Water cess unconstitutional, says Centre; HP to seek legal opinion
A day after the Centre shot off a missive to states declaring imposition of water cess on generation of electricity as “illegal and unconstitutional”, the Himachal Pradesh government on Wednesday said it would seek legal opinion in the matter
A day after the Centre shot off a missive to states declaring imposition of water cess on generation of electricity as “illegal and unconstitutional”, the Himachal Pradesh government on Wednesday said it would seek legal opinion in the matter.
In a letter to all chief secretaries, MP Pradhan, director, ministry of power, on Tuesday said: “Any tax or duty on generation of electricity, which encompasses all types of generation such as thermal, hydro, wind, solar, nuclear, etc. is illegal and unconstitutional.”
The power ministry’s directive is significant in view of the Himachal Pradesh government’s recent move to impose a water cess on hydropower projects with the aim to raise additional revenue of ₹ 4,000 crore from 172 projects.
The Himachal Pradesh Water Cess on Hydropower Generation Bill-2023 was passed by the assembly through a voice vote on March 16. The governor has already given his assent to the Bill.
Punjab and Haryana, which buy power from projects located in the hill state, strongly opposed the move and their legislative assemblies passed separate resolutions last month to oppose the levy. HP chief minister Sukhvinder Singh Sukhu later met his counterparts in Punjab and Haryana and assured them that the water cess to be levied by his government would not cause any loss to their states.
The Union power ministry, in its communication, said that some states have imposed taxes or duties on generation of electricity under the guise of levying a cess on the use of water for generating electricity. “Though the state may call it a water cess, it is actually a tax on the generation of electricity the tax is to be collected from the consumers of electricity who may happen to be residents in other state,” read the letter, quoting Article 286 of the Constitution which explicitly prohibits states from imposing any taxes or duties on supply of goods or services or on both where the supply takes place outside the state.
{{/usCountry}}The Union power ministry, in its communication, said that some states have imposed taxes or duties on generation of electricity under the guise of levying a cess on the use of water for generating electricity. “Though the state may call it a water cess, it is actually a tax on the generation of electricity the tax is to be collected from the consumers of electricity who may happen to be residents in other state,” read the letter, quoting Article 286 of the Constitution which explicitly prohibits states from imposing any taxes or duties on supply of goods or services or on both where the supply takes place outside the state.
{{/usCountry}}The latter further directed states/UTs to promptly withdraw such taxes or duties.
{{/usCountry}}The latter further directed states/UTs to promptly withdraw such taxes or duties.
{{/usCountry}}Taking a strong exception to the power ministry’s order, Himachal deputy chief minister Mukesh Agnihotri, who holds the Jal Shakti portfolio, said the government would seek a legal opinion “Himachal has a right over the water that flows through the state. Water is a state subject, while electricity is on Union list. The government made provisions to impose tax on the water that flows in Himachal. The Union ministry is talking about the provisions of electricity and the state is only concerned with the cess on water,” said Agnihotri who had introduced the Bill in the House.
“The Centre has issued the letter in a haste. The Union government has also provoked the companies and asked them not to pay taxes,” said the deputy CM, questioning the timing of the directives. “The Centre remained silent when the BJP-ruled Uttarakhand government enacted a law to impose water cess,” he said, adding that the intention of enacting the law was to generate revenue. “The debt burden in the state has increased to ₹ 75,000 crore and the state has targeted to generate ₹ 4,000 crore from collecting water cess,” he said.
The state government has also asked the Centre to compensate ₹ 4,000 crore if doesn’t want the states to impose taxes on water. Agnihotri also blamed the state BJP leaders for instigating the central leadership to issue letter to the state barring them to collect water cess. “Since the matter is related to income generation, even the BJP leaders in the Vidhan Sabha had sided with us. But now some senior leaders are provoking their bosses s in Delhi,” said Agnihotri, adding that Himachal will fight for its rights both politically and legally.
“It’s strange that the letters reached the media even before reaching the state government. We will study all aspects,” he said.