The Constitutionality of a State-Enacted Water Cess – Indian Constitutional Law and Philosophy
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[This is a guest post by Rahul Pandey.]
Introduction
In the first unequivocal conclusion of its form, the Himachal Pradesh Higher Court (“Himachal HC”) has struck down the The Himachal Pradesh H2o Cess on Hydropower Era Act, 2023, in NHPC Ltd v. Point out of HP (“NHPC”). While disputes pertaining to imposition of cess on usage of drinking water for electrical energy generation are not unparalleled, this is the initial occasion that such a cess has been struck down in its entirety. A very similar legislation was upheld by the Uttarakhand Higher court (“Uttarakhand HC”) in Alaknanda Hydro Ability v. Condition of Uttarakhand (“Alaknanda”), and a different is matter to a pending obstacle right before the Jammu and Kashmir Substantial Courtroom.
Even with currently being endowed with loaded purely natural resources, these hill states often deal with a revenue crunch thanks to a lack of sources to generate earnings. They therefore assume the imposition of cess on h2o usage for hydro-ability era fetched from their large rivers to make up the shortfall Nevertheless, the imposition of this kind of a cess arguably comes at the price of essential constitutional principles relating to legislative competence, taxation and federalism remaining compromised. This is since the use of river water has ramifications past single states: it is utilized to produce renewable and thoroughly clean energy for several neighboring states and territories. This posting shall endeavor to spotlight how the imposition of this kind of a levy is invalid as rightly pointed out in NHPC and in the judgement of Maithani, J. in the break up verdict arising out of a particular charm from Alaknanda in T.H.D.C. India Ltd. and Ors. v. Point out of Uttarakhand. (“THDC”).
The scope of this posting shall be restricted to the troubles of legislative competence and pith and material. The post shall not have interaction with the troubles of Report 288, promissory estoppel and the studying down of the tax as a fee.
Legislative Competence
In the existing established of instances, the states relied upon Entry 17 (H2o), Entry 45 (Land Profits), Entry 49 (Taxes on land and buildings) and Entry 50 (Taxes on Mineral Rights) of Listing II to the 7th Timetable to justify the levy of the drinking water cess. Nonetheless, as for every contentions offered by The Union of India, none of these are valid fields for the point out legislatures to enact this sort of laws as the questioned act, in its genuine substance, is a tax on generation of electricity. This is exclusively a area for the parliament, as held by the SC in the scenario of M/s Hoechst Prescribed drugs Ltd. & Ors. vs. Condition of Bihar & Ors. 1983 (4) SCC 45. (“Hoechst Pharmaceuticals”).
The power to tax can not be interpreted as currently being ancillary to a regular entry and has to be derived plainly from a taxation entry. These are individual from standard entries that are only regulatory in nature. The theory has been reiterated by the SC time and again in decisions such as Hoechst Pharmaceuticals, Bimolangshu Roy v. Point out of Assam, and so on. This was also recognised by judgements of the Himachal and Uttarakhand Substantial Courts in the selections in NHPC and THDC respectively. Nevertheless, in a obvious error, the one decide in Alaknanda, at several details in the judgement, referred to Entry 17 as a valid provision for the imposition of the mentioned levy. (Paras 36, 75, 81). Based on preceding SC conclusions that make it clear that imposition of a tax cannot be inferred as remaining incidental or ancillary to regulation by means of yet another normal entry, the states’ rivalry of the laws being capable through Entry 17 of the Record II falls flat.
Positioning reliance on the rules of constitutional interpretation, specifically that every entry within just the a few lists will have to be presented its widest possible amplitude, it was argued by the states that the Entries 45 and 49 of Listing II, working with land and land earnings, need to be interpreted to contain drinking water inside their that means. Substantial reliance was put on the Constitutional Bench’s conclusion in W. B. vs. Kesoram Industries Ltd. & Ors., which declares that the phrase ‘land’ requires to interpreted in a broad method as to include things like every and all the things underneath and earlier mentioned it. These contentions have been recognized by the Uttarakhand Substantial Court in Alaknanda and by Vipin Sanghi, CJ, in THDC. However, as rightly pointed out by the judgement in NHPC, if the interpretation to the term ‘land’ has to be so vast as to include things like flowing rivers within it, then each individual and every object on earth would be instantly and indirectly covered by the industry of laws offered by these kinds of an entry. (Para 50). Such an interpretation would run counter to the crucial principle expounded by the court in Calcutta Fuel Co. (Proprietary) Ltd. v. State of W.B., that no entry really should be interpreted in such a fashion as to render yet another superfluous.
If the structure really meant for land and drinking water to indicate 1 and the similar, there would have been no want to introduce distinct entries, Entry 17 (Water) and Entry 18 (Land) for the function of their regulation as rightly pointed out by Maithani J in THDC (para 83). In simple fact, a total listing of entries that would eliminate their relevance if land was presented a meaning as in depth as that demanded by the states, has been furnished in NHPC. (para 50) Even if the state’s contentions of a river becoming an prolonged portion of land is recognized, any tax levied on through Entry 45 shall be right on the land as a device, as per the judgement of the SC in India Cement Ltd. v. Point out of T.N.
Having said that, it was the repeated submission of states that the tax is not on h2o by itself but the drawing of water for hydro-electrical power generation. If water is actually an extension of land and such land in the type of h2o is liable to levies by the Point out Govt, such a levy becoming on the drawing of it is neither a tax on the land by means of Entry 45 nor a variety of Land Profits through Entry 49 instead, it is a tax on its drawing which is an action only incidental to “water”, primarily based on principles as laid down in Sea Customs Act, S. 20 (2). (paras 26 and 94). The incidence of taxation is on the drawing of h2o for hydro-energy generation and not on the land alone therefore producing the legislature incompetent to levy such tax via virtue of Entries 45 and 49 of Record II.
For justifying the imposition of the tax by way of Entry 50 (mineral rights) of the List II, in all 3 cases, the judgement in Ichchapur Industrial Coop. Culture Ltd. vs. Qualified Authority, Oil & Organic Fuel Fee (“Ichchapur”) was cited to argue that the Supreme Courtroom has held water to be a mineral under Entry 50. This was acknowledged by the court docket in Alaknanda (para 41) and by Vipin Sanghi, CJ. in THDC (paras 58 and 62). However, as rightly pointed out in NHPC (para 57) and by Maithani, J. in THDC, water was study into minerals in the Ichchapur case only for the reason of Petroleum & Minerals Pipelines (Acquisition of Appropriate of User in Land) Act, 1962 (User Legal rights Acquisition Act), thinking about the definitions in The Mines Act, 1952. This kind of an interpretation can not be applied when looking at a constitutional discipline of laws. No universal declaration has been manufactured with regard to drinking water remaining a mineral under the meaning of entry 50. In addition, even if water is thought of a mineral for the purpose of Entry 50, the tax has to be on ‘mineral rights’ and not the mineral itself. Inserting reliance on the determination in Hingir Rampur Coal Co. Ltd. V. Condition of Orissa, AIR 1961 SC 459, Maithani, J. in THDC has properly pointed out the levy in issue has almost nothing to with any mineral rights remaining conferred, as a result creating Entry 50 not a valid field for the enactment of these laws. (para 100).
Pith and Compound
While the doctrine of plenery powers states that every single and just about every entry will have to be given the widest attainable meanings, it requirements to exercised with a selected diploma of warning in respect to entries in the a few lists that issue taxation. Taxation Entries are not able to be matter to the everyday rules of interpretation for they are unique vis-à-vis normal entries. The exact same was reiterated by the courtroom in the judgement of All India Federation of Tax Practitioners v. Union of India (para 527). In this regard, it is necessary for the courts to enquire into the ‘pith and substance’ with regard to the true character of a individual levy with reference to the legislative competence.
As observed over, the states have contended that the tax is on the ‘drawing of drinking water for energy generation’ instead than the h2o of the electrical energy era by itself. Nonetheless, a bare perusal of the textual content of the act would reveal that the tax is on the singular party of the drawing of drinking water for the goal of hydro-electric power technology. The era of hydro-energy is unachievable without the need of the drawing of the h2o for the objective for it. Himachal Pradesh, through a notification dated 16.02.2023 and Uttarakhand, by means of notification dated 07.11.2015, have produced the peak at which the water falls from a evaluate for figuring out the quantum of the tax. Both equally NHPC (para 40) and Maithani, J. in THDC (para 176) have taken a take note of the same. The height from which the h2o falls from is specifically related to the volume of energy generated and as a result the tax in no way can be mentioned to be concerned with the mere drawing of water as argued by the states. It is not the mere usage of water that is getting taxed but the use of drinking water for the purpose of hydro-electrical power era by a person that is the taxable celebration.
Dependent on the taxable celebration, person and steps for the stated tax, it can plainly be concluded that the state legislatures have tried out to cloak a levy on hydro-electric power technology as a levy on the mere drawing of drinking water and so becoming an training of colorable legislation, the tax, in its current type and shape, demands to be struck down.
Conclusion
It is submitted that the states of Himachal Pradesh and Uttarakhand clearly deficiency the legislative competence to enact these types of a tax on use of h2o for hydro-electrical power generation. The enactment of these types of a levy is clearly in contravention to the plan beneath Schedule VII of the Structure. When the situation will come up to the SC, this posting comments the approach of they must acquire note of the judgements of NHPC and Maithani, J. in THDC for the Court’s consideration.
