Telangana High Court Upholds Law Levying Non-Agricultural Land Tax At Different Rates Based On Use

The Telangana High Court has upheld a law that levies non-agricultural land assessment at different rates based on the use of the land, rejecting a constitutional challenge that the levy could become arbitrary if industrial rates were imposed on land not actually used for industrial purposes.

The bench comprised Chief Justice Aparesh Kumar Singh, Justice P. Sam Koshy, Justice K. Lakshman, Justice B. Vijaysen Reddy and Justice N. Tukaramji.

The five-Judge bench held that Sections 3 and 8 and the Schedule to the NALA Act are not ultra vires Articles 14 and 19 of the Constitution.

At the same time, it ruled that land can be assessed at the industrial rate only if it is actually used for industrial purposes.

“Under Section 3, only the land which is actually in use for industrial purpose, as defined under the NALA Act can only be assessed to non-agricultural assessment tax at the rates specified for land used for industrial purposes,” the bench observed.

Section 3 provides for assessment at different rates depending on whether land is used for an industrial, commercial or other non-agricultural purpose. Section 8 empowers the State Government to alter, add to or cancel items in the Schedule, subject to subsequent approval by the Legislature.

The common order came in a batch of writ petitions challenging Section 8 of the NALA Act, the Andhra Pradesh Non-Agricultural Land Assessment (Amendment) Act, 1994, demand notices issued under Section 4 and orders of distraint. Sirpur Paper Mills Ltd. was among the petitioners. One of the petitions also challenged the applicability of the NALA Act to land covered by a mining lease.

The challenge to Section 8 and the 1994 amendment included an argument that the levy and increased rates were arbitrary and confiscatory.

The central dispute was whether the State could assess the entire non-agricultural land held by an industrial undertaking, or whether assessment at the industrial rate was confined to land actually used for industrial purposes.

The NALA Act defines “industrial purpose” to include a purpose connected with an industrial undertaking where manufacturing is carried on with the aid of power. The definition also covers excavation, underground or otherwise, where operations for searching for or obtaining minerals are carried on.

The issue has a long litigation history. A Full Bench of the erstwhile Andhra Pradesh High Court in S.V. Cement Ltd. v. Revenue Divisional Officer had given the expression “used” a wider meaning.

It held that land meant to be set apart or readily available for industrial or commercial use could also be treated as land used for those purposes.

A five-Judge bench later affirmed that view in Mahabaleswarappa and Sons, Bellary v. Commissioner of Land Revenue, Government of Andhra Pradesh.

The Supreme Court subsequently rejected the wider interpretation in Federation of Andhra Pradesh Chambers of Commerce and Industry v. State of Andhra Pradesh, holding that only land actually in use for industrial purposes could be assessed at the industrial rate under the NALA Act.

The matters were later remanded to the High Court by the Supreme Court in 2005 for fresh consideration in light of its decisions in State of West Bengal v. Kesoram Industries Ltd. and Federation of Andhra Pradesh Chambers of Commerce and Industry.

The petitioners also relied on the Supreme Court's nine-Judge bench ruling in Mineral Area Development Authority v. Steel Authority of India. They argued that the State had legislative competence to tax land under Entry 49 of List II, while contending that assessment under the NALA Act was confined to land actually used for industrial or commercial purposes.

The State took a broader position. Advocate General A. Sudarshan Reddy argued that Entry 49 empowered the State to tax land and that land not used for agriculture fell within the definition of non-agricultural land under the NALA Act.

The State also opposed restricting the expression “used” to the portion of land where industrial activity was physically carried on.

The court rejected the wider interpretation adopted in S.V. Cement. It held that the decision did not lay down the correct legal position and stood overruled.

The court upheld the constitutional validity of Sections 3 and 8 and the Schedule to the NALA Act, holding that they are not ultra vires Articles 14 and 19 of the Constitution.

The court also upheld the State's legislative competence under Entry 49 of List II to tax land comprising mines and quarries.

For land covered by mining operations, however, Section 2(d) was read down. The State can levy and collect assessment only in accordance with the terms of the mining lease as contemplated under Rule 27(d) of the Mineral Concession Rules, 1960.

The bench further held that “waste lands”, which are unfit for use, are not liable for assessment under the NALA Act. Whether particular land is wasteland has to be decided by the Revenue Inspector.

The court also held that the Revenue Inspector must issue a notice in Form I before making an assessment. Failure to do so would violate Rules 3 and 4 of the Andhra Pradesh Non-Agricultural Lands Assessment Rules, 1960 and Section 4 of the NALA Act.

The bench, consequently, quashed the demand notices and orders of distraint challenged in the petitions.

It allowed the authorities to make fresh assessments, but only on land actually used for industrial purposes and at the applicable industrial rates. The exercise has to be completed in accordance with law within six months.

Any claim for refund, if made, will be processed and sanctioned after determination of the non-agricultural assessment tax payable on the land actually in use.

The court also rejected the State's plea of unjust enrichment. It held that the NALA levy is a tax on land that could not be passed on to an end consumer in the manner of a tax on goods, services, or manufacture.

The petitioners had also argued that, following the Supreme Court's ruling in Mineral Area Development Authority v. Steel Authority of India, no NALA levy could be made for any period before April 1, 2025. The bench rejected this contention, holding that the matter had to be decided under the NALA Act, which was the governing law applicable to the parties.

The reference was accordingly answered by the five-Judge bench in its August 6, 2026 order.

For Petitioner: Advocates G.Vidyasagar, C.Niranjan Rao, Tagore Bala and K.Mamata Choudary, 

For Respondent: A.Sudarshan Reddy, Advocate General