The Uttarakhand High Court on April 27 struck down the Uttarakhand Water Tax on Electricity Generation Act, 2012 which imposed tax on hydroelectricity generation [THDC India Vs State of Uttarakhand]..Justice Alok Kumar Verma delivered the judgment resolving a split verdict earlier delivered by a Division Bench. The Court held that the State lacks the legislative competence to impose such a levy, as it effectively taxes electricity generation.In 2023, the then Chief Justice Vipin Sanghi had upheld the law while Justice Ravindra Maithani, who was on the Bench with the Chief Justice, had declared it unconstitutional.Justice Verma concurred with the latter view thus quashing the law.."It has been found in the earlier analysis that the Act imposes a tax on the generation of electricity. The State Legislature is not competent to levy tax on the generation of electricity. Therefore, I am in full agreement with the conclusion of brother Ravindra Maithani, J. that the Act is ultra vires the Constitution," the Court held..At the heart of the dispute was the nature of the levy. The State argued that the tax was imposed on the “drawal of water” used in hydropower generation. However, hydro power companies contended that the levy was in substance a tax on electricity generation, which falls outside the State’s legislative domain..The Court agreed with the companies.It noted that tax liability arose only when water was drawn for the purpose of generating electricity, making electricity generation the real taxable event.The Court emphasised that taxation powers must be strictly traced to specific entries in the Constitution. It held that no entry in the State List permits taxation on electricity generation, which falls within the Union government's domain."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," the Court held..Apart from lack of legislative competence, the Court also found fault with the manner in which the law delegated powers to the executive.It held that Section 17 of the Act, which allowed the State government to fix tax rates without any guiding principles, amounted to “naked delegation” and was unconstitutional.Hence, it struck down the law..The companies had also argued that the State was barred from imposing such a tax due to earlier agreements assuring no such levy.However, on this point, the Court sided with the view of the Chief Justice and held that there can be no promissory estoppel against legislative action..National Hydroelectric Power Corporation was represented by Solicitor General Tushar Mehta..Senior Advocate Sanjay Jain represented THDC India Ltd..Senior Advocates Saurabh Kirpal and DS Patni represented Alaknanda Hydro Power Company Ltd..Senior Advocate Sujit Ghosh represented Bhilangana Hydro Power Ltd.Senior Advocate UK Uniyal represented Uttar Pradesh Power Corporation Ltd..The State of Uttarakhand was represented by Senior Advocate Dinesh Dwivedi with advocates Prateek Dwivedi, Shivam Singh, Deputy Advocate General TS Bisht and Standing Counsel VD Bisen. .The Union of India was represented by Standing Counsel Rajesh Sharma and Saurav Adhikari. The State of Uttar Pradesh was represented by Standing Counsel ID Paliwal..[Read Judgment]
