Himachal Pradesh HC quashes Water Cess on Hydropower Electricity Generation Rule, 2023 being Ultravires to Constitution [Read Judgment]

The Himachal Pradesh High Court has quashed the Water Cess on Hydropower Electricity Generation Rule, 2023, ruling it to be ultra vires to the Constitution.

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 after entering into agreements with the Government of Himachal Pradesh are running the projects.

Three essential components can be clearly identified within the impugned statute, which are taxable events, “the person liable to pay tax” and the “rate of tax”. However, the impugned legislation fails to identify the fourth and equally critical component i.e. measure of tax, which is the value on which the rate of tax will be applied for computing the tax liabilities.

The bench noted that it was in exercise of powers vested under Section 15(2) of the impugned Act that the State Government issued a Notification dated 26.08.2023 (supra), whereby the tariff structure on water cess was fixed on the basis of “Head”. However, even the said notification failed to prescribe the measure of tax and instead proceeded to prescribe tariff rate without any indication or measure on which such tariff rate will be applied. Moreover, measure of tax being vague based upon the “assessment” or water drawn, which would form the basis of the tax imposed is also vague and fraught with lack of adequate guidelines, as is evident from the combined reading of Section 12 with Section 17 of the impugned Legislation (supra).

The division bench of Justice Tarlok Singh Chauhan and Justice Satyen Vaidya observed that the Sections 10 and 15 of the Himachal Pradesh Water Cess on Hydropower Electricity Generation Act, 2023, as have been made applicable to the existing projects, are also declared to be ultra vires the Constitution and are accordingly quashed and set aside.

Further the letter/notice issued by the State Government/Himachal Pradesh State Commission for Water Cess on Hydropower Generation pursuant to the impugned Act, Rules, seeking recovery of water cess from the petitioners, are declared as illegal and are accordingly quashed and set aside.

To Read the full text of the Order CLICK HERE

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