Major Setback for Uttarakhand Govt: High Court Quashes Tax on Electricity Generation; Rules it a Central Subject

Nainital: In a significant legal blow to the Uttarakhand government, the Nainital High Court has ruled against the state’s decision to impose a tax on electricity generation from hydroelectric projects. Delivering the verdict in favor of various hydropower companies, the single bench of Justice Alok Kumar Verma stated that the state government does not have the jurisdiction to levy tax on the generation of electricity, as it is a subject that falls under the domain of the Central Government.

Key Highlights of the Case:

• Verdict: The Court declared the state’s electricity generation tax unconstitutional.
• The Conflict: The state had imposed a “Water Tax” ranging from 2 to 10 paise per unit on power projects.
• Relief for Giants: Major companies like NHPC, THDC, and JPVL will benefit from this ruling.
• Jurisdiction: The court clarified that taxing power generation is a federal (Central) right.

The Background: The 2012 Act

Following the formation of the state, the Uttarakhand government invited various companies to set up hydroelectric projects. An agreement was signed between the states of Uttarakhand and Uttar Pradesh and the power companies, stipulating that 12% of the total electricity generated would be provided to Uttarakhand free of cost.

However, in 2012, the state government enacted the ‘Uttarakhand Water Tax on Electricity Generation Act 2012’. Under this act, a water tax of 2 to 10 paise per unit (depending on the capacity) was imposed on hydropower companies.

The Legal Battle

The tax was immediately challenged in the High Court by several major players, including:

• Alaknanda Power Project Pvt. Ltd.
• THDC (Tehri Hydro Development Corporation)
• NHPC (National Hydroelectric Power Corporation)
• Swati Power Project Pvt. Ltd.
• Bhilangana Hydro Power Project
• Jaypee Power Ventures Limited (JPVL)

From Split Verdict to Final Decision

The journey to this verdict was complex. Initially, a single bench of the High Court had dismissed the companies’ petitions, upholding the Act and stating that the state legislature had the right to frame such laws.

The companies then challenged this order before a Division Bench. During the appeal, former Chief Justice Vipin Sanghi and Justice Ravindra Maithani expressed differing opinions on the matter. Due to this split verdict, the case was referred to the single bench of Justice Alok Kumar Verma as a ‘Reference Order.’ On Monday, April 27, Justice Verma delivered the final decision, siding with the hydropower companies and striking down the state’s authority to tax electricity generation.