The Himachal Pradesh High Court has declared the water cess imposed by the state government on hydropower generation as “unconstitutional.” This ruling came after approximately 40 power-generating companies filed a challenge against the state’s Water Cess Act, marking a significant victory for the hydropower sector within the region.
The judgment was delivered by a division bench consisting of Justices Trilok Chauhan and Satyen Vaidya, addressing the grievances of the hydropower companies that had been subjected to the newly imposed cess. The state government, led by Chief Minister Sukhwinder Singh Sukhu since December 2022, had introduced the Himachal Pradesh Water Cess on Hydropower Generation Bill, 2023, in an effort to augment economic resources. This bill, passed swiftly by the Himachal Pradesh Legislative Assembly in March 2023, aimed to levy a water cess on the operational power projects within the state.
Following the enactment of this legislation, the Himachal Pradesh Water Cess Commission issued notices to 173 power-producing companies, demanding a cumulative cess of ₹871 crore for the period from March to July of the previous year. While about 170 companies had registered with the Water Commission, with some even beginning to comply with the new cess payments, a significant number of larger entities took legal action against the state’s decision.
One of the leading petitioners, Everest Power Private Limited, which operates the 100 MW Malana II Hydroelectric Project in District Kullu, spearheaded the legal challenge. The company argued that sections 10 and 15 of the Himachal Pradesh Water Cess from Hydro Power Generation Act 2023, along with Rule 7 of the corresponding rules, were unconstitutional and should be nullified. Represented by counsel and senior Advocate Rajnish Maniktala, Everest Power also sought a directive to restrain the government from implementing the act’s provisions and requested a refund of any cess already collected, with interest at 12% per annum.
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This legal battle was underscored by the central government’s stance, which had previously denounced the state government’s act as unconstitutional. In April of the previous year, the Centre dismissed the Himachal Pradesh government’s initiative to generate ₹1,800 crore through water cess on hydel companies, labeling any additional charges or duties on power generation as beyond the constitutional scope of state authority.
The Union energy ministry, in a letter to all state chief secretaries dated October 25, reiterated that states do not possess the authority to impose water cess, citing Articles 286, 287, and 288 of the Constitution. These articles emphasize that levying such fees on thermal, hydro, wind, and solar power generation falls outside state jurisdiction. Despite this, the Himachal Pradesh government proceeded with the enactment of the Water Cess Hydro Power Generation Act, 2023, and established a commission to manage tax collection.
The Himachal Pradesh High Court’s ruling not only provides immediate relief to the affected hydropower companies but also sets a precedent regarding the limits of state authority over power generation. This decision is expected to have far-reaching implications for the regulatory landscape of hydropower generation in Himachal Pradesh and potentially other states considering similar levies.
