Uttarakhand High Court Delivers Split Verdict On Constitutional Challenge To Uttarakhand Water Tax On Electricity Generation Act, 2012

A Uttarakhand High Court Bench of Chief Justice Vipin Sanghi and Justice Ravindra Maithani has delivered a split verdict on a constitutional challenge to the validity of the Uttarakhand Water Tax on Electricity Generation Act, 2012.

Chief Justice Vipin Sanghi upheld the validity of the Act, whereas Justice Ravindra Maithani struck it down.

Senior Counsel Sanjay Jain, among others, appeared for the appellant. Senior Counsel Dinesh Dwivedi, Standing Counsel BS Parihar, among others, appeared for the State. Standing Counsel Saurav Adhikari and Counsel Rajesh Sharma appeared for the Union.

In this case, the appellants, who were power-generating companies operating hydropower projects, challenged the constitutional validity of an Act passed by the Government of Uttarakhand.

The Act, called the Uttarakhand Water Tax on Electricity Generation Act, 2012, imposed a tax on the "drawal of water for electricity generation."

The primary grounds for challenging the Act included claims that it violated several provisions of the Indian Constitution, including Articles 14, 19(1)(g), 246, 248, 265, and 300A. It was argued that the State Legislature lacked the authority to enact this tax and that there was no specific provision in the State List allowing for the levy of water tax on electricity generation. The Act was characterized as an excessive delegation of legislative powers, as the tax was imposed through an executive notification rather than statutory law.

The appellants also asserted that the principle of promissory estoppel should prevent the State from imposing this tax. The central issue was whether the Act, which effectively taxed electricity generation by levying a water tax, was constitutionally valid and fell within the legislative competence of the State.

Justice Ravindra Maithani's Judgment:

The following conclusions were reached:

1) The “true nature and character” or “pith and substance” of the Act is that it levied tax on the generation of electricity.

2) The State Legislature is not competent to legislate the Act. Therefore, the Act is ultra vires the Constitution.

3) Section 17 of the Act makes excessive delegation of power for fixing rates by the State Government. It delegates such power without any policy guidelines. It is a naked delegation. Therefore, Section 17 of the Act is void.

4) The demand of tax made pursuant to the Notification dated 07.11.2015 is barred by the doctrine of promissory estoppel.

5) This Court cannot remake or recast the statute. The Act imposes tax, which the State Legislature is not competent to enact.

6) The Act cannot be read as the one imposing fee.

The Judge allowed the appeals, and the Act was struck down.

Chief Justice Vipin Sanghi's Judgment:

The following conclusions were drawn:

1) The said Act has been enacted by the State legislature of the State of Uttarakhand in exercise of its legislative power under Article 246(3) read with Entries 45, 49 and 50 of List II of the Seventh Schedule to the Constitution of India. 

2) The said Act, in pith and substance, is an Act to levy tax on drawl of water for purposes of generation of electricity, and is not a tax on generation of electricity by the users of water. 

3) The State is not estopped promissorily, or otherwise, from enacting the impugned Act.

4) There is no excessive delegation of legislative function by the State legislature in authorizing the State to fix the rates of water tax under Section 17 of the Act.

Therefore, the Chief Justice upheld the validity of the Act and the appeals were dismissed.

Cause Title: THDC India Limited vs State of Uttarakhand & Ors.

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