Quarry owners lose challenge to Tamil Nadu Green Fund: 10 percent levy is a regulatory fee, not a tax
A Madurai Bench of Justices M. Dhandapani and N. Dilip Kumar upheld Rules 35-A to 35-H of the Tamil Nadu Minor Mineral Concession Rules, holding that a district-ring-fenced fund for restoring abandoned quarries is within Section 15 of the MMDR Act and does not duplicate the District Mineral Foundation.
Every quarry lease holder in Tamil Nadu has, since February 2022, paid an extra 10 percent on top of the seigniorage fee into a district Green Fund meant to fill, fence and replant abandoned quarry pits. A Virudhunagar association of quarry owners went to the Madurai Bench of the Madras High Court to have that levy struck down as a tax the State had no power to impose. On 16 October 2026 a division bench of Justice M. Dhandapani and Justice N. Dilip Kumar dismissed the petition, holding that the Green Fund is a regulatory contribution squarely within the State's rule-making power under Section 15 of the Mines and Minerals (Development and Regulation) Act, 1957, that it restricts the right to trade only reasonably, and that it duplicates none of the other charges quarry operators already pay.
What the 2022 amendment did
The challenge was to G.O.(Ms) No. 23 of the Industries (MMC.1) Department dated 23 February 2022, which inserted a new Chapter IV-A, Rules 35-A to 35-H, into the Tamil Nadu Minor Mineral Concession Rules, 1959. Rule 35-A sets up a Green Fund for every district for the reclamation, restoration and rehabilitation of abandoned mines or quarries, and makes a contribution to it compulsory for every holder of a prospecting licence or a quarry lease of any mineral. The contribution is collected at 10 percent of the seigniorage fee and the rule says in terms that it is in addition to that fee.
Rule 35-C constitutes a district committee chaired by the District Collector, with the Assistant Director of Geology and Mining as member secretary and the District Forest Officer, the Executive Engineer of the Water Resources Department, the District Environmental Engineer of the Tamil Nadu Pollution Control Board, the District Fire Officer and the Chief Executive Officer of the Disaster Management Authority as members. The committee recommends policy, administers and reviews spending from the fund, approves a priority list of abandoned quarries in the district, approves reclamation schemes proposed in detailed project reports, and inspects for compliance. Under Rule 35-F and Rule 35-G(2)(ii) the member secretary identifies abandoned sites, the committee approves the land, and the study and project report are outsourced to an expert agency.
The judgment lists what such a report must address: stabilising slopes and controlling erosion, improving soil health, harvesting rainwater, making water stored in pits potable or usable for micro-irrigation, agriculture, horticulture and pisciculture, afforestation with native species, cold storage and mineral processing units for local income, converting pits into solid-waste yards where appropriate, and protecting people and livestock where deep quarries cannot be restored.
The rules define their own terms. Reclamation means and includes back-filling, stabilisation, topsoil conservation and building reservoirs in abandoned pits. Rehabilitation covers land-form design, species selection and physical, chemical and biological amelioration. Restoration covers engineering, bio-engineering and biological measures. An abandoned mine or quarry is one operated and left without proper reclamation, one where no mineral has been produced for six months despite overburden being removed, or one the lessee has vacated without complying with the lease. The second proviso to Rule 35-H, Explanation (a), excludes quarries temporarily non-operational under a subsisting lease and those already in the process of stabilisation. The definition also reaches quarries abandoned before the rules came into force, which the bench read as a deliberate signal that the fund is a general district fund and not a deposit tied to the contributor's own pit.
The quarry owners' case: a tax by another name
Mr M. Karthikeya Venkitachalapathy, for the Virudhunagar District Quarry Owners Welfare Association, argued that the Green Fund was a compulsory exaction amounting to a tax or impost, levied without authority of law in breach of Article 265. Relying on State of West Bengal v. Kesoram Industries and the nine-judge decision in Mineral Area Development Authority v. SAIL, he said the State's power over mineral rights could not be exercised in a way that was extortionary or prohibitory and annihilated the trade.
He catalogued what quarry operators already pay: seigniorage fee, the District Mineral Foundation contribution, security deposit, 2 percent of the seigniorage fee to the village panchayat under State Environment Impact Assessment Authority norms, the National Mineral Exploration Trust payment, surface rent, dead rent, administrative, application and processing fees, and GST on the quarried material. One more levy, he said, was an unreasonable restriction on his members' Article 19(1)(g) right to carry on business. The purpose of the Green Fund was already served by the 10 percent DMF contribution, so a second levy for the same object was arbitrary; lease deeds already allowed the Collector to demand restoration or fencing costs; and Rules 22 and 28 of the 1959 Rules already secured restoration of quarried land. That, he argued, made the Green Fund double taxation and manifestly arbitrary.
Two further points were pressed. Under Thressiamma Jacob v. Geologist, Department of Mining and Geology, proprietary rights in minerals under private patta land remain with the landowner, so the State lacked jurisdiction to levy a Green Fund on excavation from such land, and the rules were bad for not distinguishing private from government land. And in written submissions filed after arguments closed, the association added that Section 9-D, introduced into the central Act by Amendment Act 20 of 2026 through a Gazette notification of 17 August 2026, left the levy without authority.
The State's answer
Mr M. Mahaboob Athiff, Special Government Pleader, began with maintainability. A writ petition, he said, can be filed only by a natural or juridical person; a registered society is neither, on the Supreme Court's reasoning in Illachi Devi v. Jain Society, and this petition was private litigation for members, not a public interest case.
On competence, he took the bench to the preamble and objects of the 1957 Act and to Section 15, which lets a State make rules for regulating quarry leases and mineral concessions in minor minerals, and in particular to clauses (g), (h) and (i) of Section 15(1). Read with Entry 54 of the Union List and Entry 23 of the State List, that was ample authority. The Green Fund, he said, was not a tax but a regulatory fee collected in the State's environmental policing power, with an object distinct from the DMF. He invoked the doctrines of inter-generational equity, polluter pays and public trust, and Articles 48-A and 51-A.
On duplication, he said Rule 22 caps the security deposit at Rs 10,000 and Rule 28 lets the Collector compel a particular operator to fill a particular pit; both are quarry-specific, whereas the Green Fund can be spent on pits abandoned before the levy existed. Section 9-D did not help the petitioner because Section 14 of the central Act says Sections 5 to 13 do not apply to minor minerals. And Thressiamma was beside the point because the Green Fund applies to every quarry operation whether on private or government land.
A doubtful petitioner, kept alive as a public interest case
The bench dealt with locus first. It set out the passages from Illachi Devi describing a registered society as a conglomeration of persons rather than a juristic person, and then the passages from Confederation of Ex-Servicemen Associations v. Union of India in which the Supreme Court, citing D.S. Nakara, held a registered confederation entitled to invoke Part III. A three-judge bench in Lok Prahari v. State of UP and the Noida Toll Bridge case had likewise allowed registered societies to sue in public interest.
The association's own objects, the bench found, extend beyond members to the general public, and membership is open to anyone over 18, not only quarry operators. But the material showed the petition was filed to espouse members' interests, not the public's, and there was nothing to show the society's own rights were infringed. Its standing was, in the bench's words, “highly doubtful”. The judges nevertheless declined to dismiss on that ground. Because the Green Fund raised a serious issue with wide consequences for the environment, they chose to treat the petition as one in public interest and decide it on merits.
For the standard of review, the bench relied on State of Tamil Nadu v. P. Krishnamurthy, which puts the burden on a challenger to subordinate legislation and presumes constitutionality, and on paragraph 219 of Ashoka Kumar Thakur v. Union of India, which it extracted. Subordinate legislation can be struck down for want of competence, for violating fundamental rights or other constitutional provisions, for failing to conform to or exceeding the parent statute, for repugnancy, or for manifest arbitrariness so extreme that the legislature could not have intended to authorise it. Unreasonableness alone is not a ground.
Section 15 and the other charges a State may collect
On competence the judgment is brief. The bench extracted Section 15(1)(g), (h) and (i) and the two Seventh Schedule entries and held that the competence argument lost all force on a literal reading of them. Clause (g) authorises other charges besides rent, royalty, fees, dead rent and fines; clause (h) authorises rules protecting third parties prejudicially affected by mining; clause (i) authorises rules on how flora destroyed by quarrying is to be rehabilitated, in the same or another area, by the lease holder or by reimbursement of the cost. Quarrying damages the environment, prejudices the public at large, and requires reclamation and restoration. The rules therefore fall within the power.
The bench went further and called the rules essential, placing them within the environmental policing power a State inherently has to regulate mining in the interest of public health and safety. It recalled that in Deepak Kumar v. State of Haryana the Supreme Court, acting on Ministry of Environment and Forest recommendations, had called for a separate corpus for reclamation and rehabilitation of minor-mineral quarries and had directed States to frame rules in line with those recommendations. Tamil Nadu's Green Fund rules, the bench said, were framed in compliance with that direction, which made them valid and binding. Kolkata Municipal Corporation v. Shrey Mercantile was cited for the State's regulatory power to protect public health, safety and order, and the bench added its own reasoning on inter-generational equity: the present generation holds natural resources in trust for the next and has no absolute right to exhaust or permanently degrade them.
The late-raised Section 9-D point was disposed of in a paragraph. Section 14 of the 1957 Act excludes Sections 5 to 13 from quarry leases and mineral concessions in minor minerals, so the new Section 9-D has no application to a Green Fund levied on minor-mineral quarrying, and the rules are neither repugnant to it nor to any other provision of the central Act.
Fee or tax: the ring-fence decides it
The bench accepted that the Green Fund is a compulsory exaction, and then explained why that does not make it a tax. A tax, it said, is collected without quid pro quo and goes to general revenue in the Consolidated Fund, to be spent at the State's discretion under budgetary provisions. A regulatory fee needs only a broad correlation between what is collected and the industry regulated, is collected to meet the cost of specific remedial measures, and is earmarked. Strict quid pro quo need not be shown. The Green Fund is legally earmarked for reclamation, restoration and rehabilitation of abandoned quarries within the district where it is collected; money collected in one district cannot be spent in another, nor on anything outside Chapter IV-A; and none of it enters the Consolidated Fund. The judges described the contribution as an incident of the privilege the State grants to extract minerals, operating as an environmental security deposit or remediation charge attached to the licence rather than a levy on income or property.
Applying Kesoram Industries, which the association had cited for the opposite conclusion, the bench held that a levy whose primary purpose is to regulate an industry, manage public safety or mitigate the environmental externalities of a trade is a regulatory fee, and that a compensatory structure of this kind does not require a mathematical return of service to each individual payer. It noted the distinction the Supreme Court has drawn between the power to regulate and the power to tax, said the principles in Mineral Area Development Authority had to be applied with regard to this statutory scheme, and concluded that the Green Fund is a regulatory contribution for a specified purpose and not a tax or general impost.
On Article 19(1)(g), the bench applied the Article 19(6) test of reasonableness in the interest of the general public, listing the factors a court weighs: the nature of the right, the purpose of the restriction, the extent and urgency of the evil, the proportion of the imposition and the prevailing conditions. A levy to fund restoration of the damage quarrying causes passed that test, and a possible rise in the price of minor minerals was no reason to call it arbitrary. Where the choice is between financial viability and preservation of ecology, the judgment says, “the welfare State and also the Constitutional Courts are bound to choose the latter”.
DMF, Rules 22 and 28, dead rent: why none duplicates the Green Fund
The double-taxation argument failed on a comparison of purposes. Reading Section 9-B of the 1957 Act and the Tamil Nadu District Mineral Foundation Rules, 2017 against Chapter IV-A, the bench found the DMF predominantly anthropocentric and the Green Fund ecocentric. Rule 4 of the 2017 Rules directs DMF money to drinking water, healthcare, education, the welfare of women, children, the aged and persons with disabilities, and skill development; Rule 4(ii) allows spending on roads, bridges, railways, waterways, pollution mitigation and watershed resources; Rule 14 allows spending on the overall development of mining-affected areas, unconfined to any quarry site. The Green Fund goes only into reversing ecological damage at abandoned quarry sites. The association, the bench added, had not pointed to any specific overlap between the Green Fund and any other charge.
Rules 22 and 28 were extracted in full. Rule 22 requires a security deposit sufficient to cover the probable cost of restoring quarried ryotwari land to a cultivable state or fencing and filling abandoned pits, not ordinarily exceeding Rs 10,000, and makes a defaulting holder liable to thirty times the assessment of the area. Rule 28 lets the Collector require restoration or fencing, do the work himself in default and deduct the cost from the deposit, recover any balance through a civil court, and impose enhanced seigniorage of up to five times the normal rate for serious damage. The bench held that these provisions complement rather than contradict the Green Fund. The Rule 22 ceiling of Rs 10,000 it called “too meagre and negligible”. Rule 28 is punitive, triggered only after a proven default, an enquiry and an order against an identified lease holder. The Green Fund is a standard, uniform, continuing regulatory fee credited to a dedicated district fund that can also reach long-abandoned and orphaned mines. An enforcement or penal mechanism, the bench said citing Kesoram, does not stop the State from levying a non-penal regulatory fee alongside it.
Dead rent was distinguished on a different footing. It is imposed in exercise of the proprietary right, not sovereign power, to make sure a lessee works the mine rather than keeping it idle, and is in effect an alternative to royalty flowing from the lease terms. The Green Fund is a sovereign exaction to restore the environment.
Private patta lands and the limits of ownership
The Thressiamma Jacob argument was rejected on the distinction between dominium and imperium. The Green Fund rules do not differentiate between quarrying on private patta land and on government land under a State lease, and the district committee collects from prospecting licence holders and quarry operators without regard to who owns the land. Ownership of the minerals is a matter of dominium; the Green Fund operates in the realm of imperium, the sovereign power to regulate extraction. The levy is a direct percentage of the seigniorage fee on minerals extracted and transported and functions as a regulatory condition attached to the commercial permit to quarry. The bench added that it is an environmental management fee and not a royalty-type charge for the minerals themselves, and that a deep quarry pit creates ecological damage and drowning risk that do not respect private boundaries.
The judgment closes its reasoning with the constitutional footing. Citing Vellore Citizens' Welfare Forum and Indian Council for Enviro-Legal Action, the bench treated the polluter pays principle as part of Article 21 jurisprudence that allows recovery of restoration costs from the polluter, and described the Green Fund as an outcome of that principle. Citing M.C. Mehta v. Kamal Nath, it held that the State as trustee of natural resources is obliged to prevent and repair ecological degradation caused by private commercial exploitation, and may use funds collected from quarry operators to do so. Rule 35-A, the bench said, gives effect to the Section 15 mandate and is closely tied to the Article 21 right.
Order
The bench held the impugned rules justified, legally relevant and necessary, and rejected every contention raised for the association. W.P.(MD) No. 6585 of 2022 was dismissed with no order as to costs, and the connected miscellaneous petitions, W.M.P.(MD) Nos. 5090, 5091 and 5093 of 2022, were closed. The matter had been reserved on 1 September 2026 and was pronounced on 16 October 2026, with the order authored by Justice N. Dilip Kumar. The Green Fund levy of 10 percent of the seigniorage fee under Rules 35-A to 35-H stands.