Himachal Pradesh High Court Declares Water Cess Levied By State Government On Hydropower Generation As Unconstitutional

The Himachal Pradesh High Court has declared the levy of water cess by the state government on hydropower generation unconstitutional.

The bench of Justice Tarlok Singh Chauhan and Justice Satyen Vaidya has observed that even the Statement of Objects and Reasons as well as the preamble of the Himachal Pradesh Water Cess on Hydropower Generation Act, 2023, do not lend any guidance to the delegate. The preamble of the Act merely states that it is an act to levy water cess on hydropower generation in the State of Himachal Pradesh, and the Statement of Objects and Reasons merely states that the objective of the Act is revenue generation. Therefore, on account of having delegated power to fix rates of impugned levy to the Government of Himachal Pradesh without any legislative policy or guidance, the Act is unconstitutional.

The petitioners are power generation companies engaged in the production of 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 petitioner assailed the legislative competence, the constitutional validity, and the vires of the Himachal Pradesh Water Cess on Hydropower Generation Act, 2023.

The petitioner contended that the hydroelectric power projects of the petitioners are central sector hydroelectric power projects built over inter-state rivers, namely Ravi and Beas and their tributaries, with the sanction of the Union Government. Therefore, any restriction imposed by the State Government on the usage of water flowing from the rivers by way of seeking sanction for non-consumptive usage of river water and by way of levy of cess on such non-consumptive use of inter-state river water for the generation of electricity is wholly illegal and invalid, being beyond the legislative competence and power of the State Government.

The petitioner contended that Section 10 and Rule 7 of the Himachal Pradesh Water Cess from Hydro Power Generation Rules, 2023, have impacted taking away the rights that have been crystallized or vested in the petitioners. The Act has a retrospective effect. Even though the Legislature is entitled to make an enactment with retrospective effect, it cannot take away the rights that have already been vested in the petitioners.

The department contended that since water is a state's subject matter and comes under entry 17 of List-II, the state has legislative competence to make laws, and hence there is no violation of Article 265 of the Constitution of India. Cess has not been levied on generation of electricity under entry No. 53, but has been levied for usage charges on water under entry No. 17 of List II. Further, under entries No. 17, 18, 45, 49, and 50 of List-II, the state can also impose a tax on water. As such, the cess is not on electricity generation or on electric units, as alleged. 2.4. 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 the 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 an 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 non-consumptive use of water meant for usage of water by hydropower projects, which does not fall under article 288(1) of the Constitution of India, and there is no violation of any provisions of the Rivers Boards Act, 1956 and the Inter-State River Water Disputes Act, 1956.

The court held 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.

The court has quashed the Himachal Pradesh Water Cess on Hydropower Electricity Generation Rules 2023.

“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,” the court said.

Counsel For Petitioner: Tushar Mehta

Counsel For Respondent: Dushyant Dave

Case Title: N.H.P.C. Ltd. Versus State of H.P. & ors.

Citation: 2024 LiveLaw (HP) 5

Case No.: CWP No. 2916/2023

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