Uttarakhand high court on Monday struck down the Uttarakhand Water Tax on Electricity Generation Act, 2012, ruling that the state legislature lacks the authority to levy tax on electricity generation through hydropower projects.
Justice Alok Kumar Verma held that this falls outside the state government’s legislative competence, saying such powers vest solely with the Centre.
HT has a copy of the order.
The court order stated, “The question is whether the tax is one on ‘drawal of water’ for use in electricity generation, or on generation of electricity? The then ..Chief Justice held that the nature of the impugned tax, in pith and substance, is a tax on drawl/ use/ consumption of water for electricity generation, and not a tax on electricity generation, whereas ..Justice Ravindra Maithani held that the impugned tax is on electricity generation.”
The order further stated that, “I have conducted an in-depth study of the judgments referred to by the State. The State cannot take advantage of the referred judgments in the present matter because it is well-settled that taxation is a distinct matter and there is a clear distinction between general subjects of legislation and taxation. State has no power to levy water tax on generation of electricity as there is no Entry under List II of Schedule VII to levy water tax. Taxation is regarded as a distinct matter and is separately set out”.
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The dispute originated from the 2012 Act, when the state government imposed a water tax ranging from 2 to 10 paise per unit based on project capacity.
Multiple hydropower companies, including THDC India Limited, NHPC Limited, Jaiprakash Power Ventures Limited, Alaknanda Hydro Power Company Limited, Swasti Power Pvt. Limited and Bhilangana Hydro Power Limited, challenged the Act.
They argued that the legislation was essentially a tax on electricity generation, which falls under List I (Union List), disguised as a tax on water used for power generation. They claimed taxation on electricity generation does not fall within the powers of state legislatures under the Constitution.
The state government claimed the tax applied to water drawn, not to electricity generation. The state claimed that it fell under the state’s legislative powers relating to water resources.
In October 2023, the high court bench of the then Chief Justice Vipin Sanghi and Justice Ravindra Maithani delivered a split verdict. While Justice Sanghi upheld the validity of the Act, Justice Maithani struck it down.
