01Facts
The appellants, comprising various hydroelectric power companies, challenged the constitutional validity of "The Uttarakhand Water Tax on Electricity Generation Act, 2012"
p. 5A Coordinate Bench of the High Court initially dismissed the writ petitions in 2021
p. 4Upon appeal, a Division Bench delivered a split verdict on 25.10.2023: the Chief Justice upheld the Act, while Justice Ravindra Maithani struck it down as ultra vires
p. 4The matter was referred to Justice Alok Kumar Verma for a third opinion
p. 4The appellants argued they were protected by Implementation Agreements (IAs) promising tax exemptions, and that the State lacked the competence to tax electricity generation
pp. 10-1402Issues
i.1. Whether the subject matter of the Act—taxing the drawal of water for electricity generation—pith and substance constitutes a tax on the generation of electricity beyond the State’s legislative competence
¶ 30 / para. 46ii.2. Whether Section 17 of the Act suffers from the vice of excessive delegation by granting the Government unfettered power to fix tax rates without legislative guidelines
¶ 43 / para. 45iii.3. Whether the State is barred by the doctrine of promissory estoppel from levying the tax due to prior contractual agreements/Implementation Agreements
¶ 67 / para. 7303Law Applied
The court applied the "Doctrine of Pith and Substance" to determine the true nature of the levy regardless of its nomenclature
¶ 33It relied on Article 246 and the Seventh Schedule, noting that taxation is a distinct legislative field and power to tax cannot be derived from general entries like Entry 17 (Water) or Entry 18 (Land) of List II
¶ 49, 64-65The court cited State of West Bengal v. Kesoram Industries Ltd. to establish that taxing power must be express and distinct
¶ 65Regarding delegation, it applied the principle that fixing tax rates without a maximum limit or policy guidelines constitutes "naked delegation"
¶ 45Finally, it followed M/s Hero Motocorp Ltd. v. Union of India to hold that promissory estoppel cannot be invoked against the legislature’s exercise of legislative functions
¶ 70Provisions in the judgment · 20 · Linked ones open on LawLens
Uttarakhand water tax and electricity Generation Act 20 provisions
Section 1Section 2Section 3Section 4Section 5Section 6Section 7Section 8Section 9Section 10Section 11Section 12Section 13Section 14Section 15Section 16Section 17Section 18Section 19Section 2104Reasoning
The court analyzed the charging provisions (Sections 2, 12, and 17) and concluded that since the tax is only triggered when water is drawn specifically for electricity generation, the "taxable event" is the generation itself, not mere water usage
¶ 39, 42It found that the State's reliance on Entries 45, 49, and 50 of List II (identifying water as "land" or "minerals") was misplaced, as water used for power is not "land" as a unit for taxation
¶ 58, 61, 64On delegation, the court observed that Section 17 allows the executive to vary rates "as it deems fit" without any statutory ceiling or guidance, which abdicates essential legislative functions
¶ 45-46Regarding promissory estoppel, the court reasoned that while the executive branch signed the agreements, it cannot bind the State Legislature from exercising its sovereign power to enact laws, as there is no estoppel against the law
¶ 69, 7205Holding
The court concurred with the opinion of Justice Ravindra Maithani, holding that "The Uttarakhand Water Tax on Electricity Generation Act, 2012" is ultra vires the Constitution because the State Legislature lacks the competence to tax electricity generation under List II
¶ 66The reference was answered by declaring the Act unconstitutional; the court further held that Section 17 involves excessive delegation of power, but rejected the plea of promissory estoppel
¶ 46, 73, 74Original Court PDF
UTTAR PRADESH POWER CORPORATION LIMITEDvsSTATE OF UTTARAKHAND
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