Centre asks states to withdraw water cess, terms it illegal and unconstitutional

Pratibha Chauhan

Shimla, April 25

Terming the imposition of water cess on hydel power generation by some states as illegal and unconstitutional, the Centre on Tuesday directed State governments to withdrawal it promptly.

MP Pradhan, Director, Ministry of Power, shot off a letter to Chief Secretaries of all the State Governments with regard to imposition of cess. “This is illegal and unconstitutional. Any tax/duty on generation of electricity, which encompasses all types of generation, thermal, hydro, wind, solar, nuclear, etc., is illegal and unconstitutional,” the letter reads.

The letter has cited eight constitutional provisions while stating that all such taxes or duties cannot be under the guise of generation of electricity and if any taxes or duties have been levied by any state, it should be withdrawn promptly. Some states, including Himachal and Uttarakhand, have imposed water cess on hydel power generation to be borne by power producers, both private as well as government undertakings.

“Even though the states are referring to this as a cess but it is actually a tax on generation of electricity, the tax is to be collected from the consumers of electricity who may happen to be residents of other States” is one of the provision cited in the letter. It also mentions that Article 287 and 288 of the Constitution prohibits the imposition of taxes on consumption or sale of electricity consumed by the Central Government or sold to the Central Government for consumption. “Levy of water cess is against the provisions of the Constitution Entry 17 of List II does not authorise the State to levy any tax or duty on water,” the letter states.

The Ministry of Power has also written to Secretary, Ministry of New and Renewable Energy and Chief Managing Directors of National Thermal Power Commission (NTPC), National Hydro Power Corporation (NHPC), Satluj Jal Vidyut Nigam, NEEPCO, THDC India Ltd and also to Chairman Bhakra Beas Management Board (BBMB) to challenge any such water cess in court.

“No payment of such taxes or duties be made by the Government of India organisations in the business of generating electricity until after a decision by a competent court,” the Director Power has written.