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High Court rules Himachal’s water cess on Hydropower illegal

The Himachal Pradesh High Court has struck down the water cess imposed by the state government on hydroelectric power projects

By Ground report 06 Mar 2024

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High Court rules Himachal’s water cess on Hydropower illegal

The Himachal Pradesh High Court has struck down the water cess imposed by the state government on hydroelectric power projects as unconstitutional. This decision represents a significant setback for the state government, which is grappling with a substantial debt of Rs 75,000 crore and a dire financial crisis.

Himachal issues water cess bills

The Division Bench, led by Justice Tarlok Singh Chauhan, delivered a comprehensive 100-page order, asserting that the authority to tax power generation lies exclusively with the Central Government. Consequently, the imposition of such a cess by the state is beyond its jurisdiction.

The controversy began last year when the Himachal government-issued water cess bills to over 170 power companies operating within the state. In response, 40 of these companies—both government and private entities in the hydroelectric sector—challenged the bills in the High Court.

The court’s ruling on Tuesday favoured these companies, declaring the Water Cess Act of 2023 invalid and ordering the reimbursement of the collected water cess to the power project companies within a four-week timeframe.

Himachal’s Advocate General, Anup Ratna, indicated that the state government plans to challenge the High Court’s decision in the Supreme Court. He emphasized the state’s intention to present a robust case highlighting its efforts to augment revenue.

The state government had initially levied the water cess on the utilization of flowing water by power projects, a move that was subsequently rejected by the court. The Advocate General expressed the government’s resolve to reassert its arguments before the Supreme Court.

Central government declares water cess illegal

This legal battle follows a previous directive from the Central Government last year, which deemed the water cess illegal and unconstitutional. The Central Government’s communication, citing Articles 286, 287, and 288, clarified that such taxation on electricity generation falls outside the state’s purview. Despite this, the Himachal Government proceeded to establish the State Water Cess Commission through legislative action, with the commission actively engaged in collecting the cess from power projects.

In the previous fiscal year, the Himachal government set the water cess rates between Rs 0.06 to Rs 0.30 per cubic meter for the state’s numerous power projects. By September, the State Water Cess Commission had issued bills to all concerned companies, including major players like BBMB, SJVNL, and NHPC, culminating in the collection of Rs 34 crore from 23 projects and agencies.

The High Court’s decision has now cast uncertainty on the state’s financial strategy, compelling a reassessment of its revenue generation mechanisms and a potential appeal to the nation’s highest judicial authority.