In a major ruling, the Himachal Pradesh High Court declared ‘water cess’ levy on hydropower generation as ‘unconstitutional’.
The petitioners are power generation companies engaged in the production of the electricity by using river water. They own, operate and maintain the hydropower projects. The petitioners after entering into agreements with the Government of Himachal Pradesh are running the projects. The petitioners sought to assail the legislative competence, the constitutional validity and the vires of the Himachal Pradesh Water Cess on Hydropower Generation Act, 2023.
The counsel for the state contended that since water is a State’s subject matter and comes under entry 17 of List-II, therefore, the State has legislative competence to make law and hence there is no violation of Article 265 of the Constitution of India.
It was also submitted that levy of cess on usage of water for hydropower generation is not in violation of Article 288 of the Constitution of India as the issue in the instant case is not about sale and purchase of water and electricity. Tax is not in respect of the water or electricity stored, generated, consumed distributed or sold by any authority established by any existing law or for any law made by the Parliament for regulating or developing inter-State river or river valley as such it does not come under entry No. 56 of List-I, rather it is a cess on nonconsumptive use of water meant for usage of water by the hydropower projects, which does not fall under Article 288(1) of the Constitution of India and there is no violation of any provisions of any Act.
Senior Advocate for the petitioners argued that executing the projects, the projects have entered into power purchase agreements ( PPAs ), under which they are otherwise obliged to give 12% electricity free of cost to the State Government and 1% towards rehabilitation making them liable to give 13% of the electricity so generated free of cost to the State Government, therefore, the State Government is estopped from levying tax.
As regards entry No. 38 of list-III, which is the concurrent list, it was stated that the State can only regulate electricity, but cannot tax it. For this, there has to a specific provision contained in the Constitution itself. The State can also not be permitted to fall back on entry No. 47, as there has to be quid pro quo for being termed as a ‘fee’ not a ‘tax’.
A Division Bench of Justices Tarlok Singh Chauhan and Satyen Vaidya observed that “The provisions of the Himachal Pradesh Water Cess on Hydropower Electricity Generation Act, 2023, are declared to be beyond the legislative competence of the State Government in terms of Articles 246 and 265 of the Constitution of India and, thus, ultra vires the Constitution. (ii) Consequently, the Himachal Pradesh Water Cess on Hydropower Electricity Generation Rules 2023, are also quashed and set aside.”
“Even the Statement of Objects and Reasons as well as the preamble of the impugned Act does not lend any guidance for the delegate. The preamble of the impugned Act merely states that it is an act to levy water cess on hydropower generation in the State of Himachal Pradesh, the Statement of Objects and reasons merely states that the objective of the impugned Act is revenue generation. Therefore, on account of having delegated power to fix rates of impugned levy to Government of Himachal Pradesh without any legislative policy or guidance, the impugned Act is unconstitutional” the Court concluded.
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