Srinagar, Oct 30 (UNI) The Jammu and Kashmir and Ladakh High Court has struck down water usage charges imposed on hydropower projects, ruling that the erstwhile state legislature lacked the power to tax electricity generation.
A Division Bench of Justice Sanjay Dhar and Justice Rajnesh Oswal on Thursday quashed demand notices issued to power producers and restrained the government from imposing any tax on electricity generation under the guise of water usage charges or any other levy.
The ruling came on three petitions filed by independent power producers challenging charges imposed under the Jammu and Kashmir Water Resources (Regulation and Management) Act, 2010, and the rules framed under it.
The petitioners included 11 companies allotted small hydropower projects across Jammu and Kashmir. They challenged demands for water usage charges dating back to 2010, arguing that the levy was effectively a tax on electricity generation.
They submitted that water used for hydropower generation was non-consumptive, as it passed through turbines and was discharged downstream. They also questioned the tariff structure, saying the Water Resources Regulatory Authority had fixed charges according to the head height of water rather than the volume used.
The union of India supported the petitioners, maintaining that Entry 53 of the State List empowered states to tax the consumption or sale of electricity, but not its generation.
The Jammu and Kashmir government, however, defended the legislation, arguing that Entry 17 of the State List empowered it to regulate water resources and impose charges for their use, including by hydropower projects.
Rejecting the government’s stand, the Bench said the nature of a levy had to be determined by its substance and incidence, not the label attached to it.
The court noted that the tariff, fixed through an order dated April 2, 2019, was linked to the head height of water rather than the quantity used. Since a greater head height meant higher electricity-generation potential and higher charges, the levy was effectively linked to power generation.
It further observed that the government was not required to operate, maintain or manage the hydropower projects in return for the charges.
Referring to Section 185-A of the Act, the Bench noted that the funds collected were earmarked for establishing hydel projects, acquiring existing power projects, investing in transmission and distribution networks and purchasing electricity. They were not being used to provide any service to the power producers.
The court, therefore, held that the levy could not be treated as a regulatory fee or a charge for water usage.
On legislative competence, the Bench ruled that the erstwhile Jammu and Kashmir legislature had no authority under the constitutional framework prevailing at the time to impose a tax on electricity generation.
“A piece of legislation, which is ultra vires the Constitution at the time of its enactment cannot be legitimized by its adoption by the Parliament subsequently,” the Court observed.
It also rejected the government’s contention that the adoption of the 2010 Act under the Jammu and Kashmir Reorganisation Act, 2019, had cured the constitutional defect. The court said adoption of an existing state law did not convert it into an Act of Parliament.
Allowing the petitions, the Bench declared the 2010 Act ultra vires the Constitution to the extent that it imposed water usage charges on the petitioners’ hydropower projects.
It quashed the demand notices and restrained the government from imposing taxes on electricity generation under the garb of water usage charges or any other tax.
