Himachal Pradesh HC quashes Water Cess on Hydropower Electricity Generation Rule, 2023 being Ultravires to Constitution

The Himachal Pradesh High Court has annulled the Water Cess on Hydropower Electricity Generation Rule, 2023, deeming it unconstitutional. Power generation companies, which use river water for electricity production, challenged the rule. Despite the rule identifying taxable events, liable persons, and tax rates, it failed to specify the tax measure—the value on which the tax rate would be applied. \r

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A notification dated August 26, 2023, issued under Section 15(2) of the Act, also did not define the tax measure, only the tariff rate. The court found the measure of tax to be vague and lacking adequate guidelines, particularly when considering Sections 12 and 17 of the legislation. Consequently, Sections 10 and 15 of the Act, applied to existing projects, were declared unconstitutional. The court also invalidated notices from the State Government seeking recovery of the water cess.