In blow to Sukhu govt, Himachal Pradesh HC strikes down water cess on hydel projects

Sections 10 and 15 of the Himachal Pradesh Water Cess on Hydropower Electricity Generation Act, 2023, dealing with fixation and liability to pay cess made applicable to the existing projects, are declared to be unconstitutional and stand quashed, the bench said.

The court, in the 100-page verdict, also ordered that the sum of money recovered from the petitioners under the provisions of the Act should be refunded within four weeks from March 5.

Disposing of 40 petitions filed by private power-producing companies and central hydropower-generating undertakings, the bench further quashed the letter and notice issued by the state government and the water commission seeking recovery of water cess from the petitioners.

Advocate General Anup Kumar Rattan said the state government will will challenge the verdict in the Supreme Court. “There are many states including Jammu & Kashmir and Uttarakhand, where laws have been formulated to impose water cess. The Himachal Pradesh government had imposed cess on water while the petitioners claimed that it was on the electricity produced,” AG Rattan said.

Two months after it assumed charge, the Congress government on February 15, 2023 last year promulgated the Himachal Pradesh Water Cess on Hydropower Generation Ordinance, 2023. It had then said it was aiming to generate ₹ 4,000 crore per annum — which it later revised to Rs 2,000 crore per annum.

Later, the Himachal Pradesh Water Cess on Hydropower Generation Bill was introduced in the Assembly on March 14, last year and passed on March 16, replacing the Ordinance.

It proposed a cess of 10 paise/cubic metre up to 30 m; 25 paise per cubic meter for 30-60 m; 35 paise per cubic metre for 60-90 m, and 50 paise per cubic meter for above 90 m.

The state government had then set up the Himachal Pradesh Water Cess Commission, which issued notices to 173 hydropower-producing companies to collect cess amounting to Rs 871 crore for the period March to July 2023. While three private power companies complied, public sector companies challenged the order in the high court.

Earlier, the Centre, citing Articles 286, 287, and 288 of the Constitution, had said it was beyond the jurisdiction of the states to impose any additional charges or duties on power generation. The Union energy ministry, in a letter to chief secretaries of all the states on October 25, said that it had come to its notice that “state governments have imposed additional charges on the generation of electricity from various sources under the guise of development fee/charges/fund”.

“Such additional charges/fees in the form of any tax/duty on the generation of electricity, which encompasses all types of generation viz. Thermal, Hydro, Wind, Solar, Nuclear, etc. is illegal and unconstitutional,” it said.

The Punjab and Haryana governments too had opposed the levying of water cess and passed resolutions in their respective Assemblies in this regard.