State Legislature lacks competence to tax electricity generation; tax on water drawal for power held unconstitutional.

Various hydroelectric power corporations challenged the constitutional validity of the "Uttarakhand Water Tax on Electricity Generation Act, 2012," which imposed a tax on the drawal of water for electricity generation

The appellants contended that the State lacked legislative competence as the tax, in pith and substance, was on "electricity generation," a field governed by the Union

Previously, a Division Bench delivered a split verdict: the Chief Justice upheld the Act, while Justice Maithani struck it down as ultra vires

The matter was referred to Justice Alok Kumar Verma to resolve the tie.

Several appellants also invoked "promissory estoppel," citing implementation agreements with the State that promised tax exemptions for using river water

1. Whether the State Legislature has the competence to enact a law imposing a tax on the drawal of water for electricity generation under Entries 17, 45, 49, or 50 of List II or Article 288 of the Constitution

2. Whether the Act is unconstitutional due to "excessive delegation" of legislative power regarding the fixation of tax rates

3. Whether the doctrine of "promissory estoppel" prevents the State from levying the tax despite the statutory enactment

The Court applied the "Doctrine of Pith and Substance" to determine the true character of the legislation

The Court relied on Article 246 and the Seventh Schedule, noting the distinction between general legislative entries and taxing entries as established in State of W.B. v. Kesoram Industries Ltd.

The Court referenced Article 265, which mandates that no tax be levied except by "authority of law"

Regarding delegation, it applied the principle that "essential legislative functions," such as fixing tax rates without policy guidelines or limits, cannot be abdicated to the executive

On promissory estoppel, it followed M/s Hero Motocorp Ltd. v. Union of India, which holds that there is no estoppel against the legislature in its legislative functions

The Court analyzed the "charging section" (Section 17) and definitions (Section 2) to conclude that the taxable event was not the mere drawal of water, but specifically the drawal for electricity generation

Consequently, the "pith and substance" of the tax was on the generation of electricity, not on "land" or "water" as a unit

The Court rejected the State's reliance on Entry 49 (Taxes on lands) and Entry 50 (Taxes on mineral rights) of List II, noting that water used for power is not a "mineral" in a universal sense, nor was the tax assessed on land as a unit

Furthermore, Section 17 permitted the Government to fix and vary rates without any upper limit or legislative guidance, which the Court deemed "naked delegation"

Regarding promissory estoppel, the Court reasoned that while the State Government made promises in agreements, these cannot bind the State Legislature's sovereign power to enact laws, nor can a contract override a statute

The Court also found the Act void for "excessive delegation"

However, it ruled against the appellants on the ground of "promissory estoppel," holding that such a plea cannot interdict legislative functions

Justice Verma concurred with Justice Maithani’s view that the Act be struck down