Karnataka HC strikes down forest development fee

Karnataka HC strikes down forest development fee

Bengaluru: The Karnataka High Court on Wednesday struck down the Forest Development Fee collected by the state government from more than 40 mining companies since 2008 and directed it to refund the money to the firms. The tax has no constitutional validity, a division bench comprising Chief Justice S K Mukharjee and Justice P S Dinesh said in its judgement, observing that the state government has no right to impose such tax.

This order is estimated to cost Rs 3,000 crore to the state exchequer. The counsel for Vedanta Limited, K N Phanindra, told PTI that the state government had issued a gazette notification about introducing eight per cent forest development tax on the sale value of iron ore under Section 98 of the Karnataka Forest Act, 1963.

Challenging the validity of the notification, Vedanta and other mining companies had approached the High Court, which granted an absolute interim stay on operation of the notification. Later, the High Court had passed the final judgement on December 3, 2015, saying that the Forest Development Tax was in the nature of Sales Tax.

It had also set aside the FDT, saying that it violates Article 286 (restrictions as to imposition of tax on the sale or purchase of goods) of the Constitution. The state government then approached the Supreme Court with a Special Leave Petition, challenging the judgement.

Last year, the government had brought in an amendment to the Karnataka Forest Act and renamed the KFT as Karnataka Forest Fee, retrospectively from 2008. It had also increased the fee from eight per cent to 12 per cent and started collecting it.

“This was when the matter was still pending before the Supreme Court. The mining companies, including my client, approached the High Court against the amendment,” Phanindra said.

In its submission to defend the amendment, the government said it has already collected and utilised the Forest Development Fee for betterment of the ecology. The government submitted that in the event of the court not accepting its amendment and increase in tax, it might not be directed to refund the fee collected from the petitioners.

The court observed on Wednesday “We are unable to accept such prayer”. “In the background of clear pronouncements of Gurusiddappa (supra) and NMDC (supra), the state ventured to introduce forest development fees with retrospective effect without addressing the legal basis on which NMDC (supra) was rendered.”

“Mostly, payments were made pursuant to interim orders passed by this court or by the Supreme Court of India from time to time. Consequently, all payments and acceptances were without prejudice to the rights and contentions of the writ petitioners in the pending writ petitions,” the court said. The court said it had held that the impugned amendment (Act 23 of 2016) is ultra vires of the Constitution and struck down the forest development fee.

PTI