Reaffirming the cardinal principle that a subject cannot be taxed unless the charging provision clearly imposes the obligation, the High Court of Chhattisgarh has struck down the levy of Infrastructure Development Cess and Environment Cess on Shree Cement Limited. The court held that the State government had attempted to impose the tax by implication, which is impermissible in law.
A Division Bench of Chief Justice Ramesh Sinha and Justice Bibhu Datta Guru allowed the company’s writ petition, declaring the collection of the cesses to be without the authority of law. Consequently, the court quashed the levy and directed the State to refund the entire amount of ₹65,21,58,778 collected from the company since April 16, 2015.
Background of the Case
The case centered on the interpretation of the Chhattisgarh (Adhosanrachna Vikas Evam Paryavaran) Upkar Adhiniyam, 2005 (the “2005 Act”). Sections 3 and 4 of this Act provide for the levy of cesses on lands where “land revenue or rent, by whatever name called, is levied.” A proviso to both sections explicitly exempts lands that are free from the payment of land revenue or rent.
Shree Cement Limited, which holds a mining lease for limestone, was explicitly exempt from the payment of land revenue under its lease agreement. However, the company was required to pay “surface rent” for the area used for mining operations, as stipulated by the central Mineral Concession Rules, 1960.
The State of Chhattisgarh began collecting the cesses by auto-debiting them from the company’s advance deposits, contending that the “surface rent” being paid by the company qualified as “rent” under the 2005 Act, thereby triggering the levy. This interpretation formed the crux of the legal challenge.
Arguments of the Parties
Petitioner’s Submissions:
Senior Advocate Mr. Balbir Singh, for Shree Cement, argued that the charge of cess was fundamentally dependent on a pre-existing liability to pay land revenue or rent. Since the company was exempt from land revenue, the charging provision was not triggered. He submitted that the State’s attempt to equate “surface rent”—a contractual payment for mining rights under a central law—with “rent” under the State’s land revenue code was an act of imposing a tax by inference, which is contrary to settled law.
State’s Submissions:
Mr. Shashank Thakur, Deputy Advocate General, conceded that no land revenue was levied on the petitioner. However, he defended the levy by arguing that the phrase “rent, by whatever name called” in the 2005 Act was broad enough to encompass the “surface rent” paid by the company. He asserted that since a form of rent was being paid, the levy was legally valid.
Court’s Analysis and Decision
The High Court decisively rejected the State’s interpretation, anchoring its judgment in the strict construction of taxing statutes. The Bench found that the State’s entire case rested on substituting the term “rent” in the 2005 Act with “surface rent,” a term not used in the statute.
The court held, “It is well settled law that taxing statutes are interpreted strictly, and nothing can be read into a taxing statute.”
Elaborating on the distinction, the court noted that “surface rent” is a contractual payment for the right to conduct mining operations, governed by central legislation (MMDR Act, 1957). In contrast, “land revenue” and “rent” under the Chhattisgarh Land Revenue Code, 1959, are taxes related to the land itself, governed by state law. Citing the Supreme Court, the judgment highlighted that a cess is an increment to an existing tax. Since surface rent is not a tax, it cannot form the basis for levying a cess.
The court found the State’s argument to be a classic case of imposing a tax by implication. It observed: “The Act of 2005 does not use the term ‘surface rent’… Therefore, the word ‘rent’ given in the Act of 2005 cannot be substituted for the word ‘surface rent’.”
Furthermore, the court emphasized the effect of the proviso, stating that the exemption from land revenue alone was sufficient to make the cesses non-leviable. “The proviso’s use the term ‘or’ between the words ‘land revenue’/ ‘rent’. Hence, exemption given on ‘land revenue’ on a stand-alone basis is itself sufficient for the Petitioner to be out of the levy of ID cess or E cess.”
In its concluding order, the Bench declared the levy illegal and ordered a full refund, thereby providing significant relief to the petitioner and setting a clear precedent on the interpretation of tax laws in the state.
