The Centre on Wednesday issued a terse warning to States against resorting to tax levies on electricity generation, including through imposition of a water cess, noting that there were no provisions in the Constitution that enabled States to do so.
In a communique to all States’ chief secretaries approved by Union Minister for Power and New and Renewable Energy R. K. Singh, the Union Government said it had come to its notice that some State Governments had imposed taxes or duties on generation of electricity and underlined that this was ‘illegal as well as unconstitutional’.
“Any tax/duty on generation of electricity, which encompasses all types of generation viz. thermal, hydro, wind, solar, nuclear, etc. is illegal and unconstitutional,” the Power Ministry said, citing provisions of the Seventh Schedule of the Constitution that pertain to States’ rights to levy duties.
“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 tax is to be collected from the consumers of electricity who may happen to be residents in other State,” the Ministry pointed out.
Urging States to desist from levying such taxes, the Ministry asked those which had already done so to withdraw the levies promptly.
States are empowered by the Constitution to levy taxes on consumption or sale of electricity in their jurisdiction, but 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,” the Ministry pointed out.
