'Land or Water' Excludes Railways: Chhattisgarh High Court Strikes Down Transit Fee On Iron Ore Moved By Rail

The Chhattisgarh High Court has held that the state government has no authority to levy transit fees on iron ore transported through railways. The court ruled that such a levy is beyond the scope of the Indian Forest Act, 1927, and violates Article 265 of the Constitution.

A division bench of Chief Justice Ramesh Sinha and Justice Naresh Kumar Chandravanshi held that Section 41 of the Act permits the State to regulate transit of forest produce only “by land or water.” It does not extend to railway transport.

The court said that “The expression “by land or water” occurring in Section 41 cannot be expansively interpreted to include railway transportation. Railways constitute a distinct mode of transport constitutionally demarcated under the Union List. Any interpretation which brings railway transportation within the sweep of Section 41 would render the provision constitutionally vulnerable, as it would trench upon a field reserved exclusively for the Union under Articles 245 and 246 read with Schedule VII."

The court was hearing a writ petition filed by Steel Authority of India Limited (SAIL). The company challenged the levy of transit fees on iron ore moved exclusively by rail under the Chhattisgarh Transit (Forest Produce) Rules, 2001.

SAIL assailed State notifications dated 30 June 2015 and 27 July 2022. These notifications imposed transit fees at Rs 15 per tonne and later Rs 57 per tonne on iron ore.

Senior Advocate Rajeev Shakdhar, appearing for the petitioners, argued that the levy was a tax in disguise. He submitted that it was imposed on a tonnage basis without any quid pro quo. The Forest Department, he said, renders no service in relation to railway transportation.

The State defended the levy by arguing that minerals fall within the definition of “forest produce” under the Act. It also relied on the Supreme Court's ruling in State of Uttarakhand v. Kumaon Stone Crusher.

Rejecting the State's stand, the High Court held that even if minerals are treated as forest produce, the State's power under Section 41 remains limited. Railways fall under the Union List. The state lacks legislative competence to regulate or levy fees on goods transported by rail.

The court found that the levy, though termed a fee, “in pith and substance, bears the characteristics of a tax." It held that the levy failed the test of a regulatory fee due to the absence of any discernible quid pro quo.

The bench also noted that minerals were treated on par with timber and other forest produce without any rational classification. This, the court said, was arbitrary.

Allowing the petition, the High Court quashed the notifications dated June 30, 2015, and July 27, 2022, insofar as they related to iron ore transported by rail. The consequential demand letters dated 23 August 2022 and 2 September 2022 were also set aside. 

Case Title: Steel Authority of India Limited Bhilai Steel Plant & Anr v. State of Chhattisgarh & Ors.

Citation: 2026 LLBiz HC (CHH) 2

Case Number: WPC No. 4676 of 2022

For Petitioners: Senior Advocate Rajeev Shakdhar with Advocates Ankit Singhal, Pawan Shree Agrawal and Ashish Mittal

For Respondents: Advocates Praveen Das and Ramakant Mishra with Annapurna Tiwari