Madras High Court Orders GST Adjudication On Mining Royalty, Stays Recovery Pending Supreme Court Constitution Bench Verdict

Madras High Court Orders GST Adjudication On Mining Royalty, Stays Recovery Pending Supreme Court Constitution Bench Verdict

Introduction

The Madras High Court has directed GST authorities to proceed with adjudication of a show cause notice proposing levy of GST on seigniorage/royalty payable to the Government of Tamil Nadu, but ordered that implementation of the assessment order shall remain in abeyance until the Supreme Court settles the issue. Justice C. Saravanan passed the order while hearing a petition challenging a Show Cause Notice dated September 29, 2025.

Factual Background

The impugned notice proposed to levy GST on seigniorage/royalty fee payable to the State Government, raising the issue whether such royalty constitutes consideration for a service or is in the nature of a tax. The petitioner approached the High Court challenging the notice.

Procedural Background

During the hearing, the Court noted that the nature of royalty paid on mining leases is presently under consideration before a Nine-Judge Constitution Bench of the Supreme Court of India.

The Court relied on an earlier Division Bench decision in A. Venkatachalam v. Assistant Commissioner (ST), Palladam, which had adopted a similar approach in comparable matters.

Issues

1. Whether GST is leviable on seigniorage/royalty paid to the State Government.

2. Whether adjudication should proceed despite pendency of the issue before the Supreme Court.

3. Whether recovery or enforcement should be stayed pending final determination by the apex court.

Contentions

The petitioner challenged the show cause notice on the ground that the issue of taxability of royalty is pending before the Supreme Court in a batch of matters led by Udaipur Chamber of Commerce and Industry (SLP (C) No. 37326 of 2017). The Revenue contended that the authorities were entitled to proceed with adjudication in accordance with law.

Reasoning and analysis

The Court noted that the core issue of whether royalty paid on mining leases is taxable as consideration for a service under GST or is in the nature of a tax is pending before a Constitution Bench of the Supreme Court. Following the earlier Division Bench ruling, the Court permitted the petitioner to file a reply to the show cause notice within four weeks and directed the authorities to adjudicate the matter on merits. However, the Court balanced equities by directing that implementation of the assessment order, once passed, shall remain in abeyance until the Supreme Court renders its decision. The Court also recorded that in other cases, petitioners had been directed to deposit 10% of the disputed tax. In the present case, given the pendency of the issue before the Supreme Court and the Division Bench precedent, no such pre-deposit was insisted upon.

Decision

The writ petition was disposed of with directions:

• The petitioner may file a reply within four weeks.
• The GST authorities shall proceed with adjudication on merits.
• Implementation of the assessment order shall remain in abeyance pending the Supreme Court’s ruling on the issue of royalty taxability.
• No pre-deposit was required in the present case.

In this case the petitioner was represented by Mr. Bharat Raichandani, Advocate.