The imposition of a cess under the Himachal Pradesh Water Cess on Hydropower Generation Act, 2023 is unconstitutional as it effectively levies a tax on electricity generation, violating the legislative competence of the State under the Constitution.

JUDGMENT :

TARLOK SINGH CHAUHAN, J.

Since, somewhat identical issues of fact and law are involved in these batch of writ petitions, therefore, they have been decided by this common judgment.

Case of the Petitioner(s):

1.1. 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 seek to assail the legislative competence, the constitutional validity and the vires of the Himachal Pradesh Water Cess on Hydropower Generation Act , 2023 (hereinafter to be referred to as the “Act”), inter alia, on the following grounds:

(i) The State lacks legislative competence/power as per Article 265 of the Constitution of India.

(ii) The legislative powers of the Union Government or the State Government have been so demarcated and specified by way of Seventh Schedule under List-I known as Union List, List-II known as State List, List-III known as Concurrent List. Thus, the State Government has legislative powers under Article 265 of Constitution of India to levy any cess only if the same finds mention in List-II. However, none of entries under List-II or the State List empowers the State Government to levy cess/tax on water usage for the purpose of generation of electricity, as has been done by the State Government.

(iii) Entry 53 of List-II empowers the State Government to levy tax/cess in respect of electricity, however, that entry is not applicable and does not empower the State Government to levy cess on water usage for the purpose of generation of hydro electricity.

(iv) The State cannot take recourse to entry No.17 of list-II for defending its impugned Act as the same firstly does not empower the State Govt. to levy a tax or cess on water and secondly, even for the sake of arguments, if entry No. 17 of List Il so empowers the State Government, the impugned Act cannot become operative in view of the non-compliance of the provisions of Article 288 of Constitution of India.

(v) The State Government by way of provisions of the Act has vested with itself non-consumptive usage of water of inter-state rivers, which amounts to encroaching upon the legislative powers of the Union Government, as under List-I of the Seventh Schedule by way of entry No.56, it is only the Union Government, which has the legislative powers with respect to interstate rivers and river valleys.

(vi) The Hydroelectric Power Projects of the petitioners are Central Sector Hydroelectric Power Projects built over inter-state rivers, namely, Ravi and Beas and its tributaries, with the sanction of the Union Government and, therefore, any restriction imposed by the State Government in the usage of water flowing from the said rivers by way of seeking sanction for non consumptive usage of river water and further by way of levy of cess on such non-consumptive use of inter-state river water for generation of electricity, is wholly illegal and invalid being beyond the legislative competence/power of the State Government.

(vii) The Govt. of India, Ministry of Power taking note of the fact that some of the States have imposed taxes/duties on generation of electricity in the guise of water tax/cess, vide letter dated 25.04.2023 had called upon all the Chief Secretaries of the State Governments and Union Territories not to levy such tax/duty/cess being contrary to the constitutional provisions and the same be promptly withdrawn.

(viii) Section 10 of the Act and Rule 7 of Himachal Pradesh Water Cess from Hydro Power Generation Rules , 2023 (for short “the Rules”) have impact of taking away the