‘Unconstitutional’: Himachal HC strikes down water cess on hydro power generation

The Himachal Pradesh high court on Tuesday declared the water cess levied by the state government on hydropower generation as “unconstitutional” after around 40 power-generating companies challenged the state’s Water Cess Act in the court.
The order was passed by a division bench comprising justices Trilok Chauhan and Satyen Vaidya.
After coming to power in December 2022, the chief minister Sukhwinder Singh Sukhu-led government decided to impose a water cess on the power projects running in the state to raise economic resources. The Himachal Pradesh Water Cess on Hydropower Generation Bill, 2023 was introduced in the Himachal Pradesh Legislative Assembly on March 14, 2023, and passed on March 16, 2023. It replaces the Himachal Pradesh Water Cess on Hydropower Generation Ordinance, 2023 promulgated on February 15, 2023.
Following this, the Himachal Pradesh Water Cess Commission issued notices to 173 power-producing companies to collect cess amounting to ₹871 crore for the period from March to July last year.
About 170 companies had registered themselves with the Water Commission. Some companies had also started paying water cess to the government. But many big companies went to court against this decision.
One of the petitioner companies –Everest Power Private Limited pleaded in the court that the Himachal Pradesh Water Cess from Hydro Power Generation Act 2023 may be declared to be unconstitutional and be quashed and set aside.
Everest Power Private Limited has executed a 100 MW Malana II Hydroelectric Project in District Kullu, Himachal Pradesh, which has already been commissioned and is generating electricity.
“The company pleaded sections 10 and 15 of the Himachal Pradesh Water Cess from Hydro Power Generation Act 2023 and Rule 7 of the Himachal Pradesh Water Cess from Hydro Power Generation Rules 2023 may be declared to be unconstitutional and may be quashed and set aside,” said counsel and senior Advocate Rajnish Maniktala.
Further, the petitioner pleaded the government may be restrained from implementing the provisions of the Himachal Pradesh Water Cess from Hydro Power Generation Act 2023. “In the alternative, any amount of cess recovered by respondents under the provisions of Himachal Pradesh Water Cess from Hydro Power Generation Act 2023 may be ordered to be refunded along with interest at 12% per annum,” the petitioner pleaded.
Centre had already described the state government’s Act as unconstitutional.
In April last year, the Centre shot down the Himachal Pradesh government’s bid to generate ₹1,800 crore by imposing water cess on hydel companies, terming any additional charges or duties on power generation unconstitutional.
In a letter to all state chief secretaries on October 25, the Union energy ministry reiterated that no state has the authority to impose water cess. The government had cited Articles 286, 287, and 288 of the Constitution, emphasising that imposing such fees on thermal, hydro, wind, and solar power generation is beyond the jurisdiction of the states. Yet, the state government enacted the Himachal Pradesh Water Cess Hydro Power Generation Act, 2023, and set up a commission to oversee tax collection.