expressly clarified that it had not expressed any view on the merits of the controversy.
  7. The respondents were left free to consider the issues raised by the petitioner on their own merits.

With these directions, the writ petition was disposed of without costs, and the connected Writ Miscellaneous Petition was closed.

Important Clarification

This judgment does not finally hold that GST on Seigniorage Fee is valid or invalid.

The High Court did not quash the impugned notice on merits. Instead, it recognised that the challenged proceeding was only a notice and directed the petitioner to submit objections within 30 days.

The Court permitted reliance upon M/s Lakhwinder Singh vs Union of India and Others and other judgments, directed the State Tax Officer to consider the objections, and protected the petitioner from recovery proceedings until disposal of those objections.

Therefore, the case should not be represented as a final declaration that GST cannot be levied on Seigniorage Fee, royalty or mining lease payments.

The precise legal effect of the order is that:

  • the petitioner was granted an opportunity to file objections;
  • relevant judicial authorities could be relied upon;
  • the competent authority was required to consider the objections and pass appropriate orders;
  • recovery proceedings were not to be initiated until disposal of the objections; and
  • all questions on merits were expressly left open.

Sections / Legal Provisions Involved

Article 226 of the Constitution of India – The writ petition was filed seeking issuance of a Writ of Certiorari to quash the impugned notice.

GST Act, 2017 – The dispute concerned the alleged requirement to register quarry operations under GST and pay GST on Seigniorage Fee paid to the Geology and Mining Department.

Tamil Nadu Minor Mineral Concession Rules, 1959 – The petitioner’s quarry operations were conducted pursuant to a licence/permit obtained under these Rules.

Section 9 of the CGST Act, 2017 / corresponding State GST charging framework – Contextually relevant to levy of GST, though the judgment itself does not record a final merits-based determination under a specific charging section.

Reverse Charge Mechanism provisions, where applicable to mining-related Government services – Potentially relevant in the broader legal framework concerning GST on mining lease/royalty or Seigniorage Fee; however, the High Court’s order does not finally adjudicate such statutory provisions.

Important statutory accuracy note: The judgment expressly refers to Article 226 of the Constitution of India, the GST Act, 2017, and the Tamil Nadu Minor Mineral Concession Rules, 1959. Any additional reference to specific GST charging or reverse-charge provisions must be treated as contextual legal framework and not as an express merits-based finding recorded by the High Court.

Link to download the order - https://mytaxexpert.co.in/uploads/1783503372_1529compressed.pdf

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