Srinagar, Oct 29: In a significant decision, the High Court of J&K and Ladakh Thursday struck down the levy of water usage charges on hydropower projects under the Jammu and Kashmir Water Resources (Regulation and Management) Act, 2010.
In response to independent power producers’ pleas, which it allowed finally, a Division Bench of Justice Sanjay Dhar and Justice Rajnesh Oswal declared the Act of 2010 ultra vires the constitution to extent it imposed water usage charges upon the aggrieved companies and struck it down to that extent.
The court noted that the charges effectively amounted to a tax on electricity generation that the erstwhile state legislature was not competent to impose, even as it restrained the government from imposing any tax on the generation of electricity under the “garb of water usage charges or any other tax.”
Eleven independent power producers (IPPs) had petitioned court through their counsel, Shariq J Reyaz while two others had approached it through senior advocate Pranav Kohli, challenging the levy of charges for the use of water in generating hydroelectricity.
The companies had questioned the legality of the charges imposed under the 2010 Act, contending that the use of water by hydropower projects was non-consumptive and that the levy, in substance, amounted to a tax on electricity generation rather than a fee for the use of water.
They had also challenged the demand notices issued by the authorities in respect of water usage charges for generation of electricity pursuant to the provisions contained in the act.
Opposing the pleas, the J&K government defended the levy with the contention that water resources fell within the legislative domain of the state and that the charges were regulatory in nature.
In its stand, the Union of India had maintained that the state legislature was not competent to impose a tax on electricity generation, as the relevant constitutional entry empowers states to tax the consumption or sale of electricity, but not its generation.
Disagreeing with the J&K government’s stand, the court noted that the nature of a levy had to be determined by its substance and actual operation rather than the nomenclature assigned to it.
The bench observed that the charges were calculated with reference to the head height from which water was used to propel turbines, rather than the quantity of water drawn or consumed.
This indicated that the levy was linked to the electricity-generating potential of the water, it noted.
Moreover, the court observed that the charges collected from hydropower projects were intended to fund the establishment of hydel and multipurpose hydroelectric projects, purchase of existing projects, investment in transmission and distribution networks, and procurement of electricity by the government or its entities.
Since the levy was not linked to any specific service rendered to the hydropower projects, it possessed the character of a tax rather than a water usage fee, the court underscored.
The erstwhile state legislature, it said, lacked the competence to impose such a tax when the legislation was enacted in 2010.
“Even if it is assumed that usage charges constitute a tax on water and not a tax on generation of electricity, still then the respondent-State does not have a case to save the legislation,” the bench said, adding, “This is so because even if it is assumed that the “land” includes “water” or that water is “mineral” still then in the face of nature of categorization of various fields in entries appearing in the State List, it becomes clear that waterfalls under a separate and distinct category whereas land and minerals fall under distinct categories.”
While the “water” has been categorized separately under Entry 17 of List-II, the court said, the land has been categorised separately under Entry 18 of List-II with taxing Entry 49.
“Taxing entry for minerals is Entry 50 of List-II. However, there is no taxing entry in the State List in respect of the water,” the court said.
It also rejected J&K government’s argument that the subsequent adoption of the Act of 2010 under the Jammu and Kashmir Reorganisation Act, 2019, could validate a provision that was unconstitutional at its inception.
“The argument appears to be an attempt in desperation to save the impugned legislation. If we have a look at the provisions of the J&K Reorganisation Act, it becomes clear that what is being provided under the said Act is saving of certain State enactments and repeal of certain others,” the court said.
It also said that the legislation also provides for extension of Central enactments to the UTs of J&K and Ladakh and adoption of State enactments.”
Merely because the Act provides for adoption of State enactments and saves their application to UTs of J&K and Ladakh, the enactments do not become the enactments passed by the Parliament, the court underlined.
“If we accept the said argument, it would lead to absurdities. It shall result in a situation where a subject which, as per the Reorganisation Act, is reserved for the UT of J&K for legislative and executive powers, would become a subject of the Union Government,” the court said
“This is not the intention of the J&K Reorganisation Act. In fact, Section 32(1) of the said Act clearly delineates the subjects over which the UT of J&K has legislative and executive powers. Merely because the certain State Acts have been adopted in terms of the J&K Re-organisation Act, which is an enactment of the Parliament, the adopted enactments would not cease to be enactments of the State of UT of J&K.”
The court concluded by declaring the relevant provisions of the 2010 Act “ultra vires” the constitution and struck them down insofar as they imposed water usage charges on the petitioners’ hydropower projects.
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