Deputy Director Jagdalpur Mining Officer v. The DCIT [TAXC No. 114 of 2025]
Background: A TDS survey revealed that the State Mining Department had not collected tax collected at source on compounding fees/fines recovered from persons involved in illegal mining and transportation of minerals. The Income Tax Department treated the State as an assessee-in-default under Section 206C(1C) of the Income Tax Act. The assessee argued that TCS applies only where rights in a mine/quarry are legally transferred via lease, licence, or contract, and not on penal charges like compounding fees under Section 23A of the MMDR Act and Rule 71(5) of the Chhattisgarh Minor Mineral Rules, 2015.
Decision: The High Court held that TCS provisions under Section 206C(1C) apply only to lawful transfers of rights in mines/quarries. Compounding fees, being penalties under Section 23A of the MMDR Act and Rule 71(5) of the Chhattisgarh Rules, are not “royalty” or consideration for mining rights. ‘Royalty’ and ‘Compounding Fees’ both are mutually exclusive. Since there is no legislative mandate to collect TCS on such fines, the ITAT order was set aside, and the appeal was allowed in favour of the assessee. The judgment is significant, as it settles the position that penal receipts, such as compounding fees, stand on a different footing altogether and cannot be equated with royalty or other consideration for lawful mining rights.
GST Law India is a blog on GST and allied commercial laws managed by members of the law firm ALA Legal.