As Sukhu govt presses on with water cess, Centre sends 2nd missive — ‘illegal, unconstitutional’
Shimla: The Himachal Pradesh government’s water cess on hydroelectric power projects has once again drawn objections from the central government, which called it “illegal and unconstitutional” in a circular issued last week.
The 25 October circular — the second in seven months — comes as the state’s Sukhwinder Singh Sukhu government continues to press on with the scheme in the hopes that it will generate a revenue of Rs 2,000 crore for the cash-strapped state.
In its circular — which ThePrint has seen — issued to all states and Union territories, the central power ministry said that it had come to its notice that “state governments have imposed additional charges on the generation of electricity from various sources under the guise of development fee/charges/fund”.
“Such additional charges/fees in the form of any tax/duty on the generation of electricity, which encompasses all types of generation viz. Thermal, Hydro, Wind, Solar, Nuclear, etc. is illegal and unconstitutional,” the circular, issued by Suresh Annepu, director (RCM) at the power ministry, stated.
This is the second such circular from the Union Ministry of Power since the Sukhu government decided to impose the water cess on the state’s 172 hydropower projects in March.
The Himachal Pradesh Water Cess on Hydropower Generation Bill, 2023, passed on 22 March, proposes a cess of 10 paise/cubic metre up to 30 m; 25 paise per cubic meter for 30-60 m; 35 paise per cubic metre for 60-90 m, and 50 paise per cubic meter for above 90 m.
Central Public Sector Undertakings (PSUs) like SJVN, National Thermal Power Corporation (NTPC), and National Hydro Power Corporation (NHPC) have challenged the Sukhu government’s decision in the state’s high court.
The tax also facing opposition from states like Punjab and Haryana. Meanwhile, as the backlash continued, the state government scaled back on the levy, eventually saying it would be one-fifth of what it had originally proposed.
The latest circular came on the back of a meeting between the Ministry of Power and officials of the state government on 4 October, ThePrint has learnt. According to some officials who didn’t want to be named, the Union government was told that the state was well within its rights to impose such a cess — a stand it has been maintaining since the row first began.
ThePrint reached Union power secretary Pankaj Agarwal for comment on the ministry’s next course of action via calls and email. This report will be updated if and when a response is received.
Amitabh Avasthi, chairman of the Himachal Pradesh Water Cess Commission — the statutory authority entrusted with administering the levy — refused to comment on the circular saying that the case was subjudice. “Let the court decide it,” he told ThePrint.
Also Read: No breakthrough in water cess row, Himachal govt to set up panel for talks with power developers
What the circular says
The 25 October circular says that the Seventh Schedule of the Constitution lists out the powers of the states to levy taxes and duties in entries 45–63.
“No taxes/duties which have not been specifically mentioned in this list can be levied by the state governments under any guise whatsoever — as residuary powers are with the central government,” the circular says, adding that the state is further restricted from imposing such a tax by Articles 287 and 288 of the Constitution.
The former deals with ‘Exemption from taxes on electricity’ and the latter with ‘Exemption from taxation by States in respect of water or electricity in certain cases’.
This comes six months after R.P. Pradhan, another director of the Union Ministry of Power, had written to state chief secretaries over the issue.
“Any tax or duty on the generation of electricity, which encompasses all types of generation such as thermal, hydro, wind, solar, nuclear, etc. is illegal and unconstitutional,” that letter, dated 25 April, said.
Himachal Pradesh Water Cess Commission chairman Avasthi told ThePrint that the panel — which was set up on 26 July — hopes that more projects register under it. He had previously told ThePrint that the commission had issued bills to the tune of Rs 871 crore to 172 hydel projects in the state for the period between March and July 2023.
Significantly, of the state’s 172 hydropower projects, 146 — including the PSUs like National Thermal Power Corporation (NTPC) and National Hydroelectric Power Corporation (NHPC) — are registered with the commission as mandated by the Himachal Pradesh Water Cess on Hydropower Generation Act.
“Bills were raised and some power developers have also deposited the tax amount,” he told ThePrint now.
A senior official of Himachal’s Jal Shakti Department told The Print that state-owned power projects such as Kashang Hydroelectric Project – Stage 1 (65 MW), 111 MW Sawra Kuddu Hydro Electric Power Project, and Sainj Hydroelectric Power Project were the first to deposit a cess of Rs 25 crore.
“As far as the fresh circular is concerned, the state government is waiting for the high court’s judgment. If it’s adverse, we’ll go to the Supreme Court,” he said.
But it’s not only central PSUs that oppose the cess — independent hydropower developers also object to it. Rajesh Sharma, president of the Bonafide Himachalies Hydro Power Developers Association — an association of small and independent hydropower developers in the state — questions the state government’s calculation of the cess.
“Since there is no bar from the court, the commission is well within its rights to raise the bills. But it should also listen to what the Centre (central government) has been saying,” Sharma told ThePrint.
‘Himachal not the only state’
When he first mooted the cess in February, Sukhu, whose government was then only two months old, hoped it would help tackle the state’s immense debt burden, which had stood over Rs 91,000 crore.
But his Congress government has since had to defend the cess on multiple fronts, with objections coming not only from the BJP-led central government but also from states like Punjab and Haryana, both of which have passed resolutions against it.
Even as opposition mounted, Himachal said it would press on with the cess but said it would cut back on it, instead “levying it in line with Uttarakhand”.
Meanwhile, hearings in petitions challenging the tax continued in the Himachal High Court. On its part, the Sukhu government continues to argue that similar taxes have been levied by states like Uttarakhand, erstwhile Jammu & Kashmir, Telangana, and Sikkim.
The senior government official quoted earlier also pointed to a February 2021 ruling by the Uttarakhand High Court upholding such a cess.
“As far as the central government is concerned, the cess is also levied in Jammu & Kashmir, and the central government is collecting it since J&K is now a Union territory,” the official told ThePrint.
(Edited by Uttara Ramaswamy)
Also Read: After water cess, another Himachal-Punjab row. All about tussle over British-era hydel plant
