J&K High Court strikes down water tax on hydel projects, quashes notices to firms

The court also quashed the demand notices against the petitioners Mass N Ergy Private Limited, Magpie Hydel Construction Operation Industries, and Choudhary Power Projects Private Limited. (File photo)

The High Court of Jammu & Kashmir and Ladakh on Thursday ruled that the government cannot levy a tax on water usage for generation of hydropower in the Union Territory.

Striking down provisions of the Jammu and Kashmir Water Resources (Regulation and Management) Act, 2010, the court said that “the enactment of the impugned legislation to the extent it seeks to impose tax on generation of electricity was, therefore, beyond the legislative competence of the erstwhile State of J&K. To that extent, the provisions of impugned Act of 2010 are ultra vires the Constitution.”

The court also quashed the demand notices against the petitioners Mass N Ergy Private Limited, Magpie Hydel Construction Operation Industries, and Choudhary Power Projects Private Limited.

The division bench of Justice Rajnesh Oswal and Justice Sanjay Dhar had earlier reserved judgment after deliberating on a writ petition filed challenging the Jammu and Kashmir Water Resources (Regulation and Management) Act, 2010, and the rules framed under the Act, passed by the legislature of the former state of J&K.

The petitioners had argued that the said legislation seeks to levy water usage charges for generation of electricity, “beyond the competence of State Legislature.”

Stating that “water usage cannot be divorced from the generation of electricity, as the same constitutes a single, inescapable event,” the court stated that upon a consideration of the nature and character of the levy, “the provisions of the Act of 2010, the tariff notification and the statutory scheme as a whole, conclusion can safely be drawn that the levy, in substance, is on the generation of electricity rather than a charge for the use of water.”

The order highlights that the “Entry 17 of List-II, which relates to water is a regulatory entry and it does not vest power with the State to impose tax on water.” It said, “There is no corresponding taxing entry in List-II of Schedule VII for the field of water.”