(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)
1. Petitioners have filed the present petition, inter alia praying
d) Pass such other orders as may be deemed fit
and proper in the interest of justice."
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2. The petitioners have filed the present petition, essentially, for
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.
3. 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).
4. 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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5. 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.
6. 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.
7. 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'].
8. 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.
9. 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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10. Shri Harish, learned Government Advocate referred to Rule
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.
11. Rule 43 of the KMMC Rules, is set out below:
"43. Checkposts and checking of minerals in transit:-
(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;
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.
(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.
(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.
(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.
(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).
(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.
(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;
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."
12. There is no cavil that a driver or a person in charge of a
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
the State Government, may be entitled to seize the minor mineral
and also the vehicle being used to transport the same.
13. 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.
14. 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.
15. 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.
16. 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.
17. The Learned counsel appearing for the petitioners also relied
on the same decision and he drew the attention of this Court to the
following passages from the said decision:
"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.
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:
"a. In India the judicial trend has always been to
record reasons, even in administrative decisions, if such
decisions affect anyone prejudicially.
b. A quasi-judicial authority must record reasons in
support of its conclusions.
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.
d. Recording of reasons also operates as a valid
restraint on any possible arbitrary exercise of judicial and
quasi-judicial or even administrative power.
e. Reasons reassure that discretion has been
exercised by the decision maker on relevant grounds and by
disregarding extraneous considerations.
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.
g. Reasons facilitate the process of judicial review by
superior Courts.
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.
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.
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.
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.
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).
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".
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".
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.
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 DRC-
07. 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."
18. 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.
19. 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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20. 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.
21. 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.
22. 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.
23. 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.
24. 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.
25. The petition is allowed in the aforesaid terms.
Sd/-
(VIBHU BAKHRU)
CHIEF JUSTICE
Sd/-
(C.M. POONACHA)
JUDGE
KS
