2013 (8) TMI 420 - HC - VAT and Sales Tax

Constitutional validity - Legislative competence for enhancing transit fee and changing the basis of levy from cubic feat to advalorum between 5% to 15% on variety of forest produce including timber firewood and other forest produce coming from mines e.g. coal limestone sand bajari and other minerals - Meaning of forest and forest land - words forest and forest land are not defined - words must be understood according to its dictionary meaning for purpose of section 2(1) Forest Conservation Act - forest land would also include forest like areas whether notified or not forest like area explained by court by referring various correspondences between departments - it would cover all statutory recognized forest either notified as reserved protected or village forest or not - principles and criteria of defining forest has to be based on sound ecological and scientific basis. Forest produce - Definition of forest produce is inclusive and not exhaustive - Only those articles and goods which are defined in Section 2 (4) (a) and the Notification dated 4.6.2011 by which the U.P. Transport of Timber and Other Forest Produce Rules 1978 was amended by the 5th Amendment are quashed. - Decided in favor of petitioner.

Issues Involved:
1. Applicability of Indian Forest Act, 1927 to mines and minerals.
2. Validity of U.P. Transport of Timber and Other Forest Produce Rules, 1978.
3. Legislative competence of the State Government.
4. Violation of Articles 14, 19(1)(g), and 301 of the Constitution.
5. Concept of 'forest' and 'forest produce'.
6. Extra-territorial operation of laws.
7. Imposition of transit fees and their nature (regulatory fee vs. compensatory tax).
8. Impact of increased transit fees on trade and development.
9. Specific regulation of tendu leaves under U.P. Tendu Patta (Vyapar Viniyaman) Adhiniyam, 1972.

Detailed Analysis:

1. Applicability of Indian Forest Act, 1927 to Mines and Minerals:
The petitioners challenged the applicability of the Indian Forest Act, 1927, on mines and minerals, including coal and other forest produce. The court held that the Indian Forest Act, 1927, and the Forest Conservation Act, 1980, cover all statutory recognized forests and forest-like areas. The term 'forest' includes not only reserved, protected, and village forests but also any area recorded as forest in government records irrespective of ownership.

2. Validity of U.P. Transport of Timber and Other Forest Produce Rules, 1978:
The Rules of 1978 were challenged for increasing transit fees and changing the basis of levy from cubic feet to ad valorem. The court found that the increase of transit fees by the 4th and 5th Amendments to the Rules of 1978 rendered the fees as compensatory tax rather than regulatory fees. The State Government failed to justify the increase of transit fees as regulatory fees on quid pro quo. The increase was found to be violative of Articles 14, 19(1)(g), and 301 of the Constitution of India.

3. Legislative Competence of the State Government:
The court upheld the legislative competence of the State Government under Sections 41, 42, 51, and 76 of the Indian Forest Act, 1927, to make rules regulating the transit of forest produce. The Rules of 1978 were found to be intra vires the Indian Forest Act, 1927, and the Forest Conservation Act, 1980. There was no repugnancy between the Mines and Minerals Regulation and Development Act, 1957, and the Indian Forest Act, 1927.

4. Violation of Articles 14, 19(1)(g), and 301 of the Constitution:
The increase in transit fees was found to be violative of Article 301 as it restricted the freedom of trade, commerce, and intercourse. The fees were also found to be unreasonable and not in public interest, thus violating Article 304(b). The court held that the exorbitant increase in transit fees without rendering any services to facilitate trade was unconstitutional.

5. Concept of 'Forest' and 'Forest Produce':
The court clarified that the term 'forest' includes all statutory recognized forests and forest-like areas. The definition of 'forest produce' is inclusive and not exhaustive. Articles that change their essential character through processing or manufacturing into commercially new articles cease to be forest produce. The court held that minerals from mines and quarries such as clinker, fly ash, calcium hydroxide, calcium oxide, quick lime, hydrated lime, hard coke, gypsum, rejected coke, ash burn coke, and soil (mitti) are forest produce.

6. Extra-Territorial Operation of Laws:
The court held that the Rules of 1978, made by the State Government under the Indian Forest Act, 1927, are not invalid on the ground of extra-territorial operation. The rules have a close nexus with the residents of the State of U.P. and are aimed at protecting the environment from deforestation and overexploitation of natural resources.

7. Imposition of Transit Fees and Their Nature:
The court found that the imposition of transit fees at ad valorem rates changed the character of the fees from regulatory to compensatory tax. The State Government failed to justify the increase in transit fees as regulatory fees on quid pro quo. The increase in fees was found to be far above the cost of enforcement, raising revenue for the State, and thus unconstitutional.

8. Impact of Increased Transit Fees on Trade and Development:
The court held that the increase in transit fees on ad valorem basis would impede the development of the State. The State Government failed to consider the principles of sustainable development while raising environmental concerns. The increase in transit fees would adversely affect the cost of generation of power and the manufacture of essential goods necessary for creating infrastructure.

9. Specific Regulation of Tendu Leaves:
The court held that the entire trade of tendu leaves is monopolized by the State Government under the U.P. Tendu Patta (Vyapar Viniyaman) Adhiniyam, 1972. The transportation of tendu leaves within the State of U.P. is regulated by the permits issued under the Adhiniyam, and thus, the Rules of 1978 do not apply to tendu leaves.

Conclusion:
The court quashed the Notifications dated 20.10.2010 and 4.6.2011, which amended the U.P. Transport of Timber and Other Forest Produce Rules, 1978, increasing the transit fees. The imposition of transit fees on 'Sponge Iron' and 'Tendu Patta' was declared invalid. The State Government was allowed to impose and collect transit fees at the rates prevailing before the 4th Amendment.

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