The High Court of Chhattisgarh at Bilaspur has directed the Income Tax Department to refund all amounts recovered from UltraTech Cement Limited and Shree Cement Limited in relation to unpaid tax dues of the state’s Mining Department. The ruling follows the quashing of the underlying tax demand against the Mining Department by a Division Bench of the High Court, effectively nullifying the recovery notices previously issued to these cement manufacturing entities. Justice Narendra Kumar Vyas presided over the case, delivering a judgment that clarifies the financial accountability of state bodies and the protection of private leaseholders against unjustified tax recovery actions.

The litigation originated from a dispute involving the collection of Tax Collected at Source (TCS) on royalty payments. The petitioners, both major cement manufacturers with significant operations in Chhattisgarh, rely heavily on limestone extracted through state-granted mining leases. Under the existing framework, these companies are mandated to pay royalties to the Mining Department to maintain a consistent supply of raw materials for their manufacturing units. For several years, the mechanism for these payments involved an online portal system, where royalty amounts were cleared in advance against specific pit-passes.

Dispute Over Tax Collected at Source The legal friction emerged when the Income Tax Department identified that the state's Mining Department had failed to fulfill its statutory obligations regarding the collection and deposit of TCS on the royalty payments received from the leaseholders. Acting on these findings, the Income Tax Department initiated recovery proceedings under Section 226(3) of the Income Tax Act, 1961. This provision permits the tax authorities to demand payment from any person who owes money to the assessee, effectively treating the cement companies as debtors to the Mining Department.

Consequently, significant sums were extracted from UltraTech Cement Limited and Shree Cement Limited as they were deemed liable for the tax defaults of the Mining Department. The cement companies contested these recovery measures, arguing that they had already complied with their obligations by paying the required royalties in advance to the state. They challenged the validity of the recovery notices and sought a refund or adjustment of the funds that had been seized by the central tax authorities.

In response to these petitions, the Department of Mineral Resources of the Chhattisgarh government rejected the companies' representations. The government maintained that the tax liability rested with the Mining Department and that the administrative handling of the royalty payments did not warrant a refund or a downward adjustment of the advance payments made by the lessees. The rejection of these representations led the cement companies to move the High Court under Article 226 of the Constitution of India, seeking judicial intervention to resolve the impasse.

Resolution of Underlying Tax Claims The turning point in the proceedings was a parallel development concerning the liability of the Mining Department itself. The State of Chhattisgarh had previously challenged the tax demands raised against its Mining Department in a separate legal proceeding, specifically Tax Case No. 189 of 2025. In that matter, a Division Bench of the High Court of Chhattisgarh reached a definitive conclusion that favored the state, quashing the tax demands that the Income Tax Department had attempted to levy against the Mining Department.

Justice Narendra Kumar Vyas, in his order dated October 28, 2026, acknowledged that the legal basis for the recovery notices issued to the cement companies had effectively vanished. With the primary tax demand against the Mining Department overturned, there remained no legal justification for the Income Tax Department to continue holding the funds recovered from the petitioners. The court emphasized the need for administrative efficiency in rectifying these errors, ensuring that the burden of tax disputes does not unfairly rest on the leaseholders.

“In view of the fact that since Tax cases preferred by the Mining Department has been allowed by the Division Bench of this Court wherein demand so raised against the Mining Department has already been quashed, it is directed that if any amount has already been recovered by the Income Tax Department against the petitioners, the same shall be returned back to the petitioners on furnishing the application by the individual petitioners,” the court noted in its directive.

Path Toward Reimbursement The judicial order provides a clear pathway for the cement companies to recover their funds. Rather than prolonging the litigation, the High Court has mandated that each company must file an application with the relevant tax authorities. Upon receipt of these applications, the Income Tax Department is obligated to process the refunds for the amounts that were previously collected through the Section 226(3) recovery process.

This ruling reinforces the principle that private entities, when acting in compliance with state regulations, should not be subject to financial prejudice due to lapses in inter-departmental tax compliance between state agencies and federal tax authorities. For UltraTech Cement Limited and Shree Cement Limited, this marks the conclusion of a long-standing financial uncertainty regarding their royalty payments. The cement manufacturers, represented by their respective counsel, have successfully secured a mechanism to retrieve the funds that were deemed inappropriately collected by the authorities.

The case also underscores the procedural role of the High Court in ensuring that subordinate authorities comply with its broader findings regarding the validity of tax assessments. By linking the outcome of the current writ petitions to the earlier decision of the Division Bench, the High Court of Chhattisgarh has streamlined the process, ensuring that the resolution of one major legal question directly benefits the stakeholders caught in the resulting administrative gridlock. As the companies move to submit their applications, the focus now shifts to the prompt execution of these refund orders by the Income Tax Department.