Tax Exemption Under Mining Leases: ONGC Not Liable for Conversion Tax Under Bombay Land Revenue Code

1. Case Snapshot

• Case Name: Oil & Natural Gas Corporation Ltd & Anr. vs State of Gujarat Through Secretary & Ors

• High Court: High Court of Gujarat at Ahmedabad

• Bench: Hon'ble Mr. Justice Nirzar S. Desai

• Date of Judgment: July 1, 2026

• Area of Law: Taxation Law – Land Revenue, Conversion Tax; Bombay Land Revenue Code; Mining Leases; Contractual Exemptions

2. Judgment in Brief

The Gujarat High Court allowed a writ petition filed by ONGC challenging a demand notice for conversion tax. The State Government had demanded Rs. 77,504.75 from ONGC as conversion tax for change of land use from agricultural to non-agricultural purposes. The Court held that the issue was squarely covered by three earlier Division Bench judgments of the same Court, which had consistently held that ONGC is not liable to pay land revenue or conversion tax under the Bombay Land Revenue Code in respect of lands held under mining leases. The Court relied on the specific clause in the lease deed exempting ONGC from land revenue and the clear contractual terms. The impugned demand notice was quashed and set aside.

3. Relevant Facts

• ONGC was initially a Department of the Government of India, later constituted as a Commission under the Oil & Natural Gas Commission Act, 1959, and subsequently incorporated as a Company under the Companies Act, 1956 in 1993.

• ONGC was granted a mining lease by the Government of Gujarat on September 11, 1973, for a period of 20 years covering an area of 159.92 sq. kms. in Kalol extension of Mehsana District, commencing from August 4, 1956.

• Clause 17 of the lease order required ONGC to execute a separate Lease Deed. Part VII of the lease provided that ONGC was liable to pay government rents and royalties and also "pay and discharge all taxes, rates, assessments and impositions whatsoever being in the nature of public demand" except demands for land revenue.

• Despite the specific exemption from land revenue, the State Government issued a demand notice dated December 17, 2009, calling upon ONGC to pay Rs. 77,504.75 towards conversion tax for change of land use from agricultural to non-agricultural purposes.

• ONGC challenged this notice by way of a writ petition.

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