M/S Attar Fullers Earth Vs the State of Karnataka

M/S. COPIA MINNING PRIVATE LIMITED, REPRESENTED BY ITS PARTNER SRI. A. CHACKO, H.NO.18-01-/8, HONDA SHOWROOM, NEAR CHINCHOLI ROAD M, SULEPETH KALBURGI-585 324

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…PETITIONERS

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(BY SRI. MAHENDRA S S.,ADVOCATE)

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AND:

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THE STATE OF KARNATAKA REPRESENTED BY ITS SECRETARY (MSME AND MINES), DEPARTMENT OF COMMERCE AND INDUSTRIES, VIKAS SOUDHA, 1ST FLOOR, BENGALURU-560 001.

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THE DIRECTOR, DEPARTMENT OF MINES AND GEOLOGY, KHANIJA BHAVAN, RACE COURSE ROAD, BENGALURU - 560 001.

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THE SENIOR GEOLOGIST, DEPARTMENT OF MINES AND GEOLOGY, KHANIJA BHAVANA, C.V.SITE.NO.1, SY. NO.76, ATAL BHIHARI VAJPAYEE BADAVANE, KOTNOOR, KALABURGI, KARNATAKA-585 102.

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THE TECHNICAL OFFICER, DEPARTMENT OF MINES AND GEOLOGY, OFFICE OF THE SENIOR GEOLOGIST KHANIJA BHAVANA, C.V.SITE.NO.1, SY. NO.76, ATAL BHIHARI VAJPAYEE BADAVANE KOTNOOR, KALABURGI KARNATAKA 585 102.

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…RESPONDENTS

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(BY SRI. K.S. HARISH, GOVERNMENT ADVOCATE)

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THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO

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a) ISSUE A WRIT OR ORDER IN THE NATURE OF CERTIORARI OR ANY OTHER APPROPRIATE WRIT, ORDER, OR DIRECTION TO QUASH THE IMPOSITION OF PENALTY DATED 03.01.2025, BY THE RESPONDENT No.3, SENIOR GEOLOGIST, ILLEGALLY LEVYING PENALTY OF Rs.87,750/(RUPEES EIGHTY- SEVEN THOUSAND SEVEN HUNDRED AND FIFTY ONLY) FOR EACH VEHICLE AND RECOVERY OF Rs.2,63,250/- (RUPEES TWO LAKH SIXTY-THREE THOUSAND TWO HUNDRED AND FIFTY ONLY);

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b) ISSUE A WRIT OR ORDER IN THE NATURE OF MANDAMUS, DIRECTING RESPONDENT No. 3 TO REFUND AN AMOUNT OF Rs.2,63,250/- (RUPEES TWO LAKH SIXTY-THREE THOUSAND TWO HUNDRED AND FIFTY ONLY), WHICH WAS COERCIVELY RECOVERED BY FROM THE PETITIONERS, ALONG WITH INTEREST FROM THE DATE OF PAYMENT TO THE DATE OF REFUND;

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c) ISSUE A WRIT OR ORDER IN THE NATURE OF MANDAMUS DIRECTING THE RESPONDENTS TO ABSTAIN/DESIST FROM TAKING ANY ACTION AGAINST THE LEGALLY TRANSPORTED MINOR MINERAL ON PRODUCTION OF THE DOCUMENTS FOR HAVING PURCHASED THE MINERALS;

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d) PASS SUCH OTHER ORDERS AS MAY BE DEEMED FIT AND PROPER IN THE INTEREST OF JUSTICE.

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THIS PETITION, COMING ON FOR PRELIMINARY HEARING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

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CORAM: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE and

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HON'BLE MR. JUSTICE C.M. POONACHA

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ORAL ORDER

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(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)

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Petitioners have filed the present petition, inter alia praying as under:

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"a) Issue a writ or order in the nature of certiorari or any other appropriate writ, order, or direction to quash the imposition of penalty dated 03.01.2025, by the respondent No.3 : Senior Geologist, illegally levying penalty of Rs.87,750/- (Rupees Eighty- seven thousand seven hundred and fifty only) for each vehicle and recovery of Rs.2,63,250/- (Rupees Two lakh sixty-three thousand two hundred and fifty only);

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b) Issue a writ or order in the nature of mandamus, directing respondent No.3 to refund an amount of Rs.2,63,250/- (Rupees Two lakh sixty-three thousand two hundred and fifty only), which was coercively recovered by from the petitioners, along with interest from the date of payment to the date of refund;

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c) Issue a writ or order in the nature of mandamus directing the respondents to abstain/desist from taking any action against the legally transported minor mineral on production of the documents for having purchased the minerals;

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d) Pass such other orders as may be deemed fit and proper in the interest of justice."

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The petitioners have filed the present petition, essentially, for

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the reason that they were compelled to pay penalty for release of their vehicles, without any order to the said effect or any adjudication regarding any fault on their part.

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The petitioners state that the Deputy Director, Department of Mines and Geology, had issued a working permit under Rule 3A(b) of the Karnataka Minor Mineral Concession (Amendment) Rules 2020, in respect of land measuring 2 acres falling in Survey No. 99. The said permit was valid for a period from 18.06.2024 to 17.06.2025 for clearing 23,000 metric tons of "Fullers Earth" (minor mineral).

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It is stated that petitioner No.1 deals with the minor mineral in question (Fullers Earth) and the same is sourced from various lease holders and persons who have been granted such permissions. It is stated that petitioner No.1 also owns land measuring 3 acres in Survey No.112 situated at Sulepeth Village, Chincholi Taluk, Kalaburagi District and is registered under the name 'M/s. Attar Fullers Earth' with the Department of GST.

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Similarly, petitioner No.2 is also engaged in the business of processing and selling "Fullers Earth" and had also taken on lease land measuring 3 acres falling in Survey No. 112, Sulepeth Village in Chincholi Taluk. The case of the petitioner No.3 is also similar to the case of the other petitioners. It is stated that during the course of their business, the petitioner No.1 had purchased 105 tons of "Fullers Earth" which was to be transported from the area falling in Survey No. 99 from the permission holder. The mineral dispatch release orders (MDRO) – three in number all dated 02.01.2025 – were issued to petitioner No.1.

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Petitioner No.2 purchased 105 tonnes of "Fullers Earth" from petitioner No.1 and after processing, sorting, breaking and drying the same, sold the said "Fullers Earth" to petitioner No.3. The vehicles (three in number) carrying the said material were intercepted on 03.01.2025 from the processing area of petitioner No.2.

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The petitioners state that they had produced all relevant documents regarding transportation of the said mineral. However, respondent No.3 (Senior Geologist), insisted that a penalty of

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Rs.87,750/- per vehicle be paid and deposited under Section 4(1) of the Mines and Minerals (Development & Regulation) Act, 1957 read with Rules 42 and 43 of the Karnataka Minor Mineral Concession Rules, 1994 [hereafter ' the KMMC Rules '].

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It is the petitioners' case that the vehicles were seized without any legitimate or valid order and the respondent authorities declined to release the same unless the penalty as demanded, was paid. Petitioners claim that they paid an aggregate sum of Rs.2,63,250/- under duress for release of the vehicles on 06.01.2025. It is contended that they had no option but to pay the same, as the vehicles had been detained for over almost three days.

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Shri K.S Harish, the learned Government Advocate who had sought time to take instructions, readily concedes that no order has been passed either detaining the vehicles or imposing any penalty. It is also not disputed that the vehicles, which belong to the petitioners were in fact detained and taken to the police station on 03.01.2025 and were released on 06.01.2025 after the petitioners had paid the penalty.

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Shri Harish, learned Government Advocate referred to Rule

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43 of the KMMC Rules and submitted that in terms of sub-rule (5) of Rule 43, the officer-in-charge of the check post or the officer as authorized by the State Government, is required to seize any minor minerals, including vehicle or a carriage used for transit of such minor minerals, if the driver or person in charge of such vehicle or carriage, fails to produce a valid permit. He submitted that the vehicles were detained in exercise of powers under Section 43 of the KMMC Rules. However, the same were released since the petitioners had voluntarily paid the compounding fee in terms of the proviso to sub-rule (6) of Rule 43 of the KMMC Rules.

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Rule 43 of the KMMC Rules, is set out below:

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"43. Checkposts and checking of minerals in transit:-

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(1) The State Government may, by notification, direct the establishment of Check posts or erection of barriers or both at such place or places as it thinks fit with a view to prevent or check unauthorised transportation of minor minerals and evasion of royalty or commission of any other offence in respect of minor minerals;

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Provided that till such check posts are established or barriers are erected in any place or places, the State Government may, notify the check posts already established or barriers erected in such place or places under the Karnataka Sales tax Act, 1957 or the Karnataka Forest Rules 1964 to be the check posts or barriers for the purposes of these rules also.

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(2) Every driver or person in charge of a vehicle carrying minor mineral shall be in possession of a valid permit and waybill, sale or delivery note and FORM-39 issued by Commercial Taxes Department containing necessary particulars in respect of such minerals and shall produce the same before any authorised officer in charge of a check post or barrier.

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(3) Any officer authorised by the State Government in this behalf (hereinafter referred to as authorised officer) may check a vehicle carrying minor mineral at any place, and the owner or person in charge of the vehicle shall produce the permit and other documents such as waybill etc, as demanded by the authorised officer.

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(4) At every check post or barrier set up or notified under sub-rule (1) or at any other place, when so required by any authorised officer, the driver or any other person in charge of the vehicle carrying minor mineral shall stop the same and keep the vehicle stationed so long as may reasonably be necessary, and allow the officer in charge of the check post or the barrier or, as the case may be, the authorised officer to examine and take measurements of the minor minerals in transit and inspect all records relating to the minerals in possession of such driver or other person. The driver or other person shall, if so required by the officer in charge of the check post or the barrier or the authorised officer, give his name and address and also that of the owner or the consignor and consignee. After checking the minerals and vehicle, the officer shall put his signature and rubber stamp on the permit so as to avoid any further checking at another check post.

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(5) If the driver or person in charge of the vehicle fails to produce a valid permit, the officer in charge of the check post or barrier may require the driver or the owner or person in charge of the vehicle to pay penalty equal to five times the amount of royalty payable as per SCHEDULE-2.

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(6) The Officer in charge of the check post or the barrier or the authorised officer may seize and confiscate any minor mineral which is under transit by a vehicle and as well as such vehicle if the owner or the driver or person in charge

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of the vehicle refuses to make payment as required under sub-rule(5).

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(7) The officer in charge of the check post or the barrier or the authorised officer shall give a receipt for having seized such minor mineral together with vehicle to the person from whose possession or control it is seized.

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(8) Whenever an order of confiscation in respect of minor mineral seized under sub-rule(6) is made the confiscating officer shall give an option to the owner or driver or person in charge of the vehicle to pay the amount as required under sub-rule (5) in lieu of such confiscation. In case of failure of the Driver, owner or person in charge of the vehicle to exercise such option, the confiscated material may be disposed of by the officer by auction sale;

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Provided that no such minor mineral confiscated under sub-rule(6), shall be disposed of by the confiscating officer before expiry of three days from the date of such confiscation and, till such time option shall remain with the owner or person in charge of the vehicle to carry the minor mineral after paying the penalty assessed."

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There is no cavil that a driver or a person in charge of a

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vehicle carrying minor mineral, is required to be in possession of a valid permit and to exhibit the same when summoned. There is also no cavil that if any mineral is being transported illegally, the officer-in-charge of a check post or any such officer authorized by

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the State Government, may be entitled to seize the minor mineral and also the vehicle being used to transport the same.

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It is also relevant to refer to sub-rule (4) of Rule 43 of the said Rules, which obliges a person in charge of the vehicle carrying

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minor mineral, to stop the vehicle and keep the same stationed as long as it is necessary for the authorized officer at the check post or the barrier, to examine and take measurements of the minor mineral in transit as well as inspect all records relating to the minerals in possession of such driver or other persons.

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In the present case, there is no order, which indicates that such exercise was conducted. Admittedly, no order has been passed either seizing any minor mineral or the vehicles in question.

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The contention that the amount deposited by the petitioners was a compounding fee, is clearly unsustainable, as there was no adjudication of any offence or default, which could be compounded by levy of a compounding fee.

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The learned Government Advocate also referred to a recent decision of the Supreme Court in ASP Traders vs. State of Uttar Pradesh and Others : 2025 SCC OnLine SC 1507, and conceded that collection of payment made voluntarily, did not absolve the concerned officers from passing a reasoned order as required. He submitted that the concerned officer shall issue a show cause notice to the petitioners and pass an order. However, he requested

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that in the meantime, no order be passed for refund of the compounding fee, which was voluntarily deposited by the petitioners.

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The Learned counsel appearing for the petitioners also relied

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on the same decision and he drew the attention of this Court to the following passages from the said decision:

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"18. The principles of natural justice mandate that when a taxpayer submits a response to a show cause notice, the adjudicating authority is required to consider such response and render a reasoned, speaking order. This is not a mere procedural formality, but a substantive safeguard ensuring fairness in quasi-judicial proceedings. The right to appeal under Section 107 of the CGST Act, 2017, is predicated upon the existence of a formal adjudication. An appeal can lie only against an ‘order’, and in the absence of a reasoned order passed under Section 129(3) of the Act, the taxpayer is effectively deprived of the statutory remedy of appeal. Such a deprivation undermines the foundational principles of fairness, due process, and access to justice, rendering the right of appeal illusory or nugatory. It is now settled law that failure to issue a speaking order in response to a show cause notice creates a legal vacuum. Any consequential action including imposition of tax or penalty, would then be unsupported by authority of law, thereby potentially violating Article 265 of the Constitution of India, which prohibits the levy or collection of tax except by authority of law.

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18.1. In this context, useful guidance may be drawn from the decision in M/s. Kranti Associates (P) Ltd & Anr. v. Masood Ahmed Khan : (2010) 9 SCC 496, wherein, this Court emphasized that fairness, transparency, and accountability are inseparable from the duty to provide reasons. The Court held that failure to furnish reasons violates the principles of natural justice and renders the right

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of appeal or judicial review illusory. In paragraph 51 of the judgment, the Court distilled the following key principles:

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“a. In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially.

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b. A quasi-judicial authority must record reasons in support of its conclusions.

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c. Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well.

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d. Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power.

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e. Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations.

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f. Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies.

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g. Reasons facilitate the process of judicial review by superior Courts.

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h. The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of justice.

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i. Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system.

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j. Insistence on reason is a requirement for both judicial accountability and transparency.

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k. If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism.

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l. Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or `rubber-stamp reasons' is not to be equated with a valid decision making process.

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m. It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor (1987) 100 Harward Law Review 731-737).

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n. Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See (1994) 19 EHRR 553, at 562 para 29 and Dr. C. Anya vs. University of Oxford, 2001 EWCA Civ 405, wherein the Court referred to Article 6 of European Convention of Human Rights which requires, "adequate and intelligent reasons must be given for judicial decisions".

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o. In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of "Due Process".

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19. Therefore, even assuming that the payment was made by the appellant, voluntarily or otherwise, the proper officer could not be absolved of the statutory obligation to pass a reasoned order in Form GST MOV-09 and upload the corresponding summary in Form GST DRC-07. Compliance with these procedural requirements is essential not only for

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ensuring transparency and accountability in tax administration, but also for safeguarding the taxpayer’s 30 appellate rights under the CGST Act, 2017. Such adherence is in consonance with the constitutional mandate under Article 265 of the Constitution of India.

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20. In view of the foregoing discussion, and taking into account that objections were filed, payment was stated to have been made under protest due to business exigencies, and the appellant seeks to challenge the levy, the proper officer was under a clear statutory obligation to pass a final order under section 129(3) in Form GST MOV-09 and DRC07. The refusal by the High Court to direct the passing of such an order, has the effect of frustrating the appellant’s statutory right to appeal and is contrary to well established legal principles governing tax adjudication and procedural fairness."

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Although the decision in ASP Traders was rendered in the context of the Central Goods and Services Tax Act, 2017, the principles as enunciated are equally applicable to the facts of the present case. Thus, it is necessary for the concerned authority to pass orders in accordance with law for imposition of any penalty or for collection of any fee.

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However, in the present case, we find that no adjudicatory orders have been passed. Further, there are no orders for detaining or seizing the vehicles as required under Sub-rule (5) of Rule 43 of the Rules.

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In terms of Sub-rule (8) of Rule 43 of the KMMC Rules, whenever an order of confiscation in respect of minor mineral seized under sub-rule(6) is made the confiscating officer is required to give an option to the owner or driver or person in charge of the vehicle to pay the amount as required under sub-rule (5) in lieu of such confiscation. However, in this case, there is neither any seizure order nor any order of confiscation. Therefore the question of the petitioners paying any compounding fee, does not arise.

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In the given facts, we are persuaded to accept that the petitioners had no option but to deposit the fee, as the vehicles had been detained for almost three days.

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In the given circumstances, there is little doubt that the collection of compounding fee, is without authority of law. Thus, we find no grounds to refrain from directing the refund of the penalty as deposited. The penalty deposited by the petitioners shall be refunded forthwith by remitting it directly to their bank accounts.

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Since an allegation has been made by the concerned authorities that the minerals were being transported without valid or necessary documents, we consider it apposite to permit the

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concerned authorities to issue an appropriate show cause notice and pass an appropriate order, after hearing the petitioners.

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Needless to state that if an appropriate order is passed adjudicating a penalty or any other punitive action is required to be taken against the petitioners, the petitioners would comply with the said order. This is, obviously, subject to the rights of the petitioners to avail of remedies in case if they are aggrieved by any such order.

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The petition is allowed in the aforesaid terms.

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Sd/(VIBHU BAKHRU) CHIEF JUSTICE

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Sd/(C.M. POONACHA) JUDGE

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KS List No.: 2 Sl No.: 20

M/S Attar Fullers Earth v. the State of Karnataka

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M/S Attar Fullers Earth v. the State of Karnataka

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