Himachal Pradesh High Court Strikes Down Water Cess on Hydropower Generation

Last Updated on March 6, 2024 by News Desk

Introduction:

In a recent ruling, the Himachal Pradesh High Court declared the Himachal Pradesh Water Cess on Hydropower Electricity Generation Act, 2023 unconstitutional. This act, aimed at augmenting state revenue through water cess on hydropower generation, faced opposition from power generation companies. The court’s decision, rendered in NHPC Ltd v. State of HP & Ors, highlights crucial constitutional considerations regarding state legislative competence in taxation and regulatory matters concerning water and electricity generation.

Issue:

The central issue addressed by the court was whether the Himachal Pradesh legislature possessed the constitutional authority to enact a law imposing water cess on hydropower generation, considering the exclusive domain of water and electricity regulation by the central government.

Rule:

The court emphasized the distinction between regulatory and taxing entries in the Constitution, asserting that while water falls under state jurisdiction, the imposition of taxes on activities like hydropower generation pertains to the central government’s domain. It underscored the lack of legislative competence of the state to levy taxes or fees on electricity generation, as governed by the Electricity Act of 2003.

Analysis:

The court scrutinized the legislative competence of the state under List-II entries of the Constitution, particularly Entries 17 and 18 pertaining to water resources. It rejected the state’s contention that the law fell within its regulatory ambit, highlighting the exclusive authority of the central government in taxing electricity generation activities. Additionally, it dismissed the state’s argument that the levy could be justified as a fee under List-II entries, affirming that such imposition lacked constitutional validity.

Conclusion:

In conclusion, the court invalidated the Himachal Pradesh Water Cess on Hydropower Electricity Generation Act, 2023, on grounds of legislative incompetence and constitutional overreach. It emphasized that taxation on electricity generation falls under the exclusive purview of the central government, rendering the state law unconstitutional. Furthermore, the court criticized the lack of legislative guidance in delegating rate-fixing powers to the state executive, further undermining the validity of the impugned act.

This landmark decision not only safeguards the constitutional division of powers but also underscores the significance of clear legislative guidelines in formulating taxation policies, particularly in critical sectors such as energy generation.

Written by — Athi Venkatesh