Operationalizing CBIC Instruction No. 01/2026-GST: A Roadmap for Jammu & Kashmir to Curb Mining Sector Evasion
The Central Board of Indirect Taxes and Customs (CBIC) issued Instruction No. 01/2026-GST (dated August 3, 2026), mandating structured coordination between CGST field formations and State Mining Authorities. Prompted by observations in the CAG’s Draft Performance Audit Report on “Assessment, Levy and Collection of GST on Minerals,” the instruction highlights that critical enforcement data—such as illegal extractions, vehicle seizures, excess mining, and lease suspensions—frequently fails to reach tax authorities, leading to unrecovered GST revenues.
In the Union Territory of Jammu & Kashmir (J&K), where the mining sector primarily revolves around riverbed materials (RBM—sand, gravel, boulders, bajri), limestone and gypsum, this directives comes at a critical time. Informal trade practices and localized distribution networks present a clear opportunity for revenue leakages.
Reasons for GST Evasion in J&K’s Mining Sector
Suppression of Output Supplies: Mined mineral volumes reported to the Geology & Mining Department often understate actual extractions sold to private contractors, real estate builders, and stone crushers.
Non-Issuance of Invoices & Cash Sales: Localized sales of minor minerals are frequently conducted in cash without generating tax invoices or E-Way Bills.
Misclassification and Undervaluation: Misdeclaring high-value mineral grades or artificially deflating transaction values to minimize liability under Reverse Charge Mechanism (RCM) or forward charge.
Unregistered Operators: Small-scale quarry operators and subcontractors operating below or around threshold limits without tax registration.
What should be done:
To implement Instruction No. 01/2026-GST effectively, the SGST Jammu & Kashmir Divisions and the J&K Department of Geology and Mining can adopt the following strategies:
Real-Time Data Reconciliation: Interface the J&K Mining Department’s e-Challan / e-mPR (Minor Mineral Transit Permit) database directly with the GST portal (and E-Way Bill system) akin to TDS data in case of Works Contractors.
Automated Red-Flagging: Automatically flag discrepancies where e-Challan volumes exceed the turnover declared in GSTR-1 and GSTR-3B by leaseholders.
Designated Nodal Officers: Appoint dedicated Nodal Officers at the Divisional level (Srinagar and Jammu) to meet periodically.
Monthly Action Matrix: Cross-verify monthly returns against Seizure Memos, Royalty Payment Records, and Weighbridge Logs maintained by mining checkpoints across J&K.
Drone Mapping & Satellite Imagery: Utilize drone-based volumetric surveys conducted by the Mining Department to calculate actual mineral extraction volumes at major quarry blocks (e.g., Jhelum, Chenab, Tawi basins) and match them against total GST paid.
Weighbridge Automation: Mandatory integration of digital weighbridge data with automated reporting to prevent off-the-record mineral dispatch.
RCM Reconciliation: Mining leaseholders pay royalties and Dead Rent to the State Government, which attracts GST under the Reverse Charge Mechanism (RCM). GST authorities should cross-check royalty payment data from the Geology & Mining Department against RCM tax payments in GSTR-3B.
Sub-Contractor Verification: Verify downstream supply chains, ensuring stone crusher units and civil infrastructure contractors report valid Input Tax Credit (ITC) supported by legitimate tax invoices.
Integrated Checkpoints: Establish combined enforcement drives between J&K State Taxes Department, CGST, and Geology & Mining inspectors along key transport corridors (e.g., NH-44 and major river basin exit points).
E-Way Bill Compliance: Strict verification of E-Way Bills for inter-district and intra-state movement of crushed stone, gypsum, and sand.
Bottom Line:
Instruction No. 01/2026-GST provides a concrete framework to dismantle information barrier between revenue bodies and natural resource managers. By establishing automated data-sharing, joint audits, and tech-driven volumetric verifications, Jammu & Kashmir can plug systemic leakages, protect public revenues, and ensure fair competition across its mining industry.
FAQs
1. What is CBIC Instruction No. 01/2026-GST?
It is an instruction issued by the Central Board of Indirect Taxes and Customs (CBIC) directing structured coordination between CGST field formations and State Mining Authorities to improve GST compliance in the mining sector.
2. Why was this instruction issued?
The instruction follows observations in the CAG’s Draft Performance Audit Report, which highlighted that enforcement information relating to illegal mining and related activities often does not reach GST authorities, resulting in revenue leakage.
3. Why is the instruction important for Jammu & Kashmir?
J&K has a significant mining sector dealing with riverbed materials, limestone and gypsum. Informal trade practices and decentralized supply chains increase the risk of GST evasion.
4. What are the major causes of GST evasion in J&K’s mining sector?
The article identifies:
- Suppression of actual mineral extraction and sales.
- Cash sales without invoices or E-Way Bills.
- Misclassification and undervaluation of minerals.
- Operations by unregistered quarry operators and subcontractors.
5. How can technology improve GST compliance in mining?
The article recommends:
- Integration of mining e-Challan/e-mPR data with GST and E-Way Bill systems.
- Automated mismatch detection.
- Drone surveys and satellite imagery.
- Digital weighbridge integration.
- Data analytics for identifying tax risks.
6. What role can data reconciliation play?
Cross-verification of mining records, GST returns, royalty payments, transport permits and weighbridge logs can help identify under-reporting of turnover and unpaid GST.
7. Why is Reverse Charge Mechanism (RCM) reconciliation important?
The article suggests comparing royalty and Dead Rent payments made to the Mining Department with GST paid under RCM in GSTR-3B to detect non-compliance.
8. What enforcement measures are recommended?
Suggested measures include:
- Appointment of nodal officers.
- Joint inspections by SGST, CGST and Mining authorities.
- Verification of E-Way Bills.
- Monitoring transport corridors.
- Verification of ITC claimed by downstream purchasers.
9. How can downstream supply chains be verified?
The article recommends verifying whether stone crushers, contractors and other buyers possess valid tax invoices supporting their Input Tax Credit claims.
10. What is the expected outcome of implementing these recommendations?
According to the article, better data sharing, coordinated enforcement and technology-driven monitoring can reduce GST leakages, improve tax compliance and promote fair competition in J&K’s mining sector.
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Aijaz Hussain Malik, JKAS presently posted as State Taxes Officer, Circle-C, Srinagar and writes on GST compliance and can be reached at [email protected]
