The Uttarakhand High Court has dismissed petitions filed by various hydro-power project companies against the Uttarakhand government, upholding the water tax on hydropower generation.
A single-judge bench of Justice Lokpal Singh passed this verdict on Friday (February 12). According to the case, the Uttar Pradesh government conceptualised the Srinagar Hydro Electric Project in 1981 with a capacity of 330 MW. The project development was entrusted to the Irrigation department of the erstwhile UP Government and was planned to be developed with World Bank funds.
Due to inordinate delay caused by the UP government in developing the project, the World Bank withdrew the funding and due to paucity of funds, the state government decided to entrust the Project to private parties for development. Tata Power Corporation Ltd. (TATA/TPCL) took over the project development works, which could not succeed in making progress with the project development and ultimately, in 2005, GVK Group of Hyderabad took over and was entrusted with the project work. Prior to that, when Duncans North Hydro Power Co. Ltd. (Duncans) was entrusted the Project, an MoU and an Implementation Agreement (IA) dated 27.08.1998 was entered into between the parties.
Earlier, the erstwhile State of UP and the Duncans entered into a Water Usage Agreement dated 28.08.1998 in order to facilitate Duncans to use the water from the Alaknanda River for generating power from the Project. In the meantime, in the year 2000, the State of Uttarakhand came into existence. After bifurcation of erstwhile State of UP, the benefits to be emanated from the Project were conceptualized to be shared between the State of U.P., State of Uttarakhand and the Alaknanda Hydro Power Company Limited (AHPCL); and to give effect to the understanding between the said three parties, existing IA was amended and restated as Restated Implementation Agreement (RIA). The petitioner AHPCL, Govt. of U.P. and Govt. of Uttarakhand amended the IA and had entered into the restated Implementation Agreement on 10.02.2006 (RIA) to depict in clear terms, the rights and obligations of each party, including but not limited to the aspect of 12% power to be supplied by the petitioner to the Govt. of Uttarakhand for free of cost and as a ‘Royalty’ for using the Alaknanda River water by the Project which is situated in the State of Uttarakhand.
But in 2012, the Uttarakhand government enacted the Uttarakhand Water Tax on Electricity Generation Act and imposed 2 to 10 pence per unit water tax on hydropower companies as per the wiring limit. Which was challenged on behalf of the petitioners.
It is contended in the Petitions that Clause 1.65 of the RIA categorically states that “Water use Agreement’ or WUA means the document, as executed between the then Govt. of U.P. and the Company on 28th August, 1998 whereby the then Govt. of U.P. had granted the rights to the Company to use the water from the Alaknanda River for generation of electric energy for the Project.”
Further , Clause 13 of the RIA defines the Water Use Rights and provides that “The Govt. of Uttarakhand hereby grants to the Company the right, free of any and all charges during the Term to utilize the water of Alaknanda river for the project and to generate electric energy at the Site and for such reasonable purposes directly related and necessary for the generation of electricity in accordance with the conditions of this RIA and for the project subject to the compliance of the conditions of environment clearance.
It is the case of the petitioner that the respondent neither installed any flow measuring device within the premises for measuring the water drawn nor had it adopted any alternate method in measuring the quantity of water used; and the respondent neither did prescribe any specification for adjusting the expenditure incurred by the petitioner.
It is alleged that neither any Commission was established under the Act nor has such Commission computed the tax based on the water drawn by the petitioner, as such, not only the impugned notice is bad in the eyes of law for want of compliance under Sections 14, 17 and 19 of the Act, but also non-maintainable as the amounts claimed under the notice are baseless and are made on mere surmises and presumptions.
Dinesh Dwivedi, Senior Counsel appearing on behalf of the respondent State, submitted that the incidence of tax under the impugned Act is ‘drawl of water’ and generation of electricity is a separate and subsequent activity which has nothing to do with the impugned Act. It is contended that the nature and character of the levy, its pith and substance, the taxable event or the incidence of the tax can only be seen by reading the law as a whole.
The court opined that the subject matter of the tax is the “user of water” which is resorted to for electricity generation but the incidence of tax falls only on the drawing of water and not the generation of electricity. It is contended that if the tax was on electricity generation then the appropriate measure of tax would be on “units of electricity generated” and not on “paise per cubic meter of water drawn”. Thus, the claim of the petitioners that the tax is on “electricity generation” is wholly incorrect.
It was observed by the Court that “there is no such Act of Parliament which may restrict the power of the State to tax use of water / water drawn. Firstly the nature of the tax imposed by the Act and the activity on which the incidence falls has to be determined in order to further determine the competence of the State legislature to tax. It is quite evident that tax law is an economic legislation. Tax sought to be levied is a purely revenue collecting device to enable the State to function and fulfill its aims and obligations towards the welfare of the people. Federal structure of the Constitution gives complete separation of the taxing powers of the State and the Union. Both are sovereign in their respective fields. Any attempt made to whittle down the powers of the State to tax, or subject it to assent, or approval of the Centre would not only be against the federal structure of our Constitution but would make the State appendages on the Centre.”
“Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in Seventh Schedule, called the ‘Union List’. Subject to the said power of the Parliament, the Legislature of any State has power to make laws with respect to any of the matters enumerated in List III, called the ‘Concurrent List’. Subject to the abovesaid two, the Legislature of any State has exclusive power to make laws with respect to any of the matters enumerated in List II, called the ‘State List’. Under Article 248 the exclusive power of Parliament to make laws extends to any matter not enumerated in the Concurrent List or State List. The power of making any law imposing a tax not mentioned in the Concurrent List or State List vests in Parliament. This is what is called the residuary power vesting in Parliament.”
While giving reliance on the Judgement of Hon’ble Apex Court in Bhanumati case it was presumed that the Court should strike down the enactment only when there is no other possible way by which the enactment could be sustained. The Court should refrain itself from approaching the enactment with a view to pick holes or to search for defects of drafting or for the language employed. It should always be borne in mind that the Act made 83 by the legislature represents the will of the people and it is in the interest of the public at large.
The High Court dismissed the petitions saying that the legislature has the right to enact such an act. This tax is not on the use of water but on the generation of electricity from water which is made within the constitutional scope. The court also quashed the interim relief order issued on 26 April 2016 in favor of the petitioner companies. In which the state government had given notice to these companies for recovery of arrears of crores of rupees by taxing electricity generation.
Earlier in 2016, the court stayed the implementation of this act.