N.H.P.C. Ltd. vs State of H.P. & ors.

Coram The Hon’ble Mr. Justice Tarlok Singh Chauhan, Judge. The Hon’ble Mr. Justice Satyen Vaidya, Judge. Whether approved for reporting? Yes For the petitioner(s): Mr. Tushar Mehta, Sr. Advocate 9 (through VC) with Mr. Vijay Kumar Arora and Mr. Avneesh Arputtham, Advocates, petitioner in CWP No. 2916 of 2023. Ms. Shalini Thakur and Dr. Seema Jain (through VC) Advocates for the petitioners in CWP Nos. 2262 and 2263 and Ms. Shalini Thakur, Advocate, for the petitioner in CWP No. 2721 of 2023. Mr. S. Ganesh, Sr. Advocate (through VC) and Mr. Rajnish Maniktala, Senior Advocate with Mr. Naresh Kumar Verma, Advocate, for the petitioner (s) in CWP Nos. 2277, 2600, 3246, 3247, 3249, 3300, 4105 and 4111 of 2023. Mr. Vikas Chauhan, Mr. Vishwajeet Tyagi, Mr. Tarun Johri and Mr. Sarthak Mehta, Advocates, for the petitioner(s) in CWP Nos.2739, 2917 and 2918 of 2023. Mr. K.D. Shreedhar, Senior Advocate with Mr. Sameer Thakur, Ms. Sneh Bhimta and Mr. Adarsh Tripathi, Advocates, CWP Nos. 2855, 2913, 3083 to 3087, 3107, 3114 to 3117 and 3129 of 2023. for the petitioner(s) Mr. N.K. Sood, Senior Advocate with Mr. Aman Sood, Advocate, for the petitioner(s) in CWP Nos. 2864 and 3410 of 2023 alongwith Ms. Vandana Gupta, Sr. Law Officer and Ms. Amandeep Kaur, Law Officer. Dr. Abhishek Manu Singhvi (through VC) and Mr. R.L. Sood, 10 Senior Advocates with Mr. H.S. Chandoke, Mr. Anant Garg and Mr. Janesh Gupta, Advocates, for the petitioner in CWP No.3130 of 2023. Mr. Sujit Ghosh (through VC), Mr. Virender Kumar, Mr. Nishant Sharma, Ms. Anshika Agarwal (through VC) and Ms. Mannat Waraich, Advocates, for the petitioner in CWP No.3260 of 2023. Mr. Tushar Mehta, Sr. Advocate (through VC) Mr. K. D. Shreedhar, Sr. Advocate with Ms. Shradha Karol, Mr. Vaibhav Singh Chauhan and Ms. Sneh Bhimta, Advocates, for the petitioner(s) in CWP No. 2869 of 2023. Ms. Shradha Karol and Mr. Vaibhav Singh Chauhan, Advocates, for the petitioner in CWP Nos.3897, 3898 and 4163 of 2023. Mr. Anand Sharma, Senior Advocate with Mr. Karan Sharma, Advocate, for the petitioner in CWP No. 4239 of 2023. Mr. Ankur Sehgal and Janesh Gupta, Advocates, for the petitioner in CWP No. 5410 of 2023. For the respondents:Mr. Dushyant Dave, Senior Advocate, with Mr. Anup Rattan, Advocate General, Mr. I.N. Mehta and Mr. Yashwardhan Additional Advocate Generals, Mr. Navlesh Verma, and Ms. Sharmila Patial, Additional Advocate Generals and Mr. J.S. Guleria, Deputy Advocate General, for the respondents-State, in all the matters. Chauhan, Senior 11 Mr. Balram Sharma, Deputy Solicitor General ofIndia and Mr. Rajinder Thakur, Government Counsel, respondent- Union of India. Central Mr. Anand Sharma, Senior Advocate with Mr. Karan Sharma, Advocate, for respondent No. 14 in CWP No. 2855 of 2023 and for respondent No. 6 in CWP No. 2869 of 2023. Ms. Sunita Sharma, Sr. Advocate, with Ms. Lalita Sharma, Advocate, for respondent No.6 in CWP Nos.2917 & 2918 of 2023 and for respondent No.8 in CWP No.2869 of 2023. Mr. Nitin Thakur, Advocate, respondent No. 7 in CWP No.2855 of 2023 and for respondents No.11 to 13 in CWP No.2869 of 2023. M/s Satish Mukherjee, Abhishek Kumar, Nived, Shubham Mudgil and Mr. Janesh Gupta, Advocates, for respondent No.11 in CWP No.2855 of 2023. Mr. Shivom Vashishta, Advocate, for respondent No.14 in CWP No.2855 of 2023 and respondent No.6 in CWP No.2869 of 2023. Justice Tarlok Singh Chauhan Since, somewhat identical issues of fact and law are involved in these batch of writ petitions, therefore, they have been decided by this common judgment. 12 Case of the Petitioner(s):

1.1. The petitioners are power generation companies engaged in the production of the electricity by using river water. They own, operate and maintain the hydropower projects. The petitioners after entering into agreements with the Government of Himachal Pradesh are running the projects. The petitioners seek to assail the legislative competence, the constitutional validity and the vires of the Himachal Pradesh Water Cess on Hydropower Generation Act, 2023 (hereinafter to be referred to as the “Act”), inter alia, on the following grounds: (i) The State lacks legislative competence/power as per Article 265 of the Constitution of India. (ii) The legislative powers of the Union Government or the State Government have been so demarcated and specified by way of Seventh Schedule under List-I known as Union List, List-II known as State List, List-III known as Concurrent List. Thus, the State Government has legislative powers under Article 265 of Constitution of India to levy any cess only if the same finds mention in List-II. However, 13 none of entries under List-II or the State List empowers the State Government to levy cess/tax on water usage for the purpose of generation of electricity, as has been done by the State Government. (iii) Entry 53 of List-II empowers the State Government to levy tax/cess in respect of electricity, however, that entry is not applicable and does not empower the State Government to levy cess on water usage for the purpose of generation of hydro electricity. (iv) The State cannot take recourse to entry No.17 of list-II for defending its impugned Act as the same firstly does not empower the State Govt. to levy a tax or cess on water and secondly, even for the sake of arguments, if entry No. 17 of List Il so empowers the State Government, the impugned Act cannot become operative in view of the non- compliance of the provisions of Article 288 of Constitution of India. (v) The State Government by way of provisions of the Act has vested with itself non-consumptive usage of water of inter-state rivers, which amounts to 14 encroaching upon the legislative powers of the Union Government, as under List-I of the Seventh Schedule by way of entry No.56, it is only the Union Government, which has the legislative powers with respect to interstate rivers and river valleys. (vi) The Hydroelectric Power Projects of the petitioners are Central Sector Hydroelectric Power Projects built over inter-state rivers, namely, Ravi and Beas and its tributaries, with the sanction of the Union Government and, therefore, any restriction imposed by the State Government in the usage of water flowing from the said rivers by way of seeking sanction for non consumptive usage of river water and further by way of levy of cess on such non- consumptive use of inter-state river water for generation of electricity, is wholly illegal and invalid being beyond the legislative competence/power of the State Government. (vii) The Govt. of India, Ministry of Power taking note of the fact that some of the States have imposed taxes/duties on generation of electricity in the 15 guise of water tax/cess, vide letter dated

25.04.2023 had called upon all the Chief Secretaries of the State Governments and Union Territories not to levy such tax/duty/cess being contrary to the constitutional provisions and the same be promptly withdrawn. (viii) Section 10 of the Act and Rule 7 of Himachal Pradesh Water Cess from Hydro Power Generation Rules, 2023 (for short “the Rules”) have impact of taking away the rights that have been crystallized or vested on the petitioners. The impugned Act has a retrospective effect. Even though, the Legislature is entitled to make an enactment with retrospective effect, but it cannot take away the rights that have already been vested in the petitioners. (ix) The provisions of the Act go to show that two conditions are required to be fulfilled for levy of cess. One is that water is drawn from the source and another is that drawl of such water is for generation of electricity. If one of the conditions is lacking, the levy of cess is not attracted. So, in “pith and substance” levy of cess is on generation 16 of electricity. The State lacks the competence to levy cess or tax on generation of electricity because this field is reserved for Parliament under entries No. 84 and 97 of List-I of Seventh Schedule. This colourable exercise of power by the State is unconstitutional. (x) The impugned Act is also bad in law as it is violative of Article 300A of Constitution of India. (xi) The impugned Act is also hit by Article 288 of Constitution of India as it was not reserved for the consideration of the Hon’ble President and Presidential ascent has not been obtained before enforcing the impugned Act. (xii) Since, majority of the rivers and their tributaries, over which the Hydro Power Projects have been constructed, are inter-State, therefore, they are covered by entry 56 of list-I of Seventh Schedule of the Constitution. Thus, the State Govt. is not competent to make any law regarding inter-State rivers. (xiii) The impugned Act is repugnant to Section 62 read with section 79 of Electricity Act, 2003 as the said 17 Central Act of 2003 provides for the fixation of tariff for electricity is to be vested with the Central Electricity Regulatory Commission. (xiv) The State of Himachal Pradesh lacks the legislative competence to levy tax/cess on water use for the generation of hydro electricity since the said levy directly relates to the power generated and transferred outside the State of Himachal Pradesh. (xv) No public purpose or objective sought to be achieved has been provided in the impugned Act and it has far-reaching effects on the general public and is therefore, liable to be struck down on this ground as well. (xvi) The levy of tax/cess on use of water is contrary to Articles 14 & 19 of the Constitution of India as the said levy is arbitrary and; because extremely high rates have been notified, it would render the projects of petitioners totally unviable. (xvii) The impugned Act is framed as taxing the drawl of water, whereas, in essence, is taxing the generation of electricity which is impermissible in law. 18 (xviii) The Act seeks to charge the water cess based the head of the turbine. Thus, the water cess sought to be charged is directly relatable to the head. The levy of cess under the Act is based on the premise of higher the head, the more will be electricity generated for the same value of the water used. Therefore, the impugned Act seeks to levy cess on the generation of the electricity/hydropower and not drawl of the water alone. (xix) There is no entry in List-II which empowers the State to levy a tax on the generation of the electricity and hence, impugned enactment is void abinitio. (xx) Tax is imposed on “user” who is the person, who draws the water for generation of the electricity. Therefore, taxable event is not mere drawl of water but the drawl of water for the generation of electricity. (xxi) The Act is unconstitutional since the charging section does not lay down any guidelines, limitations or safeguards. Therefore, such legislative architecture suffers from the vice of the 19 excessive delegation and thereby violative of Article 14 plainly and is thus void. (xxii) Since, there is no provision providing for an opportunity of personal hearing, thereby the Act not only violates the principles of natural justice but is violative and ultra vires of the Article 14 of the Constitution of India. (xxiii) The impugned Act is otherwise illegal as Section 30 thereof is in contradiction to Section 28. (xxiv) The Act otherwise is liable to be struck down in absence of there being any provision for having a judicial member when admittedly the power to determine the cess has been assigned or given to a Commission exercising quasi judicial functions. (xxv) The impugned Act of the State is also contrary to the principles of promissory estoppel as at the time of investment of thousand of crores of rupees in the setting up of the Hydro Power Projects in the State of Himachal Pradesh, the implication upon the petitioners was to provide 12% or 13% of the power generated free of cost to the home state, but at all material times, the entire basis of investment 20 in the State of Himachal Pradesh was that the basic and fundamental resource for hydroelectric power generation i.e. water would be freely available to the petitioners and now the State Government cannot turn around and is bound by the principles of promissory estoppel. Defence of the State:

2.1. Since water is a State’s subject matter and comes under entry 17 of List-II, therefore, the State has legislative competence to make law and hence there is no violation of article 265 of the Constitution of India.

2.2. Cess has not been levied on generation of electricity under entry No. 53, but has been levied for usage charges on water under entry No. 17 of list-II.

2.3. Further, under entries No. 17, 18, 45, 49 and 50 of List-II, the State can also impose tax on water. As such cess is not on electricity generation or on electric units, as alleged.

2.4. Levy of cess on usage of water for hydropower generation is not in violation of Article 288 of the Constitution of India as the issue in the instant case is not about sale and purchase of water and electricity. Tax is not in respect of the water or electricity stored, generated, consumed distributed or 21 sold by any authority established by any existing law or for any law made by the Parliament for regulating or developing inter-State river or river valley as such it does not come under entry No. 56 of List-I, rather it is a cess on non- consumptive use of water meant for usage of water by the hydropower projects, which does not fall under article 288(1) of the Constitution of India and there is no violation of any provisions of The Rivers Boards Act, 1956 and the Inter-State River Water Disputes Act, 1956.

2.5. Cess has been levied by the Act for usage/drawn storage under entry No. 17 of List-II, i.e. for development, management, maintenance and conservation of water resources of the State by creating additional revenue sources on this account, as such directions, as contained communication dated 25.4.2023 (supra), being not mandatory, are not required to be adopted by the State.

2.6. The Act has come into force w.e.f. 10.3.2023, whereunder existing and forthcoming hydropower projects/ registered users are liable to pay water cess under Section 10(1) and Section 10(2) of the Act for the water usage/water drawn w.e.f. 10.3.2023. Most of the projects have been commissioned since long back and debt servicing period of 22 these projects have been completed as such there will be no impact on the viability of project due to levying of water cess.

2.7. The Act does not violate Article 300A of the Constitution of India. The petitioners have no absolute and exclusive right over the water use for generation of the hydropower. The provisions of the agreements signed between the Government of Himachal Pradesh and Hydropower Projects allow it to build, own, operate & maintain the projects, therefore, the petitioners cannot claim exclusive and absolute right on water.

2.8. The Act does not violate rights of the petitioners under Articles 14, 19 and even 300A of the Constitution of India.

2.9. The Act levies cess on usage of water (non- consumptive use) on hydropower projects and is not in violation of Articles 200 and 288(2) of the Constitution of India, rather it is in conformity with the provisions as laid down under entries No. 17, 18, 45, 48, 49 and 50 of List-II of Seventh Schedule.

2.10. The State Government is absolutely competent to legislate charges on usage of water under entry No. 17 of List- II from natural water resources situated within the territory of 23 the State Government and the Act does not create any dispute with regard to inter-State rivers water.

2.11. Levy of cess under the Act on usage of water on hydropower projects has been charged for development, maintenance, management and conservation of water resources of the State by creating additional financial resources for this purpose.

2.12. All the provisions contained in the impugned Act, more particularly, Sections 2, 10, 15, 16 and 17 are made in light with the objective of the impugned Act implementation. The provisions of the Act do not violate the fundamental rights of the petitioners under Articles 14, 19(1)(g), 246 and 265 of the Constitution of India. Stand of the Union of India:

3.1. The Union of India has filed short affidavits and one of such affidavits is found in CWP No.5410/2023, titled as GMR Bajoli Holi Hydro Power Ltd. Vs State of H.P., wherein it has questioned the competence of the State legislature in enacting the Act. It would be relevant to reproduce paragraphs 2 to 11 of the same, which read as under: “2. That the powers to levy taxes/duties are specifically stated in the VII Schedule. List -II of the VII Schedule 24 lists the powers of levying of taxes/duties by the States in entries-45 to 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.

3. That, Entry-53 of List-II (State List) authorizes the States to put taxes on consumption or sale of electricity in its jurisdiction. This does not include the power to impose any tax or duty on the generation of electricity. This is because electricity generated within the territory of one State may be consumed in other States and no State has the power to levy taxes/duties on residents of other States.

4. That State Legislature under the List II of the Seventh Schedule of The Constitution of India, does not have the Legislative power or the Constitutional mandate to make or promulgate any law pertaining to imposition of tax on the water drawn by any person much less for non- consumptive usage of water drawn for generation of electricity.

5. That Article 248 of The Constitution of India, 1950, states as "248. Residuary power of Legislation (1) Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List. (2) Such power shall include the power of making any law imposing a tax not mentioned in either of those Lists." A reading of the above Article manifests, that the Constitution of India envisaged that in respect of any 25 matter which is not enumerated in the State List, the Parliament has the exclusive power to make any laws in respect of the said matter. The same includes the power of imposing a tax not mentioned in the State List or in the concurrent List. This ground is further cemented by the provisions of entry 97 List I (Union List) Schedule VII - "Any other matter not numerated in List II or III including any tax not mentioned either of those lists).

6. That no item provided either in the State List or the Concurrent List, is pertaining to taxation or taxes on usage of water or otherwise, therefore the State Government of Himachal Pradesh does not have the Legislative competence or mandate to make or frame any laws pertaining to imposition of taxes on the water drawn for the purposes of generation of electricity in the State of Himachal Pradesh. Hence the provisions of Chapters 3 to 5 seeking to levy and impose Water Tax on generation of electricity are unconstitutional. Hence enactment of the said Act and its consequent promulgation and notification is contrary provisions of Article 245, 246 and 286 of The Constitution of India, besides other Articles of The Constitution of India mentioned first hereinabove.

7. That the State of Himachal Pradesh has imposed taxes / duties on generation of electricity under the guise of levying a cess on the use of water for generating electricity. However, though the State may call it a water Tax/cess, it is actually a tax on the generation of electricity - the tax is to be collected ultimately from the consumers of electricity who may happen to be residents in other State. 26

8. That Article -286 of the Constitution explicitly prohibits States from imposing any taxes /duties on supply of goods or services or on both where the supply takes place outside the State.

9. That the power to make a law imposing tax upon the electricity sold outside the State, i.e. inter-State sales, has been vested exclusively under Entry 92A of List-I read with Article 286 of The Constitution of India, 24. Government, GOVT Purchase which contemplates taxes on to the Union the sale or of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or Commerce.

10. That Entry 54 of List-II of Schedule-VII of The Constitution of India contemplates enacting a law by the State Government in regard to imposition of tax on sale or purchase of goods other than newspaper subject to Entry 92A of List-I, which entry in List 1 empowers solely the Union to make laws for levy of tax on Inter State Sale of Electricity. Additionally none of the above two entries in List II contemplate levy of Cess/ Tax on electricity generated.

11. That Articles-287 and 288 prohibit the imposition of taxes on consumption or sale of electricity consumed by the Central Government or sold the Central Government for consumption by the Government or its agencies. As per Entry-56 of the Union List of the Constitution of India, regulations of issues related to Inter-State Rivers come under the purview of the Centre. Most of the Hydro-Electric Plants in the State are located/proposed to be developed on inter- State Rivers. Any imposition of tax on the non-consumptive use of 27 water of these rivers for electricity generation is in violation of provisions of the Constitution of India.” Question arising for determination:

4.1. In order to better appreciate the arguments and deliberations, this Court deems it fit to formulate points that arise for consideration in these petitions and thereafter deliberate and decide them. The arguments have been addressed by the respective counsel(s) appearing for the parties, some of which are overlapping and repetitive in essence.

4.2. From the pleadings of the parties and arguments that have been addressed in detail, some of the key challenges may be noted and shall henceforth be referred to as points for consideration:

1. It is misnomer that the tax is levied on water, whereas it is on generation of electricity, and therefore, not a water tax.

2. The State Legislature is not competent to legislate the Act.

3. In the Act, there is no taxing provision. Tax has been imposed by way of notifications by the concerned Secretary to the Government of Himachal Pradesh. It is an executive act. It is not a tax levied by a statute. The act of levying of tax is an excessive delegation by the State Legislature. 28

4. The principle of promissory estoppel would apply in the instant case; therefore, the State is estopped to charge such a tax. Arguments of Mr. Tushar Mehta, learned Senior Advocate for the Petitioners:

5.1. Learned Senior Counsel for the petitioners would urge that in order to enable the State Legislature to levy any tax, the field of legislation should explicitly fall within the purview of Articles 246 & 248(2) of the Constitution. The taxing entry should be distinct. Learned counsel would also argue that cess is a misnomer as it is a tax for all intents and purposes.

5.2. In order to buttress his arguments, he would refer to Sections 2(c),2(h),2(i)2(g),3,10,12,15,17 and 34 of the ‘Act’. The learned counsel for the petitioners has also made a reference to the notification dated 16.2.2023, which prescribes different rates of cess depending upon the available head i.e. height, to urge that the cess is nothing but a tax as it provides for different slabs of cess. In support of his arguments, learned Senior Counsel has referred to the judgment of the Hon’ble Supreme Court in Union of India and Another vs. Mohit 29 Mineral Private Limited1, wherein difference between tax, fee and cess has been culled out.

5.3. During the course of the arguments, various constitutional provisions have also been referred to by the learned counsel for the petitioner, like Articles 245, 246, 248, 265, 286, Entry No. 42, 56, 84, 92A, 97 of List I, Entry 7, 17, 18, 45, 48,49, 53 of List II and entry No. 38 of List –III.

5.4. It is urged that Article 286 deals with supply of goods outside the State and as per the settled law ‘electricity’ is a ‘good’ and is normally supplied by the petitioners’ projects outside the State. The word used in the article is ‘supply of goods’ and ‘not generation of goods’ and thus the State lacks competence to enact the law. Even under entry 56 of List-I, this power is exclusively vested with the Union of India and as per entry 84 only the goods manufactured can at best be taxed and even the Parliament cannot impose tax on ‘generation of electricity’.

5.5. It is then argued that taking the case of the State at its best, that it was under the residuary powers that the tax has been imposed, even then such power is not vested with the State and rather is expressly and exclusively vested with the Union of India under entry 97 of List–I. The reliance 1 2019 (2) SCC 599 30 placed upon by the State on entry No. 17 of List-II is of no avail as tax entry has to be specific in any one of the lists and cannot be inferred. Under this provision the State can only regulate the water but cannot tax it; for it is not a taxing entry. The State cannot even fall back on entry No. 51 as it does not pertain to nor does it contain a reference to ‘electricity’.

5.6. Now, as regards entry No. 38 of list-III, which is the concurrent list, the State can only regulate electricity, but cannot tax it. For this, there has to a specific provision contained in the Constitution itself. The State can also not be permitted to fall back on entry No. 47, as there has to be quid pro quo for being termed as a ‘fee’ not a ‘tax’.

5.7. In order to buttress his arguments, further the learned Counsel has then referred to and placed reliance on the letter dated 25.04.2023 issued by the Union of India and has vehemently argued that the State is not competent to impose water tax and cess. The relevant portion of the letter reads as under:- “It has come to the notice of the Government of India (Gol) that some State Governments have imposed taxes/duties on generation of electricity. This is illegal and unconstitutional. Any tax/duty on generation of electricity, which encompasses all types of generation viz. Thermal, Hydro, Wind, 31 Solar, Nuclear, etc. is illegal and unconstitutional. The Constitutional provisions are as follows: (i) The powers to levy taxes/duties are specifically stated in the VII Schedule. List II of the VII Schedule lists the powers of levying of taxes duties by the States in entries-45 to 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. (ii) Entry-53 of List-II (State List) authorizes the States to put taxes on consumption or sale of electricity in its jurisdiction. This does not include the power to impose any tax or duty on the generation of electricity. This is because electricity generated within the territory of one State may be consumed in other States and no State has the power to levy taxes/duties on residents of other States. (iii) Some States have imposed taxes/duties on generation of electricity under the guise of levying a cess on the use of water for generating electricity. However, though the State may call it a water cess, it is actually a tax on the generation of electricity the is to be collected from the consumers of electricity who may happen to be residents in other State. (iv) Article-286 of the Constitution explicitly prohibits States from imposing any taxes/duties on supply of 32 goods or services or on both where the supply takes place outside the State. (v) Articles-287 and 288 prohibit the imposition of taxes on consumption or sale of electricity consumed by the Central Government or sold to the Central Government for consumption by the Government or its agencies. (vi) As per Entry-56 of the Union List of the Constitution of India, regulations of issues related to Inter-State Rivers come under the purview of the Centre. Most of the Hydro-Electric Plants in the States are located/ proposed to be developed on Inter-State Rivers. Any imposition of tax on the non- consumptive use of water of these rivers for electricity generation is in violation of provisions of the Constitution of India. (vii) Hydro Power Projects do not consume water to produce electricity. Electricity is generated by directing the flow of water through a turbine which generates electricity on the same principle as electricity from wind projects where wind is utilized to turn the turbine to produce electricity. Therefore, there is no rationale for levy of "water cess" or "air cess". (viii) The levy of water cess is against the provisions of the Constitution. Entry-17 of List-II, does not authorize the State to levy any tax or duty on water.

2. In light of the above constitutional provisions, no taxes/duties may be levied by any State under any guise on generation of electricity and if any taxes / 33 duties have been so levied, it may be promptly This has the approval of the Hon'ble Union Minister of Power and New & Renewable Energy”.

5.8. It is next urged by the learned Senior Counsel that before executing the projects, the projects have entered into power purchase agreements (PPAs), under which they are otherwise obliged to give 12% electricity free of cost to the State Government and 1% towards rehabilitation making them liable to give 13% of the electricity so generated free of cost to the State Government, therefore, the State Government is estopped from levying such tax. Arguments of Dr. Abhishek Manu Singhvi, learned Senior Advocate for some of the petitioners:

6.1. Learned Senior Advocate, apart from endorsing the arguments as addressed by Mr. Mehta, learned Senior Advocate, would argue that the State has no source of power to enact the ‘Act’ and in terms of article 265, there can be no taxation without authority. He would further urge that taxation cannot be general but has to be under a specific entry under the Constitution of India and the enactment i.e., the impugned Act, in pith and substance, is a tax on ‘generation of electricity’ and not on ‘drawl of water’ and the enactment otherwise defies the very federal concept and structure of our 34 Constitution and thus is liable to be struck down. He has also referred to the ‘objects and reasons’ of the ‘Act’ and would argue that even financial demands of the State have to be legitimate. Arguments of learned Attorney General:

7.1. Learned Attorney General has contested the claim of the State in enacting the Act and apart from relying upon the reply filed on behalf of the Union of India has sought to draw support from the notification dated 16.02.2023 issued by the Ministry of Power, Government of India (as extracted above).

7.2. In addition thereto, he would argue that the Seventh Schedule of the Constitution of India provides for the substantive Regulatory Law and the taxing power separately. Taxing power can otherwise not be inferred much less imposed by implication. In particular, he has invited the attention of the Court to entry No. 17 of list-II to urge that this entry only regulates the power of the State Government with respect to water and not to impose tax thereupon. Entry No. 17 cannot be read expansively so as to include power to impose tax.

7.3. He then invited our attention to entry No. 53 of the same list i.e., List No.II to contend that both the aforesaid 35 entries i.e., entries No. 17 and 53 have to be read independently and an equitable construction is not permissible in a taxing statute. Moreover, the tax even otherwise can be imposed by the State Government within confines of the State. Even as per entry No. 53 of List –II “sale of electricity” as envisaged thereunder cannot mean and be construed as generation of electricity. Like sale of coal will not include generation of electricity out of the use of coal. Arguments of Mr. Surjit Ghosh, Advocate:

8.1. Shri Surjit Ghosh, Advocate, apart from adopting the arguments of both the aforesaid learned Senior Counsel(s), has assailed the provisions of the Act as being unconstitutional by referring to Section 15 urging that since this provision of law delegates the power to determine the rate of tax to the State Government without laying down any guidelines, limitation or safeguards, therefore, such legislative architecture suffers from the vice of excessive delegation and is thereby violative of Article 14 and is plainly void.

8.2. He further argues that the impugned Act fails to clearly lay down one of the critical components of taxing statute i.e. measure of tax and it is trite in law that in order to levy a tax so as to make both operative and valid, four 36 essential components must be provided in the enacting statute creating the tax/impost, i.e.: (i) the taxable event attracting the levy; (ii) the person on whom the levy is imposed and who is obliged to pay the tax; (iii) the rate at which the tax is imposed; and (iv) the measure or value to which the rate will be applied for computing the tax liability. Whereas in the instant cases, though three of essential components can be identified within the statute i.e. “taxable event”, “the person liable to pay tax”, and the “rate of tax”, however, the impugned Act fails to identify the value and equally critical component i.e. “measure of tax” which is the value on which the rate of tax will be applied for computing the taxing liability. Section 15 of the Act though provides that the ‘user’ shall be liable to pay the water cess at such rates as fixed by the Government, however, it fails to prescribe the value or base on which such rate will be applied.

8.3. He also argues that adjudication of disputes fails to contemplate an opportunity of personal hearing thereby being in violation of the principles of natural justice and thus ultra vires of Article 14. 37

8.4. He would further contend that Section 30 of the impugned Act is in contradiction to Section 28 of the Act and is, therefore, bad in law.

8.5. Lastly, he would contend that absence of judicial member in quasi-judicial proceedings renders such quasi- judicial proceedings bad in law. Arguments of Mr. Naresh K. Sood, Senior Advocate:

9.1. Learned counsel for the petitioner(s) in CWP Nos. 2864/2023 and 3410/2023, apart from adopting arguments of all the aforesaid learned counsel(s), would argue that his client i.e. Bhakhra Beas Management Board, is a creation of the statute after coming into force the Punjab Re-organization Act and has also preferred a representation against the impugned levy and till and so long the said representation is not decided, the State cannot levy any cess. Arguments of Mr. Anand Sharma, Senior Advocate:

10.1. Learned Senior Counsel for the petitioner urged to contend that the respondents had no power to impose cess on the project i.e. Shanan Power Project, as the same came into existence and is operating for nearly a century now. 38 Arguments of Mr. K.D. Shreedhar and Mr. Rajnish Maniktala, Senior Advocates:

11.1. Learned Senior Counsels for the petitioners have fully supported the arguments of other learned Senior Counsels appearing for the petitioner(s) and have also addressed independent arguments assailing the competence of the State to enact the impugned Act. They have vehemently urged that the cess has not been imposed on the ‘water drawn’, but the same has been imposed on the ‘generation of electricity’ and before amendment of Entry-84 of List I of the Seventh Schedule, the year 2016, ‘electricity’ was specifically held to be goods within the meaning of Entry-84 and consequently, it was only the Parliament, which could levy tax on generation of electricity. After the amendment of Entry- 84, now the generation of electricity can only be taxed under Entry-97 i.e. conferring residual powers upon the Parliament under List I of Seventh Schedule and in order to buttress their arguments, they have placed strong reliance on the judgment of the Hon’ble Supreme Court in M.P. Cement Manufacturers Association vs. State of Madhya Pradesh2 which judgment 2 (2004) 2 SCC 249 39 in turn has been followed by the High Court of Jammu and Kashmir in National Hydroelectric Power Corporation Limited vs. State of Jammu and Kashmir3 and by the Guahati High Court in Bharti Airtel Limited vs. State of Assam4. Arguments of Dr. Seema Jain, Advocate:

12.1. Learned counsel for the petitioner, apart from adopting the arguments of all the aforesaid counsel(s) for the petitioner(s), has separately addressed the arguments to contend that the State has no legislative competence to enact the law as there is no entry in the State List which may empower the State to impose a tax/cess on generation of electricity. Arguments of Mr.Tarun Johri, Advocate:

13.1. In addition to adopting the arguments of the aforesaid learned counsel(s) for the petitioner(s), he would argue that since his client is an association of Small Hydro Power Developers, who have installed various projects with the capacity of 25 MW, the financial impact on substantial members of the petitioner due to levy of water cess under the said Act is approximately on an average 43% of total revenue 32005 (2) JKJ 5 42016 (4) Guahati Law Times 781 40 earned by such projects in a financial year, therefore, it would not only put his client in financial distress, but the State otherwise is estopped from enacting and implementing the impugned legislation.

14.1. All the other learned counsels appearing for the petitioners have adopted the aforesaid arguments and have also separately argued, but the same being only repetitive, need not be referred to. Arguments of Learned Advocate General on behalf of State of Himachal Pradesh:

15.1. The learned Advocate General has sought to draw support to levy of water cess on the ground that the object of the Act is to conserve the water and its management as well as to generate revenue from alternate revenue resources as set out in the object of the Act.

15.2. He would contend the petitioners are unnecessarily trying to confuse the issue by arguing that the cess has been imposed on generation of electricity and not the water drawn by their projects for non consumptive use of water. He has taken us through the provisions of the Act, more particularly, provisions those contained in Sections 2(c), 2(g), 2(h), 2(i), 2(j), 3, 5, 6, 7, 8, 10 and 12 thereof. He is at 41 pains to argue that the petitioners are liable to pay cess on the ‘water drawn’ being its users.

15.3. Additionally, he would argue that the State Government has, in its reply, specifically clarified that it has imposed cess on ‘water drawn’ for ‘use of hydropower generation’. The cess is levied under List–II of Seventh Schedule. It is the case of the State that entries No. 17 and 18 are general entries qua field of legislation of the Legislative Assembly of the State. Entries 45 to 50 provide for field of legislation for imposing cess/tax, whereas, entry No. 66 deals with fee.

15.4. The State has submitted the following points for the Court’s consideration.

1. The presumption of constitutionality is in favour of the statute.

2. Entries in the list being fields of legislation must receive liberal construction.

3. The impugned Act is within the purview of entry 49 ‘Lands and Buildings’ of List II as water is covered under entry "land" being in and over the land. 42

4. The Act also falls within purview of entry 50 of List II, as the water is mineral and the State has right over the water flowing or stored within its jurisdiction, which right includes right to tax or impose tax.

5. The water being in and over the land, the income/revenue generated from water is the land revenue of the State under entry 45 of List II.

6. The mode of calculation will not determine the nature of the cess.

7. There are no structural defects qua delegation of power etc in statute so as to declare the Act as ultra vires provisions/constitution of India.

8. Lastly, the public interest would prevail over the private/individual interest. Arguments of Mr. Dushyant Dave, learned Senior Advocate on behalf of the State of Himachal Pradesh:

16.1. On 13.12.2023, Mr. Dushyant Dave, learned Senior Advocate, appeared on behalf of the State and made additional arguments that: 43 (1) Even as per the pleadings of the petitioner(s), the water being consumed for generation of electricity belongs to the State of Himachal Pradesh and the fact that the water belongs to the State and the consumption of water is in Himachal Pradesh has been unequivocally acknowledged by them. They have further claimed an unfettered right of use of water for the purpose of tapping the potential for generating hydro energy as stored in the river water. (2) The State is not denying the petitioner(s) or any one of them from using water and since the water falls in the List-II of the Seventh Schedule, the State is well within its power to levy fee, cess or tax, as the case may, on such water or even its non-consumptive use as the water originate from the land. He also invited our attention to Sections 3 and 10 of the impugned Act to convince that the cess is on the “water drawn and not generation of 44 electricity”, and this, in fact, is the pith and substance of the entire Act. (3) Once it is established on record that the impugned Act is a valid piece of legislation, then all the other prayers whereby the petitioners have sought a declaration that the impugned Act is beyond the legislative competence of the State in terms of Articles 245 and 246 of the Constitution, would fall like a pack of cards. (4) The Act is neither retrospective nor retro- active and, therefore, the provisions of the Act have been made applicable to the existing projects sought declared unconstitutional, quashed and set aside, is clearly fallacious as the Act is prospective. (5) Under Articles 245 and 246 of Constitution, in particular, sub Article (3) of Article 246, the State has exclusive power to frame laws as regards List II of the Seventh Schedule i.e. State List and such entry must receive the widest interpretation. The State 45 not only enjoys the exclusive power but also ancillary power under Entry 17, List II, which deals with land and nowhere impinges upon or touches Entry 56 of List-I i.e. Union List, as the tax is confined, as it does not deal with inter-State regulations, and such Act confined to Himachal Pradesh only. (6) The Parliament has not enacted any law prohibiting the State from using water. (7) He then referred to List-II, Entry 18, to contend that land includes water on its sub- terrain or under land. (8) He also referred to Entry 49, which empowers the State to impose tax on land and building i.e. land and anything connected to the land, which according to him, is the plenary power of the State Legislature. (9) The Act stands no judicial scrutiny, as even Entry 66 which deals with fees could be invoked by the State as cess can be taxed as also a fee and going by the latest trend in law, 46 even for a fee, there is no co-relationship required to be established. (10) He thereafter invited our attention to the reply filed on behalf of the State to contend that the resources of the State are very limited because the State has its natural limitation, therefore, the State must be allowed to exploit its natural resources, for the State not only has constitutional powers but also has a duty to exploit water resources. Any interpretation a narrow interpretation. (11) According to him, the people of the State are the stakeholders and shareholders of the natural resources and impugned legislation is of a paramount public importance. (12) The mere fact that the hydropower would become more expensive, is no ground to test its constitutional validity, more particularly, 47 when the rise in power would be passed on to the consumers. (13) It is more than settled that the financial burden would be of no excuse much less a ground to strike down a valid piece of legislation. (14) The Constitution framers gave two rights to the State, i.e. one under Article 45 of the Constitution; to levy revenue and other under Article 49 of the Constitution; to impose tax on land, and thereafter vide Entry 50 confers right on the State to levy tax on mineral rights subject to the limitation imposed by the Parliament by law relating to mineral development. The Mines and Minerals Act does not impose any restrictions on the use of minerals and water being a mineral is in the exclusive legislative domain of the State Government. Furthermore, Section 2 of the Mines and Minerals Act does not impose any restrictions on State Government to levy tax on minerals. 48 (15) If there is a power under the Constitution, it could be traced under any of the Entries, given the fact that the land cannot be interpreted in any narrow and pedantic sense. The impugned piece of legislation is referable to Entries 17, 18, 45, 49, 50 and 60 and does not suffer from any constitutional vice. (16) The petitioner in one of the cases i.e. NHPC made a profit of more than Rs. 3,000 crores and even other projects are earning hundreds of crores and, therefore, has no occasion to complain. (17) After the imposition of General Sales Tax (GST), the State must have complete power to augment its resources and generate income and any narrow interpretation will hit at the federal structure. (18) The petitioners cannot complain that they will not participate in the progress of the State by making the State prosperous and 49 will have to pay tax, which has been levied strictly in accordance with law.

16.2. Mr. Dave, in support of his contention, urged that the ‘land’ cannot be interpreted in a narrow and pedantic sense and referred to the following judgments of the Hon'ble Supreme Court:-

1. Navinchandra Mafatlal vs. The Commissioner of Income Tax, Bombay City, 1955 (1) SCR 829

2. The Calcutta Gas Company (Proprietary) Ltd. vs. The State of West Bengal and Ors. 1962 Suppl. (3) SCR 1

3. Raja Jagannath Baksh Singh vs. State of Uttar Pradesh & Anr. AIR 1962 (SC) 1563

4. Khyerbari Tea Co. Ltd. & Anr. vs. The State of Assam, 1964 (5) SCR 975.

5. The Anant Mills Co. Ltd. vs. State of Gujarat and Ors. 1975 (2) SCC 175

6. The Government of Andhra Paradesh and Anr. vs. Hindustan Machine Tools Ltd. 1975 (2) 274

7. M/s Hoechst Pharmaceuticals Ltd. & Ors. vs. State of Bihar & Ors. 1983 (4) SCC 45

8. Ichchapur Industrial Coop. Society Ltd. vs. Competent Authority, ONGC and Anr. 1997 (2) SCC 42

9. R. S. Rekhchand Mohota Spinning & Weaving Mills Ltd. vs. State of Maharashtra, 1997 (6) SCC 12

10. W. B. vs. Kesoram Industries Ltd. & Ors. 2004 (10) SCC 201 50

11. Government (NCT of Delhi) vs. Union of India & Anr. 2018 (8) SCC 501.

16.3. According to Mr. Dave, the object of the Act is to levy tax on the water drawn and consumed and in support of such contention, placed reliance on the judgment of Hon'ble Supreme Court in Khyerbari Tea Co. Ltd. & Anr. vs. The State of Assam5.

16.4. He would then contend that legislature can levy tax and then prescribe machinery for the same. The tax collected from the producers does not mean that it is a tax on producers and for this purpose has placed reliance on the Judgment of the Hon'ble Supreme Court in The Anant Mills Co. Ltd. vs. State of Gujarat and Ors6, The Government of Andhra Paradesh and Anr. vs. Hindustan Machine Tools Ltd.7 and M/s Hoechst Pharmaceuticals Ltd. & Ors. vs. State of Bihar & Ors.8

16.5. He relied upon the judgment of the Hon'ble Supreme Court in Ichchapur Industrial Coop. Society Ltd. 5 1964 (5) SCR 975.