The Assessee (State mining authority/lease grantor) collected compounding fees/fines from illegal miners/transporters; the dispute was whether TCS under Sec. 206C (1C) must be collected on such compounding receipts. The Assessee contended that Sec. 206C(1C) targets amounts paid by leaseholders/licensees/contract-holders liable for royalty, not offenders in illegal mining; compounding fees under Sec. 23A of the MMDR Act read with Rule 71(5) are penalties, not royalty, and fall outside 206C(1C).

The Revenue argued that the TCS obligation under 206C (1C) extends to cases where rights or interests in a mine are “otherwise transferred,” and should cover compounding receipts from illegal miners. CIT (A) NFAC dismissed the Assessee’s appeal. The Hon’ble Tribunal upheld TCS’s demand/interest/penalty on compounding fees. The Hon’ble High Court of Chhattisgarh, after strictly construing fiscal statutes, held that 206C(1C) applies only to consideration from lessees/licensees/contract-holders paying royalty; no legislative mandate to collect TCS on compounding fees/fines under MMDR Sec. 23A read with Rule 71(5); Hon’ble Tribunal’s order set aside and appeal allowed in favour of Assessee. (AY 2015-16)