In a significant setback for the Sukhwinder Singh Sukhu-led Congress government in Himachal Pradesh, the state’s high court has ruled the water cess imposed on hydropower generation as unconstitutional. The decision, delivered by a division bench comprising Justice Trilok Chauhan and Justice Satyen Vaidya, follows a writ petition filed by 40 hydropower companies challenging the levy of the water cess last year.
The court’s ruling, detailed in a 100-page judgment, mandates the refund of any amount collected under the provisions of the Act within four weeks from the date of the judgment. This ruling comes as a blow to the Sukhu government, which had initiated the imposition of the cess to generate revenue amidst financial constraints, aiming for a sum of ₹1,800 crore.
The controversy stemmed from the introduction of the Himachal Pradesh Water Cess on Hydropower Generation Bill in the assembly on March 14, 2023, subsequently passed on March 16, 2023, replacing an earlier ordinance. The move aimed to collect funds by levying a water cess on power projects across the state.
The issue intensified when the Himachal Pradesh Water Cess Commission issued notices to 173 power-producing companies, demanding a total of ₹871 crore in cess payments between March and July of the previous year. While some private entities complied with the directive, those in the public sector resorted to legal recourse, leading to the high court petition.
One of the petitioners, Everest Power Private Limited, contested the constitutionality of the Act, particularly Sections 10 and 15, along with Rule 7, of the Himachal Pradesh Water Cess from Hydro Power Generation Rules, 2023, applicable to existing projects. The company sought the annulment of these provisions or the refund of any cess collected, supplemented with a 12% annual interest rate.
The dispute gained national attention when the central government intervened, dismissing the Himachal Pradesh government’s endeavor to raise funds through water cess on hydel companies. In a communication addressed to all state chief secretaries, the Union energy ministry reiterated the unconstitutionality of such charges, citing relevant articles of the Constitution that limit states’ authority in imposing additional fees on power generation.
Despite the central government’s stance, the Himachal Pradesh government proceeded with the enactment of the Himachal Pradesh Water Cess Hydro Power Generation Act, 2023, and established a commission for tax collection, prompting legal challenges and ultimately resulting in the high court’s recent ruling.
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