Jharkhand High Court Strikes Down Mineral Transport Fee as Unconstitutional Tax in Disguise

Ranchi, Jharkhand – In a significant ruling with far-reaching implications for state fiscal policy and the mining sector, the Jharkhand High Court has declared the levy of a “Composition User Fee” (CUF) on mineral-transporting vehicles unconstitutional. A Division Bench comprising Chief Justice Tarlok Singh Chauhan and Justice Rajesh Shankar held that the fee, imposed under the Jharkhand Highways Fee (Determination of Rates and Collection) Amendment Rules of 2021 and its subsequent amendments, was beyond the state's legislative competence and violated fundamental constitutional principles.

The judgment, delivered in the case of Triveni Engicons Private Limited v. The State of Jharkhand and others , dismantles the state's attempt to generate revenue under the guise of a compensatory fee. The Court found the CUF to be an unauthorized tax, arbitrarily imposed, and lacking the essential element of quid pro quo required for a "toll."

The Impugned Levy: A Closer Look

The legal challenge centered on the CUF, a mandatory levy imposed on all mechanical vehicles transporting more than nine tonnes of minerals within the state. The fee was automatically collected at the point of generating transit challans through the state's JIMMS portal, irrespective of whether the vehicle actually used state-maintained roads. The revenue collected was directed to the state exchequer for general road construction and maintenance.

The initial 2021 Rules were followed by amendments in 2022, which enhanced the CUF, and a proposed amendment for 2025 that sought to double the rate to Rs. 1200. This escalating financial burden prompted a slew of petitions from mining and transportation companies, arguing that the levy was legally untenable.

Grounds of Challenge: A Multi-Pronged Attack

The petitioners mounted a robust challenge on several constitutional and statutory grounds:

1. Violation of Article 14: They argued that the rules created an arbitrary and hostile classification. By singling out mineral-carrying vehicles over nine tonnes while exempting vehicles carrying other goods of the same weight, the state had created an unjustified "class within a class" without any rational nexus to the objective of road maintenance.
2. Ultra Vires the Tolls Act, 1851: The petitioners contended that the CUF was not a "toll" as contemplated by Section 2 of the Indian Tolls Act, 1851. A toll, they argued, is a compensatory fee for the use of a specific road or bridge. The CUF, being charged automatically upon the generation of a transport challan—even for vehicles operating in remote mining areas with no public roads—lacked the necessary connection to service usage.
3. Lack of Quid Pro Quo: The core of their argument was the absence of a quid pro quo (something for something). The levy was not a payment for a specific service rendered (i.e., using a particular tolled road) but a blanket charge on an activity.
4. Nature of a Tax: The petitioners asserted that the CUF was, in substance, a tax designed to augment state revenue, not a fee for reimbursement of specific road maintenance costs. As such, its imposition without clear legislative authority violated Article 265 of the Constitution, which mandates that "no tax shall be levied or collected except by authority of law."
5. Misinterpretation of Statutory Powers: The phrase "shall hereafter be made or repaired" in Section 2 of the Tolls Act, they argued, did not grant the state an indefinite power to collect fees for future, unspecified projects.

In its defense, the State of Jharkhand asserted its constitutional competence under Entry 59 of List-II (State List), which empowers it to legislate on "Tolls." It justified the specific targeting of mineral vehicles by claiming that heavy, mineral-laden trucks caused "massive degradation of roads" in mining belts, necessitating constant and costly maintenance.

The High Court's Scrutiny: Deconstructing the CUF

The Division Bench systematically deconstructed the state's arguments, finding the CUF deficient on every legal parameter. The Court's findings provide a masterclass in the distinction between a permissible fee and an unauthorized tax.

1. The Missing Quid Pro Quo

The Court first addressed the fundamental nature of a "toll." It observed that the CUF was an automatic deduction, completely divorced from the actual use of any state-maintained road. This severed the essential link of service for payment. The bench held:

“By imposing toll in the nature of “Composition User Fee”, the State Government has not taken care of the fact as to whether the mineral carrying vehicle is actually using the toll road or not and thus the element of quid pro quo is missing in imposition of the “Composition User Fee”.”

Elaborating on the crucial difference between a toll and a tax, the Court clarified that a tax is a compulsory exaction for general public purposes, whereas a toll is a "recompense for use of a road."

“'Toll' is not a tax, rather it is a compensatory fee which is chargeable for service. There is an element of quid pro quo in any such charge... by very definition of 'toll', it cannot be otherwise used for augmenting the State's revenue.”

2. Violation of Article 265 and Ultra Vires the Tolls Act

Having established that the CUF was not a toll but functioned as a tax, the Court examined its legal authority. Finding none, it invoked Article 265 of the Constitution. Since the CUF was not sanctioned by a valid law empowering the state to levy such a tax on mineral transportation, it was unconstitutional.

“Article 265 of the Constitution of India delineates that no tax shall be levied or collected except by authority of law. Thus, we are of the view that the impugned Rules and the subsequent amendments relating to imposition of “Composition User Fee” is ultra vires to the Act, 1851.”

The Court further noted that the Tolls Act requires the state to first identify the specific roads and bridges constructed or maintained at its expense before erecting toll gates. The state had failed to do so, imposing a blanket levy without specifying the infrastructure for which the fee was being charged. This procedural failure rendered the imposition ambiguous and legally invalid.

3. Arbitrary Classification and Violation of Article 14

The Court wholly agreed with the petitioners that the classification was discriminatory. It found no rational basis to treat a truck carrying over nine tonnes of minerals differently from a truck carrying over nine tonnes of any other commodity, such as steel or cement, for the purpose of road usage and degradation.

“We are of the view that the classification made by the respondent-State between mineral carrying vehicles and other vehicles has no nexus with the object sought to be achieved by it. Thus, the impugned Rules...is also violative of Article 14 of the Constitution of India.”

4. Purposive Interpretation of the Tolls Act

Finally, the bench provided a crucial interpretation of Section 2 of the 1851 Act. Rejecting the state's claim that it could collect tolls for future projects, the Court adopted a purposive interpretation.

“The true and purposive interpretation of the words “shall hereafter be” mentioned in section 2 of the Act, 1851 would be that if any road or bridge is constructed or repaired after the enactment of the said Act, then on the said road or bridge also, the State Government will be empowered to levy toll tax. The State Government, however, is not empowered to levy Toll tax for any road or bridge to be constructed in future as the same is compensatory in nature and a quid pro quo element is involved in it.”

Conclusion and Broader Implications

In striking down the CUF, the Jharkhand High Court has delivered a powerful reminder to state governments about the constitutional limits on their power of exaction. The ruling underscores that a fee must be directly correlated to a service provided and cannot be used as a colorable device for revenue generation.

For the legal community, this judgment reinforces foundational principles of administrative and constitutional law. It serves as a strong precedent against arbitrary state action and the imposition of taxes without explicit legislative sanction. For businesses in the mining and logistics sectors in Jharkhand, the decision offers immediate relief from a significant financial burden and sets the stage for potential claims for refunds of fees already paid. The ruling is expected to force the state government to reconsider its mechanisms for funding road infrastructure, pushing it towards more constitutionally sound and transparent methods.