New Delhi: Terming water tax on hydroelectric projects as illegal, the Union Power Ministry has asked all states to withdraw such imposition of taxes. "It has come to the notice of the government of India, that some state governments have imposed taxes and duties on generation of electricity. This is illegal and unconstitutional. Any tax/duty on the generation of electricity, which encompasses all types of generation, including thermal, hydro, solar, nuclear etc, is illegal and unconstitutional," said a letter signed by RP Pradhan, director in Power Ministry.
The letter in possession of ETV Bharat clarified that no taxes and duties may be levied by any state under the guise of generation of electricity and if any taxes and duties have been so levied, it may be promptly withdrawn.
"The power to levy taxes and duties is specifically stated in the VII Schedule. List II of the VII Schedule lists the powers of levying taxes and duties by the States in entries-45 to 63. No taxes and duties which have not been specifically mentioned in the list can be levied by the state government under any guise whatsoever as residuary powers are with the central government," Pradhan said in his letter sent to chief secretaries of all States and UTs.
It further said that some States have imposed taxes and duties on the generation of electricity under the guise of levying a cess on the use of water for generating electricity.
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However, though the State may call it a water cess, it is actually a tax on the generation of electricity — the tax is to be collected from the consumers of electricity who may be the residents in other States.
"Hydropower projects do not consume water to produce electricity. Electricity is generated by directing the flow of water through a turbine which generates electricity — on the same principle as electricity from wind projects wherein wind is utilized to turn the turbine to produce electricity. Therefore, there is no rationale for levy of water cess or air cess," Pradhan said.
