Case Law Details
Tvl. Manickavasagam S. Vs Proper Officer/Commercial Tax Officer (Madras High Court)
Madras HC sets aside assessment order on seigniorage fees and stays enforcement pending the Supreme Court verdict
Summary: The Madras High Court (Madurai Bench) set aside an assessment order passed under Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017 concerning the levy of GST on seigniorage fees and remanded the matter for fresh consideration. The Court found that although the petitioner had filed a reply to the show cause notice, the assessing authority failed to consider it, resulting in a violation of the principles of natural justice. The Court noted that the issue of GST on seigniorage fees is pending before the Supreme Court and referred to its earlier orders directing authorities to await the Apex Court’s decision. Considering that the very incidence of tax is under consideration before the Supreme Court, the Court dispensed with the usual requirement of a 25% pre-deposit, directed the petitioner to file an additional reply within two weeks, and ordered that any fresh assessment, enforcement, or recovery shall remain in abeyance until the Supreme Court pronounces its judgment.
Facts:
Tvl. Manickavasagam S. (“the Petitioner”) was issued an assessment order in GST ASMT 15 Temporary ID: 332500004524 TMP/2020-2021, dated February 24, 2026 (“the Impugned Order”) by the Proper Officer/Commercial Tax Officer, Sivagangai (“the Respondent”) under Section 74 of the TNGST Act, 2017.
The subject matter of dispute pertained to the levy of GST on seigniorage fees, an issue which is presently pending adjudication before the Hon’ble Supreme Court of India.
The Petitioner had filed a reply to the show cause notice; however, the said reply was not considered by the Respondent while passing the Impugned Order.
Aggrieved, the Petitioner preferred a writ petition before the Hon’ble Madras High Court under Article 226 of the Constitution of India seeking quashing of the Impugned Order as illegal, arbitrary and against the principles of natural justice.
Contentions:
The Petitioner contended that the subject matter in dispute is pending before the Hon’ble Supreme Court of India and that the Hon’ble High Court has already held in earlier matters that the authorities shall await the orders of the Apex Court.
Per contra, the Revenue contended that the Hon’ble High Court has been directing the assessing authorities to complete the proceedings; however, the orders of the Appellate Authority were directed to be kept in abeyance until the orders are passed by the Hon’ble Supreme Court of India. The Revenue placed reliance on the orders of the Madras High Court in M/s. Marginal M Sand v. State Tax Officer [W.P(MD) No. 22159 of 2025] and Tvl. Rajapalayam Cement and Chemicals Limited v. Assistant Commissioner [W.P(MD) No. 32352 of 2025].
Issue:
Whether the assessment order passed under Section 74 of the TNGST Act, 2017 levying GST on seigniorage fees, where the very incidence of tax itself is at large before the Hon’ble Supreme Court of India and where the Petitioner’s reply was not considered, can be sustained?
Held:
The Hon’ble Madras High Court (Madurai Bench) in W.P(MD) No. 14948 of 2026 held as under:
- Observed that, while in earlier matters such as M/s. Marginal M Sand and Tvl. Rajapalayam Cement and Chemicals Limited, the Court had granted permission to the assessing authorities to complete the proceedings, it had simultaneously directed that final orders shall not be passed and that the authorities have to await the orders of the Hon’ble Supreme Court of India.
- Noted that, in the present case, although the order of assessment had been passed, the reply filed by the Petitioner was not considered by the Respondent, thereby violating the principles of natural justice.
- Held that, considering the fact that the very incidence of tax itself is at large, the Petitioner can be granted an opportunity to be heard afresh. Further, although the Court normally imposes a condition of deposit of 25% while granting such opportunity on equitable considerations, since in this case the very incidence of tax itself is at large, no such additional condition is imposed on the Petitioner.
- Directed that, the Impugned Order dated February 24, 2026 shall stand set aside and the matter shall stand remanded back to the file of the Respondent for fresh consideration. The Petitioner shall, within two weeks from receipt of a web copy of the order, file additional reply along with supporting documents and the Respondent shall consider the matter afresh; however, the final orders shall be kept in abeyance until the orders are passed by the Hon’ble Supreme Court of India.
- Further directed that, if the order on remand is in favour of the Petitioner, then there is no difficulty; however, if it results in the assessment of tax or imposition of penalty, the same shall be communicated to the Petitioner, but the enforcement and further demand of the liability so determined shall be kept in abeyance until the judgment of the Hon’ble Supreme Court of India. As and when the Hon’ble Supreme Court pronounces its judgment, the Petitioner shall be entitled to take further steps subject to the outcome of the said judgment.
Hence, the writ petition was allowed and the matter remanded back to the Assessing Officer for fresh consideration.
Our Comments:
Section 74 of the CGST Act, 2017 (pari materia with Section 74 of the TNGST Act, 2017) empowers the Proper Officer to determine tax not paid, short paid, erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud, wilful misstatement or suppression of facts to evade tax. It mandates the issuance of a show cause notice, consideration of the assessee’s reply, and a reasoned order — a quasi-judicial exercise where non-consideration of the assessee’s reply vitiates the order on the ground of violation of natural justice, as squarely demonstrated in the present case.
The issue of GST leviability on seigniorage fee/royalty paid to the State Government for extraction of minerals from mining/quarry leases is intrinsically linked to the larger question of whether royalty is in the nature of “tax”, which is presently pending before the Nine-Judge Constitution Bench of the Hon’ble Supreme Court in Mineral Area Development Authority v. Steel Authority of India. Pending the verdict, several High Courts have consistently directed that GST adjudication on royalty/seigniorage be held in abeyance to avoid prejudicing taxpayers.
The Hon’ble Madras High Court in A. Venkatachalam v. Assistant Commissioner (ST) had similarly kept orders of adjudication with respect to levy of GST on mining lease/royalty in abeyance and stayed recovery, until the Nine-Judge Constitution Bench in Mineral Area Development Authority decides the issue as to the nature of royalty.
In a pari materia ruling, the Hon’ble Telangana High Court in PLR-NCC-NECL (JV) v. Union of India granted interim stay on the order-in-original dated May 5, 2025, which had confirmed GST demand on amounts deducted towards royalty/seigniorage, District Mineral Foundation (DMF), and State Mineral Exploration Trust (SMET), reinforcing the consistent judicial trend of staying coercive recovery on this issue.
Further, the Andhra Pradesh Authority for Advance Ruling in Sudhakara Infratech ruled that an Excess Royalty Collection Contractor (ERCC) is not liable to discharge GST under forward charge on collection of royalty/seigniorage fee, District Mineral Foundation (DMF), Mineral Exploration and Research & Innovation Trust (MERIT) and similar statutory levies from mining/quarry leaseholders, lending support to the view that such statutory levies may not constitute a taxable “supply” within the meaning of the GST law.
The instant ruling is a welcome relief for taxpayers in the mining, quarrying, and allied sectors who continue to face assessment proceedings and coercive recovery actions on the disputed levy of GST on royalty/seigniorage fees. The Hon’ble Court’s nuanced approach — setting aside the order for non-consideration of the reply, dispensing with the otherwise mandatory 25% pre-deposit condition since the very incidence of tax is at large, and directing that enforcement of any future demand shall remain in abeyance until the Supreme Court’s verdict — strikes a fair balance between revenue interests and taxpayer protection. Taxpayers similarly placed may consider invoking writ jurisdiction to seek analogous protection, particularly where their replies have not been considered or where coercive recovery is being initiated pending the Supreme Court’s verdict.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
This Writ Petition is filed challenging the impugned order in GST ASMT 15 Temporary ID: 332500004524 TMP/2020-2021, dated 24.02.2026 issued by the respondent. The impugned order is the order of assessment passed under Section 74 of the Tamil Nadu Goods and Services Act, 2017.
2. The learned counsel for the petitioner would submit that the subject matter in dispute pertains to the levy of GST on seigniorage fees, which is presently pending before the Hon’ble Supreme Court of India. Pending the same, this Court has already held that the authorities shall await for the orders of the Hon’ble Supreme Court of India.
3. Per contra, the learned Additional Government Pleader would submit that this Court has been directing the proceedings to be completed; however, the orders of the Appellate Authority were directed to be kept in abeyance until the orders are passed by the Hon’ble Supreme Court of India.
4. The learned Additional Government Pleader would produce the orders passed by this Court in M/s.Marginal M sand, Represented by its proprietor, S.Abraham Muller vs. the State Tax Officer and another (W.P(MD)No.22159 of 2025 etc) and Tvl.Rajapalayam Cement and Chemicals Limited vs. the Assistant Commissioner (W.P(MD)No.32352 of 2025).
5. A perusal of the same, it can be seen that while granting permission to the assessing authorities to complete the proceedings, this Court directed that final orders shall not be passed and that the authorities have to await the orders of the Hon’ble Supreme Court of India.
6. As far as the present case is concerned, it is seen that the order of assessment has been passed. However, in this case though the petitioner had filed a reply, the same was not considered by the respondent.
7. In view thereof, considering the fact that the very incidence of tax itself is at large, I am of the view that the petitioner can be granted an opportunity. Normally, this Court imposes a condition of deposit of 25% while granting such an opportunity on equitable considerations. However, since in this case the very incidence of tax itself is at large, no such additional condition is imposed on the petitioner.
8. This Writ Petition is allowed on the following terms:-
(i) The impugned order dated 24.02.206 shall stand set aside and the matters shall stand remanded back to the file of the respondent for fresh consideration.
(ii) Within two weeks from the date of receipt of a web copy of the order, the petitioner shall file such additional reply along with supporting documents in support of their claim and it is for the respondent to consider the matter afresh. However, final orders shall be kept in abeyance until the orders are passed by the Hon’ble Supreme Court of India.
(iii) If the order is in favour of the petitioner, then there is no difficulty.
(iv) If the order results in the assessment of tax or imposition of penalty, the same shall be communicated to the petitioner. However, enforcement and further demand of the liability so determined shall be kept in abeyance until the judgment of the Hon’ble Supreme Court of India.
(v) As and when the Hon’ble Supreme Court of India pronounces its Judgment, the petitioner shall be entitled to take further steps, subject to the outcome of the said Judgment.
(vi) No costs. Consequently, connected Miscellaneous Petition is closed.
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