Three writ petitions raised one question: can the former State of Jammu and Kashmir tax the generation of electricity by calling the levy Water Usage Charges? The High Court has held that it could not, since in substance the charges are a tax on generation.
Jammu: The High Court of Jammu and Kashmir and Ladakh has struck down the Jammu and Kashmir Water Resources (Regulation and Management) Act, 2010, to the extent it levies water usage charges on hydropower projects, quashed the demand notices issued to independent power producers, and restrained the authorities from taxing electricity generation under any other name [M/s Mass N Energy and Others v. Union of India and Others].
A Division Bench of Justice Rajnesh Oswal and Justice Sanjay Dhar pronounced the judgment on October 29, 2026, after reserving it on September 2. Justice Sanjay Dhar wrote the judgment.
Fee or tax: no service in return
The Court found no service rendered to the licensees in return for the money collected. Section 185-A of the 2010 Act routes the charges from hydroelectric projects into a fund for setting up hydel projects, buying back power projects, investing in transmission and distribution, and purchasing power for the State. With no element of quid pro quo, the Court treated the levy as a tax.
It then asked what that tax falls on. Entry 53 of List II lets a State tax the consumption or sale of electricity, but not its generation. Since water is used, and not consumed, in the very process of producing hydropower, any levy imposed before or during generation is in substance a tax on generation itself.
The Union Territory’s defence
The Union Territory defended the levy under Entry 17 of List II of the Seventh Schedule, which covers water, including water power. It also argued that even if the levy were a tax on generation, the 2010 Act had since been adopted through the Jammu and Kashmir Reorganisation Act, 2019, an enactment of Parliament.
Three petitions, heard together
WP(C) No. 3008/2024 was heard with WP(C) Nos. 3324/2025 and 3329/2025. The first was filed by 11 companies running river-based hydroelectric projects, including M/s Mass N Energy Pvt. Ltd., Himalayan Musk Power Pvt. Ltd. and Khari Hydro Power Project Pvt. Ltd. The others were filed by Magpie Hydel Construction Operation Industries Pvt. Ltd. and Choudhary Power Projects Pvt. Ltd.
The petitioners challenged the 2010 Act and its rules to the extent they levy water usage charges for generating electricity, along with the demand notices raised against them.
Adoption does not cure the defect
The Bench called the Reorganisation Act argument “an attempt in desperation to save the impugned legislation” and rejected it:
“Merely because the Act provides for adoption of State enactments and saves their application to UTs of J&K and Ladakh, the said enactments do not become the enactments passed by the Parliament.”
“A piece of legislation, which is ultra vires the Constitution at the time of its enactment cannot be legitimized by its adoption by the Parliament subsequently.”
Relying on Deep Chand v. State of U.P. and Krishna Chandra Gangopadhyaya v. Union of India, the Court said a law passed without legislative competence is void from inception, a stillborn legislation, and the only cure is a fresh law within competence.
The operative holding
“(i) The impugned Jammu and Kashmir Water Resources (Regulation and Management) Act, 2010, to the extent it provides for levying water usage charges upon the hydro power projects, amounts to imposing a tax on the generation of electricity and, therefore, the State Legislature did not have the competence to impose such tax upon the writ petitioners (ii) The impugned enactment, to the extent it imposes water usage charges upon the petitioners, is held to be ultra vires the Constitution and is struck down to the said extent. (iii) The impugned demand notices issued against the writ petitioners are quashed, and the respondent-State is restrained from imposing any tax on the generation of electricity under the garb of water usage charges or any other tax.”
What the judgment changes
The ruling turns on a settled test: a levy is a fee only if it pays for a service to the payer. Where the money flows into the general goals of the power sector and the State’s own purchases, it is a tax, and its validity then depends on which entry in the State List supports it. Entry 53 covers consumption and sale of electricity, not generation.
The second holding may reach further. Laws of the former State that were adopted after the 2019 reorganisation do not become Acts of Parliament, and adoption cannot rescue a law that lacked competence when it was passed. For small hydro producers in Jammu and Kashmir, the demand notices go, and any future levy on generation must rest on a valid law.
Case Title: M/s Mass N Energy and Others v. Union of India and Others [WP(C) No. 3008/2024 c/w WP(C) No. 3324/2025 and WP(C) No. 3329/2025]
Bench: Justice Rajnesh Oswal and Justice Sanjay Dhar, High Court of Jammu and Kashmir and Ladakh
Date of Judgment: October 29, 2026
For the Petitioners: Senior Advocate Pranav Kohli with Raunak Gupta; Shariq J. Reyaz, Humaira Sajad, Rahul Sharma, Rupali Sharma and Akshaj Rahmatra, Advocates
For the Respondents: A. R. Malik, Senior Additional Advocate General, with Nisha Kangotra; T.M. Shamsi, Deputy Solicitor General of India, with Rehana Qayoom