The Union Power Ministry on Thursday emphasised that States cannot levy taxes or duties on the generation or the inter-State supply of electricity under the guise of additional charges or fees on generation from any source — thermal, renewable or hydro power.

“It has come to the notice of the Indian government that some State governments have imposed additional charges on the generation of electricity from various sources under the guise of development fee/charges/fund. Such additional charges/fees in the form of any tax/duty on generation of electricity, which encompasses all types of generation viz. thermal, hydro, wind, solar, nuclear, etc. is illegal and unconstitutional,” it said in a circular.

Without naming the States, the Ministry said that in April 2023 it had clarified the above legal position with respect to the instances of imposition of water tax/cess by some of the States.

Constitutional provisions

Citing constitutional provisions, the Ministry pointed out that the powers to levy taxes/duties are specifically stated in the Vll Schedule. List-ll of the Vll Schedule lists the powers of levying taxes/duties by States in entries 45 to 63. No taxes/duties which have not been specifically mentioned in this list can be levied by the State governments under any guise whatsoever — as residuary powers are with the Centre.

“Entry-53 of List-ll (State List) authorises the States to levy 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. 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,” it added.

Similarly, Article 286 of the Constitution explicitly prohibits States from imposing any taxes/duties on supply of goods or services or on both, where the supply takes place outside the State, while Articles 287 and 288 prohibit imposition of taxes on consumption or sale of electricity consumed by the Centre or sold to the Centre for consumption by the government or its agencies.

Direction to States

“ln light of the above-mentioned constitutional provisions, no taxes/duties can be levied by any State on generation or inter-state supply of electricity under the guise of additional charges/fee on generation of electricity from any source — thermal or hydro or renewables, etc,” the Ministry reiterated.

ln view of the above, States are advised to promptly remove any kind of tax/duty/cess levied in the guise of development fee/charges/fund on generation of electricity from any source — including thermal/hydro/renewables, it added.

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