SRINAGAR: In a major setback to the Jammu and Kashmir government, the High Court of Jammu & Kashmir and Ladakh has struck down the levy of water usage charges on hydroelectric power projects in the Union Territory, holding that the charges imposed under the Jammu and Kashmir Water Resources (Regulation and Management) Act, 2010, were in effect a tax on electricity generation and it was beyond the legislative competence of the erstwhile J&K Legislature.
The three petitions were filed by 11 companies led by M/s Mass N Energy Pvt. Ltd., M/s Magpie Hydel Construction Operation Industries Pvt. Ltd. and M/s Choudhary Power Projects Pvt. Ltd.
The companies had been allotted various independent and small hydropower projects in J&K and had challenged the provisions of 2010 Act, along with the demand notices issued by the authorities for recovery of water usage charges from hydropower projects.
The Division Bench allowed all three writ petitions and declared that the 2010 Act, to the extent it provides for levying water usage charges upon the hydro power projects, amounts to imposing a tax on the generation of electricity and, therefore, the State Legislature did not have the competence to impose such tax.
“The impugned enactment, to the extent it imposes water usage charges upon the petitioners, is held to be ultra vires the Constitution and is struck down,” the court ruled.
It further ordered that the demand notices issued against the writ petitioners are quashed and State is restrained from imposing any tax on the generation of electricity under the garb of water usage charges or any other tax
“From the foregoing analysis of legal position, it is clear that the electricity being goods and in terms of unamended entry 84 of List-I which was in existence at the time when the impugned Act came to be enacted, vested powers with the Parliament to legislate on the field of generation of electricity. The enactment of the impugned legislation to the extent it seeks to impose tax on generation of electricity was, therefore, beyond the legislative competence of the erstwhile State of J&K. To that extent, the provisions of impugned Act of 2010 are ultra vires the Constitution,” the High Court ruled.
It held that Entry 17 of the State List empowers the State to regulate water resources, including water power, but does not confer an independent power to impose a tax on water or electricity generation.
The Bench observed that the Constitution separately identifies legislative and taxing powers and that a general regulatory entry cannot be used to create a taxing power where no corresponding taxing entry exists.
It noted that Entry 53 of the State List permits taxation on the consumption or sale of electricity, but does not authorise taxation on its generation.
Relying upon the Supreme Court judgment in M.P. Cements Manufacturers Association versus State of Madhya Pradesh, the High Court held that Parliament possesses exclusive legislative competence over taxation on the production of electricity.
The Bench also rejected the Government's argument that the 2010 Act had acquired parliamentary legitimacy after being adopted under the Jammu and Kashmir Reorganisation Act, 2019.
It held that adoption of an existing State enactment under the Reorganisation Act does not convert it into an Act of Parliament or cure a constitutional defect that existed when the legislation was originally enacted.
“Because the impugned Act has been adopted and applied to the UT of J&K in terms of the J&K Reorganization Act, which is an enactment passed by Parliament, the said Act has therefore become an Act of Parliament, is wholly misconceived. The J&K Reorganization Act would not save the impugned legislation once it is shown that it was beyond the competence of State Legislature at the time it was enacted,” it observed.
The Union Territory Government had defended the levy, maintaining that it was competent to regulate the storage and utilisation of water under Entry 17 of the State List of the Seventh Schedule to the Constitution. However, the central Government had supported the petitioners on the central constitutional question, maintaining that the State Legislature had no authority to impose a tax on the generation of electricity.
In 2010, the Legislature of the erstwhile J&K State had enacted Jammu and Kashmir Water Resources (Regulation and Management) Act, 2010, and, pursuance thereto, the Jammu and Kashmir Water Resources (Regulation and Management) Rules, 2011 came to be framed.
The provisions of the Act provided for levying of water usage charges, inter alia, on use of water for generation of electricity.
Under the provisions of the Act, the J&K government had issued demand notices against the petitioners in respect of water usage charges for generation of electricity from 2010 onwards. The demand notices were issued by J&K government in exercise of the powers under Sections 120, 130 and 145(1)(d) of the Act of 2010.
The petitioners in their writ petition had stated that under the scheme of the Constitution, the power to impose tax on generation of electricity is beyond the competence of the State Legislature and even as per stand of the Union of India, the State Government cannot levy tax on generation of electricity under the garb of water usage charges etc.
