STATE LEGISLATURE LACKS COMPETENCE TO TAX ELECTRICITY GENERATION; FIXATION OF TAX RATES WITHOUT GUIDELINES CONSTITUTES EXCESSIVE DELEGATION.

The appellants, comprising various hydroelectric power corporations, challenged the constitutional validity of "The Uttarakhand Water Tax on Electricity Generation Act, 2012." This Act sought to levy a "water tax" on the drawal of water for electricity generation

A Coordinate Bench of the High Court dismissed the initial writ petitions in 2021. On appeal, a Division Bench delivered a split verdict on 25.10.2023: the Chief Justice upheld the Act, while Justice Maithani struck it down as ultra vires. Consequently, the matter was referred to Justice Alok Kumar Verma for a tie-breaking opinion

The appellants further contended they were exempt from such taxes under "Implementation Agreements" executed with the State

1. Whether the State Legislature possesses the legislative competence to impose a tax on the drawal of water for electricity generation under Entry 17, 45, 49, or 50 of List II or Article 288 of the Constitution

2. Whether the Act, in pith and substance, imposes a tax on electricity generation (a Union subject) or on the usage of water

3. Whether Section 17 of the Act suffers from the vice of excessive delegation by granting unfettered power to the Executive to fix tax rates

4. Whether the State is barred by the doctrine of promissory estoppel from levying the tax due to prior contractual exemptions

The Court applied the Doctrine of Pith and Substance to determine the true character of the levy, noting that nomenclature is not conclusive

It relied on Article 246 read with List II, specifically distinguishing between general entries (Entry 17 - Water) and taxing entries (Entry 49 - Taxes on lands; Entry 50 - Mineral rights), holding that power to tax cannot be derived from a general entry (State of West Bengal v. Kesoram Industries Ltd.)

The Court applied Article 265, which mandates that every tax must have the "authority of law" (legislative competence)

Regarding delegation, the Doctrine of Excessive Delegation was applied, holding that the Legislature must provide guidelines and cannot abdicate essential legislative functions (Union of India v. Mohit Minerals)

Finally, it applied the principle that there is no promissory estoppel against the Legislature in its exercise of sovereign legislative or taxing powers

The Court analyzed the charging provisions (Sections 2(f), 2(i), and 12) and concluded that since the tax is only triggered when water is used for electricity generation, the "taxable event" is the generation of electricity, not the mere drawal of water

The Court rejected the State's reliance on Entry 49 (Land) and Entry 50 (Minerals), clarifying that water is not "land" for taxing purposes and the declaration of water as a "mineral" in previous precedents was restricted to specific statutory contexts (e.g., ONGC Act) and cannot be generalized

Under Article 288, the Court held it is a savings/enabling provision and not an independent source of legislative competence

On delegation, the Court found that Section 17 provided no "minimum or maximum" limits or policy guidelines for the Executive to fix tax rates, amounting to a "naked delegation" of power

However, regarding promissory estoppel, the Court held that contractual promises by the State Government cannot bind the State Legislature from exercising its taxing power

It further held Section 17 void for excessive delegation [p. 27]. However, the Court sided with the Chief Justice on the point of promissory estoppel, ruling that it cannot interdict legislative action [p. 37-38]. The final opinion is that the Act is unconstitutional and lacks legislative competence