Supreme Court Upholds Chhattisgarh HC Ruling: No TCS on Compounding Fees from Illegal Mining Activities
Supreme Court Upholds Chhattisgarh HC Ruling: No TCS on Compounding Fees from Illegal Mining Activities
The Supreme Court of India recently heard several special leave petitions related to a tax dispute. The case arose from a judgement dated June 16, 2025 passed by the High Court of Chhattisgarh at Bilaspur. The petitions have been filed by the Deputy Commissioner of Income Tax (TDS) against the Deputy Director (Mineral and Administration).
The key issue raised before the Supreme Court of India was “Whether TCS (Tax Collected at Source) should be collected under Section 206(1C) of the Income Tax Act, 1961, from individuals who are doing illegal mining, transporting, or storing minerals without a valid lease, licence, or contract for mining rights, and from whom the government is collecting a compounding fine under Rule 71(5) of the Chhattisgarh Minor Mineral Rules, 2015.”
The assessee was a District Mining Officer. A survey was conducted, where it was noticed that the assessee had not collected TCS on the compounding fee collected from individuals who are involved in illegal mining, transporting, or storing minerals without a valid lease, licence, or contract for mining rights. The Assessing Officer (AO) treated the assessee as an ‘assessee-in-default’ and burdened it with an obligation to make good the said non-collection of tax at source.
The assessee had filed an appeal before the CIT(A), NFAC Delhi. However, they sustained the decision of AO. Thereafter, the assessee approached the Income Tax Appellate Tribunal (ITAT), Raipur Bench. However, the tribunal also upheld the CIT(A), NFAC Delhi’s order and dismissed the Tax Case No. 81/2025 and 27 other connected cases.
Before the High Court, a group of appeals were filed challenging a common order dated July 21, 2023, passed by the Income Tax Appellate Tribunal (ITAT), Raipur Bench. The Chhattisgarh High Court held that the provisions of Section 206C(1C) are only applicable to collect TCS from the person to whom such right has been granted and by whom royalty is payable to the State Government through the District Mining Officer. The obligation to collect tax under Section 206C(1C) cannot be extended to the person involved in illegal mining or transporting illegal minerals.
Similarly, under the provisions of Section 320 of the Code of Criminal Procedure, 1973, there is no obligation to collect tax deducted at source (TCS) under Section 23A of the MMDR Act read with Rule 71(5) of the Rules of 2015, on the compounding fee/fine collected from illegal miners and transporters of minerals. Therefore, the court ruled in favour of the assessee, i.e., the District Mining Officer.
The Deputy Commissioner of Income Tax, being aggrieved with the High Court’s order, filed a Special Leave Petition before the Supreme Court of India, challenging the order of the Chhattisgarh High Court. However, after hearing the arguments, the Supreme Court stated that it was not willing to interfere with the judgement and order passed by the High Court. As a result, the special leave petitions were dismissed. This means the decision of the High Court remains valid and unchanged.
The Supreme Court also clarified that any pending applications connected to these petitions would stand disposed of. With this order, the matter has been concluded at the level of the Supreme Court, and no further relief was granted to the petitioner.