T.H.D.C. India Ltd through its CMD v. State of Uttarakhand & Others

What happened

The Uttarakhand Water Tax on Electricity Generation Act, 2012 required hydro-power users to register and pay a water tax for water drawn for generating electricity, with rates fixed by Government notification under section 17 and assessment by a Commission. A Single Judge dismissed the writ petitions on 12 February 2021 and the appellants, with a further writ petition (WPMS No. 1739 of 2021), challenged the Act. A Division Bench delivered a split verdict on 25 October 2023: the then Chief Justice Vipin Sanghi held the tax was on drawal and use of water and upheld the Act, while Justice Ravindra Maithani struck it down. The matter was referred to a third judge on 23 November 2023. The State relied on Entries 17, 18, 45, 49 and 50 of List II and article 288, and the appellants argued the levy is a colourable tax on generation, a subject outside the State's competence, that the rate delegation is excessive and that the State was bound by implementation agreements not to tax their power. The appellants included companies with Restated Implementation Agreements with the States of Uttar Pradesh and Uttarakhand.

Questions before the court

• Is the Water Tax on Electricity Generation Act within the State Legislature's competence, and is section 17 excessive delegation?

Why the court ruled this way

The nomenclature of a levy is not conclusive and the pith and substance of the Act decides; the definitions of electricity, user and water tax, and sections 3, 4 and 12, show that liability arises only when water is drawn for generating electricity, so the taxable event is generation (paragraphs 33 to 42, 46). The measure of a tax, such as cubic metres of water in the 2015 notification, is only an indicator and not conclusive (paragraph 41). Entries are fields of legislation; taxation is a distinct matter, and the power to tax cannot be derived from the general entries on water, land or minerals, nor from article 288, which only creates a restriction and an enabling condition requiring the President's assent (paragraphs 49 to 66). Section 17 gives the State Government power to fix and vary rates 'in the manner it deems fit' with no minimum, maximum or policy, so it is excessive delegation (paragraphs 43 to 46). On promissory estoppel, there is no estoppel against the Legislature in its legislative function and no fraud or extraordinary facts were shown, as Basantkumar Radhakisan Bora and Hero Motocorp say (paragraphs 67 to 73).

Controlling point

The Act levies a tax on electricity generation beyond the State's competence and its section 17 is excessive delegation, while promissory estoppel does not apply to the Legislature.

Order and next steps

The reference was answered as stated, concurring with Justice Maithani that the Act is ultra vires and with the Chief Justice that promissory estoppel is no ground to prevent the legislation.

Practical implications

Hydropower generators in other States facing a State levy on water used for generation can cite this opinion on the distinction between a tax on water and a tax on electricity generation.

Limits of this ruling

• The opinion is a third-judge reference opinion in a High Court bench, appeals against it may be taken to the Supreme Court, and the Court did not decide the position on non-taxing regulatory charges, royalty or cess on water use that are authorised by law.