Centre asks states to scrap taxes on power generation
The Centre has asked states not to levy or impose any tax or duty on generation of electricity especially from hydro projects for it being illegal and directed them to withdraw any such levies promptly
The Centre has asked states not to levy or impose any tax or duty on generation of electricity especially from hydro projects for it being illegal and directed them to withdraw any such levies promptly
In a communique to chief secretaries of all states and Union Territories on Tuesday, the Ministry of Power said, "It has come to the notice of Government of lndia (Gol) that some state governments have imposed taxes /duties on generation of electricity. This is illegal and unconstitutional."
The Ministry of Power said any such tax /duty on generation of electricity, which encompasses all types of generation viz. thermal, hydro, wind, solar, nuclear, etc. is illegal and unconstitutional.
The ministry further said "no taxes or duties may be levied by any state - under any guise on generation of electricity and if any taxes or duties have been so levied, it may be promptly withdrawn."
"Some states have imposed taxes/duties on generation of electricity under the guise of levying a cess on the use of water for generating electricity. 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 happen to be residents in other state," the power ministry said.
"This is because electricity generated within the territory of one state may be consumed in other states and no state has the power to levy taxes/duties on residents of other states," the communique added.
States are empowered by the constitution to levy taxes on consumption or sale of electricity in their jurisdiction, but this does not include the power to impose any tax or duty on the generation of electricity, the communique said, However, though the state may call it a water cess, it is actually a tax on generation of electricity - the tax is to be collected from the consumers of electricity who may happen to be residents in other state, the communiqué added.
Entry-53 of List-II (State List) authorizes states to put taxes on consumption or sale of electricity in its jurisdiction. This does not include the power to impose any tax or duty on the generation of electricity.
Article 286 of the constitution explicitly prohibits states from imposing any taxes or duties on supply of goods or services or on both where the supply takes place outside the state.
Articles 287 and 288 prohibit the imposition of taxes on consumption or sale of electricity consumed by the central government or sold to the central government for consumption by the government or its agencies.
Any imposition of tax on the non-consumptive use of water of these rivers for electricity generation is in violation of provisions of the Constitution, it argued.
Hydro power 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 where wind is utilized to turn the turbine to produce electricity.
Therefore, the ministry said there is no rationale for levy of water cess or air cess.
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First Published:27 Apr 2023, 02:03 AM IST
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