Issuance of Penalty order without Adjudication violates Article 265 of Constitution: Karnataka HC Directs Refund for Vehicle Seizure [Read Order]
The High Court held that collecting compounding fee without issuing a show-cause notice or passing a reasoned adjudication order is illegal and violates Article 265 and directed for immediate Refund.
In the recent case, the Karnataka High Court quashed a penalty of Rs. 2,63,250/- collected from mineral traders without passing any formal adjudication order, directing immediate Refund for Vehicle Seizure. The Court said that collecting a penalty without proper adjudication violates Article 265 of the Constitution of India and the principles of natural justice.
The Petitioners, M/S Attar Fullers Earth, M/S S.S Traders and M/S Copia Mining Private Limited, engaged in the business of "Fullers Earth", a minor mineral, filed the petition against the State of Karnataka and its Mining Authorities.
The Article 265 of Constitution of India explained that: Taxes not to be imposed save by authority of law
“No tax shall be levied or collected except by authority of law.”
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The issues raised by the Petitioners in the petition were to quash the Penalty Order dated 03.01.2025, that illegally levied Rs.87,750/- for each vehicle and recovery of Rs.2,63,250/-, refund of Rs.2,63,250/- that was coercively recovered with interest from payment date to refund date and direction to authorities to abstain from taking action against legally transported minerals upon production of valid purchased documents.
The Petitioners, stated that their vehicles carrying legally purchased and processed "Fullers Earth," were intercepted on January 3, 2025. Despite producing all relevant documents, Respondent No. 3 (Senior Geologist) insisted on a penalty of Rs. 87,750/- per vehicle 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'].
On the other hand, the Vehicles were seized and detained for three days and the Petitioners were compelled to pay the aggregate sum of Rs. 2,63,250/- on 06.01.2025, under duress, for their release.
The Counsel for the Petitioner, S.S Mahendra, argued that no formal order of detention, seizure, or penalty imposition was ever issued, violating principles of natural justice and legal procedure, citing the Supreme Court's decision in ASP Traders vs. State of Uttar Pradesh and Others and conceded that collection of payment was made voluntarily, and no order was passed for refund of the compounding fee, which was voluntarily deposited by the petitioners.
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“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”
On the other hand, the State Counsel, by K.S Harish, conceded that no formal order had been passed for detaining the vehicles or for imposing a penalty. They argued that the vehicles were detained under Rule 43 of the KMMC Rules for failure to produce a valid permit, and the Petitioners had voluntarily paid a compounding fee as per the proviso to sub-rule (6) of Rule 43.
The sub-rule (6) of Rule 43 of KMMC Rules explained that: Check-posts and checking of minerals in transit
“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 of the vehicle refuses to make payment as required under sub-rule(5).”
The High Court, composed of Chief Justice Vibhu Bakhru and Justice C.M Poonacha, heard and reviewed the matter filed by the Petitioners.
After considering the material on record, the High Court found that no adjudicatory orders were passed, nor were there any orders for detaining or seizing the vehicles as required under Rule 43(5) of the KMMC Rules. The Court emphasized that without a seizure or confiscation order, the question of paying a compounding fee did not arise.
The sub-rule (5) of Rule 43 of KMMC Rules explained that: Check-posts and checking of minerals in transit
“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.”
Relying on the principles laid down in ASP Traders Case, the Court held that the collection of the compounding fee without a reasoned order and proper adjudication was without the authority of law and violated the principles of natural justice. The Court concluded that the Petitioners had no option but to deposit the fee due to the detention of their vehicles.
Consequently, the Court also quashed the imposition of the penalty, and directed Respondent No. 3 to refund the coercively recovered amount of Rs. 2,63,250/- to the Petitioners' bank accounts along with interest and while allowing the refund, the Court permitted the authorities to issue an appropriate show cause notice and pass a reasoned order after hearing the Petitioners, if allegations of illegal transport persisted, subject to the Petitioners' right to avail further remedies.
Thus, the Petition was allowed.
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