CBIC Mining Data Sharing: GST Risks and Defence

Cross-Departmental Tax Liabilities in Mining Sector: CBIC Instruction No. 01/2026-GST

Summary: CBIC Instruction No. 01/2026-GST introduces cross-departmental data sharing between CGST formations, State Mining Authorities and tax administrations, enabling mining records to be compared with E-Way Bills, e-invoices and GST returns. The article examines how differences arising from bulk-density conversion, moisture loss, intermediate stock movements, cancelled transit permits and timing of royalty payments can generate apparent GST mismatches. It discusses potential scrutiny and demand proceedings under Sections 61, 73, 74 and 74A, along with penalty and confiscation exposure. It also analyses reverse-charge implications relating to royalty, DMF and NMET payments and proposes a monthly three-way reconciliation connecting physical mining records, State DMG portal information and GST statutory data. Scientific SOPs for moisture, bulk density and weighbridge calibration are suggested to substantiate operational variances. The article further discusses legal defences against mechanical turnover estimations and Section 74 allegations and recommends stronger ERP integration, documentation, reconciliation and litigation-readiness controls for mining businesses.

The CAG Audit Catalyst and CBIC Instruction No. 01/2026-GST

The indirect tax administration of India’s extractive industries has entered an era of aggressive, data-driven enforcement. Historically, mineral extraction, transport logistics, and indirect tax compliance operated in distinct administrative compartments. This structural insulation allowed widespread discrepancies between physical pithead output and reported financial turnover to persist undetected. This period of administrative detachment ended with the release of comprehensive performance and compliance audit reports by the Comptroller and Auditor General (CAG) of India regarding the assessment, levy, and collection of Goods and Services Tax (GST) and state mineral revenues.

The CAG’s findings across major mineral-bearing states, including Report No. 12 of 2024 (Minor Minerals, Odisha), Report No. 7 of 2024 (GST Compliance), Report No. 6 of 2024 (Major Minerals), and Report No. 25 of 2025, exposed systemic revenue leakages. The audits revealed vast statistical chasms between the physical quantities of minerals cleared via state mining transit passes and the corresponding turnover declared in statutory GST returns.

The CAG highlighted that state Directorates of Mines and Geology (DMG) were collecting royalty on millions of metric tonnes of minerals that never surfaced in Central GST (CGST) or State GST (SGST) returns. Conversely, entity-level financial claims for Input Tax Credit (ITC) and freight expenses routinely exceeded the logistical capacities implied by state mining records.

To remedy these operational deficiencies, the Central Board of Indirect Taxes and Customs (CBIC) issued Instruction No. 01/2026-GST. This directive mandates an institutionalised, automated data-sharing mechanism linking CGST Zonal Nodal Officers directly with State DMGs and State Tax Administrations.

Under this framework, monthly and quarterly data streams from state mining portals, such as Integrated Mines and Mineral Management System (i3MS) in Odisha, Khanij Online in Madhya Pradesh, e-Rawana in Uttar Pradesh and Haryana, and integrated Mine Dispatch Permit (MDP) portals across Rajasthan, Jharkhand, and Chhattisgarh, are fed directly into the Directorate General of Analytics and Risk Management (DGARM).

This mining data is automatically cross-referenced against the National E-Way Bill (EWB) portal, the E-Invoicing System (IRN database), and financial filings submitted via Form GSTR-1, Form GSTR-3B, and Form GSTR-9/9C.

The Collapse of Operational Silos and Algorithmic Exposure

For over two decades, mining conglomerates, quarry concessionaires, and merchant extractors managed their businesses through three distinct internal streams:

• The Mining Operations Stream: Managed by site engineers and geology teams, focusing on pithead excavation, volumetric surveys, crushing, washing, and generating state transit permits (e-Rawana, MDP, or pass slips) denominated in cubic meters (m³) or wet Metric Tonnes (MT).
• The Logistics Stream: Managed by dispatch and transport managers, focusing on weighbridge gross and tare weighments, vehicle assignment, issuing delivery challans, and generating E-Way Bills denominated in transit tonnages.
• The Corporate Finance and Tax Stream: Managed by accounting officers and external tax advisors, focusing on issuing tax invoices, booking revenue under commercial accounting standards, and filing periodic returns on the GSTN portal.

Under CBIC Instruction No. 01/2026-GST, these operational boundaries have effectively dissolved. Algorithmic cross-triangulation treats any discrepancy between these three streams as potential tax evasion.

When DGARM flags a discrepancy between DMG transit permits and GSTR-1 outward turnover, automated Scrutiny Notices under Section 61 (Form GST ASMT-10) are generated. If the field-level explanations are deemed insufficient by jurisdictional GST officers, the matter quickly escalates to formal proceedings under Section 73 (non-fraud demand), Section 74 (fraud, wilful misstatement, or suppression), or the unified demand framework under Section 74A.

In parallel, tax authorities are resorting to drastic enforcement tools. Summary penalty proceedings under Section 122 for missing documentation or unaccounted movements are frequently initiated. In extreme cases involving large volumetric mismatches, officers issue seizure and confiscation orders under Section 130, alleging that unrecorded physical output represents off-the-books extraction intended for clandestine supply.

Tax practitioners must navigate this environment by establishing robust, scientifically defensible operational bridges between field geology, site logistics, and statutory tax filings.

Dissecting Ground-Level Discrepancies: Operational Realities vs. Allegations of Tax Suppression

The central flaw in modern algorithmic tax enforcement in the mining sector is the assumption of physical linear parity: the premise that one cubic meter of mineral extracted at the pithead must directly equal a fixed gravimetric tonnage billed on a commercial invoice and reported in Form GSTR-1. In reality, physical extraction and commercial financial realisation are separated by complex physical, geological, and logistical variables.

When GST enforcement officers compare DMG transit data with GSTR-1 disclosures without adjusting for these operational variables, they frequently mistake routine operational variances for intentional tax suppression. Resolving these disputes requires a detailed technical understanding of these operational realities.

Volumetric-to-Gravimetric Conversion Dynamics and Bulk Density Fluctuation

State DMGs often issue mining permits and assess royalties based on volumetric measurements—specifically cubic meters (m³) or solid bank measure within the leasehold area. Conversely, commercial sales under GST are invoiced on a gravimetric basis, measured in Metric Tonnes (MT) via calibrated weighbridges. The conversion between volume and mass is governed by bulk density (ρ), expressed as:

ρ = Mass (M) / Volume (V)

Bulk density is not a static physical constant; it varies based on particle size distribution, moisture content, compaction, and mineralogy. For example, run-of-mine (ROM) iron ore exhibits bulk density variations ranging from 2.1 t/m³ to over 3.2 t/m³ depending on the proportion of high-density lump ore to low-density fines, porosity, and hematite-to-goethite ratios. Similarly, crushed stone aggregates (such as basalt, granite, or limestone) exhibit significant density changes across different processing stages:

• In-situ solid rock (Bank measure): High density (almost equal to 2.6 to 2.8 t/m³).
• Primary crushed loose aggregate: Lower loose bulk density (almost equal to 1.4 to 1.6 t/m³) due to air void spaces.
• Compacted aggregate in transit vehicles: Higher density (almost equal to 1.65 to 1.8 t/m³) caused by mechanical vibration during loading and transport.

When revenue authorities apply a single, arbitrary textbook conversion factor across an entire mining operation, significant artificial variances emerge. For instance, if an auditing officer applies a fixed conversion factor of 1.8 t/m³ to a volumetric clearance of 100000 m³ on an e-Rawana portal, they will calculate an expected output of 180000 MT If the actual physical aggregate cleared had a loose bulk density of 1.52 t/m³ (yielding an actual weight of 152000 MT), the officer will incorrectly allege a suppressed supply of 28000 MT.

Under Section 74 or Section 74A, this calculation can result in substantial tax demands, interest charges, and equivalent penalties based on an entirely fictional quantity of material.

Moisture Losses, Transit Evaporation, and Sampling Variances

Moisture dynamics present another major source of data mismatches between pithead clearances and final financial reporting. Extracted minerals—particularly washed coal, bauxite, wet limestone, silica sand, and wet-screened iron ore fines—contain two distinct forms of moisture:

1. Inherent Moisture: Water chemically bound or held within the internal pore structure of the mineral matrix.
2. Surface / Free Moisture: Water adhering to the external surfaces of mineral particles following extraction, dust suppression sprinkling, or wet beneficiation processes.

At the pithead weighbridge, minerals are weighed in a wet state (W_wet). State mining portals issue transit passes (e-Rawana/MDP) recording this gross wet weight. During subsequent open-wagon rail transit or long-distance highway transport, surface moisture evaporates due to ambient heat, wind exposure, and solar radiation.

The total weight of the consignment decreases continuously during transit. The relationship between wet weight (W_wet), dry weight (W_dry), and total moisture percentage (M) is expressed as:

W_dry = W_wet × (1-(M/100))

In commercial contracts, buyers typically settle invoices based on dry net weight or destination weighbridge figures adjusted for moisture content exceeding a baseline percentage. Consequently, an iron ore miner might dispatch 10000 MT of wet fines at a pithead density/moisture level of 12% free moisture, as recorded on the DMG portal.

By the time the material arrives at a steel plant or port terminal after three days of transit, evaporation may have reduced the moisture content to 7%. The physical weighbridge at destination records only 9462 MT.

If the miner bills for 9462 MT (the actual commercial quantity delivered and paid for under the contract), tax algorithms flag a 538 MT shortfall relative to the DMG portal record. Revenue authorities often treat this missing tonnage as an un-invoiced, off-the-books cash sale, completely ignoring the thermodynamics of moisture loss.

To defend against these allegations, mining entities must conduct sampling and moisture testing under standard laboratory methods. Relevant technical standards include:

• IS 1405: Indian Standard for Manual Sampling and Sample Preparation of Iron Ores for determination of size distribution, moisture content, and chemical composition.
• IS 2720 (Part 2 and Part 7): Indian Standard Methods of Test for Soils – Determination of Water Content and Dry Density Relations.
• IS 2386 (Part 3) / IS 5842 / ASTM D7481: Standard test methods for specific gravity, bulk density, voids, and absorption of aggregates and ores.

Logistics, Intermediate Stockpiling, and Non-Taxable Movements

Modern mining logistics rarely involve a single, direct transit movement from the mine pit to the end customer. Extracted minerals typically pass through complex intermediate handling networks before reaching the market:

• Mine Pithead to Processing Infrastructure: Movement of Run-of-Mine (ROM) ore to washeries, screening plants, or crushing units located outside the primary leasehold area.
• Processing Infrastructure to Staging Yards: Movement of processed mineral fraction to intermediate stockyards or railway sidings.
• Staging Yards to Final Destination: Final dispatch to domestic industrial buyers or seaport terminals for export.

State mining regulations require transit passes (e-Rawana/MDP) for every movement on public roads, including non-commercial internal stock transfers. Consequently, a single batch of 1,000 MT of mineral moved from the pithead to a crusher, then to a railway siding, and finally to a customer will generate multiple transit passes on the state DMG portal.

Tax algorithms evaluating DMG datasets often aggregate these transit passes, recording a cumulative volume of 3000 MT of transit movement. When cross-referenced against a single tax invoice and E-Way Bill for 1000 MT in Form GSTR-1, the system flags a 2000 MT discrepancy as suppressed turnover.

This error stems from the system’s inability to distinguish between internal logistics transfers and taxable outward supplies under Section 7 of the CGST Act.

A similar issue arises with internal captive consumption. Integrated steel, cement, or power conglomerates frequently extract minerals (such as iron ore, limestone, or coal) from captive mines and transfer them directly to nearby manufacturing plants. Under Section 7 read with Schedule I of the CGST Act, intra-state transfers between units sharing the same GSTIN do not constitute taxable supplies and require no outward tax invoice.

However, state DMG portals record these clearances as full mineral movements to collect state royalty. Tax auditors comparing DMG extraction data against Form GSTR-1 outward taxable supplies frequently issue demand notices, mistaking internal transfers for undeclared commercial sales.

Unutilized, Expired, or Cancelled Dispatch Passes

A final operational cause of data mismatches is the administrative handling of transit passes on state mining portals. To manage daily logistics, dispatch clerks generate e-Rawana or MDP passes in advance for queued trucks. However, transport operations are frequently disrupted by weighbridge failures, truck breakdowns, bad weather, or driver absences.

When a truck fails to load or dispatch, the corresponding transit pass expires or is cancelled on the mining portal. However, state DMG IT systems often fail to purge these unutilized or expired passes from their master export summary logs.

When CGST nodal officers request total clearance data under CBIC Instruction No. 01/2026-GST, the state DMG provides gross generated permit records that include these unfulfilled dispatches. Revenue authorities then treat these unfulfilled dispatches as concealed sales, demanding tax under Section 74 or Section 74A without verifying whether physical transport ever occurred.

Cascading Liabilities under Reverse Charge Mechanism (RCM) on Statutory Charges

Beyond outward supply mismatches, the cross-departmental integration established by CBIC Instruction No. 01/2026-GST creates significant tax exposure regarding inward liabilities under the Reverse Charge Mechanism (RCM). Under the GST framework, mining rights granted by the government are classified as a service, requiring concessionaires to discharge GST on statutory mining payments under RCM.

RCM Mechanics on Royalty, DMF, and NMET

Section 9(3) of the CGST Act, read with Notification No. 13/2017-Central Tax (Rate), establishes that GST on services supplied by the Government or local authorities to a business entity must be paid by the recipient under reverse charge. In the mining sector, the grant of mineral concession rights and extraction permissions falls under Service Accounting Code (SAC) Heading 9973, specifically sub-heading 997337 (Licensing services for the right to use minerals including exploration and evaluation).

Following extensive litigation regarding the taxability of mining royalties—culminating in key decisions by the Supreme Court of India and High Courts, alongside rulings involving major entities such as Steel Authority of India Ltd. (SAIL)—the tax position is well-established: royalty paid to the State Government for mineral extraction is non-taxable consideration for a licensing service, taxable at 18% GST under RCM.

Crucially, this RCM liability extends beyond the basic royalty paid to the State DMG. It also applies to mandatory statutory contributions levied under the Mines and Minerals (Development and Regulation) (MMDR) Act, 1957, including:

1. District Mineral Foundation (DMF): Mandated under Section 9B of the MMDR Act, set at either 10% (for post-2015 auctioned leases) or 30% (for pre-2015 concession leases) of the base royalty.
2. National Mineral Exploration Trust (NMET): Mandated under Section 9C of the MMDR Act, set at 2% of the base royalty.

These statutory payments are legally classified as payments for government services tied directly to the underlying mining concession. Consequently, every rupee paid toward Royalty, DMF, and NMET incurs an immediate 18% cash GST liability under RCM, payable via the Electronic Cash Ledger in Table 3.1(d) of Form GSTR-3B.

Total RCM Liability = 18% × (Base Royalty + DMF Contribution + NMET Contribution)

Mismatches in DMG Royalty Assessments vs. Form GSTR-3B RCM Discharge

A major exposure point under CBIC Instruction No. 01/2026-GST is the timing mismatch between state DMG royalty accounting and periodic GST filings. State DMGs operate on distinct assessment frameworks, often demanding advance royalty deposits before issuing e-Rawana/MDP passes, or issuing annual statutory Royalty Assessment Certificates after reconciliation.

These operational differences create structural discrepancies between DMG records and GST filings:

• Advance Royalty Deposits vs. Actual Dispatch: Mining entities often pay large advance royalty sums to the state DMG to ensure uninterrupted pass generation. Under Section 13 of the CGST Act, the time of supply for services under RCM is the earlier of the date of payment or 60 days from the invoice/assessment date. If a company pays an advance royalty in March but clears the physical mineral in April, a timing mismatch occurs between the financial year’s royalty payment and the corresponding outward physical dispatches.
• Dead Rent Adjustments: Under mineral concession rules, leaseholders must pay either base royalty or “Dead Rent” (a fixed per-hectare charge), whichever is higher. When DMGs issue retroactive assessment orders demanding supplemental Dead Rent, mining entities must pay the liability immediately. If the company fails to discharge 18% RCM on this supplemental Dead Rent within the same tax period, DGARM algorithms highlight the mismatch.
• DMG Annual Assessment Certificates vs. Form GSTR-3B Table 3.1(d): CGST officers routinely obtain annual DMG Royalty Assessment Certificates under the new data-sharing mechanism. Officers multiply the total statutory demand (Royalty + DMF + NMET) by 18% and compare the result directly against cash RCM payments reported in Table 3.1(d) of Form GSTR-3B.

If Table 3.1(d) reflects a lower figure, even if due to timing differences, advance adjustments, or misclassification across return tables, the department issues demand notices under Section 73, 74, or 74A. These notices demand short-paid RCM tax, mandatory interest under Section 50(1) at 18% per annum, and penalties under Section 122.

Operationalising Internal Controls: The Monthly “Three-Way Reconciliation” Framework

To counter cross-departmental enforcement under CBIC Instruction No. 01/2026-GST, mining companies must replace manual, piecemeal accounting with an institutionalised monthly internal control framework. The primary defence against automated data-matching algorithms is the Monthly Three-Way Reconciliation, designed to identify and document operational variances before tax returns are finalised.

Architecture of the Three-Way Reconciliation

The Three-Way Reconciliation framework bridges three distinct data ecosystems:

1. The Physical Field Layer: Weighbridge gross/tare logs, pithead volumetric survey records, moisture testing lab certificates (IS 1405/2720), and internal stock transfer delivery challans.
2. The State Mining Portal Layer: Issued e-Rawana passes, MDP permits, monthly DMG extraction returns, and royalty/DMF/NMET payment receipts.
3. The GST Statutory Portal Layer: Form GSTR-1 (Table 4 B2B, Table 7 B2C, Table 11 Advances), Form GSTR-3B (Table 3.1a Outward Taxable, Table 3.1d Inward RCM), National E-Way Bill logs, and IRN E-Invoicing registries.

Master Data Alignment Table

The foundation of this internal control framework is a unified data structure aligning field-level operational documentation with statutory returns.

Operational Step	Primary Field Document	State Mining Portal Field (DMG)	Statutory Logistics & Billing Field (EWB / IRN)	Statutory GST Return Field (GSTR-1 / GSTR-3B)	Reconciling Variance Variable & Documentation
Extraction & Pithead Clearing	Pithead Volumetric Survey Sheet / Excavator Log	Allocated Extraction Volume (m3) / Bank Measure	N/A (Internal Mine Operation)	N/A (Pre-supply operational stage)	Density Conversion Factor (t/m3) backed by IS 2386/5842 Lab Test Logs.
Internal Transfer to Processing / Siding	Weighbridge Slip & Internal Delivery Challan	e-Rawana / MDP “Internal Stock Transfer” Pass	E-Way Bill (Reason: “Line Sales / Stock Transfer”)	Excluded from GSTR-1 Outward Turnover (Non-supply u/s 7).	Internal Movement Log proving zero commercial consideration; matches Schedule I exclusions.
Commercial Dispatch from Siding / Mine	Destination Gross / Tare Weighbridge Slip	e-Rawana / MDP “Commercial Sale” Transit Pass	IRN E-Invoice & E-Way Bill (Document Type: INV)	GSTR-1 Table 4A (B2B) / Table 7 (B2C) Taxable Value & Tax Quantity	Moisture Loss Variance (M%) backed by IS 1405 / IS 2720 lab certificates.
Unutilized / Cancelled Permit Handling	Siding Gate Register / Cancelled Truck Log	DMG Portal “Cancelled / Expired Permit Status”	Cancelled E-Way Bill / Invalidate IRN (within 24 hrs)	Zero entry in GSTR-1; explicit log in internal reconciliation register	DMG System Cancellation Report proving non-movement of physical vehicle.
Statutory Royalty Payment Discharge	DMG Payment Treasury Challan / Bank Advice	Royalty, DMF & NMET Payment Receipts	N/A (Statutory Treasury Payment)	GSTR-3B Table 3.1(d) Inward RCM Taxable Value & Tax Cash Paid	Timing / Advance Deposit Variance Schedule reconciling payment date vs dispatch date.

Standard Operating Procedures (SOPs) for Tolerance Bands and Scientific Baselines

To ensure the Three-Way Reconciliation framework withstands legal scrutiny, mining organisations must establish formal Standard Operating Procedures (SOPs) defining scientific tolerance bands for physical and operational variances:

Moisture Loss Tolerance SOP

Establish an operational tolerance band (typically ± 2% to ± 6% depending on mineral type and transit distance) for mass loss attributable to ambient evaporation. Every dispatch site must maintain a daily moisture register compliant with IS 1405 (for iron ore) or IS 2720 (for soils/aggregates).

Samples must be collected at the pithead before dispatch and dried in temperature-controlled ovens (105°C to 110°C) to determine baseline moisture percentage (M₁). Destination weighbridge certificates must record received moisture (M₂).

The resulting weight differential must be logged in a Monthly Moisture Variance Schedule, signed by the site quality controller, and attached to the monthly GST reconciliation file.

Bulk Density Conversion SOP

Prohibit the use of arbitrary, static bulk density conversion factors. Mining leaseholders must engage accredited third-party laboratories to issue quarterly bulk density test certificates compliant with IS 5842 or IS 2386 (Part 3) for each active mining pit, mineral seam, and crushed fraction size.

The resulting bulk density bounds (ρ_min to ρ_max) establish the official conversion range for converting DMG volumetric figures (m³) into expected gravimetric tonnages (MT). Any tax inquiry alleging suppressed supply based on volumetric conversion must be rebutted using these certified density ranges.

Weighbridge Calibration and Tare-Weight SOP

All pithead, siding, and plant weighbridges must undergo monthly calibration by authorised Legal Metrology inspectors, with calibration certificates archived digitally.

Weighbridge software must be integrated directly with Enterprise Resource Planning (ERP) systems to prevent manual weight overrides and log automatic tare-weight auto-zeroing for every vehicle.

When destination weighbridge figures differ from pithead figures by less than ±0.5% (the standard tolerance for legal metrology equipment), the variance must be classified as allowable weighbridge tolerance rather than an unaccounted supply.

Strategic Audit Defence Playbook: Challenging Arbitrary Demands and Section 74 Allegations

Despite establishing robust internal controls, mining entities may still receive formal inquiries, Scrutiny Notices (ASMT-10), or Show Cause Notices (DRC-01) issued under CBIC Instruction No. 01/2026-GST. Tax authorities frequently rely on automated data mismatches to issue aggressive tax demands.

Building a successful legal defence requires challenging these allegations using statutory provisions and established judicial precedents.

Rebutting Mechanical Turnover Estimations

A common vulnerability in departmental Show Cause Notices is the mechanical estimation of suppressed turnover. Adjudicating officers frequently take the difference between DMG transit permit volumes and GSTR-1 reported tonnages, multiply this quantity by an arbitrary market benchmark price (such as Indian Bureau of Mines – IBM published prices), and assess a tax demand under Section 73, 74, or 74A.

This mechanical approach is legally defective under the CGST Act framework:

• Absence of Taxable Supply under Section 7: Section 9 of the CGST Act levies tax exclusively on the “supply” of goods and services. Under Section 7, a supply requires a transfer, sale, or disposal made for consideration in the course or furtherance of business. Unutilized transit passes, expired e-Rawana permits, density conversion variances, and evaporation losses do not involve any physical transfer of goods or monetary consideration.

The department bears the legal burden of proving actual physical supply to an identifiable recipient; mere mathematical variances between state portal logs do not meet the statutory definition of a taxable supply.

• Violation of Valuation Principles under Section 15: Section 15 of the CGST Act mandates that the taxable value of a supply shall be the transaction value—the price actually paid or payable.

Assessing GST by applying IBM benchmark prices or external market rates to estimated volumetric discrepancies violates Section 15 and Rule 27-31 of the CGST Rules, unless the department formalises a statutory rejection of transactional books under Section 145 of the Income Tax Act / Section 65 of the CGST Act backed by concrete evidence of unrecorded cash receipts.

Refuting Allegations of Fraud, Wilful Misstatement, and Suppression

Tax authorities frequently invoke Section 74 (or Section 74A for post-FY 2024-25 periods) to benefit from extended five-year limitation periods and mandatory 100% penalties. They argue that the failure to report full DMG clearance quantities in Form GSTR-1 constitutes deliberate “suppression of facts”.

This argument contains significant legal vulnerabilities that tax practitioners can target:

The Legal Requirement of Mens Rea

Section 74 applies strictly when underpayment or non-payment occurs by reason of fraud, wilful misstatement, or suppression of facts with intent to evade tax. Honest reconciliation errors, technical density conversion differences, moisture evaporation, and timing discrepancies under RCM lack the requisite mens rea (intent to evade).

Courts consistently affirm that mere reporting mismatches do not justify Section 74 proceedings without clear, independent evidence of intentional tax evasion.

The Public Domain Doctrine

Under Explanation 2 to Section 74, “suppression” means non-declaration of facts or information which a taxable person is required to furnish under the Act or Rules, or failure to inform the department of any information with intent to evade tax.

Because state mining transit data (e-Rawana/MDP) resides on public, state-government-administered digital portals accessible to state tax officers, the taxpayer cannot be accused of concealing or suppressing these records. Information already in the possession of the State Government cannot legally constitute “suppression of facts” to justify invoking the extended period of limitation under Section 74.

Deploying Landmark Judicial Precedents

To reinforce the defence, litigation filings should rely on key judicial precedents that restrict mechanical tax assessments and inappropriate invocations of Section 74:

• Raghuvansh Agro Farms Ltd. v. State of U.P. (2026) 38 Centax 53 (All.): The Allahabad High Court quashed a demand order issued under Section 74, establishing that survey findings and departmental data analysis cannot replace concrete evidence of fraud or suppression.

The Court held that where transactions are documented via statutory portals and standard commercial records, mechanical allegations of suppression are legally unsustainable, forcing the department back to Section 73 non-fraud frameworks.

• GSTAT New Delhi Ruling (2026) on Reconciliation Mismatches: The GST Appellate Tribunal (GSTAT), New Delhi, affirmed that reconciliation mismatches between third-party datasets/portal returns alone do not justify invoking Section 74.

Crucially, GSTAT ruled that First Appellate Authorities cannot convert a failed Section 74 demand notice into a Section 73 demand upon discovering an absence of fraud; if the foundational allegation of fraud in the Section 74 Show Cause Notice fails, the entire proceeding becomes void for lack of jurisdiction.

• M/s NKAS Services Pvt. Ltd. v. State of Jharkhand & Suncraft Energy Pvt. Ltd. v. State of West Bengal: High Courts across multiple jurisdictions have held that data mismatches between portal returns (such as Form GSTR-1 vs Form GSTR-3B, or EWB vs Form GSTR-3B) constitute reconciliation variances requiring administrative scrutiny under Section 61, rather than immediate fraud proceedings under Section 74.

Strategic Action Plan and Board-Level Roadmap

CBIC Instruction No. 01/2026-GST represents a permanent shift toward automated, cross-departmental tax enforcement in India’s mining sector. Relying on isolated departmental compliance streams is no longer viable.

To safeguard operations against arbitrary tax demands, interest exposure, and criminal penalty allegations under Sections 73, 74, 74A, 122, and 130, corporate boards, Chief Financial Officers, and Tax Heads should implement the following strategic measures:

• Deploy Monthly Three-Way Reconciliation Protocols: Integrate the enterprise ERP system with state DMG portals, the National E-Way Bill system, and the GSTN portal to run automated monthly reconciliations before filing Form GSTR-1 and Form GSTR-3B. Identify and document all operational variances in real time.
• Formalise Scientific Baseline SOPs: Commission accredited third-party laboratory studies to establish certified bulk density ranges (under IS 5842 / IS 2386) and moisture loss profiles (under IS 1405 / IS 2720) for every active mining lease and product line. Formally integrate these scientific tolerance bands into the corporate tax defence archive.
• Audit Inward RCM Liabilities on Statutory Mining Charges: Review historic payments made to state DMGs for Royalty, DMF, and NMET. Ensure that 18% cash GST under RCM has been fully discharged in Table 3.1(d) of Form GSTR-3B in compliance with Section 13 time-of-supply rules, eliminating interest exposure under Section 50(1).
• Cleanse Permit Logs and Expired Pass Data: Establish strict daily operating protocols at all mine pitheads and rail sidings to ensure unutilized or expired e-Rawana/MDP passes are formally cancelled on state DMG portals within statutory timeframes, preventing the generation of “phantom production” records.
• Adopt a Robust Defence in Litigation: When faced with automated audit inquiries or Show Cause Notices under CBIC Instruction No. 01/2026-GST, frame legal responses around core statutory principles. Rebut mechanical turnover estimations by enforcing Section 7 (lack of supply) and Section 15 (valuation principles), and challenge Section 74/74A fraud allegations using established judicial precedents.

By taking these steps, mining companies can navigate cross-departmental regulatory scrutiny, protect commercial margins, and build a defensible compliance framework tailored to the realities of modern mineral extraction.