Uttarakhand High Court
T.H.D.C. India Ltd Through Its Cmd vs State Of Uttarakhand & Others on 27 April, 2026
Author: Alok Kumar Verma
Bench: Alok Kumar Verma
2023:UHC:12252
Reserved
IN THE HIGH COURT OF UTTARAKHAND
AT NAINITAL
THE HON'BLE SRI JUSTICE ALOK KUMAR VERMA
27TH APRIL, 2026
SPECIAL APPEAL NO. 149 OF 2021
T.H.D.C. India Ltd through its CMD .....Appellant.
Versus
State of Uttarakhand & Others ....Respondents.
With
SPECIAL APPEAL NO. 131 OF 2021
N.H.P.C. Ltd. through its Senior Manager (Elec.)
…..Appellant.
Versus
State of Uttarakhand & Others ….Respondents.
With
SPECIAL APPEAL NO. 134 OF 2021
M/s Jaiprakash Power Ventures Limited …..Appellant.
Versus
State of Uttarakhand & Others ….Respondents.
With
SPECIAL APPEAL NO. 136 OF 2021
Alaknanda Hydro Power Company Ltd. …..Appellant.
Versus
State of Uttarakhand & Others ….Respondents.
With
SPECIAL APPEAL NO. 137 OF 2021
Alaknanda Hydro Power Company Ltd. …..Appellant.
Versus
2
State of Uttarakhand & Others ….Respondents.
With
SPECIAL APPEAL NO. 139 OF 2021
M/s Swasti Power Pvt. Limited …..Appellant.
Versus
State of Uttarakhand & Others ….Respondents.
With
SPECIAL APPEAL NO. 140 OF 2021
Alaknanda Hydro Power Company Ltd. …..Appellant.
Versus
State of Uttarakhand & Others ….Respondents.
With
SPECIAL APPEAL NO. 141 OF 2021
Alaknanda Hydro Power Company Ltd. …..Appellant.
Versus
State of Uttarakhand & Others ….Respondents.
With
SPECIAL APPEAL NO. 142 OF 2021
M/s Swasti Power Pvt. Limited …..Appellant.
Versus
State of Uttarakhand & Others ….Respondents.
With
SPECIAL APPEAL NO. 143 OF 2021
Alaknanda Hydro Power Company Ltd. …..Appellant.
Versus
State of Uttarakhand & Others ….Respondents.
With
SPECIAL APPEAL NO. 363 OF 2021
Bhilangana Hydro Power Ltd. …..Appellant.
Versus
State of Uttarakhand & Others ….Respondents.
3
With
SPECIAL APPEAL NO. 367 OF 2021
Uttar Pradesh Power Corporation Limited …..Appellant.
Versus
State of Uttarakhand & Others ….Respondents.
With
WRIT PETITION (M/S) NO. 1739 OF 2021
Renew Jal Urja Private Limited …..Petitioner.
Versus
State of Uttarakhand & Others ….Respondents.
Present :-
Appellant(s):
Mr. Sanjay Jain, learned Senior Advocate assisted by Mr. Shobhit Saharia, learned
counsel, Mr. Padmesh Mishra, learned counsel, Ms. Harshita Sukhija, learned counsel,
Ms. Palak Jain, learned counsel and Mr. Nishank Tripathi, learned counsel for the
appellant-THDC in SPA No.149 of 2021.
Mr. Tushar Mehta, learned Senior Advocate assisted by Mr. Anurag Bisaria, learned
counsel with Mr. Avneesh Arputham, learned counsel for the appellant in SPA No.131
of 2021.
Ms. Devika Tiwari, learned counsel for the appellant in SPA No.134 of 2021
Mr. Saurabh Kirpal, learned Senior Advocate with Mr. D.S. Patni, learned Senior
Advocate assisted by Mr. Dharmendra Barthwal, learned counsel, Mr. Kartik Nayyar,
learned counsel with Mr. Kashish Bansal, learned counsel for the appellants in SPA
No.136 of 2021, SPA No.137 of 2021, SPA No.140 of 2021, SPA No.141 of 2021 &
SPA No.143 of 2021.
Mr. Ajit Tiwari, learned counsel for the appellant in SPA No.136 of 2021.
Mr. D.S. Patni, learned Senior Advocate assisted by Mr. Siddhant Manral, learned
counsel for the appellant in SPA No.139 of 2021 & SPA No.142 of 2021.
Mr. Sujit Ghosh, learned Senior Advocate assisted by Mr. Nishant Kumar, learned
counsel, Ms. Anshika Agarwal, learned counsel, Mr. Mannat Daraich, learned counsel,
Mr. Chetan Pathak, learned counsel & Mr. Rohit Arora, learned counsel for the
appellant in SPA No.363 of 2021.
Mr. U.K. Uniyal, learned Senior Advocate assisted by Mr. Abhishek Kumar, learned
counsel, Mr. Nived V.V.N., learned counsel, Mr. Pragya Prakash Upadhyay, learned
counsel, Mr. Neelabh Bisht, learned counsel with Ms. Aditi Singh, learned counsel for
the appellant-UPPCL in SPA No.367 of 2021.
Ms. Kamakshi Sehgal, learned counsel with Mr. Ankur Saigal, learned counsel & Mr.
Vikas Bahuguna, learned counsel for the petitioner in WPMS No.1739 of 2021,
Respondent(s)
Mr. Dinesh Dwivedi, learned Senior Advocate assisted by Mr. Prateek Dwivedi, learned
counsel, Mr. Shivam Singh, learned counsel, Mr. T.S. Bisht, learned Deputy Advocate
General and Mr. V.D. Bisen, learned Standing Counsel for the State of Uttarakhand.
Mr. Rajesh Sharma and Mr. Saurav Adhikari, learned Standing Counsel for the Union
of India.
Mr. I.D. Paliwal, learned Standing Counsel for the State of U.P.
4Reserved on: 17.06.2025
Delivered on: 27.06.2026The Court made the following:
Opinion on Reference :(per Hon’ble Alok Kumar Verma, J.)
The aforesaid appeals were filed against the
common judgment dated 12.02.2021, passed by the
Coordinate Bench of this Court in a batch of writ petitions.
The writ petitions were filed by the appellants challenging the
constitutional validity and vires of “The Uttarakhand Water
Tax on Electricity Generation Act, 2012” (in short, “Act”).
The Coordinate Bench, by the common judgment, passed on
12.02.2021, dismissed all the writ petitions. The Writ Petition
(M/S) No.1739 of 2021 was filed during the pendency of the
said appeals. This writ petition has also been filed challenging
the constitutional validity of the Act.
2. The Hon’ble Division Bench delivered a split verdict
on 25.10.2023. Mr. Vipin Sanghi, the then Hon’ble Chief
Justice and a member of the Division Bench, has dismissed
the appeals and the writ petition, whereas the other member
of the Bench, Hon’ble Mr. Ravindra Maithani, J., has struck
down the Act as ultra vires the Constitution. Therefore, the
present matter has been referred to this Court by the then
Hon’ble Acting Chief Justice, in terms of Chapter VIII Rule 3
of the High Court Rules, vide Order dated 23.11.2023.
5
3. The Act has been challenged on various grounds.
The main grounds for challenge are that the tax imposed by
the Act is on electricity generation. The State Legislature is
not competent to legislate the Act, which imposes a tax on
generation/production of electricity.
4. The stand of the State of Uttarakhand is that the
incident of tax in the Act is the drawal of water for use in
electricity generation only. Initially, State of Uttarakhand
indicated Entry 17 List II as the source of legislation, but
subsequently, it stated Entry 45, 49, 50 of List II of the
Seventh Schedule and Article 288 of the Constitution of India
as the basis for enacting the Act.
5. Before discussing the issues involved, it would be
appropriate to examine the relevant provisions (Chapter-1 to
Chapter-5) of the impugned legislation.
THE UTTARAKHAND WATER TAX ON ELECTRICITY GENERATION ACT, 2012
[UTTARAKHAND ACT NO. 09 OF 2013]
to levy water tax on electricity generation in the State of
Uttarakhand
An
Act
be it enacted in the sixty-third Year of the Republic of
India by the Uttarakhand State Legislative Assembly as
follows:-
CHAPTER-I
PRELIMINARY
1. Short Title, Extent and Commencement.- (1) This
Act may be called the Uttarakhand Water Tax on Electricity
Generation Act, 20l2.
(2) It extends to the whole State of Uttarakhand.
6
(3) It shall come into force from such date as the State
Government may by notification in the Gazette appoint.
(4) The provisions of this Act shall have effect
notwithstanding anything inconsistent contained in any other
law for the time being in force.
2. Definitions.- In these rules, unless there is anything
repugnant in the subject or context:-
(a) “Act” means the Uttarakhand Water Tax on Electricity
Generation Act, 20l2;
(b) “Commission” means Uttarakhand State Commission for
Water Tax on Electricity Generation established under Section
21 of the Act;
(c) “Electricity” means electrical energy generated by way of
water drawn from any water source flowing within the
territory of the State;
(d) “Government” means Government of Uttarakhand:
(e) “Notification” means a notification published in the
Gazette of the State, and the term “notify” shall be construed
accordingly;
(f) “User” means any person, group of persons, local body,
Government Department, company, corporation, society etc.
drawing water or any other authority authorized under
chapter -II of the Act to avail the facility to draw water from
any source for generation of electricity;
(g) “Water” means natural resource flowing in any river,
stream, tributary, canal, nallah or any other natural course of
water or stipulated upon the surface of any land like, pond,
lagoon, swamp, spring;
(h) “Water Source” means a river and its tributaries, stream,
nallah, canal, spring, pond, lake, water course or any other
source from which water is drawn to generate electricity;
(i) “Water Tax” means the rate levied or charged for water
drawn for generation of electricity and fixed under this Act.
CHAPTER-2
INTRODUCTION
3. General-(1) For the purpose of this Act, every water
source in the State is, and shall remain, the property of the
Government and any proprietary ownership, or any riparian
or usage right, on such water resources vested in any
individual, group of individuals or any other body,
corporation, company, society or community shall, from the
date of commencement of the Act, be deemed to have been
terminated and vested with the Government. However, for
rivers of interstate nature and rivers under the ambit of
international treaties, the ownership right of Uttarakhand
Government shall be limited to non-consumptive use of
water.
7
(2) No person, group of persons, Government department,
local authority, corporation, company, society or any other
body shall draw water from any source for electricity
generation except in accordance with the provisions of the
Act.
CHAPTER-3
USAGE OF WATER BY INSTALLATION OF
HYDROELECTRIC GENERATING UNIT
4. Installation of Scheme for usage of water- No
person, group of persons, Government department local
authority, corporation, company society or any other body, by
whatever name called (hereinafter in this Chapter will be
called the “user”), shall install a Scheme requiring usage of
water (non consumptive use) of any water source for
generating electricity except without being registered under
the Commission in accordance with the provisions provided
hereinafter in this Chapter.
5. Submission of Sanctioned Scheme for usage of
water by the user- Any user intending to install a Scheme
requiring usage of water (non consumptive use) for the
purpose of generation of electricity shall submit Detailed
Project Report of the scheme, duly sanctioned by authority
competent to do so in this behalf to the Commission
accompanied by such fee and charges as may be fixed by
the Commission for registration.
6. Acceptance of the Scheme- After receipt of the
scheme from a user, the Commission shall consider the
acceptance of the scheme under this Act.
7. Information to the User – After the scheme is
accepted by the Commission under section 6, the Commission
shall register the scheme and inform the user to-
(a) Execute an agreement in such a form and manner with
the Commission as may be prescribed; and
(b) Pay such fee and water Tax as fixed under chapter 4 of
this Act.
8. Prohibition on installation of a Scheme- No user
shall install a Scheme requiring usage of water without
adhering to the requirements of section 10.
9. Registration for usage of water- No person shall
install a Scheme, requiring usage of water or in any other
way use the water, unless he/she is authorized to do so by a
registration certificate, issued under section 10.
10. Grant of Registration Certificate- An user intending
to use water (non consumptive use) for generation of
electricity shall be issued a registration certificate after the
8
execution of an agreement between the user and the
Commission under the Act.
11. Registered user not to do certain things.- No
registered user shall without prior approval of Commission :-
(a) Undertake any transaction to acquire by purchase or
takeover or otherwise, the utility of any other user; or
(b) Merge his utility with the utility of any other user;
(c) No user shall at any time assign his registration or
transfer his utility or any part thereof by sale, lease,
exchange or otherwise without the prior approval of the
Commission.
12. Duties, obligations and responsibilities of the
Registered user- (1) The registered user shall be liable to
pay water tax for the water drawn for electricity generation
as per the provisions of the Act.
(2) Where any user has constructed a Hydropower scheme,
for purpose of generation of electricity, prior to the
commencement of the Act, such user shall, within a period of
six month from the date of commencement of the Act, apply
for registration under the Act and the Commission shall pass
an order to register the user within a period of six months
from the date of receipt of application in accordance with the
provisions of the Act.
(3) If the user as mentioned in sub-section (2) fails to apply
or register within time stipulated therein, the Commission
shall forthwith impose suitable penalty which may be
enhanced in case of prolonged default.
(4) Every registered user shall be under an obligation to
ensure the safety of the life and property of inhabitants of the
area under the operation of the scheme.
(5) Every registered user shall be bound to allow the
authority or any other officer authorized by authority to have
access at any time to the scheme for their satisfaction.
13. Control and safety provisions.- (1) The Commission
may, by notice in writing given to the user require him to:-
(a) Cause periodic inspection carried out by an expert, to the
satisfaction of the Commission and in accordance with the
procedure and at such intervals, as the Commission may
specify, for the Scheme;
(2) The user shall pay such fee and such other charges as the
State Water Commission may fix in this behalf, to the State
Water Commission for undertaking the following activities :-
(a) Periodical inspection of the scheme by the Commission or
any other officer or expert empowered in the behalf;
9
(b) Any other activity performed or caused to be performed
by the Commission under this section in relation to the
scheme of the user.
CHAPTER-4
ASSESSMENT OF WATER DRAWN BY USER
14. Assessment of water drawn by user.- (1) The
Commission shall install or cause to be installed flow
measuring device within the premises of Scheme or at such
other place where the Commission deems fit for purposes of
measuring the water drawn for electricity generation or may
adopt any indirect method for assessment of water drawn by
the user.
(2) The Commission may either install or, require a user to
install a flow measuring device as per the specifications
approved by the Commission at his premises or at his
location or at such other place as the Commission may direct
and thereafter adjust the expenditure incurred by such user
on such installation towards the water Tax payable by the
user.
15. Injuring the flow measuring device or any fitting-
No person shall willfully injure or cause to be injured, any
device or any of the fittings of the device.
16. Fraud in respect of flow measuring devices- No
person shall fraudulently or dishonestly-
(a) alter the index of any flow measuring device or prevent
any device from recording the actual quantity of water
supplied; or
(b) extract or draw water before it has been recorded by the
measuring device set up for the purpose of recording the
same; or
(c) tamper the measuring device, install or use a tampered
device; or
(d) use any other device or method which interferes with
accurate or proper registration, calibration or metering of
water supplied; or
CHAPTER-5
WATER TAX
17. Fixation of water tax. (1) – The user shall be liable to
pay the Water Tax under the Act at such rates as the
Government may by notification fix in this behalf.
(2) The State Government may review, increase, decrease or
vary the rates of the Water Tax fixed under this section from
time to time in the manner it deems fit.
10
18. Recovery of water Tax.- The Commission shall recover
water tax as per the rates fixed by the State Government
from every user whenever water is drawn by a user for
generation of electricity.
19. Procedure for assessment.- (1) The assessment of
water drawn by the user for electricity generation and
computation of water tax there of, shall be carried out by the
Commission.
(2) The user shall pay the water Tax as assessed under sub-
section (1) within such time as may be specified by the
Commission.
(3) If any user fails to pay water Tax due on him, penalty
shall be imposed on the user as determined by the
Commission. The User has to pay Water Tax along with
penalty within extended time as may be specified by the
Commission. If the user again fails to pay Water Tax along
with penalty within the extended time, the dues shall be
recovered as arrears of land revenue.
Submissions on Behalf of Appellants
6. It has been argued on behalf of the appellants that
the legislative competence to pass the Act cannot be traced
from any of Entries in List II, particularly, Entries 17, 45, 49
or 50 and under Article 288 of the Constitution of India either
independently or in a bouquet. It is excessive delegation.
Apart from the said contentions, the main contentions raised
by the appellants and the writ petitioner are as follows :-
7. Mr. Sanjay Jain, learned Senior Advocate appearing
for the appellant in SPA No.149 of 2021, contended that the
Act, in pith and substance, imposes a tax on electricity
generation using hydropower. It is a colourable exercise of
power. It is a settled legal position that the State Legislatures
do not possess the legislative competence to impose a tax on
generation of electricity. Article 288 of the Constitution of
India is a special source of power outside the Seventh
11
Schedule and the same cannot be used as a tool to recognize
a taxing power outside the scope of Articles 245, 246, 248
and Article 265 read with the Seventh Schedule. He has
relied upon the judgments of the Hon’ble Supreme Court in
M.P.V. Sundararamier and Co. vs. State of A.P., AIR
1958 SC 468, Hoechst Pharmaceuticals Ltd. vs. State of
Bihar, (1983) 4 SCC 45, State of W.B. vs. Kesoram
Industries Ltd., (2004) 10 SCC 201, Jindal Stainless
Ltd. vs. State of Haryana, (2017) 12 SCC 1 and Jalkal
Vibhag Nagar Nigam vs. Pradeshiya Industrial and
Investment Corporation, 2021 SCC Online SC 960.
8. Mr. Tushar Mehta, learned Senior Advocate
appearing for the appellant in SPA No.131 of 2021, has
contended that the Act imposes a tax on electricity as stated
in the name of the Act itself and in pith and substance, the
Act is taxing the generation of electricity by using water.
Electricity is goods and there is no legislative competence
with the State Legislature to impose tax on generation of
electricity as it would be covered under List I of Seventh
Schedule. He has relied upon the judgments of the Hon’ble
Supreme Court in Commission of Sales Tax, Madhya
Pradesh vs. Madhya Pradesh Electricity Board (1969) 1
SCC 200, State of A.P. vs. N.T.P.C. and Others, (2002) 5
SCC 203, and M.P. Cement Manufacturers Association
vs. State of M.P., (2004) 2 SCC 249.
12
9. Ms. Devika Tiwari, learned counsel for the
appellant in SPA No. 134 of 2021 has submitted that it is the
settled position of law that taxes can be imposed using only
taxing Entry and not general Entries. A taxing statute cannot
be interpreted on any presumption and assumption. Article
288 provides power to the State to make law with respect to
generation of electricity only when two riders imposed by
Article 288 of the Constitution are fulfilled. She further
submitted that taxation statutes are to be strictly interpreted
in all tax matters. Reliance has been placed on the judgment
of the Hon’ble Supreme Court in Commissioner of Customs
(Import), Mumbai vs. M/s Dililp Kumar and Company,
2018 (9) SCC 1.
10. Mr. Saurabh Kirpal, learned Senior Advocate
appearing for the appellants in SPA No.136 of 2021, SPA
No.137 of 2021, SPA No.140 of 2021, SPA No.141 of 2021
and SPA No.143 of 2021, has submitted that State of Uttar
Pradesh, State of Uttarakhand and the appellant entered into
a Restated Implementation Agreement (RIA) dated
10.02.2006 wherein the appellant was to construct a
Hydroelectric Power Plant for generation of electricity. As per
the RIA, 12% of the Saleable Energy was to be provided to
State of Uttarakhand free of cost and the rest of the Saleable
Energy was to be purchased by State of Uttar Pradesh
through UPPCL in terms of the Power Purchase Agreement
13
dated 28.06.2006 (PPA). In the RIA, it was stated that the
State of Uttarakhand shall not impose any taxes, duties,
levies or charge of any kind on electricity generated by this
project during the term of this RIA and it was clearly stated in
the RIA that the appellant would be entitled to use Alaknanda
river for the said purpose.
11. Mr. Saurabh Kirpal, learned Senior Advocate
contended that the Act is beyond the legislative competence
of the State and as such the Act itself is not valid. The
taxation is a distinct matter and there is a clear distribution
between general subjects of legislation and taxation. He has
relied upon the judgments of the Hon’ble Supreme Court in
M.P.V. Sundararamier and Co. vs. State of A.P., 1958
SCR 1422, M/s Hoechst Pharmaceuticals and Others vs.
State of Bihar and Others, 1983(4) SCC 45, Synthetics
and Chemicals Ltd. vs. State of U.P., (1990) 1 SCC 109
and State of W.B. vs. Kesoram Industries Ltd., (2004)
10 SCC 201.
12. Mr. D.S. Patni, learned Senior Advocate appearing
for the appellants in SPA No.139 of 2021 and SPA No.142 of
2021, submitted that the appellants had entered an
Implementation Agreement (I.A.) with the State of
Uttarakhand dated 16.10.2003. In the year, 2003, the State
of Uttarakhand framed a policy known as, “The Policy on
Hydro Power Development by Private Sector in the State of
14
Uttaranchal (upto 25 M.V.). The period of the project offered
under the said policy was 40 years. Under the I.A., it was
stated that the State of Uttarakhand shall not impose any
entry tax of any kind on electricity generated by this Project
during the term of the I.A. Further, under Clause 4.11 of the
2003 policy, it has been clearly stated that the Government
will not levy any entry tax on power generation, transmission,
equipment and building material for projects.
13. Mr. D.S. Patni, learned Senior Advocate, argued
that the taxable event in the scheme of the Act is not mere
drawal of water but it is drawal of water for generation of
electricity and hence, the levy of tax is on generation of
electricity. The taxation is a distinct matter and there is a
clear distinction between general subjects of legislation and
taxation. He has relied upon the judgment of the Hon’ble
Supreme Court in State of W.B. vs. Kesoram Industries
Ltd., (2004) 10 SCC 201.
14. Mr. Sujit Ghosh, learned Senior Advocate,
appearing for the appellant in SPA No. 363 of 2021, has
argued, inter alia, that Section 17 (1) of the Act, the charging
section, provides, “the user is liable to pay water tax at such
rates as the Government may by Notification fix”. As per
Section 17 (2) of the Act, the Government has also been
conferred with the power to review, increase, decrease or
vary the rate of tax from time to time in the manner it deems
15
fit. Further, from the scheme of the Act, the State
Legislature does not exercise any control over the rate
Notification that may be issued by the State Government.
The rate of tax is an essential legislative function and forms
one of the four pillars of valid taxation. Being an essential
legislative function, it is impermissible for the State
Legislature to abdicate such an essential legislative function
to the Delegatee without retaining any control or offering any
guideline. Such abdication, therefore, tantamount to
excessive delegation and thus, bad in law. It is a settled
position that the legislature cannot delegate its “essential
legislative functions”. He has relied upon the judgment of the
Hon’ble Supreme Court in Union of India and Another vs.
M/s Mohit Minerals Pvt. Ltd. Through Director (Civil
Appeal No. 1390 of 2022).
15. Mr. U.K. Uniyal, learned Senior Advocate,
appearing for the appellant in SPA No. 367 of 2021, argued,
inter alia, that in pith and substance, the tax under the Act is
a tax on generation of electricity. Power to tax may not be
inferred or implied. Article 288 (1) of the Constitution is a
savings clause. It does not pre-suppose that State
Legislature has competence to make law. Article 288 (2) of
the Constitution, although enabling provision, is subject to
many conditions. Competence should be clear, precise and
distinct. Merely by reading Article 288, State cannot derive
16
competence. Article 25 of the Amended Implementation
Agreement dated 22.03.2003 states that JPVL shall utilize
flowing water of the river to generate electricity. Such right
to utilize water available upstream of the project has been
granted by Government of Uttaranchal for non-consumptive
use only without charging any royalty, duty, cess or levy of
any kind of such use of water. Section 3 (1) of the Act
effects unilateral termination by stating that any usage right
vested in a company would be deemed to have been
terminated, but the State is bound by promissory estoppel. A
State cannot absolve itself from contractual duties / liabilities
by enacting legislation.
16. Mr. Dinesh Dwivedi, learned Senior Advocate,
appearing for the State of Uttarakhand, contended that
Constitution is said to be a living organism where all the parts
function cohesively together. Therefore, no one provision of
the Constitution should be read in isolation. A liberal
construction should be put upon the constitutional provisions.
Controversy is to be resolved in favour of the legislature by
giving most liberal interpretation to the Entries (Indian
Aluminium Co. and Others vs. State of Kerala and
Others, (1996) 7 SCC 637). Constitution is federal and
therefore, an interpretation that preserves and promotes the
federal structure, rather than diluting it, should be adopted
(Jindal Stainless Limited and Another vs. State of
17
Haryana and Others, (2017) 12 SCC 1). Interpretation of
a federal constitution is basically different from that of a
statute. Both the taxing and the non-taxing Entries are to be
interpreted similarly (Indian Aluminium Co. and Others
vs. State of Kerala and Others, (1996) 7 SCC 637).
17. Mr. Dinesh Dwivedi, learned Senior Advocate,
submitted that the State claims that the tax under the Act
falls under Entries 17, 18, 45, 49 and 50. The tax under the
Act is “in respect of water”. The levy can be reasonably and
clearly traced to Entries 45, 49 and 50 of List II. He
submitted that every legislative Entry is entitled to widest and
most liberal construction, including the taxing Entries (State
of W.B. vs. Kesoram Industries Ltd. and Others, (2004)
10 SCC 201). He further submitted that it has been settled
that fountain source of power to impose a levy of any nature
is contained in Article 245 and Article 246 of the Constitution.
Any restriction on this plenary power of legislation to impose
a tax, is one that is expressly contained in the Constitution.
There are no other limitations because to impose a tax is a
Sovereign Power that vests equally on the Union and the
State Legislatures under our federal structure. The express
restrictions are only contained in Articles 13, 14, 304 (a), 285
to Article 289 etc. There are no implied or other limitations
that can be spelled out from other sources. The foundational
source of all taxing powers are only Article 245 and Article
18
246 and any limitation on the taxing power of the State has
to be expressly indicated. Article 288 of the Constitution is
foremost among them. Though it is a limitation on the States
legislative power it definitely recognizes the availability of
power to impose taxes “in respect of water” [Jindal
Stainless Limited (supra)]. There is no principle that a law
has to relate only to one Entry on a source. A law can be
made by the State simultaneously utilizing more than one
legislative Entries. A tax law can, likewise, also be justified
on the basis of more than one Entry including a non-taxing
Entry, or, a general Entry [Kesoram Industries Ltd.
(supra)].
18. Mr. Dinesh Dwivedi, learned Senior Advocate,
argued that there is a presumption of validity of the statute
made by the legislature. Statute is to be read as a whole. As
per the Act, tax is on the use of water drawn from the
“Source” defined under Section 2 (h), for electricity
generation only. It is a tax on water drawn for use in
electricity generation, by the “user” as defined under Section
2 (f). The incidence of Tax is on the “drawal of water for use”
in electricity generation only. This is corroborated by Section
12 (1) and Section 14 which provide for measurement of
“water drawn for electricity generation”. The Tax is to be paid
by the “user” whenever water is drawn (Section 18 and
Section 19). Thus, it is a Tax on the drawal and usage of
19water. It is a Tax clearly “in respect of water”, its drawal for
use by the user.
19. Mr. Dinesh Dwivedi, learned Senior Advocate,
contended that there cannot be water without land. They are
inseparably linked. It falls on the land or, generator attached
to land to generate electricity. Therefore, in pith and
substance, the tax is in respect of water / land. It is a tax on
the drawal and use of water on land. The rate Notification
dated 07.11.2015 also corroborates that the rate is on the
per cubic meter of water used / drawn. These facts are also
supported by the Statement of Objects and Reasons, the
legislative history, and the legislative assembly debates.
20. Mr. Dinesh Dwivedi, learned Senior Advocate, has
heavily relied on the judgments of the Hon’ble Supreme Court
in M/s R.S. Rekhchand Mohota Spinning and Ors
Weaving Mills Ltd. vs. State of Maharashtra, (1997) 6
SCC 12 and Ichchapur Industrial Cooperative Society
Ltd. vs. Competent Authority, Oil and Natural Gas
Commission and Another, (1997) 2 SCC 42.
Submissions on Behalf of Appellants and Writ
Petitioner in Rejoinder
21. Learned counsel for the appellants and the writ
petitioner contended that the general entry contained in Entry
17 of List II cannot be invoked to levy a tax on consumptive
or non-consumptive use of water. Entries 45, 49 and 50 of
20List II operate in a different paradigm, relating specifically to
land, buildings and minerals and as such by no stretch of
imagination can be construed to include water within the said
field, whereas there is no specific field of legislation
empowering the State Legislatures to impose a tax on water.
Ministry of Power has specifically written to State
Governments on 25.04.2023 and 25.10.2023 stating that any
such water tax is unconstitutional. They submitted that the
impugned tax cannot be levied because the State is
promissorily estopped from levying tax in the light of the
respective agreements.
22. Mr. U.K. Uniyal, learned Senior Advocate,
appearing for the appellant in SPA No. 367 of 2021,
contended that State is not competent to impose a tax on the
drawal and usage of water. In this regard, reliance is placed
on Entry 92 A of List I. He has relied upon the judgment of
the Hon’ble Supreme Court in In re: The Punjab
Termination of Agreement Act, 2004, (2017) 1 SCC
121.
23. Mr. Ankur Saigal, learned counsel appearing for the
petitioner in WPMS No. 1739 of 2021, submitted that a
scrutiny of List I and List II shows that there is no
overlapping anywhere in the taxing power and the
Constitution gives independent source of taxation to Union as
21well as the State (Hoechst Pharmaceuticals vs. State of
Bihar, (1983) 4 SCC 45).
24. The parties have placed reliance on the several
judgments of the Hon’ble Supreme Court.
25. The function of the Judiciary begins when the
function of the Legislature ends. The ultimate interpretation
of a statute is the province of the Court.
26. Interpretation of statutes is of two types. They can
be distinguished as “literal” and “functional”. The Primary
Rule of Interpretation of Statutes is called “Literal
Interpretation” or “Literal Construction”. It is also known as
“Plain Rule of Interpretations”. The literal rule of
interpretation really means that there should be no
interpretation. In other words, the Court should read the
statute as it is, without distorting or twisting its language.
27. A statute is an edict of the Legislature. Therefore,
the first and primary rule of interpretation of a statute is that
the intention of the Legislature must be found in the words
used by the Legislature itself. Each word, phrase or sentence
is to be construed in the light of general purpose of the Act
itself. The purpose of the statute should always be kept in
mind while interpreting of the statute. The literal rule of
interpretation, which follows the legal maxim “verbis legis
non est recelendum”, is that words should be read in their
ordinary, natural and grammatical meaning. It is trite saying
22that the object of interpretation a statute is to ascertain the
intention of the Legislature, enacting it. The object of
interpretation and of construction is to discover the intention
of the law makers in every case. This object can, obviously,
be best achieved by first looking at the language used in the
relevant provisions. Other methods of extracting the
meaning can be resorted to only if the language used is
contradictory, ambiguous or leads really to absurd results.
28. The Statement of Objects and Reasons (SOR),
legislative history and debates in Legislative Assembly are
external aids to interpretation. They are not substantive
parts of a statute and cannot override its clear language. The
SOR, legislative history and debates are relevant only when
the statutory language is ambiguous or vague.
29. Now, I come back to the present reference before
me.
30. The question is whether the tax is one on “drawal
of water” for use in electricity generation, or on generation of
electricity?
31. The then Hon’ble Chief Justice held that the nature
of impugned tax, in pith and substance, is a tax on drawl /
use / consumption of water for electricity generation, and not
a tax on electricity generation, whereas Hon’ble Mr. Justice
Ravindra Maithani held that the impugned tax is on electricity
generation.
23
32. Before proceeding further in the reference, it would
be appropriate to clarify at this stage that this reference is
not a rehearing, an appeal or a revision. This reference is
referred to this Court to concur with the opinion of one of the
two Judges of the Hon’ble Division Bench for a majority view
being obtained on the point of difference. Therefore, it is my
duty to give reasons for my views and for the said purpose, in
the first instance, it is necessary to analyze the relevant
provisions of the Act.
33. The nomenclature of a levy is not conclusive for
deciding its true character, nature or validity with reference
to the legislative competence. The doctrine of pith and
substance determines the true character, nature, intent,
content and effect of a tax law if it overlaps between Union
and State Lists.
34. The subject of the Act is provided in Section 2 (c),
i.e. electrical energy which is generated by way of water
drawn.
35. The “User” has been defined under Section 2 (f).
“User” means a person, who draws water from any source for
generation of electricity. It means a “User” is liable to pay
tax only if he draws water from any source for the generation
of electricity.
36. Section 2 (i) defines “Water Tax” to mean a levy
imposed for water drawn for generation of electricity.
24
37. Section 3 and Section 4 of the Act also pertain to
use of water for generation of electricity.
38. Section 12 levies tax on the water drawn for
electricity generation.
39. The charging section is the foundational provision
in any taxing statute, serving as the “backbone” that imposed
a tax liability on a subject, person or transaction. Tax
becomes payable by virtue of the charging provision.
Therefore, charging sections are construed strictly. The
charging provisions are independent of machinery provisions
(collection). In the impugned legislation, the liability to pay
tax is founded in the charging section. As per the charging
section, tax is imposed on the “User” and “User” is a person,
who draws water for generation of electricity. Consequently,
the mere drawing of water from any source does not attract
tax under the Act. But, if the drawal of water is for the
generation of the electricity, then it is a taxable event under
the Act.
40. Mr. Dinesh Dwivedi, learned Senior Advocate,
appearing for the State of Uttarakhand, argued that tax is not
imposed on electricity units generated. It is measured by the
volume of the water used for the purpose. He has based his
submission on the Notification dated 07.11.2015, which is in
relation to the measure of tax. On the other hand, it was
argued on behalf of the appellants and the writ petitioner that
25the said notification suggests that it is a tax on generation of
electricity.
41. The task before the Court is to identify the nature
of the levy. It is well settled law that the nature of tax and
its measure are distinct. Measure of tax is not the sole test.
Measure of tax is only an indicia for determining the character
and nature of tax. In Goodyear India Ltd. and Others vs.
State of Haryana and Another, 1990 (2) SCC 71, the
Hon’ble Supreme Court held, “It is well-settled that while
determining nature of a tax, though the standard or the
measure on which the tax is levied may be a relevant
consideration, it is not the conclusive consideration. One must
have regard to such other matters as decided by the Privy
Council in Governor General in Council vs. Province of
Madras, (supra) not by the name of tax but to its real nature,
its pith and substance which must determine into what
category it falls.”
42. Dealing with the said submissions of the parties in
Paragraph Nos. 176 to 181 of the judgment, brother Ravindra
Maithani, J. held that the name of the Act, the taxable event,
the user and the measure of the tax all suggest that definitely
the tax in the instant case is on electricity generation.
43. The tax imposed by the Act has also been
challenged by the appellants and the writ petitioner on the
ground that it is bad due to excessive delegation.
26
44. Mr. Dinesh Dwivedi, learned Senior Advocate,
appearing for the State, argued that the power given under
17 of the Act to fix “such rates” is not unlimited. The law
defines all the elements of taxation and then delegates the
power to fix “such rates” to the State Government, the
highest executive which is responsible to the legislative and
through it to the people. Limitation inheres in this.
45. The fixing of a specific rate of tax is not always an
essential function of legislative body. The fixing of rates may
be left to a non-legislative body and that when it has been so
left to such a body, the Legislature must provide guidance to
such fixation. Even if it assumed that there is some
legislative guidance for fixing of tax rate but absence of any
minimum or maximum limits for fixing of tax rates given an
unbounded leeway to the executive to impose as tax rates.
The such unfettered power to fix tax rates by non-legislative
body hits by the doctrine of excessive delegation. After
noticing the judgments referred by the parties, brother
Ravindra Maithani, J. observed, “In fact, the reading of the
Act, as a whole, does not give any guidelines for imposing tax
under Section 17 of the Act. The delegation of imposing tax
on the Executive by Section 17 of the Act is without any
guidelines. It is naked delegation of power to the State
authority”, and held that it is excessive delegation.
27
46. Having carefully analyzed the matter, I find it
difficult to agree with the submissions made on behalf of the
State that the nature of tax is a tax on drawal of water for
electricity generation; not a tax on electricity generation and
limitation inheres in Section 17 of the Act. I am in agreement
with the conclusion of brother Ravindra Maithani, J. that
Section 17 of the Act makes excessive delegation of power for
fixing rates by the State Government and it delegates such
power without any policy guidelines and the impugned tax
under the Act is on the generation of electricity.
47. Prior to Government of India Act, 1935, the Indian
Councils Act, 1861 was enacted to make better Provision for
the Constitution of the Council of the Governor-General of
India, and for the Local Government of the several
Presidencies and Provinces of India; and for the temporary
Government of India in the event of a Vacancy in the Office of
Governor-General. The Government of India Act, 1935
established a federal system in India by creating separate
entities. The 1935 Act established the tripartite structure –
List I. Federal Legislative List, List II. Provincial Legislative
List, and List III. Concurrent Legislative List – to manage
legislative allocation. The framers of the Constitution of India
adopted the 1935 structure but modified it to suit India’s
unique needs.
28
48. The constitutional provisions on the subject of
distribution of legislative powers between the Union and the
States are defined primarily under its Article 245 and Article
246. Article 245 of the Constitution defines the ambit or
territorial limits of legislative powers; subject to the
constitutional provisions. The power of Parliament and
Legislatures of States to legislate upon Entries in the Union
List, State List and Concurrent List flows from Article 246 of
the Constitution of India. Article 246 of the Constitution of
India demarcates the powers of the Parliament and the
Legislature of State by classifying their powers into three
lists, i.e. List I – Union List, List II – State List, and List III –
Concurrent List. The Constitution (one Hundred and First
Amendment) Act, 2016 added Article 246 – A, providing
concurrent power of both Parliament and State Legislatures to
levy GST, creating a unified indirect tax regime, which
modified the traditional division of List I and List II. The
opening words of Article 245 (1) say the legislative powers of
both the Parliament and State Legislatures are subject to the
other provisions of the Constitution.
49. Entries in the three Lists are not powers of
legislation but field of legislation. These entries are mere
legislative heads and demarcate the area over which the
appropriate legislatures are empowered to enact law. The
power to legislate is given to the appropriate legislature by
29
Article 246 and other articles (T.M.A. Pai Foundation vs.
State of Karnataka, (2002) 8 SCC 481).
50. Article 245 is the fountain source of legislative
power (State of West Bengal vs. Kesoram Industries
Ltd. and Others, (2004) 10 SCC 201). It is well settled
that the Entries in the Constitution only demarcate the
legislative fields of the respective legislatures and do not
confer legislative powers as such. (Goodyear India Ltd. and
Others vs. State of Haryana and Another, 1990 (2) SCC
71).
51. Now, after noticing the judgments referred by the
parties, I proceed to examine the competence of State
Legislature in enacting the Act. First of all, it will be
examined as to whether the Act can be enacted under Entries
17, 18, 45, 49, 50 of List II of Seventh Schedule or under
Article 288 of the Constitution of India and the power to levy
tax can be traced by reading the Constitution as a whole
(Article 245).
52. “Taxation” is defined under Article 366 (28) of the
Constitution of India:-
366. “(28) “taxation” includes the imposition
of any tax or impost, whether general or local or special,
and “tax” shall be construed accordingly.”
30
53. Article 265 of the Constitution provides that not
only levy but also the collection of a tax must be under the
authority of some law.
“Article 265. Taxes not to be imposed save
by authority of law. – No tax shall be levied or
collected except by authority of law.”
54. “Authority of law” means, the tax proposed to be
levied must be within the legislative competence of the
Legislature imposing the tax. (Balaji vs. Income-Tax
Officer, AIR 1962 SC 123.
List II – State List
Entry 17 is as follows :-
“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.”
Entry 18 is as follows :-
“18. Land, that is to say, right 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.”
Entry 45 is as follows :-
31
“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.”
Entry 49 is as follows :-
“49. Taxes on lands and buildings.”
Entry 50 is as follows :-
“50. Taxes on mineral rights subject to any
limitations imposed by Parliament by law relating to
mineral development.”
55. 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
32
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 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.
56. Mr. Dinesh Dwivedi, learned Senior Advocate,
appearing for the State, contended that every legislative
Entry is entitled to widest and most liberal construction,
including the taxing entries. He further argued that water is
part of land, therefore, the State Legislature is empowered to
enact the Act under Entry 49 of List II.
57. Mr. Dinesh Dwivedi, learned Senior Advocate, has
relied upon the judgment of the Hon’ble Supreme Court in
M/s R.S. Rekhchand Mohota Spinning and Ors Weaving
Mills Ltd. vs. State of Maharashtra, (1997) 6 SCC 12.
According to him, the expression “land” would include
“water”.
33
58. In the said case, the fact before the Hon’ble
Supreme Court was that a part of a parcel of land was
incidentally adjacent to a flowing river and the landowner was
consuming the water therefrom claiming an easementary
right, which consumption was subjected to land cess under
the Maharashtra Land Revenue Code. The question before
the Hon’ble Supreme Court was, “whether the appellant has a
natural right to use water from the flowing river and whether
the water used by it is exigible to land cess”. The Hon’ble
Supreme Court held that though the landowner has a natural
right to use water from the flowing river, however, since the
title over the river was that of the State, it was permissible
for the State to levy land cess on the consumption of water.
It is discernible from a reading of the judgment that it was
confined to answering the said limited question. The Hon’ble
Supreme Court did not examine the legislative power of the
State to impose land cess on water in any context other than
that in the Maharashtra Land Revenue Code.
59. In Union of India vs. H.S. Dhillon, (1971) 2
SCC 779, the Hon’ble Supreme Court held that in order to
trace competence to Entry 49 List II, one of the prerequisites
is, “It must be a tax on units, that is lands and buildings
separately as units”. It is not a personal tax but a tax in
property.
34
60. Mr. Dinesh Dwivedi, learned Senior Advocate,
argued that the State Legislature is competent to impose the
tax under Entry 50 of List II. He has heavily relied upon the
judgment of the Hon’ble Supreme Court in Ichchapur
Industrial Cooperative Society Ltd. vs. Competent
Authority, Oil and Natural Gas Commission and
Another, (1997) 2 SCC 42.
61. The said case was in context of water as a mineral
under the Petroleum and Minerals Pipelines (Acquisition of
Right of User in Land) Act, 1962 (in short, “Act 1962”). The
Hon’ble Supreme Court discussed the provisions of the Act,
1962 as well as the definition of “mineral” under the Mines
Act, 1952 and observed that water is a mineral. The Hon’ble
Supreme Court defined the word “water” as mineral in view of
the provisions of the Act, 1962. The Hon’ble Supreme Court
has not made any universal declaration that water is mineral.
Therefore, benefit of this judgment cannot be given to the
State.
62. Mr. Dinesh Dwivedi, learned Senior Advocate,
contended that Article 288 of the Constitution of India
indicates the existence of States’ power to impose a tax on
the drawal / use of water meant for electricity generation.
63. Article 288 of the Constitution of India is not a
source of legislative competence. Article 288 of the
Constitution applies only to such entities, which are clearly
35
defined under this Article. Article 288 of the Constitution
merely makes provisions for water or electricity in special
context. The law is settled that the legislative competence
may not be implied or inferred to. Article 288 (2) is an
enabling provision, but, the conditions of this provision in
relation of the Act are also not fulfilled.
64. I have conducted an in-depth study of the
judgments referred to by the State. The State cannot take
advantage of the referred judgments in the present matter
because it is well-settled that Taxation is a distinct matter
and there is a clear distinction between general subjects of
legislation and taxation. State has no power to levy water tax
on generation of electricity as there is no Entry under List II
of Schedule VII to levy water tax. Taxation is regarded as a
distinct matter and is separately set out.
65. In State of West Bengal vs. Kesoram
Industries Ltd., (2004) 10 SCC 201, the Hon’ble Supreme
Court held, “Taxation is considered to be a distinct matter for
purposes of legislative competence. There is a distinction
made between general subjects of legislation and taxation.
The general subjects of legislation are dealt with in one group
of entries and power of taxation in a separate group. The
power to tax cannot be deducted from a general legislative
entry as an ancillary power”.
36
66. It has been found in the earlier analysis that the
Act imposes a tax on the generation of electricity. The State
Legislature is not competent to levy tax on the generation of
electricity. Therefore, I am in full agreement with the
conclusion of brother Ravindra Maithani, J. that the Act is
ultra vires the Constitution.
67. The case of the appellants is that the impugned tax
cannot be levied on the ground that the State is promissorily
estopped from levying the same in the light of the respective
agreements entered with by the State with the appellants.
68. Brother Ravindra Maithani, J. observed that since
the State of Uttarakhand is bound to exempt the appellants
from payment of any water tax for the period for which the
agreement is in force, during that period, no demand of water
tax could be made. It is barred by the doctrine of promissory
estoppel.
69. On the other hand, Hon’ble the then Chief Justice
observed that it is well settled that there is no estoppel
against the law. The competence and the power of the State
Legislature to enact legislation, including for the purpose of
taxation, cannot be interdicted on the plea of promissory
estoppel. The agreement were entered into between the
appellants with the State Government, the exemption limb,
and not with the State Legislature. Moreover, the water tax
imposed under the impugned legislation is a tax, and not an
37
additional royalty which is sought to be exempted. Therefore,
he has rejected the said plea of the appellants.
70. In Basantkumar Radhakisan Bora vs. Board of
Trustees of the Port of Bombay, 1991 (1) SCC 761 and
in M/s Hero Motocorp Ltd. vs. Union of India and
Others, 2022 LiveLaw (SC) 852, the Hon’ble Supreme
Court held that there can be no promissory estoppel against
the legislature in the exercise of its legislative functions.
71. The contentions of the appellants are that State
cannot impose any tax. They are stopped from doing so with
the help of doctrine of Promissory Estoppel and any departure
from the promise may be termed as unconscionable
departure.
72. The case of the appellants is not based on any
fraud and they also failed to show any extraordinary facts /
circumstances that would allow the Court to apply the
doctrine of Promissory Estoppel to override a change made by
the Legislature (legislative function).
73. In the aforesaid circumstances, I concur with the
conclusion of the Hon’ble the then Chief Justice.
74. The reference is answered accordingly.
(ALOK KUMAR VERMA, J.)
Dated: 27.04.2026
Shiv/