M/S MASS N ERGY PRIVATE LIMITED AND ORS. vs UNION OF INDIA AND ORS. (Note) To be taken alongwith WP(C) 3324/2025 pertaining to Jammu Wing.
- Court
- Jammu and Kashmir High Court
IN THE HIGH COURT OF JAMMU & KASHMIR AND LADAKH AT
JAMMU/SRINAGAR
Reserved on: 02.09.2026
Pronounced on: 29.10.2026
Uploaded on: 29.10.2026
Whether the operative part or full
judgment is pronounced: Full
WP(C) No.3008/2024
CM Nos. 6821/2025 & 8179/2024
c/w
WP(C) No.3324/2025
CM No.7584/2025
WP(C) No.3329/2025
CM No.7589/2025
(Srinagar Wing)
WP(C) No. 3008/2024
CM Nos. 6821/2025 & 8179/2024
M/S MASS N ERGY AND OTHERS
...PETITIONER(S)/APPELLANT(S)
Through: - Mr. Shariq J. Reyaz, Advocate,
Ms. Humaira Sajad, Advocate,
Mr. Rahul Sharma, Advocate,
Ms. Rupali Sharma, Advocate,
Mr. Akshaj Rahmatra, Advocate.
vs.
UNION OF INDIA AND OTHERS.
…RESPONDENT(S)
Through: - Mr. A. R. Malik, Sr. AAG, with
Ms. Nisha Kangotra, Advocate
Mr. T.M. Shamsi, DSGI, with
Ms. Rehana Qayoom, Advocate
(Jammu Wing)
WP(C) No. 3324/2025, CM No.7584/2025
MAGPIE HYDEL CONSTRUCTION OPERATION
INDUSTRIES PVT. LTD.
...PETITIONER(S)/APPELLANT(S)
Through: - Mr. Pranav Kohli, Sr. Advocate, with
Ms. Raunak Gupta, Advocate,
Mr. Rahul Sharma, Advocate,
Ms. Rupali Sharma, Advocate.
Mr. Akshaj Rahmatra, Advocate.
vs.
UNION OF INDIA AND OTHERS
…RESPONDENT(S)
Through: - Mr. A. R. Malik, Sr. AAG, with
Ms. Nisha Kangotra, Advocate
WP(C) No.3329/2025, CM No.7589/2025
CHOUDHARY POWER PROJECTS
PVT. LTD.
...PETITIONER(S)/APPELLANT(S)
WP(C) No.3008/2024 c/w
WP(C) No.3324/2025 & WP(C) No.3329/2025 Page 1 of 50
Rakesh Kumar
2026.10.18 17:58
I attest to the accuracy and
integrity of this document
Through: - Mr. Pranav Kohli, Sr. Advocate, with
Ms. Raunak Gupta, Advocate,
Mr. Rahul Sharma, Advocate,
Ms. Rupali Sharma, Advocate.
Mr. Akshaj Rahmatra, Advocate.
vs.
UNION OF INDIA AND OTHERS.
…RESPONDENT(S)
Through: - Mr. A. R. Malik, Sr. AAG, with
Ms. Nisha Kangotra, Advocate
CORAM: HON’BLE MR. JUSTICE RAJNESH OSWAL, UDGE
HON’BLE MR. JUSTICE SANJAY DHAR, JUDGE
JUDGMENT
Sanjay Dhar ‗J‘:
1) Through the medium of the present judgment, we propose to decide the
afore-titled three writ petitions involving identical questions of law and fact.
In all the afore-titled three writ petitions, the writ petitioners have laid
challenge to the Jammu and Kashmir Water Resources (Regulation and
Management) Act, 2010 (hereinafter referred to as ―the Act of 2010‖) and the
rules framed thereunder, to the extent that the said legislation seeks to levy
water usage charges for generation of electricity. Challenge has also been
thrown by the writ petitioners to the demand notices issued by the respondents
in respect of water usage charges for generation of electricity pursuant to the
provisions contained in the impugned Act.
2) WP(C) No. 3008/2024 , of Srinagar Wing of the High Court, has been
filed by 11 companies, namely, M/s Mass N Energy Pvt. Ltd., M/s Gousia
Road Construction Co., M/s Himalayan Musk Power Pvt. Ltd., M/s O2Z
Trading and Industries Pvt. Ltd., M/s Renergy Power Producer Pvt. Ltd.,
M/s Pahalnar Power Pvt. Ltd., M/s SA Power Utilities Pvt. Ltd., M/s
Khari Hydro Power Project Pvt. Ltd., M/s Sharika Enterprises Ltd., M/s
P&R Engineering Services Pvt. Ltd. And M/s Rouf Infrastructures Pvt.
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WP(C) No.3324/2025 & WP(C) No.3329/2025 Page 2 of 50
Ltd., to whom various independent hydro power projects have been allocated
by the respondents for generation of hydroelectricity, by issuance of letters of
allotment in their favour.
3) WP(C) No. 3324/2025 , of Jammu Wing of the High Court, has been
filed by M/s Magpie Hydel Construction Operation Industries Pvt. Ltd .,
that was allotted contract for development of small hydro power projects by
the respondents at Mandi, Poonch, Athwatoo Bandipora and Tangmarg,
Drang vide various letters of allotment.
4) WP(C) No. 3329/2025 , of Jammu Wing of the High Court, has been
filed by M/s Choudhary Power Projects Pvt. Ltd., that has been allotted the
contract for development of small hydro power projects by the respondents at
Upper Kalnai River in Kishtwar.
5) All the writ petitioners are independent power producers (IPPs) based
in Union Territory of Jammu and Kashmir, to whom various independent
hydro power projects have been allocated by the Government of the Union
Territory of Jammu and Kashmir for generation of hydroelectricity. The
petitioners are operating river-based power projects and, as such, use water for
the purpose of generation of electricity.
6) In the year 2010, the Legislature of the erstwhile State of Jammu and
Kashmir enacted Jammu and Kashmir Water Resources (Regulation and
Management) Act, 2010, and, pursuance thereto, the Jammu and Kashmir
Water Resources (Regulation and Management) Rules, 2011 came to be
framed. The provisions of the Act provided for levying of water usage
charges, inter alia, on use of water for generation of electricity. In exercise of
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WP(C) No.3324/2025 & WP(C) No.3329/2025 Page 3 of 50
powers conferred under the provisions of the said Act, the authorities of the
Government of the Union Territory of Jammu and Kashmir issued demand
notices against the petitioners in respect of water usage charges for generation
of electricity from the year 2010 onwards. The said demand notices were
issued by the authorities of the Government of Union Territory of Jammu and
Kashmir in exercise of the powers under Sections 120, 130 and 145(1)(d) of
the Act of 2010.
7) The writ petitioners have challenged the provisions of the Act of 2010
to the extent they provide for levying of water usage charges for generation of
electricity in exercise of their powers under the provisions of the impugned
Act on the grounds that under the garb of water usage charges, respondent
no.2, Government of UT of Jammu & Kashmir is levying tax on generation of
electricity, which is beyond the competence of State Legislature. It has been
contended by the petitioners that use of water by the hydro power projects is
non-consumptive in nature, therefore, water usage charges could not have
been levied upon the petitioners and the fact that respondent-Water Resources
Regulatory Authority has vide order dated 02.04.2019 fixed the water usage
charges for generation of electricity on the basis of head height from which
water in hydro power plants is deployed for propelling the turbine and not on
the basis of quantum of water used by the hydro power plants shows that the
respondents are in fact imposing tax on generation of electricity. According to
the writ petitioners under the scheme of the Constitution, the power to impose
tax on generation of electricity is beyond the competence of the State
Legislature. It is being further contended that even as per stand of the Union
WP(C) No.3008/2024 c/w
WP(C) No.3324/2025 & WP(C) No.3329/2025 Page 4 of 50
of India, the State Government cannot levy tax on generation of electricity
under the garb of water usage charges etc.
8) It has been submitted that as per the contract executed between the
petitioners with the UT of J&K, the petitioners are obliged to provide 12%
free electricity to the Government of UT of J&K, which is in the form of
royalty being paid by the petitioners for use of water, therefore, they are
estopped in law from saddling the petitioners with additional cost of water
usage charges. It has been further contended that levying of water usage
charges/cess upon the petitioners is hit by doctrine of promissory estoppel
inasmuch as State Hydro Power Policy does not provide for any form of water
usage charges/cess or levy relating to utilization of water resources. It has
been submitted that an assurance was extended that no additional charges, tax
or cess beyond those expressly mentioned would be imposed upon the writ
petitioners. Thus, the writ petitioners have developed a legitimate expectation
that no water charges would be levied upon them for full project period of 40
years.
9) Respondent No.1-Union of India has taken a stand that the power to
levy taxes on generation of electricity is not vested in the State Legislature. It
has been contended that no taxes or duties, which are not specifically
mentioned in List-II of the Seventh Schedule to the Constitution of India can
be levied by the State Government under any guise whatsoever. It has been
submitted that under Entry 53 of List-II (State List), the States are authorized
to levy taxes on the consumption or sale of electricity but not on generation of
electricity. Therefore, the legislative power of the State does not extend to
WP(C) No.3008/2024 c/w
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imposition of tax on water drawn by any person for non-consumptive use of
water for generation of electricity. It has been submitted that the water usage
charges under the impugned enactment are, in fact, a tax on generation of
electricity, which would ultimately be collected from the consumers of
electricity, who may happen to be the residents of other States. Therefore, the
impugned Act is contrary to the well-settled principles of law laid down by
the Supreme Court in a catena of cases. It has been submitted that the taxable
event under the impugned enactment does not arise from the mere use of
water, but, from the use of water for generation of electricity. Thus, in pith
and substance, the levy constitutes a tax on the generation of electricity rather
than a charge for use of water.
10) Respondent-UT of J&K, while defending the impugned enactment, has
contended that the State Government is competent to legislate on charges for
the storage and use of water for various purposes, including for generation of
electricity, under the Constitution of India. It has been submitted that the
impugned Act is in consonance with the National Water Policy and that the
State desires to conserve and harness water resources in the best possible
manner for the benefit of the residents of the UT of J&K. It has been
submitted that under Entry 17 of List-II of Seventh Schedule of Constitution
of India, water, including water power projects, is specifically mentioned and,
therefore, the State is vested with the power to legislate in respect of the
regulation of water, which includes the levy of water charges for various
purposes, including generation of electricity. It has been submitted that the
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WP(C) No.3324/2025 & WP(C) No.3329/2025 Page 6 of 50
water usage charges levied by the Union Territory of Jammu and Kashmir are
regulatory in nature and do not partake the character of a tax or cess.
11) It has also been contended that water falls within the definition of
―land‖, as it is derived from or connected with land, therefore, the imposition
of water usage charges under the impugned Act is justified under Entry 49 of
the State List. It has been contended that because water falls within the
definition of ―minerals‖ the State Government is competent to legislate and
levy water usage charges, even under Entry 50 of List-II of the Seventh
Schedule to the Constitution.
12) Regarding the contention of promissory estoppel, it has been contended
by the respondent-State that there can be no promissory estoppel against a
legislative enactment. It has been submitted that the impugned Act is a piece
of legislation and that promise, if any, was extended to the writ petitioners by
the executive. Therefore, the writ petitioners cannot seek to enforce such a
promise against the legislative enactment.
13) Lastly, it has been contended that even if it is assumed that water
charges levied in terms of the impugned enactment are in the nature of tax on
generation of electricity still then because the impugned Act has been adopted
by the Parliament of India at the time of enactment of J&K Reorganization
Act, 2019, as such, it can be presumed that the impugned enactment has the
assent of the Parliament of India, which is vested with power to legislate on
the subject of taxation on generation of electricity.
WP(C) No.3008/2024 c/w
WP(C) No.3324/2025 & WP(C) No.3329/2025 Page 7 of 50
14) We have heard learned counsels for the parties and we have also gone
through the material on record including the judgments cited at bar by the
learned counsels.
15) From the pleadings of the parties and the submissions made by the
learned counsels, the main issues that fall for determination of this Court may
be summarized as under:-
(i) What is the true nature of charges sought to be imposed upon
the writ petitioners by virtue of the impugned enactment ?
(ii) If it is found that the charges levied under the impugned
enactment is a tax, whether the same is levied on drawal of
water or on generation of electricity?
(iii) If it is found that the charges levied under the impugned
enactment is a tax on generation of electricity, whether the
State legislature is competent to pass such an enactment?
(iv) If it is found that the charges levied under the impugned
enactment is either tax on water or water usage charges,
whether under the scheme of the Constitution and the
agreements executed between the parties, the same are
legally permissible to be levied by the Government of UT of
J&K upon the writ petitioners?
16) Before proceeding to find an answer to the aforesaid issues, it would be
apt to refer to the relevant statutory and constitutional provisions that would
enable us to find answers to the aforesaid issues.
RELEVANT PROVISIONS OF THE JAMMU AND
KASHMIR WATER RESOURCES (REGULATION AND
MANAGEMENT) ACT, 2010.
PREAMBLE :
―An Act to consolidate the law relating to use of water, the
measurement, construction, control and management of works
with respect to water storage, conservation and protection, the
irrigation, water supply, drainage, flood control and prevention,
the improvement in the flow of water, the protection and
improvement in the physical integrity of water courses, lakes and
springs, the safety and surveillance of dams, the establishment of
the State Water Resources Regulatory Authority for regulating
water resources, ensuring judicious, equitable and sustainable
management, allocation and utilization of water resources, fixing
the rates for use of water and matters connected therewith or
incidental thereto.‖
DEFINITIONS :
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WP(C) No.3324/2025 & WP(C) No.3329/2025 Page 8 of 50
(b) ―Authority‖ means the J&K State Water Resources
Regulatory Authority established under section 139 of the Act;
(e) ―beneficiary‖ means a person who derives benefits from the
usage of water for drinking purposes, irrigation, drainage,
generation of electricity or extraction of bed material from any
water source, navigation or any other direct or indirect usage ;
(f) ―category of use‖ means use of water for different purposes
such as for, generation of electricity, running of water mills,
agricultural, irrigation, horticulture, drinking water (domestic,
industrial or commercial), navigation and institutional use etc. ;
(k) ―dam‖ means works that include a barrier whether
permanent or temporary which has the potential of impounding,
diverting or controlling water for multipurpose projects or
schemes like generation of electricity, irrigation or any other use;
(n) ―electricity‖ means electrical energy generated by way
of usage of water from any water source flowing within the
territory of the State ;
(zx) ―user‖ means any person, group of persons, local body,
government department, board, company, corporation, society etc.
using water for drinking purposes, commercial, industrial or
institutional, irrigation, power generation, running of water mills,
agriculture, or any other purpose from any source of water;
(zz) ―water‖ means natural resource flowing in any river,
stream, tributary, canal, nallah or any other natural course of water
or situated upon the surface of any land like lake, pond, lagoon,
swamp, spring or ground water but does not include fish;
(zzh) ―water usage charges‖ means the rate levied or charged
for use of water and fixed under section 128;
90. Installation of Unit for usage of water .––Save as otherwise
provided under Chapters III, IV and VII, no person, group of
persons, government department, local authority, corporation,
company, society or any other body, by whatever name called
(hereinafter in this Chapter called ‗the user‘), shall install a unit
requiring usage of water of any water source except under a
licence issued by the licensing authority in accordance with the
provisions provided hereinafter in this Chapter.
91 . Preparation of scheme for usage of water by the user:(1)
Any user intending to install a unit requiring usage of water for
the purpose of––
(a) generation of electricity ;
(b) irrigation of land ;
(c) drinking purposes (domestic, commercial, industrial or
institutional) ;
(d) running of water mills ; and
(e) exploration and exploitation of ground water, shall
prepare scheme and submit to the Authority accompanied by such
fee and service charges as may be fixed by the Authority for
approval.
(2) The said scheme shall specifically indicate the following––
(a) the location of the unit ;
(b) the source of water to be used ;
(c) the purpose for which the unit is to be installed ;
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(d) the type of the unit whether domestic, commercial,
industrial or for trading purposes;
(e) the quantity of water required for such unit;and
(f) the period for which the water is required.
92 . Approval of the scheme . ––
(1) After receipt of the scheme from a user, the Authority
shall consider the viability of the scheme by taking into the
account the following factors, namely :––
(a) whether the purpose of the proposed scheme is
consistent with the State Water Policy ;
(b) whether the works required to be executed for the
proposed scheme are detrimental to any existing, ongoing or
proposed water supply, irrigation, flood control or any other
scheme in the area ;
(c) whether the proposed scheme is consistent with the
requirements of drinking water, irrigation, navigation, flood
control or any other public purpose,
and make such inquiries and undertake such other studies, as it
may deem necessary.
(2) If the Authority is satisfied that the proposed scheme is
viable and meets all the requirements, it may, either approve the
scheme as submitted by the user or with such modification as it
may deems fit, or reject the same by assigning grounds for such
rejection :
Provided that in case of a scheme relating to use of water for
generation of electricity, the Authority shall submit its
recommendations to the Government for approval of the scheme.
(3) If the user is aggrieved by an order passed by the
Authority modifying or rejecting his scheme, he it may prefer an
appeal to the Government within a period of thirty days from the
date of such order and the decision of the Government thereon
shall be final.
(4) In case of a scheme relating to use of water for
generation of electricity, the Government may, on receipt of the
recommendations from the Authority, take a decision either
approving the scheme with or without modifications or rejecting
the same:
Provided that no order shall be passed under this sub-section
without the agreement of the Power Development Department and
in case there is no such agreement, the scheme shall be submitted
for orders of the Cabinet whose decision shall be final and
binding.
93. Information to the User .––
After the scheme is approved by the Authority under sub-section
(2) of section 92 or by the Government under sub-section (4) of
section 92, the Authority shall inform the user accordingly and
require him to––
(a) obtain a licence for use of water under section96 ;
(b) execute an agreement in such form and manner with the
prescribed authority as may be prescribed ; and
(c) pay such fee and water usage charges as fixed under
Chapter XI of the Act.
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WP(C) No.3324/2025 & WP(C) No.3329/2025 Page 10 of 50
94.Prohibition on installation of a unit .––
No user shall install a unit requiring usage of water without
adhering to the requirements of section 97.
95.Ceiling on allocation of wate r.–– The Authority shall fix the
minimum and maximum ceiling of water to be allocated to a user
for––
(a) generation of electricity (hydro-electric project) ;
(b) irrigation of land ;
(c) drinking purposes; (domestic, commercial, industrial or
institutional) ;
(d) exploration of ground water ; and
(e) utilization of water for other purposes.
96.Licence for usage of wate r.––No person shall install a unit,
requiring usage of water or in any other way use the water, for––
(a) distribution of water ;
(b) undertaking trading in water directly or indirectly ;
(c) construction of dams on any water source ; and
(d) exploration or exploitation of ground water, unless he is
authorized to do so by a licence, issued under section 97.
97.Grant of licence .––
A user intending to use the water for any purpose specified in sub-
section (1) of section 91 and section 96, may make an application
accompanied with such fee as may be prescribed to the licensing
authority for grant of licence under the Act :
Provided that in case the user is a government department, a local
authority or a corporation owned and financed by the
Government, it shall be deemed to be a licensee under the Act and
shall not be required to obtain a licence under the Act.
WATER USAGE CHARGES (TARIFF)
128.Fixation of water usage charges . ––
(1) The Authority shall determine and fix the charges for––
(a) supply of water to a consumer from any water supply
scheme for domestic purposes ;
(b) supply of water to, or use of water by, a consumer from
any irrigation scheme or any water source for irrigation
purposes
(c) supply of water to a consumer for commercial and
industrial purposes ;
(d) supply of water to, or use of water by, a licensee under
Chapter VI ; and
(e) exploration and exploitation of ground water by a
consumer or a licensee.
(2) The water usage charges fixed under sub-section (1)
shall be reviewed by the Authority after every three
years.
(3) The Authority may fix different water usage charges for
use of water for different purposes and while
determining and fixing the water usage charges, the
Authority shall have regard to––
(a) the purpose for which the water is supplied or used ;
(b) the quantity of water supplied or used ;
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(c) the nature of use of such water by the user, whether
domestic, commercial or industrial or for trading
purposes ;
(d) the timeliness of supply or use of water ; and
(e) the periodicity of supply or use of water.
129 . Prohibition on charging higher water usage charges :
(1) No licensee who directly or indirectly trades in water or
supplies water to users on commercial basis shall charge from any
user, water usage charges on rates higher than the rates fixed by
the Authority under section 128.
(2) If a licensee charges a price for supply of water
exceeding the water usage charges fixed by the Authority under
section 128, the excess amount so charged by him alongwith 50%
thereof as penalty shall be recovered by the prescribed authority
from such licensee.
130. Recovery of water usage charges .––
The prescribed authority shall recover water user charges as per
the rates fixed by the Authority from every user or licensee
whenever-
(a) water is supplied or made available or used for purposes
of irrigation, drinking or for any other purpose from any irrigation
work or water supply scheme being run or maintained by the
Government ; or
(b) water is used by a consumer from any water source for
irrigation purposes ; or
(c) water is supplied or made available or used by a licensee
for generation of electricity, irrigation of land,drinking purposes
(domestic, commercial, industrial, institutional), running of water
mills, exploration of ground water or for trading in any way
directly or indirectly in water.
131. Procedure for assessment . ––
(1) The Assistant Executive Engineer concerned shall
prepare the assessment of water usage charges in respect of water
supplied to, or used by, a user or a licensee and serve such
assessment on such user or the licensee for payment of the
assessed charges.
(2) If a user or licensee is not satisfied with the assessment
of water usage charges made under sub-section (1), he may apply
to the concerned Executive Engineer for re-assessment within a
period of 15 days from the date of service of assessment order
under sub-section (1).
(3) The concerned Executive Engineer may either accept
the request for re-assessment and have the charges re-assessed or
reject the request for reassessment.
(4) The order passed by the concerned Executive Engineer
under sub section (3) shall be final.
(5) The user or the licensee shall pay the water user charges
as assessed under sub-section (1) or as re-assessed under sub-
section (2) within such time as may be specified by the concerned
authority.
145. Functions of the Authority . ––
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(1) The Authority shall discharge the following functions, namely
:––
(a) determine the entitlement and distribution for various
categories of use of water within each category and the terms and
conditions of distribution or allocation ;
(b) enforce the decisions and orders issued under the Act;
(c) fix the priority for equitable distribution of water
available at the resource, project, sub-basin and river
basin levels during periods of scarcity;
(d) establish a water tariff system and fix the water usage
charges for use of water on account of––
(i) drinking purposes (domestic, commercial and industrial)
(ii) irrigation of land ;
(iii) exploitation and use of ground water; and
(iv) generation of electricity :
Provided that water usage charges shall at least recover
the cost of the project and the expenditure incurred on
its operation, maintenance and management.
(e) regulate use of water by the users and licensees from all
water sources in the State;
(f) adjudicate upon the disputes between the licensees and
the department;
(g) specify or enforce standards with respect to quality,
continuity and reliability of service by the department
and the licensees ;
(h) ensure satisfactory service on the part of the concerned
department or agency to the users or licensees ;
(i) ensure transparency while exercising the powers and
discharging its functions ;
(j) advise the Government in the promotion of competition
for the optimum utilization of water resources in the
State;
(k) administer and manage inter-State water resources
apportionment on river systems of the State ;
(l) approve and review water resources schemes and
projects : Provided that before approving any scheme or
project, the Authority shall ensure that the proposed
scheme or project is in conformity with––
(i) the integrated State Water Policy and plan ;
(ii) the economic, hydrologic and environmental viability;
and
(iii) the obligations of the State under any agreement, or
decree or judgment of a court or tribunal, or inter-State
water entitlement :
Provided further that while approving any new water
resources scheme or project, instructions issued by the
Government from time to time relating to investment
priority are strictly observed;
(m) establish a system of enforcement, monitoring and
measurement of the use of water both in quantity and
type of use ;
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(n) establish a regulatory system for the water resources of
the State including surface and subsurface waters, to
regulate the use of water and apportion the entitlement
to the use of the water between water using categories ;
(o) promote efficient use of water and to minimize the
wastage of water ; and
(p) discharge such other function as may be prescribed or
assigned to it by the Government.
(2) The Authority may review and revise the water usage
charges fixed by it under clause (d) of sub-section (1)
after every three years.
(3) In the event of water scarcity, the Authority, may re-fix
the entitlements and adjust the quantities of water
available to all users and licensees in such manner as the
Authority may deem necessary to overcome such
scarcity and to ensure equitable distribution of available
water.
(4) The Authority shall, in accordance with the State Water
Policy, coordinate with all concerned agencies to
implement a comprehensive hydro meteorological data
system for the state.
(5) The Authority shall, promote and implement sound
water conservation and management practices
throughout the State.
(6) The Authority shall support and aid the enhancement
and preservation of water within the State in close
coordination with the other States.
(7) The Authority shall ensure that while approving the
water schemes and projects, the principle of ‗tail to
head‘ irrigation is implemented.
(8) The Authority shall strive to make the water available to
the drought prone areas of the State.
185-A. Constitution of Fund for utilization of Water Usage
Charges .–– (1) The Finance Department will constitute a ‗fund‘
under a proper Account No. in the Jammu and Kashmir Bank or
allot an ‗Account Head‘ in which amount realized as water usage
charges under the Act from such users who are generating power
from Hydroelectric Projects in the State shall be deposited. 2 [(2)
The fund, so created, shall be operated upon by the Administrative
Secretary, Finance Department, for the purpose of being utilized
for establishment of Hydel Projects, Hydroelectric Projects,
Multipurpose Hydroelectric Projects, buying back Hydroelectric
Power Projects already established in the State, capital investment
in electric transmission and distribution network within the
territory of the State and the purchase of power by the State
Government or its entities, with the prior approval of the
Government.
RELEVANT PROVISIONS OF THE CONSTITUTION OF
INDIA
245. Extent of laws made by Parliament and by the
Legislatures of States. —
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(1) Subject to the provisions of this Constitution, Parliament
may make laws for the whole or any part of the territory of India,
and the Legislature of a State may make laws for the whole or any
part of the State.
(2) No law made by Parliament shall be deemed to be
invalid on the ground that it would have extra-territorial operation.
246. Subject-matter of laws made by Parliament and by the
Legislatures of States .—(1) Notwithstanding anything in clauses
(2) and (3), Parliament has exclusive power to make laws with
respect to any of the matters enumerated in List I in the Seventh
Schedule (in this Constitution referred to as the ―Union List‖).
(2) Notwithstanding anything in clause (3), Parliament, and,
subject to clause (1), the Legislature of any State also, have power
to make laws with respect to any of the matters enumerated in List
III in the Seventh Schedule (in this Constitution referred to as the
―Concurrent List‖).
(3) Subject to clauses (1) and (2), the Legislature of any
State has exclusive power to make laws for such State or any part
thereof with respect to any of the matters enumerated in List II in
the Seventh Schedule (in this Constitution referred to as the ―State
List‖).
(4) Parliament has power to make laws with respect to any
matter for any part of the territory of India not included 2 [in a
State] notwithstanding that such matter is a matter enumerated in
the State List.
248. Residuary powers of legislation .—(1) [Subject to article
246A, 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.
265. Taxes not to be imposed save by authority of law .—No tax
shall be levied or collected except by authority of law.
288. Exemption from taxation by States in respect of water or
electricity in certain cases.—( 1) Save in so far as the President
may by order otherwise provide, no law of a State in force
immediately before the commencement of this Constitution shall
impose, or authorise the imposition of, a tax in respect of any
water or electricity stored, generated, consumed, distributed or
sold by any authority established by any existing law or any law
made by Parliament for regulating or developing any inter-State
river or river-valley.
Explanation .—The expression ―law of a State in force‖ in this
clause shall include a law of a State passed or made before the
commencement of this Constitution and not previously repealed,
notwithstanding that it or parts of it may not be then in operation
either at all or in particular areas.
(2) The Legislature of a State may by law impose, or
authorise the imposition of, any such tax as is mentioned in clause
(1), but no such law shall have any effect unless it has, after
having been reserved for the consideration of the President,
received his assent; and if any such law provides for the fixation
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of the rates and other incidents of such tax by means of rules or
orders to be made under the law by any authority, the law shall
provide for the previous consent of the President being obtained to
the making of any such rule or order.
366. Definitions.— In this Constitution, unless the context
otherwise requires, the following expressions have the meanings
hereby respectively assigned to them, that is to say—
(28) ―taxation ‖ includes the imposition of any tax or impost,
whether general or local or special, and ―tax‖ shall be construed
accordingly;
SEVENTH SCHEDULE: LIST-I (UNION LIST)
56. Regulation and development of inter-State rivers and
river valleys to the extent to which such regulation and
development under the control of the Union is declared by
Parliament by law to be expedient in the public interest.
84. Duties of excise on the following goods manufactured
or produced in India, namely:— (a) petroleum crude; (b) high
speed diesel; (c) motor spirit (commonly known as petrol); (d)
natural gas; (e) aviation turbine fuel; and (f) tobacco and tobacco
products.
97 . Any other matter not enumerated in List II or List III
including any tax not mentioned in either of those Lists.
SEVENTH SCHEDULE: LIST-II (STATE LIST).
17 . Water, that is to say, water supplies, irrigation and canals,
drainage and embankments, water storage and water power
subject to the provisions of entry 56 of List I.
18. Land, that is to say, rights in or over land, land tenures
including the relation of landlord and tenant, and the collection of
rents; transfer and alienation of agricultural land; land
improvement and agricultural loans; colonization.
45 . Land revenue, including the assessment and collection of
revenue, the maintenance of land records, survey for revenue
purposes and records of rights, and alienation of revenues.
49 . Taxes on lands and buildings.
50. Taxes on mineral rights subject to any limitations imposed by
Parliament by law relating to mineral development.
53 . Taxes on the consumption or sale of electricity.
17) Since the present writ petitions involve the interpretation of the
provisions of the Constitution pertaining to the power of the Parliament and
the State Legislatures to legislate on the earmarked fields/subjects, it would
also be apt to notice the legal position on this aspect as has been enunciated by
the Supreme Court in its various judgments. These legal precedents would
guide us in finding answers to the issues involved in the present writ petitions.
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18) In the above context, it would be apt to refer to the legal position
discussed in nine judges Bench judgment delivered by the Supreme Court in
the case of Mineral Area Development Authority and another Vs. Steel
Authority of India and another 2024 (10) SCC 1. In the said case, the
Supreme Court while discussing the scheme of legislative power and
constitutional limits has observed as under:-
― 31 . Part XI of the Constitution deals with the relations
between the Union and the States. Article 245 provides that
subject to the provisions of the Constitution, Parliament
may make laws for the whole or any part of the territory of
India and the Legislature of a State may make laws for the
whole or any part of the State.The power to enact laws is
inherently related to the sovereignty of the Union and State
legislatures in their respective fields. While the sovereign
legislative powers of Parliament and the State legislatures
are plenary, they are subject to well-defined constitutional
limitations. The language of Article 245 makes the
exercise of legislative powers expressly subject to the
provisions of the Constitution. Therefore, laws made by a
legislature may be void not only for the lack of legislative
power in respect of the subject-matter, but also for
transgressing constitutional limitations. It is the duty of
constitutional courts to resolve disputes regarding a breach
of constitutional limits by the Union and State legislatures.
32 . The scheme of distribution of legislative powers between
Parliament and the State legislatures is embodied in Article
246. Article 246 is similar to Section 100 of the GOI Act 1935.
Article 246 deals with the subject matter of laws made by
Parliament and the Legislatures of States and is set below:
― 246. Subject-matter of laws made by Parliament and by
the Legislatures of States –
(1) Notwithstanding anything in clauses (2) and (3), Parliament
has exclusive power to makes laws with respect to any of the
matters enumerated in List I in the Seventh Schedule (in this
Constitution referred to as the ―Union List‖).
(2) Notwithstanding anything in clause (3), Parliament and,
subject to clause (1), the Legislature of any State also, have the
power to make laws with respect to any of the matters
enumerated in List III in the Seventh Schedule (in this
Constitution referred to as the ―Concurrent List‖)
(3) Subject to clauses (1) and (2), the Legislature of any State
has exclusive power to make laws for such State or any part
thereof with respect to any of the matters enumerated in List II
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in the Seventh Schedule (in this Constitution referred to as the
―State List‖)
(4) Parliament has power to make laws with respect to any
matter for any part of the territory of India not included in a
State notwithstanding that such matter is a matter enumerated
in the State List.‖
33 . Article 246 confers exclusive power on Parliament to make
laws with respect to any of the matters enumerated in List I (the
Union List) of the Seventh Schedule. The exclusive power of
the State legislatures with respect to the matters enumerated in
List II is subject to the exclusive legislative powers of
Parliament.
34 . In Hoechst Pharmaceuticals v. State of Bihar , this Court
culled out the following principles underlying Article 246:
a . Parliament has exclusive power to make laws with respect to
the matters enumerated in List I;
b . The non-obstante clause in Article 246(1) provides for
predominance or supremacy of the Union legislature;
c . The legislative powers of the Union legislature is not
encumbered by anything contained in Articles 246(2) and
246(3) for these clauses are expressly limited and made subject
to the non-obstante clause in Article 246(1);
d . The State legislature has exclusive power to make laws with
respect to any of the matters enumerated in List II;
e. The exclusive power of the State legislature to legislate with
respect to any of the matters enumerated in List II has to be
exercised subject to Article 246(1), that is, the exclusive power
of Parliament to legislate with respect to matters enumerated in
List I;
f. Consequently, in case of any conflict between an entry in List
I and an entry in List II which is not capable of reconciliation,
the power of Parliament to legislate with respect to a matter
enumerated in List I must supersede protanto the exercise of
power of the State legislature; and
g. Both Parliament and State legislatures have concurrent
powers of legislation with respect to any of the matters
enumerated in List III, the law enacted by Parliament prevailing
in the event of any inconsistency or conflict.
35. Article 245 (read with Article 246) is the source of the
legislative powers of Parliament and the State legislatures. The
entries in the Seventh Schedule delineate the subject matter
over which the appropriate legislature can enact laws. The
entries are legislative heads and not the source of legislative
powers. A legislation could be composite in nature, drawing
upon several entries in a particular list. Such a legislation is
referred to as a ―ragbag‖ legislation.
36 . Article 254 clarifies that if the law made by a State
legislature is repugnant to any provisions of a law made by
Parliament with respect to any of the matters enumerated in List
III, the law made by Parliament would prevail and the law
made by the State legislature would be void to the extent of the
repugnancy. The issue of repugnancy arises only when both the
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legislatures are competent to legislate on the subject with
respect to List III. The issue of repugnancy does not arise if the
legislations enacted by Parliament and the State legislatures
deal with separate and distinct legislative subject matters. By
virtue of Article 248, Parliament has exclusive legislative
powers to make laws with respect to any of the matters not
enumerated in List II or List III. However, how should courts
deal with a situation where two legislations, enacted by
Parliament and State legislature in pursuance of their respective
legislative powers, appear to conflict with each other? The
answer lies in Article 246 itself.
37 . Article 246 incorporates the principle of federal supremacy.
In Hoechst Pharmaceuticals (supra), this Court held that the
words ―notwithstanding anything contained in clauses (2) and
(3)‖ in Article 246(1) and the words ―subject to clauses (1) and
(2)‖ in Article 246(3) embody that principle. The principle
postulates that in case of an inevitable conflict between Union
and State powers, the Union‘s power of legislation over a
subject enumerated in List I shall prevail over the State powers
of legislation over a subject enumerated in List II and III.
However, it is also settled that this principle cannot be resorted
to unless there is an irreconcilable direct conflict between the
entries in the Union and State Lists. Such a conflict must be an
actual one and not a mere seeming conflict between the two
entries in two lists.
38 . Hoechst Pharmaceuticals (supra) laid down the following
principles to resolve any direct conflict between the entries in
List I and List II:
(i) in case of seeming conflict, the two entries should be read
together without giving a narrow and restricted reading to either
of them;
(ii) an attempt should be made to see whether the two entries
can be reconciled so as to avoid a conflict of jurisdiction; and
(iii) no question of conflict arises between two Lists if the
impugned legislation in pith and substance appears to fall
exclusively under one list and the encroachment upon the other
list is incidental.
39. Articles 245 and 246 embody the essence of Indian
federalism. The division of legislative powers between Union
and States is an emanation of the federal project. This division
also serves as a constitutional limitation on legislative powers.
Parliament cannot entrench upon the plenary power of the State
legislatures in the ordinary course, except where the
Constitution itself specifically allows it. The appropriate
legislature must possess legislative competence to enact a law
on the subject matter it seeks to legislate.
40 . With respect to the powers of taxation, Article 265 provides
that no tax shall be levied or collected except by authority of
law. In Mafatlal Industries v. Union of India , a nine-Judge
Bench of this Court held that the ―law‖ mentioned under Article
265 refers to a valid law whose validity has to be determined
with reference to other provisions in the Constitution.
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Therefore, with respect to taxation laws particularly, there is a
constitutional requirement that the law imposing tax must be in
conformity with the provisions of the Constitution, particularly
Part III dealing with the fundamental rights. This is also a
constitutional limitation because the appropriate legislature has
to ensure that the law is in accord with the principles of equality
and non-discrimination. Any legislation enacted by the
legislature in excess of its constitutional powers is void.‖
19) In the same judgment, the Supreme Court laid down the guidelines with
regard to interpretation of the Legislative entries in the following manner:-
41. The structure of the legislative entries in the three Lists of
the Seventh Schedule follows an express and deliberate pattern.
The entries are classified into general and taxing entries. In the
Union List, entries 1 to 81 enumerate general subject matters,
while entries 82 to 92-C pertain to the powers of taxation.
Similarly, entries 1 to 45 in the State List enumerate the general
entries and entries 46 to 63 provide for taxing entries. The
legislature does not derive the power to tax from the general
entries - taxation is considered to be a distinct matter for purposes
of legislative competence.
42. The distinction between the general and taxing entries was
explained by this Court in M P V Sundararamier (supra) in the
following manner:
―In List I, Entries 1 to 81 mention the several matters over
which Parliament has authority to legislate. Entries 82 to
92 enumerate the taxes which could be imposed by a law
by Parliament. An examination of these two groups of
Entries shows that while the main subject of legislation
figures in the first group, a tax in relation thereto is
separately mentioned in the second. Thus, entry 22 in List
I is ―Railways‖, and Entry 89 is ―Terminal taxes on goods
or passengers, carried by railway, sea, or air; taxes on
railway fares and freights‖. If Entry 22 is to be construed
as involving taxes to be imposed, then Entry 89 would be
superfluous. Entry 41 mentions ―Trade and commerce
with foreign countries; import and export across customs
frontiers‖. If these expressions are to be interpreted as
including duties to be levied in respect of that trade and
commerce, then Entry 83 which is ―Duties of customs
including export duties‖ would be wholly redundant.
Entries 43 and 44 relate to incorporation regulation and
winding up of corporations. Entry 85 provides separately
for Corporation tax. Turning to List II, Entries 1 to 44
form one group mentioning the subjects on which the
States could legislate. Entries 45 to 63 in that List form
another group, and they deal with taxes. Entry 18, for
example, is ―Land‖ and Entry 45 is ―Land Revenue‖.
Entry 23 is ―Regulation of mines‖ and Entry 50 is ―taxes
on mineral rights‖. The above analysis – and it is not
exhaustive of the Entries in the Lists – leads to the
interference that taxation is not intended to be
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comprised in the main subject in which it might on an
extended construction be regarded as included, but is
treated as a distinct matter for purposes of legislative
competence . And this distinction is also manifest in the
language of Art. 248, Cls. (1) and (2), and of Entry 97 in
List I of the Constitution. […]
To sum up: […] (2) Under the scheme of the
Entries in the Lists, taxation is regarded as a distinct
matter and is separately set out . ‖
43 . The above position of law has been expressly affirmed by the
nine-Judge Bench of this Court in Jindal Stainless Ltd v. State
of Haryana . Thus, it is an accepted principle that the subject
matter of taxation is dealt with under distinct entries and,
therefore, cannot be traced to a non-taxing entry. The taxing
powers of Parliament and the State legislatures are mutually
exclusive and clearly demarcated. There can be no overlap
between the taxing powers of the Union and the States. Entries
relating to taxing powers must be construed with clarity and
precision to maintain exclusivity and a construction of a taxation
entry which may lead to overlapping must be eschewed. If a
taxing power is enumerated within a particular legislative list, it is
automatically excluded from the purview of subject-matters in
other legislative lists. The residuary power of Parliament also
includes the power of making any law imposing a tax not
mentioned in either List II or List III.
44 . The legislative fields or entries in the Seventh Schedule have
used general words to define and delineate the legislative powers
of Parliament and State legislatures. The rule that words should
receive their ordinary, natural, and grammatical meaning
applicable to statutes also applies to the entries contained in the
Seventh Schedule. It is also a well-accepted principle that the
entries should not be read in a narrow or pedantic sense but must
be given their broadest meaning and the widest amplitude because
they are intrinsic to a machinery of government. The ambit of the
entries extends to all ancillary and subsidiary matters which can
fairly and reasonably be said to be comprehended in them. Since
the Seventh Schedule uses general terms, there is always a
possibility of an overlap and conflict between two or more
entries.
45 . Many entries in the Seventh Schedule may appear to overlap
because of the language used in the entries. The necessary
corollary to the scheme of legislative distribution is that that any
invasion by Parliament in the field assigned to the States and vice
versa is a breach of the Constitution. Even though the
Constitution distributes legislative powers between the Union and
the States, there have been situations where a legislation
purporting to deal with a subject in one list, touches on a subject
in another list. To remedy such situation, the doctrine of pith and
substance is used to examine whether the legislature has the
competence to enact a law with regard to either of the three lists
under the Seventh Schedule of the Constitution. There may arise
situations where a legislature may frame a law that in substance
and reality transgresses its legislative competence. Such a piece
of legislation is called ―colourable legislation‖ because the
legislature veils its transgression by making it seem as if the
legislation is within its legislative competence. To examine
whether the legislature has transgressed its legislative
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competence, the substance of the legislation is material. If the
subject-matter is in substance beyond the legislative powers of the
legislature, the form in which the law is clothed would not save it
from the vice of unconstitutionality.
46 . The Constitution has used specific expressions to resolve
potential overlaps or conflicts between and among the entries in
the three Lists. The entries in the Seventh Schedule have used
different phraseologies to either subject or restrict their scope and
ambit. Some of the legislative entries in the State List have been
made subject to broad or specific limitations or restrictions with
respect to the entries in the Union List or Concurrent List. This
would emerge from the tabulation set out below:
Phraseology used Entries in State
List
Subject to the provisions of any law made by
Parliament
37
Subject to the provisions of entries in List I 2,17,22,24,33
Subject to particular field of legislation in List I 23
Subject to the provisions of entries in List III 26,27,57
Subject to the provisions of List I and List III 13
Subject to any limitations imposed by Parliament
by law
50
Other than 7,12,32,63
Not including 1,51,54,66
47 . The above table is an indication of the extent to which
the legislative powers of the States have been restricted, limited,
or altogether precluded. The use of the expression ―other than‖
or ―not including‖ serves the purpose of redacting from the ambit
of the legislative power of the States to the extent suggested.
Where the Constitution intends to limit or preclude the
legislative powers of the State to a particular extent, it has used
specific terminologies such as ―other than‖ and ―not including‖.
48 . Where the entries have used the phrase ―subject to‖, the
legislative power of the State is made subordinate to Parliament
with respect to either the Union List or the Concurrent List. The
expression ―subject to‖ conveys the idea of a provision yielding
place to another provision or other provisions to which it is made
subject. Therefore, where the Constitution intends to displace or
override the legislative powers of the States, it has used specific
terminology – ―subject to‖. However, the Constitution has also
indicated the extent to which a particular legislative entry under
List II is subordinated. For instance, the subjection is either with
respect to provisions of List I or List III, or it can also be to the
extent of ―any limitations‖ imposed by Parliament by law. Thus,
it is imperative that the entries in List II must be read and
interpreted in their proper context to understand the extent of
their subordination to Union powers.
49 . There are numerous entries in the State List where the
Constitution has imposed no restrictions on the exercise of the
legislative powers of the States. With respect to such entries, the
absence of any express limitations indicates that the Constitution
did not intend to fetter the legislative powers of the States.
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50 . In addition to the above terminologies, the entries in the
Seventh Schedule also indicate the manner in which a restriction
or limitation can be imposed on the legislative powers of the
State. This assumes clarity from the following tabulation.
Phraseology used Entries in State
List
Declared by or under law 23,27,67 of List I
Declared by Parliament by law 24,52,53,54,56,62
,63,64 of List I
Declared by Parliament by law 51. f List II
51 . The Constitution deploys three expressions to signify the
manner in which the legislative power could be exercised by
Parliament – ―declared by or under law‖, and ―declared by
Parliament by law‖, and ―imposed by Parliament by law‖ The
difference in the character of these provisions can be gathered
from the Constitution (Seventh Amendment) Act 1956 which
substituted the expression ―declared by Parliament by law‖ with
―declared by or under law made by Parliament‖ in Entry 67 of the
Union List. The object of the amendment was to enable the
delegate under the statute to make the required declaration. The
expression ―by law‖ means that the legislative power should be
effectuated through the provisions of a statute. In comparison, ―by
or under law‖ means that the legislative intent could be
effectuated either through the provisions of the statute or by any
subordinate authority vested with powers in that behalf by the
statute. It is important to note that Entry 50 of List II use the
expression ―by law relating to mineral development‖. We will
have to bear the meaning of the expression ―by law‖ in mind to
give an appropriate interpretation to the entry.
20) Again, the Supreme Court in the case of State of Karnataka and
another Vs. State of Meghalaya and another, (2023) 4 SCC 416, after
discussing the legal position summed up the following principles :-
― (1) In the scheme of the lists in the Seventh Schedule, there
exists a clear distinction between the general subjects of
legislation and heads of taxation. They are separately
enumerated.
(2) Power of ―regulation and control‖ is separate and distinct
from the power of taxation and so are the two fields for
purposes of legislation. Taxation may be capable of being
comprised in the main subject of general legislative head by
placing an extended construction, but that is not the rule for
deciding the appropriate legislative field for taxation between
List I and List II. As the fields of taxation are to be found
clearly enumerated in Lists I and II, there can be no
overlapping. There may be overlapping in fact but there would
be no overlapping in law. The subject-matter of two taxes by
reference to the two lists is different. Simply because the
methodology or mechanism adopted for assessment and
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quantification is similar, the two taxes cannot be said to be
overlapping. This is the distinction between the subject of a tax
and the measure of a tax.
(3) The nature of tax levied is different from the measure of tax.
While the subject of tax is clear and well defined, the amount of
tax is capable of being measured in many ways for the purpose
of quantification. Defining the subject of tax is a simple task;
devising the measure of taxation is a far more complex exercise
and therefore the legislature has to be given much more
flexibility in the latter field. The mechanism and method chosen
by the legislature for quantification of tax is not decisive of the
nature of tax though it may constitute one relevant factor out of
many for throwing light on determining the general character of
the tax.
(4) The entries in List I and List II must be so construed as to
avoid any conflict. If there is no conflict, an occasion for
deriving assistance from non obstante clause ―subject to‖ does
not arise. If there is conflict, the correct approach is to find an
answer to three questions step by step as under:
One — Is it still possible to effect reconciliation
between two entries so as to avoid conflict and
overlapping?
Two — In which entry the impugned legislation falls by
finding out the pith and substance of the legislation? and
Three—Having determined the field of legislation
wherein the impugned legislation falls by applying the
doctrine of pith and substance, can an incidental
trenching upon another field of legislation be ignored?
(5) The primary object and the essential purpose of legislation
must be distinguished from its ultimate or incidental results or
consequences, for determining the character of the levy. A levy
essentially in the nature of a tax and within the power of the
State Legislature cannot be annulled as unconstitutional merely
because it may have an effect on the price of the commodity.
(6) The heads of taxation are clearly enumerated in Entries 83
to 92-B in List I and Entries 45 to 63 in List II. List III, the
Concurrent List, does not provide for any head of taxation.
Entry 96 in List I, Entry 66 in List II and Entry 47 in List III
deal with fees. The residuary power of legislation in the field of
taxation spelled out by Article 248(2) and Entry 97 in List I can
be applied only to such subjects as are not included in Entries
45 to 63 of List II."
From the foregoing discussion of law on the subject, it comes to the
21)
fore that while interpreting the provisions of the Constitution, particularly the
legislative entries, a liberal and expansive approach has to be adopted, and an
inclusive meaning has to be given to a particular entry. While doing so, the
principles of interpretation of statutes have to be taken as the guiding factor.
The constitutional philosophy and the basic structure of the Constitution have
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to be kept in mind by the constitutional court while interpreting a legislative
entry. It is also to be kept in mind that the words and expressions used in the
constitutional provisions should not be given an unnatural or uncommon
meaning and that, while interpreting a constitutional entry, it must be
construed that the said entry extends to all ancillary matters that can
reasonably be included in it.
22) In the backdrop of aforesaid legal position relating to interpretation of
the provisions of the Constitution and the legislative entries contained therein,
let us now proceed to determine the issues involved in the present batch of
writ petitions.
Issue No.(i): What is the true nature of charges sought to
be imposed upon the writ petitioners by virtue
of the impugned enactment?
23) The writ petitioners claim that under the guise of water usage charges
respondent-UT of J&K is seeking to impose tax on generation of electricity.
The respondent-UT of J&K on the other hand contends that in terms of the
impugned Act only user charges on water drawn in connection with
generation of electricity are being levied and that the same does not partake
the character of tax on generation of electricity. It has been contended that the
impugned Act is in consonance with the National Water Policy and that the
State deserves to conserve and harness the water resources in the best possible
manner for the benefit of residence of UT of J&K.
24) In order to determine the true nature of the charges, it is necessary to
survey the provisions of the Act of 2010. The expression used in the said Act
for the charges sought to be levied upon the writ petitioners is ―water usage
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charges‖. While the writ petitioners claim that these are, in fact, taxes on the
generation of electricity, the respondent-UT of J&K claims that, as the name
suggests, these are only charges to be levied on the use of water by hydro
power projects. Before accepting or rejecting the rival stands of the parties on
the nature of the levy, it would be apt to notice the legal position on the
subject.
25) The Supreme Court in the case of Jalkal Vibhag Nagar Nigam and
others v. Pradeshiya Industrial and Investment Corporation and another,
2021 12 SCR 210, has observed that the nomenclature given to a levy in an
enactment does not determine the nature or true character of the levy. In the
said case, the Supreme Court while considering the question as to whether the
tax levied as water tax or sewerage tax by Jal Sansthan under the U.P. Water
and Sewerage Act was actually water tax, observed thus :-
―28. The nomenclature that the legislature has ascribed to the
tax does not determine either the nature of the levy or its true
and essential character. The legislature may choose a label for
a tax. The label however will not determine or for that matter
clarify the nature of the levy. The nature of the levy has to be
deduced from the nature of the tax, the provision which
specifies the taxing event and, as in the case of Section 52, the
unit upon which the levy is to be imposed. The legislature may
choose a label for the tax based on the nature of the levy. On
the other hand, the legislature may choose a label having a
relationship with the function of the authority which imposes
the tax as in the present case. The tax has been labelled as the
water tax or a sewerage tax simply because it is imposed by the
Jal Sansthan constituted under the UP Water Supply and
Sewerage Act. That does not alter the nature of the levy which
in substance is a tax on lands and buildings within the meaning
of Entry 49 of List II of the Seventh Schedule.‖
26) From the foregoing analysis of law on the subject, it is clear that the
nomenclature given by the legislature to a particular type of levy does not
determine the true character of the said levy. For determining the true
character of the levy, the Court has to consider the pith and substance of the
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WP(C) No.3324/2025 & WP(C) No.3329/2025 Page 26 of 50
relevant legislation. The relevant provisions of the enactment under which the
charges are levied have to be analyzed carefully so as to arrive at a conclusion
as to the real nature of the levy. Mere nomenclature of the levy would not be
determinative of its nature.
27) A related question that has to be determined is whether the charges
sought to be levied upon the writ petitioners constitute a tax or usage
charges/fee. For determination of the said issue, it is necessary to understand
the distinction between a tax and a fee. This issue has been dealt with by the
Supreme Court in the case of Hingir-Rampur Coal Co. Ltd. v. State of
Orissa, AIR 1961 SC 459 . The observations made in paragraphs 9 to 11 of
the said judgment are relevant to the context and the same are reproduced
hereunder:-
―9 .The first question which falls for consideration is
whether the levy imposed by the impugned Act amounts
to a fee relatable to Entry 23 read with Entry 66 in List II.
Before we deal with this question it is necessary to
consider the difference between the concept of tax and
that of a fee. The neat and terse definition of tax which
has been given by Latham, C. J., in Matthews v. Chicory
Marketing Board (1) is often cited as a classic on this
subject. "A tax", said Latham, C. J., "is a compulsory
exaction of money by public authority for public
purposes enforceable by law, and is not payment for
services rendered". In bringing out the essential features
of a tax this definition also assists in distinguishing a tax
from a fee. It is true that between a tax and a fee there is
no generic difference. Both are compulsory exactions of
money by public authorities; but whereas a tax is
imposed for public purposes and is not, and need not, be
supported by any consideration of service rendered in
return, a fee is levied essentially for services rendered
and as such there is an element of quid pro quo between
the person who pays the fee and the public authority
which imposes it. If specific services are rendered to a
specific area or to a specific class of persons or trade or
business in any local area, and as a condition precedent
for the said services or in return for them cess is levied
against the said area or the said class of persons or trade
or business the cess is distinguishable from a tax and is
described as a fee. Tax recovered by public authority
invariably goes into the consolidated fund which
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ultimately is utilised for all public purposes, whereas a
cess levied by way of fee is not intended to be, and does
not become, a part of the consolidated fund. It is
earmarked and set apart for the purpose of services for
which it is levied. There is, however, an element of
compulsion in the imposition of both tax and fee. When
the Legislature decides to render a specific service to any
area or to any class of persons, it is not open to the said
area or to the said class of persons to plead that they do
not want the service and therefore they should be
exempted from the payment of the cess. Though there is
an element of quid pro quo between the tax- payer and
the public authority there is no option to the tax-payer in
the matter of receiving the service determined by public
authority. In regard to fees there is, and must always be,
co-relation between the fee collected and the service
intended to be rendered. Cases may arise where under the
guise of levying a fee Legislature may attempt to impose
a tax; and in the case of such a colourable exercise of
legislative power courts would have to scrutinise the
scheme of the levy very carefully and determine whether
in fact there is a co-relation between the service and the
levy, or whether the levy is either not co-related with
service or is levied to such an excessive extent as to be a
presence of a fee and not a fee in reality. In other words,
whether or not a particular cess levied by a statute
amounts to a fee or tax would always be a question of
fact to be determined in the circumstances of each case.
The distinction between a tax and a fee is, however,
important, and it is recognized by the Constitution.
Several Entries in the Three Lists empower the
appropriate Legislatures to levy taxes; but apart from the
power to levy taxes thus conferred each List specifically
refers to the power to levy fees in respect of any of the
matters covered in the said List excluding of course the
fees taken in any Court.
28) In light of the aforesaid observations of the Supreme Court, it emerges
that distinction between a tax and usage charges is that a ‗tax‘ is a compulsory
exaction for public purposes, whereas ‗usage charges‘ constitute consideration
for the supply or consumption of goods. There is no direct quid pro quo in the
case of a tax, whereas usage charges are linked to the quantity consumed or
supplied. In the case of usage charges/fees, there is a correlation between the
charges/fees collected and the services rendered, whereas, in the case of a tax,
no such correlation exists, as the tax collected goes into a fund that is
ultimately utilized for public purposes.
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29) With the aforesaid position of law in mind, let us now analyze the
relevant provisions of the Act of 2010, so as to ascertain the true nature of the
levy. As per Section 2(zzh) of the Act of 2010, ‗water usage charges‘ have
been defined to mean the rate levied or charged for the use of water and fixed
under Section 128 of the Act. In terms of Section 128 of the Act, the Water
Resources Regulatory Authority (hereinafter referred to as ―the authority‖)
has been vested with the power to determine the charges for the supply of
water or use of water by a licensee under Chapter VI. Section 145 of the Act
prescribes the functions of the Water Resources Regulatory Authority. Under
this provision, the Authority is vested with the power to discharge several
functions, including the establishment of a water tariff system and the fixing
of water usage charges for the use of water inter alia on account of generation
of electricity. It is, however, laid down in the said provision that the water
charges shall, at the least, recover the cost of the project and the expenditure
incurred on its operation, maintenance and management.
30) When we analyze the aforesaid legal framework in the context of
hydropower projects, it comes to the fore that no services are being provided
to such projects in lieu of the charges sought to be levied upon them. As per
the proviso to sub-section (1) of Section 145 of the Act of 2010, the water
usage charges are to be used to recover the costs of the projects and the
expenditure incurred on their operation, maintenance and management. In the
case of hydropower projects, the respondent UT of J&K or its functionaries
have no obligation to incur any expenditure on the operation, maintenance and
management of such projects. Thus, the purpose for which water usage
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charges are being levied under the impugned Act in the case of users other
than licensees of hydropower projects may qualify as water charges/fee, but
when it comes to the levy of the said charges upon hydropower projects, in the
absence of any quid pro quo in the form of any service in lieu of such charges,
the same partake the character of tax.
31) The aforesaid position is further strengthened by the provisions
contained in Section 185-A of the Act of 2010. As per sub-section (1) of the
said provision, a separate fund is to be constituted in respect of the amount
realized as water usage charges from power-generating hydroelectric projects.
Sub-section (2) provides the manner in which the said fund is to be applied.
As per this provision, the fund is to be utilized for the establishment of hydel
projects, hydroelectric projects and multipurpose hydroelectric projects,
buying back hydroelectric power projects already established in the State,
capital investment in the electric transmission and distribution network within
the territory of the State, and the purchase of power by the State Government
or its entities with the prior approval of the Government.
32) The aforesaid provision clearly goes on to show that the water charges
sought to be levied upon hydropower projects are not to be applied in
connection with any services rendered to such projects, but the same are to be
applied for purposes that are neither directly nor indirectly connected with
provision of any service to the licensee power-generating projects. Thus, it
can safely be stated that the water usage charges sought to be levied upon
power-generating hydro projects in terms of the Act of 2010 are nothing but a
tax. These charges do not possess the characteristics of usage charges or a fee.
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The nomenclature assigned to the charges sought to be levied upon
hydroelectric projects by virtue of the impugned Act is misleading, and it
clearly partakes the character of tax.
33) Accordingly, Issue No.1 is determined by holding that the levy imposed
upon hydropower projects in terms of Act of 2010, is a tax and not water
usage charges.
Issue No.(ii) : If it is found that the charges levied under the
impugned enactment is a tax whether the same
is levied on drawal of water or on generation of
electricity?
34) Having held that the water usage charges sought to be levied upon the
writ petitioners through the medium of the impugned legislation are in the
nature of a tax and not in the nature of water usage charges, the next issue that
arises for determination is whether the tax is on the drawal of water or on the
generation of electricity. The respondent UT of J&K has contended that even
if it is assumed that the water usage charges partake the character of a tax, the
same has been levied on the drawal of water by the hydropower projects and
not on the generation of electricity. This is being seriously disputed by the
writ petitioners, who claim that the tax sought to be levied upon them is, in
fact, a tax on the generation of electricity.
35) With a view to find an answer to the question as to whether the tax
sought to be levied upon the writ petitioners through the medium of the
impugned legislation is a tax on water or whether it is a tax on generation of
electricity, the Court has to adjudge the real nature and character of the levy
with reference to taxable event and the incidence of levy.
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WP(C) No.3324/2025 & WP(C) No.3329/2025 Page 31 of 50
36) The legal position on the aforesaid aspect has been explained by the
Supreme Court in the case of Municipal Council, Kota, Rajasthan Vs.
Delhi Cloth and General Mills Co.Ltd. (2001) 3 SCC 654,in the following
manner :-
―16 . Whenever a challenge is made to the levy of tax, its
validity may have to be mainly determined with reference to the
legislative competence or power to levy the same and in
adjudging this issue the nature and character of the tax has to be
inevitably determined at the threshold. It is equally axiomatic
that once the legislature concerned has been held to possess the
power to levy the tax, the motive with which the tax is imposed
become immaterial and irrelevant and the fact that a wrong
reason for exercising the power has been given also would not in
any manner derogate from the validity of the tax. In M/s
Jullundur Rubber Goods Manufacturers' Association v. The
Union of India and Another, AIR (1970) SC 1589 this Court
while dealing with a challenge to the levy of rubber cess under
Section 12 (2) of the Rubber Act, 1947 as amended in 1960
observed that the tax in the nature of excise duty does not cease
to be one such merely because the stage of levy and collection
has been as a matter of legislative policy shifted by actually
providing for its levy and collection from the users of rubber, so
long as the character of the duty as excise duty is not lost and the
incidence of tax remained to be on the production or
manufacture of goods. Likewise, once the legislature is found to
possess the required legislative competence to enact the law
imposing the tax, the limits of that competence cannot be judged
further by the form or manner in which that power is exercised.
In (Morris) Leventhal and Others v. David Jones, Ltd., AIR
(1930) PC 129, the question arose as to the power of the
legislature to impose 'Bridge Tax', when the power to legislate
was really in respect of 'tax on land'. It was held therein as
follows:
"The appellants' contention that though directly imposed
by the legislature, the bridge tax is not a land tax, was
supported by argument founded in particular on two
manifest facts. The bridge tax does not extend to land
generally throughout New South Wales, but to a limited
area comprising the City of Sydney and certain specified
shires, and the purpose of the tax is not that of providing
the public revenue for the common purposes of the State
but of providing funds for a particular scheme of
betterment. No authority was vouched for the proposition
that an impost laid by statute upon property within a
defined area, or upon specified classes of property, or
upon specified classes of persons, is not within the true
significance of the term a tax. Nor so far as appears has it
ever been successfully contended that revenue raised by
statutory imposts for specific purposes is not taxation"
17 . A Division Bench of the Allahabad High Court, in a
decision, reported in Raza Buland Sugar Co, Ltd., Rampur v.
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WP(C) No.3324/2025 & WP(C) No.3329/2025 Page 32 of 50
Municipal Board, Rampur, AIR (1962) Allahabad 83 had an
occasion to consider the nature and character of an impost levied
by the name, 'water tax', when the power was to levy 'tax on
buildings'. The Division Bench, while applying the ratio in AIR
1930 PC 129 (supra) held as hereunder:
"5. Tax' means burden of charges imposed by the
legislative power of a State on person or property to raise
money for public purposes. The expression 'fee' connotes
recompense for services rendered. There is an element of
quid pro quo in the case of fee. It is not so in the case of a
tax. The learned counsel for the petitioner pointed out
that cl.(b) of Sec.129 provides that water tax is to be
imposed solely with the object of defraying the expenses
connected with construction, main-tenance, extension or
improvement of municipal water works and that all
moneys derived therefrom shall be expended on the
aforesaid object. He argued that the fact that the money
raised from water tax is to be spent only on the supply of
water, introduces an element of quid pro quo. The
argument does not appear to be tenable. Sec.129 (B)
mentions the object of the tax. As the maintenance of
regular supply of water and extending the supplies is one
of the most beneficial public purposes, the Section lays
down that the money realised from this impost is to be
spent on the construction, maintenance and extension of
water works so that the purpose may not suffer on
account of paucity of funds. In (Morris) Leventhal v.
David Jones Ltd., AIR (1930) PC 129, their Lordships of
the Judicial Committee held that there was no authority
for the proposition that revenue raised by statutory
imposts for specific purposes is not taxation.
XXX X XX X XX
10. It is obvious that the subject-matter of water tax is not
water. Though it is called water tax, it is not levied on its
production. As explained by their Lordships of the
Judicial Committee in Governor- General in Council v.
Province of Madras, AIR (1945) P. C 98, it is not the
mime of the lax but its real nature, its 'pith and substance'
as it has sometimes been said, which must determine into
what category it falls."
18 . We affirm the statement of law thus made above to be
correct and in our view it is not the nomenclature used or chosen
to christen the levy that is really relevant or determinative of the
real character or the nature of the levy, for the purposing of
adjudging a challenge to the competency or the power and
'authority to legislate or impose a levy. What really has to be
seen is the pith and substance or the real nature and character of
the levy which has to be adjudged, with reference to the charge
viz., the taxable event and the incidence of the levy. We are
convinced on the indisputable facts on record that the levy
sought to be imposed and recovered as 'Dharmada' being only on
the goods brought within the municipal limits of Kota for
consumption, use or sale therein the same in truth, reality and
substance is only an 'octroi' for the purpose of carrying out the
several public charitable objects statutorily enjoined upon the
Municipal Board and enumerated in Sections 98 and 99 and
those undertaken pursuant to the stipulations contained in
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WP(C) No.3324/2025 & WP(C) No.3329/2025 Page 33 of 50
Sections 101 and 102 of the Act. The mere fact that it is called
by a different name (all the more so when the word 'octroi' itself
is not found used in Entry 52 of List-II of the Seventh Schedule)
for historical reason and administrative needs or exigencies by
the draftsmen of the notification does not in any manner either
undermine the nature and character of the levy or render it any
the less a levy envisaged under Entry 52 of List-II of the Seventh
Schedule.
37) From the foregoing analysis of the legal position, it comes to the fore
that while deciding the real character and nature of the tax sought to be
imposed in a particular case, the pith and substance of the relevant legislation
has to be examined. The provisions of the relevant legislation have to be
carefully scrutinized to ascertain the taxable event and the incidence of the
levy.
38) It is to be noted that in the present case, we are dealing with a situation
where hydroelectric projects are generating electricity from water power. In a
conventional hydropower project, water passes through a turbine, generates
electricity and is returned to the river or discharged downstream. The water is
used for the extraction of energy from the hydraulic force, but it is not
consumed in the same way as water used for irrigation or industrial purposes.
Thus, in a hydropower project, the water is subjected to non-consumptive use.
39) The respondent-Regulatory Authority has issued various orders in
exercise of its powers under Sections 128(2) and 145(2) of the Act of 2010
from time to time, the latest being Order No. 39/JKSWRRA of 2019 dated
02.04.2019. As per this order, the tariff for water usage charges has been fixed
on the basis of head height. In the case of a head height of up to 30 meter, the
tariff is Rs. 0.05 per cubic metre; in the case of a head height from 31 meter to
60 meter, the tariff is Rs. 0.12 per cubic metre; in the case of a head height
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WP(C) No.3324/2025 & WP(C) No.3329/2025 Page 34 of 50
from 61 meter to 90 meter, the tariff is Rs. 0.14 per cubic metre; and in the
case of a head height above 90 meter, the tariff is Rs. 0.25 per cubic metre.
40) This means that the tariff rate is proportional to the head height from
which the water is channelled to the turbine of the power projects and not on
the basis of the quantity of water supplied to the hydropower projects. The
fact that the tariff is calculated by reference to the head height, in other words,
the vertical fall of water through the turbine, is of great significance. In
hydropower projects, the power available from water depends on the volume
of water flowing and the head height. A tariff based on head height is,
therefore, a proxy for the hydropower potential rather than a charge for the
physical quantity of water supplied. The levy is, therefore, economically
directed at hydropower projects and electricity generation. The tariff, as
already stated, is proportional to the head height from which the water falls on
the turbine and not to the volume of water, which clearly shows that the focus
of the tariff is on the generation of electricity and not on the volume of water
supplied.
41) The true character of a levy must be determined by examining its
substance and incidence and not merely by the nomenclature employed by the
Legislature or the authority imposing the levy. In the present case, the tariff is
not computed by reference to the quantum of water drawn, consumed or
utilized by the hydro power projects. It is fixed at the prescribed rate per cubic
metre with reference to the head height, with the amount increasing in
proportion to the height from which the water falls. The head height is a
parameter reflecting the potentiality of water and the energy potential
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WP(C) No.3324/2025 & WP(C) No.3329/2025 Page 35 of 50
available for conversion into electricity and is not a measure of the volume of
water used. The method of computation thus furnishes a strong indication that
the economic subject-matter of the levy is the hydro-power potential exploited
for generation of electricity, while the use of water constitutes the means
through which such electricity is generated.
42) In the face of the aforesaid facts, water usage cannot be divorced from
the generation of electricity, as the same constitutes a single, inescapable
event. In fact, in the operation of hydropower projects, the utilization and non
consumption of water constitutes an inextricable and indispensable facet of
the generation process; consequently, any statutory levy, charge, or exaction
imposed at any stage prior to or during the generation of power tantamounts,
in substance and effect amounts to tax upon the generation of electricity itself.
The head height formula for levying the tariff goes on to show that the
incidence of the tax is the generation of electricity because the greater the
head height, the greater would be the amount of electricity generated. The
quantum of water usage charges is proportional to the amount of electricity
generated and not to the volume of water used. The generation of electricity
is, therefore, the incidence of tax in the present case and not the drawal of
water, as has been claimed by the respondent UT of Jammu & Kashmir.
43) Upon a consideration of the nature and character of the levy, the
provisions of the Act of 2010, the tariff notification and the statutory scheme
as a whole, conclusion can safely be drawn that the levy, in substance, is on
the generation of electricity rather than a charge for the use of water. A similar
view has been taken by the Division Bench of the Himachal Pradesh High
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WP(C) No.3324/2025 & WP(C) No.3329/2025 Page 36 of 50
Court in the case of N.H.P.C. Ltd. Vs. State of H.P. and others, [CWP No.
2916/2023 with connected matters decided on 05.03.2024]. High Court of
Uttrakhand has also taken the same view in the case of T.H.D.C.India Ltd.
through its CMD Vs. State of Uttarakhand and others, [SLP 149/2021 and
connected matters decided on 27.04.2026].
44) In view of the foregoing discussion, the answer to the second issue is
that the water usage charges sought to be levied upon the petitioners through
the medium of impugned legislation is in fact a tax on generation of
electricity.
Issue No.(iii) : If it is found that the charges levied under
the impugned enactment is a tax on
generation of electricity, whether the State
Legislature is competent to pass such an
enactment?
45) Having held that the charges levied upon the petitioners in terms of the
impugned enactment is in the nature of tax on generation of electricity, the
question that arises for determination is as to whether such tax can be imposed
under the legislative authority of the State.
46) In the above context, it has to be noted that the impugned Act has been
enacted in the year 2010 when erstwhile State of J&K was enjoying a special
status in terms of Article 370 of the Constitution as it existed then. At the
relevant time, the executive and legislative powers of the State of J&K
extended to all matters except those with respect to which the Parliament had
the power to make laws for the State under the provisions of the Constitution
of India. Thus, except the subjects coming within the exclusive domain of the
Parliament by virtue of different entries in the Seventh Schedule of the
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WP(C) No.3324/2025 & WP(C) No.3329/2025 Page 37 of 50
Constitution, the residuary powers both executive and legislative vested with
erstwhile state of J&K. At the relevant point of time, entries 1 to 96 of List-I
of Seventh Schedule were applicable to the State of J&K and Entry 97, which
is residuary entry encompassing all matters not specified in List-II or List-III
of Seventh Schedule, was not applicable to the State of J&K.
47) In this backdrop of the constitutional position existing at the relevant
time, we have to see whether the legislature of erstwhile state of J&K was
competent to pass the impugned legislation, which, as already stated, imposes
a tax on generation of electricity. It is to be noted here that the court has to test
the legislative competence with regard to enactment of a particular legislation
with reference to the law that was prevailing at the time of its enactment and
not with reference to law which prevails when its vires are challenged before
the Court.
48) Legal position is well settled that the laws made by the legislature may
be declared void for lack of legislative power in respect of the subject matter.
The Supreme Court in the case of Mineral Area Development Authority
and another Vs. Steel Authority of India and another etc. (2024) 10 SCC
1 , has held that with respect to taxation laws there is a constitutional
requirement that the law imposing tax must be in conformity with the
provisions of the Constitution, particularly Part III dealing with the
fundamental rights. It has been held that the structure of the legislative entries
in the three Lists of the Seventh Schedule follows an express and deliberate
pattern inasmuch as the entries are classified into general and taxing entries.
In the Union List, entries 1 to 81 enumerate general subject matters, while
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entries 82 to 92-C pertain to the powers of taxation. Similarly, entries 1 to 45
in the State List enumerate the general entries and entries 46 to 63 provide for
taxing entries. The court further held that the legislature does not derive the
power to tax from the general entries and taxation is considered to be a
distinct matter for purposes of legislative competence. It was further held that
taxing powers of Parliament and the State Legislatures are mutually exclusive
and clearly demarcated. Thus, there can be no overlap between the taxing
powers of the Union and the States. While explaining the manner in which
taxing power must be construed, the Supreme Court went on to observe that
the same should be done with clarity and precision to maintain exclusivity and
a construction of a taxation entry which may lead to overlapping must be
eschewed. It was further observed that if a taxing power is enumerated within
a particular legislative list, it is automatically excluded from the purview of
subject-matters in other legislative lists and the residuary power of Parliament
also includes the power of making any law imposing a tax not mentioned in
either List II or List III.
49) With the aforesaid legal position in mind, let us now discuss as to
whether the tax on generation of electricity falls within the legislative field of
the Parliament or the same was falling within the legislative field of erstwhile
State of J&K at the relevant time. A perusal of List-II of Seventh Schedule of
the Constitution would reveal that vide Entry 53, the State is empowered to
pass an enactment imposing tax on consumption or sale of the electricity.
None of the entries in List-II of Seventh Schedule vests power with the State
to impose tax on generation of electricity. Specifically there was no entry in
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List-I providing for taxation on generation of electricity by the Parliament. It
is to be noted that entry 97, which is a residuary entry of List-I was not
applicable to erstwhile State of J&K and the residuary powers were vested
with the Legislature of the J&K.
50) It is the contention of the writ petitioners that power to legislate on the
field of generation of electricity was vested with the Parliament vide un-
amended Entry 84 as it existed at the relevant time. The said entry relates to
imposition of duties of excise on tobacco and other goods manufactured or
produced in India except alcoholic liquors for human consumption; opium,
Indian hemp and other narcotic drugs and narcotics, but including medicinal
and toilet preparations containing alcohol or any substance included in sub-
paragraph (b) of the said entry. It is being contended that expression ―other
goods‖ which finds mention in Entry 84 of the List-I would include
―electricity‖ as such manufacture/generation of electricity can be taxed by the
Parliament.
51) In the context of finding an answer to the question, whether ―goods‖
would include electricity as well, it would be apt to notice the ratio laid down
by the Supreme Court in the case of Commissioner of Sales Tax Madhya
Pradesh Vs. Madhya Pradesh Electricity Board, (1969) 1SCC 200 . In the
said case the Supreme Court while determining a dispute in the context of
Sales Tax Act and considering the question as to whether the electricity is
goods or not, observed as under:-
―….the goods as defined for the purpose of sales tax cannot be
taken in a narrow sense and merely because electric energy is
not tangible or cannot be moved or touched like, for instance, a
piece of wood or a book, it cannot cease to be movable property
when it has all the attributes of such property. It is capable of
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abstraction, consumption and use which, if done dishonestly,
would attract punishment under section 39 of the Indian
Electricity Act, 1910. It can be transmitted, transferred,
delivered, stored, possessed etc., in the same way as any other
movable property….‖
52) The aforesaid ratio laid down by the Supreme Court was approved by
the constitution Bench of the Supreme Court in the case of State of Andhra
Pradesh Vs. National Thermal Power Corporation Ltd. (2002) ) SCC 203,
subject to modification that the electricity cannot be stored, and the word
―stored‘ in the afore-quoted passage was held to be erroneous or an oversight.
The court while explaining the characteristics of electricity observed as
under:-
―Another significant characteristic of electric energy is that its
generation or production coincides almost instantaneously with its
consumption. To quote from Aiyar's Law Lexicon (Second
Edition, 2000) 'Electricity in physics is "the name given to the
cause of a series of phenomena exhibited by various substances,
and also to the phenomena themselves." Its true nature is not
understood. Imperial Dict. (quoted in Spensley v. Lancashire Ins.
Co., 54 Wis. 433, 442, 11 NW 894, where the court, quoting from
the same authority, said, "We are totally ignorant of the nature of
this cause whether it be a material agent or merely a property of
matter. But as some hypothesis is necessary for explaining the
phenomena observed, it has been assumed to be a highly subtle,
imponderable fluid, identical with lightning, which pervades the
pores of all bodies, and is capable of motion from one body to
another.' This characteristic quality of electric energy was
judicially noticed in Indian Aluminium Co.etc.etc. Vs. State of
Kerala & Ors. (1996) 7 SCC 637. Vide para 25 this Court has
noted, "Continuity of supply and consumption starts from the
moment the electrical energy passes through the meters and sale
simultaneously takes place as soon as meter reading is recorded.
All the three steps or phases (i.e. sale, supply and consumption)
take place without any hiatus. It is true that from the place of
generating electricity, the electricity is supplied to the sub-station
installed at the units of the consumers through electrical higher-
tension transformers and from there electricity is supplied to the
meter. But the moment electricity is supplied through the meter,
consumption and sale simultaneously take place." "as soon as the
electrical energy is supplied to the consumers and is transmitted
through the meter, consumption takes place simultaneously with
the supply. There is no hiatus in its operation. Simultaneously
sale also takes place." These properties of electricity as goods are
of immense relevance as we would state hereafter.‖
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53) In the aforesaid judgment, the Supreme Court went on to hold that
supply, sale and consumption of electricity is simultaneous and because of its
instantaneous consumption by a consumer outside the State, it would amount
to inter-state sale. The Court by terming generation and consumption of
electricity as inter-state sale held that the State Legislature while imposing
taxes on transaction of sale or purchase of goods has, to get over the
provisions of Article 286 and 269 of the Constitution. The relevant
observations of the Supreme Court are reproduced as under:-
―26. As a matter of fact, while considering the question as to
competence of the State Legislature to levy tax on sale of
electricity generated by the National Thermal Power Corporation
Ltd. -- within the ambit of Entries 53 and 54 of List II -- which
was the subject matter of dispute in the aforesaid case, the
Supreme Court went on to hold that as manufacture, supply, sale
and consumption of electricity is simultaneous, when it is sold to
a consumer outside the State, it would amount to inter-state sale
and, therefore, beyond the legislative competence of the state.
Following observations in paragraph 29 of the judgment may
usefully be quoted:
―……However, we are dealing with the case of
electricity as goods, the property whereof, as we have
already noted, is that the production (generation),
transmission, delivery and consumption are
simultaneous, almost instantaneous. Electricity as goods
comes into existence and is consumed simultaneously,
the event of sale in the sense of transferring property in
the goods merely intervenes as a step between generation
and consumption. In such a case when the generation
takes place in one State wherefrom it is supplied and it is
received in another State where it is consumed, the entire
transaction is one and can be nothing else excepting an
inter-State sale on account of instantaneous movement of
goods from one State to another occasioned by the sale or
purchase of goods, squarely covered by section 3 of C. S.
T. Act.‖
27 . As indicated above, the controversy in the aforesaid case was
whether the state legislature was competent to levy duty on sale
of electrical energy generated by the National Thermal Power
Corporation Ltd. at its thermal power stations situated in the
State of Andhra Pradesh and sold to the Electricity Boards of
Karnataka, Kerala, Tamil Nadu and State of Goa in pursuance of
contracts of sale. In that context, the scope of Entries 53 and 54
of List II came to be considered. The competence of the State to
levy tax on sales of electricity for consumption was upheld
observing:
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―With these two things in mind, namely, that electricity is
goods, and that sale of electricity has to be construed and
read as sale for consumption within the meaning of Entry
53, the conflict, if any, between Entry 53 and Entry 54
ceases to exist and the two can be harmonized and read
together because electricity if it is goods it is covered in
Entry 54 also. It is not disputed that duty on electricity is
tax. Tax on the sale or purchase of goods including
electricity but excluding newspapers shall call within
Entry 54 and shall be subject to provisions of Entry 92A
of List I. Taxes on the consumption or sale for
consumption of electricity within the meaning of Entry
53 must be consumption within the territory of the State
and not beyond the territory of the State. Any other sale
of electricity shall continue to be subject to the limits
provided by Entry 54……‖
28 . Reference to above observations/finding would be
incomplete without noticing Entries 53 and 54 of List II and
Entry 92A of List I as under:
―53. Taxes on the consumption or sale of electricity.
54. Taxes on the sale or purchase of goods other than
newspapers, subject to the provisions of entry 92A of
List I.
92A. Taxes on the sale or purchase of goods other than
newspapers, where such sale or purchase takes place in
the course of inter-state trade or commerce.‖
29 . From the conjoint reading of above entries and the
observations of the Supreme Court, it is clear that tax on sale of
electricity can be levied by the state legislature if it is for
consumption within the state. Tax on sale outside the state would
attract Entry 92A and, therefore, would be beyond the legislative
competence of the state.‖
54) The question whether the levy of duty on the production of electricity
falls within the domain of Parliament or the State Legislature was directly
considered by the Supreme Court in M.P. Cements Manufacturers
Association v. State of Madhya Pradesh, (2004) 2 SCC 249, and it was held
that Parliament has exclusive legislative competence to legislate with respect
to the levy of duty on the production of electricity. While holding so, the
Supreme Court observed as under:-
―…A plain reading of the amendment provision makes it clear
that the levy of cess was "on the electrical energy produced".
The phrase "whether for sale or supply" merely clarified that all
electricity produced irrespective of its destination would be
liable to cess at the specified rate. The use of the word "whether"
after the phrase "energy produced"means that the cess would
apply on units produced whichever of the alternatives mentioned
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after the word "whether", namely, sale or supply or consumption
is the case. There is no reason to assume that the words used did
not reflect the intention of the Legislature. The imposition
envisaged was on the production of electricity units. The charge
was on generation and not on the sale or consumption of
electricity…‖
55) Relying upon the aforesaid judgments of the Supreme Court, a Division
Bench of this Court, in the case of National Hydro-Electric Power Corp.
Ltd. and another v. State of J&K and others , 2005(2) JKJ[HC] 5, quashed
SRO 141 dated 21.04.1999, which provided for the levy of electricity duty on
the generation of electricity, on the ground that the same was beyond the
legislative competence of the erstwhile State of J&K.
From the foregoing analysis of legal position, it is clear that the
56)
electricity being goods and in terms of unamended entry 84 of List-I which
was in existence at the time when the impugned Act came to be enacted,
vested powers with the Parliament to legislate on the field of generation of
electricity. The enactment of the impugned legislation to the extent it seeks to
impose tax on generation of electricity was, therefore, beyond the legislative
competence of the erstwhile State of J&K. To that extent, the provisions of
impugned Act of 2010 are ultra vires the Constitution.
57) Accordingly Issue No.(iii) is answered by holding that imposition of tax
on generation of electricity under the guise of water usage charges under the
impugned Act of 2010, was beyond the competence of erstwhile State of
J&K.
Issue No.(iv): If it is found that the charges levied under the
impugned enactment is either tax on water or
water usage charges, whether under the
scheme of the Constitution and the
agreements executed between the parties, the
same are legally permissible to be levied by
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the Government of UT of J&K upon the writ
petitioners?
58) In view of answer to issues No.(i) to (iii), the decision on this issue has
become redundant. However, it has been contended by learned Sr. AAG
appearing on behalf of the respondent UT of J&K that even if it is assumed
that the levy imposed on usage of water by virtue of the impugned enactment
is a tax on water, still then because water falls within the definition of ―land‖,
as such, in terms of entry 49 of the List-II of Seventh Schedule power is
vested with State Legislature to impose taxes on water. To support this
contention, learned Sr. AAG has placed heavy reliance upon the judgments
delivered by the Supreme Court in cases of Anant Mills Co. Ltd Vs. State of
Gujarat and others, (1975) 2 SCC 175 , Kendriya Nagrik Samiti, Kanpur
Vs. Jal Sansthan, Kanpur and others, 1982 SCC online Allahabad 559 ,
State of West Bengal Vs. Kesoram Industries Ltd. and others, (2004) 10
SCC 201 .
59) It has further been contended that ―water‖ also falls within the
definition of ―Mineral‖ as such in terms of Entry 50 of the List-II the State
Legislature is vested with power to impose tax on water. In this regard,
learned Sr. AAG has placed reliance upon the judgment of the Supreme Court
in the case of Ichachapur Industrial Co-operative Society Ltd. v.
Competent Authority, Oil and Natural Gas Commission, (1997) 2 SCC 42.
60) In the above context, it is to be noted that we have come to conclusion
that the usage charges sought to be levied upon the petitioners through the
medium of impugned legislation is in the nature of tax on generation of
electricity. Therefore, the argument raised by learned Sr. AAG appearing on
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behalf of the respondents is besides the point. Even if it is assumed that usage
charges constitute a tax on water and not a tax on generation of electricity,
still then the respondent-State does not have a case to save the legislation.
This is so because even if it is assumed that the ―land‖ includes ―water‖ or
that water is ―mineral‖ still then in the face of nature of categorization of
various fields in entries appearing in the State List, it becomes clear that water
falls under a separate and distinct category whereas land and minerals fall
under distinct categories. While the ―water‖ has been categorized separately
under Entry 17 of List-II, the land has been categorized separately under Entry
18 of List-II with taxing Entry 49. Taxing entry for mineral is Entry 50 of
List-II. However, there is no taxing entry in the State List in respect of the
water.
61) Once the water has been categorized separately from the land and the
mineral, merely because water can also come within the definition of land or
minerals would not make any difference. Intention of the Constitution framers
has to be gathered from the manner in which various fields have been
categorized in these lists. If the constitution framers intended to categorize
water with land or mineral, there was no need to provide a separate entry for
water. If we include the water with land or mineral then Entry 17 of List-II
becomes redundant, which could never have been the intention of the
Constitution framers. It is to be noted that Entry 17 of List-II, which relates to
water is a regulatory entry and it does not vest power with the State to impose
tax on water. There is no corresponding taxing entry in List-II of Schedule VII
for the field of water. Therefore, the ground urged by learned Sr.AAG
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appearing for the respondents to justify the taxation on water by the State
Legislature is not tenable in law.
62) So far the judgments cited at bar by learned Sr. AAG are concerned, in
all those cases, the Courts were dealing with legislations which in the facts
and circumstances of the relevant cases imposed tax on water as being part of
land or mineral. The incidence of tax in all those cases was not the water but
the land or mineral. In the instant case, if the argument of learned Sr. AAG
that tax is sought to be levied on drawal of water is accepted, then it is a case
of imposition of tax on water as a separate component and not as part of land
or mineral. There being no separate field in List-II of Seventh Schedule
authorizing imposition of tax on water, the State Legislature cannot frame a
legislation providing for imposition of tax on water. As already stated, Entry
17 of the List-II is a regulatory entry and under this field, the State legislature
can frame regulatory laws only. Thus, the impugned legislation to the extent it
imposes water usage charges on entities other than hydropower generating
units would be within the competence of the State Legislature, but levy of
water tax would be beyond its competence.
63) An argument has been raised by learned Sr. AAG appearing for the
respondents that even if it is assumed that it is the Parliament which is vested
with the power to legislate in respect of the field of generation of electricity,
still then because the impugned Act has been adopted in terms of Section 96
of the J&K Reorganization Act, 2019, which is an Act of Parliament, it can be
presumed that the impugned enactment has the assent of Parliament. On this
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analogy, it is being argued that taxation on generation of electricity by virtue
of the impugned enactment is saved.
64) The argument appears to be an attempt in desperation to save the
impugned legislation. If we have a look at the provisions of the J&K
Reorganization Act, it becomes clear that what is being provided under the
said Act is saving of certain State enactments and repeal of certain others. It
also provides for extension of Central enactments to the UT of J&K and
Ladakh and adoption of State enactments. Merely because the Act provides
for adoption of State enactments and saves their application to UTs of J&K
and Ladakh, the said enactments do not become the enactments passed by the
Parliament. If we accept the said argument, it would lead to absurdities. It
shall result in a situation where a subject which, as per the Reorganization
Act, is reserved for the UT of J&K for legislative and executive powers,
would become a subject of the Union Government. This is not the intention of
the J&K Reorganization Act. In fact, Section 32(1) of the said Act clearly
delineates the subjects over which the UT of J&K has legislative and
executive powers. Merely because the certain State Acts have been adopted in
terms of the J&K Re-organization Act, which is an enactment of the
Parliament, the adopted enactments would not cease to be enactments of the
State of UT of J&K.
65) A piece of legislation, which is ultra vires the Constitution at the time
of its enactment cannot be legitimized by its adoption by the Parliament
subsequently. In this context, it would be apt to refer to the ratio laid down by
the Supreme Court in the case of Deep Chand v. State of U.P., 1959 SCC
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OnLine SC 12 . In the said judgment, it has been held that if, at the time when
an Act is passed, the State has no power to pass the said enactment, it
becomes unconstitutional and, therefore, void from its inception. It is a
stillborn legislation, which cannot be validated. Similarly, the Supreme Court
in the case of Krishna Chandra Gangopadhyaya v. Union of India, (1975)
2 SCC 302 , has held that the only solution in a case where an Act has been
passed without competence by the Legislature is to remove the defect, which
rendered the enactment unconstitutional and to enact a valid law within the
legislative competence of the Legislature.
66) In view of the aforesaid legal position, the argument that because the
impugned Act has been adopted and applied to the UT of J&K in terms of the
J&K Reorganization Act, which is an enactment passed by Parliament, the
said Act has therefore become an Act of Parliament, is wholly misconceived.
The J&K Reorganization Act would not save the impugned legislation once it
is shown that it was beyond the competence of State Legislature at the time it
was enacted.
67) For what has been discussed hereinbefore, the writ petitions are allowed
by holding as under:-
(i) The impugned Jammu and Kashmir Water
Resources (Regulation and Management) Act,
2010 , to the extent it provides for levying water
usage charges upon the hydro power projects,
amounts to imposing a tax on the generation of
electricity and, therefore, the State Legislature did
not have the competence to impose such tax upon
the writ petitioners
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(ii) The impugned enactment, to the extent it imposes
water usage charges upon the petitioners, is held to
be ultra vires the Constitution and is struck down to
the said extent.
(iii) The impugned demand notices issued against the
writ petitioners are quashed, and the respondent-
State is restrained from imposing any tax on the
generation of electricity under the garb of water
usage charges or any other tax.
(Sanjay Dhar) (Rajnesh Oswal)
Judge Judge
Jammu,
29.10.2026
―M. L. Verma-Secretary‖
Whether the judgment is reportable: YES
Whether the judgment is reportable: YES
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