The Madras High Court has upheld GST demand orders issued against a mining contractor after finding that the taxpayer had prima facie under-declared the value of outward supplies despite paying substantial seigniorage fees for mineral extraction.
The bench of Justice C. Saravanan has observed that the tax authorities were justified in invoking the extended limitation period under Section 74 of the GST enactments on the ground of suppression of turnover.
The dispute arose from inspection proceedings conducted by the State Tax Department, following which intimation notices in Form GST DRC-01A and show cause notices in Form GST DRC-01 were issued to the taxpayer. The petitioner had submitted replies to both sets of notices before the department passed final orders in Form GST DRC-07 on July 15, 2024.
The taxpayer contended that it was unable to carry on mining operations itself and had entered into an arrangement with a contractor who extracted rock boulders from the mining site. According to the petitioner, GST liability had already been discharged and there was no loss of revenue to the exchequer.
The petitioner further argued that no incriminating material was discovered during the inspection and that the assessment orders did not establish fraud, wilful misstatement, or suppression of facts. It was also claimed that the orders were passed without granting an effective opportunity of personal hearing.
The tax department relied heavily on the seigniorage fees paid by the petitioner to estimate the quantity of minerals extracted and supplied. Based on the seigniorage data, authorities calculated the quantity of boulders cleared and concluded that the turnover reported in GST returns was significantly understated.
The department computed the following tax liabilities:
| Tax Period | Seigniorage Fee (₹) | Quantity of Boulders (Cubic Meters) | Tax Liability (₹) |
| 2018-19 | 7,08,000 | 12,000 | 10,17,750 |
| 2019-20 | 24,78,000 | 42,000 | 14,09,568 |
| 2020-21 | 28,32,000 | 48,000 | 16,38,650 |
The Court noted that while the department’s calculations were based on extraction quantities reflected through seigniorage payments, the petitioner had declared the value of supplies in GSTR-1 at only ₹34.09 lakh.
The court observed that the case formed part of a larger batch of matters concerning invocation of the extended limitation period under Section 74 of the GST laws. The Court noted that the inspection had taken place before the issuance of notices and that the department had relied on objective data relating to seigniorage fees and extraction quantities.
Importantly, the Court recorded that the issue of GST liability on seigniorage fees itself is currently pending before the Supreme Court and has been kept in abeyance. However, the present dispute was not limited to taxability of seigniorage fees but related to alleged suppression of the value of outward supplies disclosed in GST returns.
The Court held that the records indicated suppression of turnover by the petitioner and that the department had reasonably estimated escaped turnover using recognized standards to determine the quantity and value of boulders supplied.
According to the judgment, it was highly improbable that a taxpayer would pay substantial seigniorage fees corresponding to large quantities of minerals extracted while reporting significantly lower outward supplies in GST returns. This discrepancy, the Court observed, constituted sufficient foundational material for initiating proceedings under Section 74.
Rejecting the taxpayer’s challenge to the extended limitation period, the Court held that both Sections 73 and 74 use the expression “where it appears,” enabling authorities to initiate proceedings where materials indicate possible suppression or under-reporting. The Court found that the show cause notices had specifically alleged suppression of output supplies and contained detailed calculations supporting the allegations.
The Court therefore concluded that there was a prima facie basis for invoking Section 74 and confirmed that the department had sufficient material to proceed against the taxpayer.
On the contention that the assessment orders suffered from procedural defects, the Court stated that it was unable to identify any procedural irregularity warranting interference under Article 226 of the Constitution. The assessment orders were found to be reasoned and supported by materials on record.
While dismissing all three writ petitions, the High Court granted liberty to the petitioner to file statutory appeals before the appellate authority within 30 days from receipt of the judgment. The Court directed that if such appeals are filed within the stipulated period, the appellate authority should decide them on merits without rejecting them on limitation grounds.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
