TaxTMI 
TaxTMI 
2024 (3) TMI 585
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....S.J.V.N. Ltd., M/s Surya Kanta Hydro Energies Pvt. Ltd., M/s Himshakti Projects Pvt. Ltd., M/s Patikari Power Pvt. Ltd., M/s Gangdari Hydro Power Pvt. Ltd., M/s Greenko Astha Projects (India) Pvt. Ltd., M/s Greenko Tarela Power Pvt. Ltd., M/s. Technology House (India) Pvt. Ltd., M/s Greenko Tejassarnika Hydro Energies Pvt. Ltd. M/s. Greenko Sri Sai Krishna Hydro Power Energies Pvt. Ltd., M/s Greenko Sumez Hydro Energies Pvt. Ltd., M/s Greenko AT Hydro Pvt. Ltd., M/s Greenko Cimaron Constructions Pvt. Ltd., M/s Greenko Him Kailash Hydro Power Pvt. Ltd., M/s Greenko Anubhav Hydel Power Pvt. Ltd., JSW Hydro Energy Ltd & anr., Taranda Hydro Power Pvt. Ltd., Panchhor Hydro Power Pvt. Ltd. M/s Ramesh Hydro Power Pvt. Ltd., M/s. Kanchanjunga Power Company Pvt. Ltd., Tissa Hydro Power Pvt. Ltd., I.A. Hydro Energy Pvt. Ltd., Rajpur Hydro Power Plant Ltd., M/s Goodwill Energy Enterprises, Himachal Sorang Power Pvt. Ltd., M/s Greenko Budhil Hydro Power Pvt. Ltd. M/s Luni Power Company Pvt. Ltd., Punjab State Power Corporation Ltd., GMR Bajoli Holi Hydro Power Pvt. Ltd. & Anr., Prodigy Hydro Power Pvt. Ltd. Versus State of H.P. & ors. For the petitioner(s): Mr. Tushar Mehta, Sr. Advocate (thr....
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....kur, Central Government Counsel, for the respondent-Union of India. Mr. Anand Sharma, Senior Advocate with Mr. Karan Sharma, Advocate, for respondent No. 14 in CWP No. 2855 of 2023 and for respondent No. 6 in CWP No. 2869 of 2023. Ms. Sunita Sharma, Sr. Advocate, with Ms. Lalita Sharma, Advocate, for respondent No. 6 in CWP Nos. 2917 & 2918 of 2023 and for respondent No. 8 in CWP No. 2869 of 2023. Mr. Nitin Thakur, Advocate, for respondent No. 7 in CWP No. 2855 of 2023 and for respondents No. 11 to 13 in CWP No. 2869 of 2023. M/s Satish Mukherjee, Abhishek Kumar, Nived, Shubham Mudgil and Mr. Janesh Gupta, Advocates, for respondent No. 11 in CWP No. 2855 of 2023. Mr. Shivom Vashishta, Advocate, for respondent No. 14 in CWP No. 2855 of 2023 and respondent No. 6 in CWP No. 2869 of 2023. JUSTICE TARLOK SINGH CHAUHAN Since, somewhat identical issues of fact and law are involved in these batch of writ petitions, therefore, they have been decided by this common judgment. Case of the Petitioner(s): 1.1. The petitioners are power generation companies engaged in the production of the electricity by using river water. They own, operate and maintain the hydropower projects. The petitioner....
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.... the State Government in the usage of water flowing from the said rivers by way of seeking sanction for non-consumptive usage of river water and further by way of levy of cess on such non-consumptive use of inter-state river water for generation of electricity, is wholly illegal and invalid being beyond the legislative competence/power of the State Government. (vii) The Govt. of India, Ministry of Power taking note of the fact that some of the States have imposed taxes/duties on generation of electricity in the guise of water tax/cess, vide letter dated 25.04.2023 had called upon all the Chief Secretaries of the State Governments and Union Territories not to levy such tax/duty/cess being contrary to the constitutional provisions and the same be promptly withdrawn. (viii) Section 10 of the Act and Rule 7 of Himachal Pradesh Water Cess from Hydro Power Generation Rules, 2023 (for short "the Rules") have impact of taking away the rights that have been crystallized or vested on the petitioners. The impugned Act has a retrospective effect. Even though, the Legislature is entitled to make an enactment with retrospective effect, but it cannot take away the rights that have already bee....
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....ricity which is impermissible in law. (xviii) The Act seeks to charge the water cess based the head of the turbine. Thus, the water cess sought to be charged is directly relatable to the head. The levy of cess under the Act is based on the premise of higher the head, the more will be electricity generated for the same value of the water used. Therefore, the impugned Act seeks to levy cess on the generation of the electricity/hydropower and not drawl of the water alone. (xix) There is no entry in List-II which empowers the State to levy a tax on the generation of the electricity and hence, impugned enactment is void ab initio. (xx) Tax is imposed on "user" who is the person, who draws the water for generation of the electricity. Therefore, taxable event is not mere drawl of water but the drawl of water for the generation of electricity. (xxi) The Act is unconstitutional since the charging section does not lay down any guidelines, limitations or safeguards. Therefore, such legislative architecture suffers from the vice of the excessive delegation and thereby violative of Article 14 plainly and is thus void. (xxii) Since, there is no provision providing for an opportunity of....
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.... hydropower projects, which does not fall under article 288(1) of the Constitution of India and there is no violation of any provisions of The Rivers Boards Act, 1956 and the Inter-State River Water Disputes Act, 1956. 2.5. Cess has been levied by the Act for usage/drawn storage under entry No. 17 of List-II, i.e. for development, management, maintenance and conservation of water resources of the State by creating additional revenue sources on this account, as such directions, as contained in communication dated 25.4.2023 (supra), being not mandatory, are not required to be adopted by the State. 2.6. The Act has come into force w.e.f. 10.3.2023, whereunder existing and forthcoming hydropower projects/ registered users are liable to pay water cess under Section 10(1) and Section 10(2) of the Act for the water usage/water drawn w.e.f. 10.3.2023. Most of the projects have been commissioned since long back and debt servicing period of these projects have been completed as such there will be no impact on the viability of project due to levying of water cess. 2.7. The Act does not violate Article 300A of the Constitution of India. The petitioners have no absolute and exclusive right o....
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....uthorizes the 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. 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. 4. That State Legislature under the List II of the Seventh Schedule of The Constitution of India, does not have the Legislative power or the Constitutional mandate to make or promulgate any law pertaining to imposition of tax on the water drawn by any person much less for non-consumptive usage of water drawn for generation of electricity. 5. That Article 248 of The Constitution of India, 1950, states as under: "248. Residuary power of Legislation (1) Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List. (2) Such power shall include the power of making any law imposing a tax not mentioned in either of those Lists." A reading of the above Article manifests, that the Constitution of India envisaged that in respect of any matter which is not ....
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....r purchase of goods other than newspaper subject to Entry 92A of List-I, which entry in List 1 empowers solely the Union to make laws for levy of tax on Inter State Sale of Electricity. Additionally none of the above two entries in List II contemplate levy of Cess/ Tax on electricity generated. 11. That 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. As per Entry-56 of the Union List of the Constitution of India, regulations of issues related to Inter-State Rivers come under the purview of the Centre. Most of the Hydro-Electric Plants in the State are located/proposed to be developed on inter-State Rivers. 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 of India." Question arising for determination: 4.1. In order to better appreciate the arguments and deliberations, this Court deems it fit to formulate points that arise for consideration in these petitions and thereafter deliberate and decide them. The arguments hav....
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....ith supply of goods outside the State and as per the settled law 'electricity' is a 'good' and is normally supplied by the petitioners' projects outside the State. The word used in the article is 'supply of goods' and 'not generation of goods' and thus the State lacks competence to enact the law. Even under entry 56 of List-I, this power is exclusively vested with the Union of India and as per entry 84 only the goods manufactured can at best be taxed and even the Parliament cannot impose tax on 'generation of electricity'. 5.5. It is then argued that taking the case of the State at its best, that it was under the residuary powers that the tax has been imposed, even then such power is not vested with the State and rather is expressly and exclusively vested with the Union of India under entry 97 of List-I. The reliance placed upon by the State on entry No. 17 of List-II is of no avail as tax entry has to be specific in any one of the lists and cannot be inferred. Under this provision the State can only regulate the water but cannot tax it; for it is not a taxing entry. The State cannot even fall back on entry No. 51 as it does not pertain to nor does it contain a reference to 'elect....
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....place outside the State. (v) 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. (vi) As per Entry-56 of the Union List of the Constitution of India, regulations of issues related to Inter-State Rivers come under the purview of the Centre. Most of the Hydro-Electric Plants in the States are located/ proposed to be developed on Inter-State Rivers. 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 of India. (vii) 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, there is no rationale for levy of "water cess" or "air cess". (viii) The levy of water cess is against the provisions of the Constitution. Entry-17 of List-II, does not authorize the State to levy any tax or duty o....
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.... with respect to water and not to impose tax thereupon. Entry No. 17 cannot be read expansively so as to include power to impose tax. 7.3. He then invited our attention to entry No. 53 of the same list i.e., List No. II to contend that both the aforesaid entries i.e., entries No. 17 and 53 have to be read independently and an equitable construction is not permissible in a taxing statute. Moreover, the tax even otherwise can be imposed by the State Government within confines of the State. Even as per entry No. 53 of List -II "sale of electricity" as envisaged thereunder cannot mean and be construed as generation of electricity. Like sale of coal will not include generation of electricity out of the use of coal. Arguments of Mr. Surjit Ghosh, Advocate: 8.1. Shri Surjit Ghosh, Advocate, apart from adopting the arguments of both the aforesaid learned Senior Counsel(s), has assailed the provisions of the Act as being unconstitutional by referring to Section 15 urging that since this provision of law delegates the power to determine the rate of tax to the State Government without laying down any guidelines, limitation or safeguards, therefore, such legislative architecture suffers fro....
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....tioner urged to contend that the respondents had no power to impose cess on the project i.e. Shanan Power Project, as the same came into existence and is operating for nearly a century now. Arguments of Mr. K.D. Shreedhar and Mr. Rajnish Maniktala, Senior Advocates: 11.1. Learned Senior Counsels for the petitioners have fully supported the arguments of other learned Senior Counsels appearing for the petitioner(s) and have also addressed independent arguments assailing the competence of the State to enact the impugned Act. They have vehemently urged that the cess has not been imposed on the 'water drawn', but the same has been imposed on the 'generation of electricity' and before amendment of Entry-84 of List I of the Seventh Schedule, in the year 2016, 'electricity' was specifically held to be goods within the meaning of Entry-84 and consequently, it was only the Parliament, which could levy tax on generation of electricity. After the amendment of Entry-84, now the generation of electricity can only be taxed under Entry-97 i.e. conferring residual powers upon the Parliament under List I of Seventh Schedule and in order to buttress their arguments, they have placed strong reliance....
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....(j), 3, 5, 6, 7, 8, 10 and 12 thereof. He is at pains to argue that the petitioners are liable to pay cess on the 'water drawn' being its users. 15.3. Additionally, he would argue that the State Government has, in its reply, specifically clarified that it has imposed cess on 'water drawn' for 'use of hydropower generation'. The cess is levied under List-II of Seventh Schedule. It is the case of the State that entries No. 17 and 18 are general entries qua field of legislation of the Legislative Assembly of the State. Entries 45 to 50 provide for field of legislation for imposing cess/tax, whereas, entry No. 66 deals with fee. 15.4. The State has submitted the following points for the Court's consideration. 1. The presumption of constitutionality is in favour of the statute. 2. Entries in the list being fields of legislation must receive liberal construction. 3. The impugned Act is within the purview of entry 49 'Lands and Buildings' of List II as water is covered under entry "land" being in and over the land. 4. The Act also falls within purview of entry 50 of List II, as the water is mineral and the State has right over the water flowing or stored within its jurisdiction,....
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....le (3) of Article 246, the State has exclusive power to frame laws as regards List II of the Seventh Schedule i.e. State List and such entry must receive the widest interpretation. The State not only enjoys the exclusive power but also ancillary power under Entry 17, List II, which deals with land and nowhere impinges upon or touches Entry 56 of List-I i.e. Union List, as the tax is confined, as it does not deal with inter-State regulations, and such Act is confined to Himachal Pradesh only. (6) The Parliament has not enacted any law prohibiting the State from using water. (7) He then referred to List-II, Entry 18, to contend that land includes water on its sub-terrain or under land. (8) He also referred to Entry 49, which empowers the State to impose tax on land and building i.e. land and anything connected to the land, which according to him, is the plenary power of the State Legislature. (9) The Act stands no judicial scrutiny, as even Entry 66 which deals with fees could be invoked by the State as cess can be taxed as also a fee and going by the latest trend in law, even for a fee, there is no co-relationship required to be established. (10) He thereafter invited our ....
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....e State by making the State prosperous and will have to pay tax, which has been levied strictly in accordance with law. 16.2. Mr. Dave, in support of his contention, urged that the 'land' cannot be interpreted in a narrow and pedantic sense and referred to the following judgments of the Hon'ble Supreme Court:- 1. Navinchandra Mafatlal vs. The Commissioner of Income Tax, Bombay City, 1955 (1) SCR 829 2. The Calcutta Gas Company (Proprietary) Ltd. vs. The State of West Bengal and Ors. 1962 Suppl. (3) SCR 1 3. Raja Jagannath Baksh Singh vs. State of Uttar Pradesh & Anr. AIR 1962 (SC) 1563 4. Khyerbari Tea Co. Ltd. & Anr. vs. The State of Assam, 1964 (5) SCR 975. 5. The Anant Mills Co. Ltd. vs. State of Gujarat and Ors. 1975 (2) SCC 175 6. The Government of Andhra Paradesh and Anr. vs. Hindustan Machine Tools Ltd. 1975 (2) 274 7. M/s Hoechst Pharmaceuticals Ltd. & Ors. vs. State of Bihar & Ors. 1983 (4) SCC 45 8. Ichchapur Industrial Coop. Society Ltd. vs. Competent Authority, ONGC and Anr. 1997 (2) SCC 42 9. R. S. Rekhchand Mohota Spinning & Weaving Mills Ltd. vs. State of Maharashtra, 1997 (6) SCC 12 10. W. B. vs. Kesoram Industries Ltd. & Ors. 2004 (10) SCC ....
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....CC 501. Discussions: 17. Before giving point-wise findings to the four questions raised in these petitions, the well settled proposition of interpretation of law which will be necessary while examining the statute needs to be noticed. Interpretation of Law: 18. A Constitution Bench of the Hon'ble Supreme Court in Navinchandra Mafatlal vs. The Commissioner of Income Tax, Bombay City 1955 (1) SCR 829 after placing reliance on the observations made by the then Chief Justice Gwyer in The United Provinces vs. Atiqa Begum 1940 F.C.R. 110 held that the entries in the Seventh Schedule of the Constitution should not be read in a narrow or restricted sense and that each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it. While construing an entry, the widest possible construction according to the ordinary meaning must be put upon the words used therein. The cardinal rule of interpretation, however, is that words should be read in their ordinary, natural and grammatical meaning subject to this rider that in construing words in a constitutional enactment conferring legislative power the most liberal ....
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....h is being used for generation of hydropower. Further, for proper water conservation and water management, the State is spending huge amount of money on environment and social impact mitigation. The developmental activities in the vicinity of hydropower projects are increasing livelihood of the concerned people. Considerable potential has not been considered on hydropower development on this account of environmental and social aspects. The State of Himachal Pradesh has very limited revenue generation resources and there always remain financial constraints in the State. Hence, there is an urgent need to improve the revenue generation in the State through alternate revenue resources. Flowing water in various rivers and its tributaries in the State can be useful source of revenue generation. The neighbouring State Uttarakhand and the Union Territory Jammu & Kashmir have already imposed the water cess on hydropower generation. On the same analogy the State Government has decided to introduce such policy and also opt to impose the water cess to increase the revenue of the State. The water cess on hydropower generation will be imposed based on consumption of water and head available ....
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....generate hydropower. 26. Section 3 provides installation of scheme for usage of water and reads as under: "3. Installation of scheme for usage of water.-(1) No user shall draw water from any source for hydropower generation except in accordance with this Act." 27. Section 8 deals with grant of registration certificate and reads as under: "8. Grant of registration certificate.-An user intending to use water (non consumptive use) for generation of hydropower shall be issued a registration certificate after the execution of an agreement between the user and the Commission under this Act." 28. Section 10 deals with the duties, obligations and responsibilities of the registered user and reads as under: "10. Duties, obligations and responsibilities of the registered user.-(1) The registered user shall be liable to pay water cess for the water drawn for hydropower generation as per the provisions of this Act. (2) Where any user has constructed a hydropower scheme, for the purpose of generation of hydropower, prior to the commencement of this Act, such user shall, within a period of one month from the date of commencement of this Act, apply for registration and the Commission sh....
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.... as may be specified by the Commission. (3) If any user fails to pay water cess due on him, penalty shall be imposed on the user as determined by the Commission. The user has to pay water cess along with penalty within extended time as may be prescribed." 32. It would be noticed that in the Statement of Objects and Reasons of the impugned Act, it was stated that "the State Government has decided to introduce such policy and also opt to impose water cess to increase the revenue of the State. The water cess on hydropower generation will be imposed based on consumption of water and head available in the project, which is considered difference in level at entry and exit of water conductor system". 33. As per Section 10(i) of the Act every registered user is liable to pay water cess for the water drawn for hydropower generation. As per Section 12, the Commission shall install flow measuring devices within the premises of the scheme or may adopt any other indirect method for assessment of water drawn by the user. 34. As per Section 15, the "user" is liable to pay water cess at such rates that have been fixed by the Government as per the Notification and Section 16 provides for its r....
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....ing the rate of levy. 41. In other words, the power to tax is on generation of electricity and user of water is only incidental. The "user of water" is not being taxed and it is only the "user of water for generation of electricity", who is being taxed. Therefore, it is a tax on generation of electricity. If it was the quantum of water used, then the height from which the water would fall as a measure to determine the rate of cess would be wholly irrelevant. It is evidently clear from the aforesaid notification dated 16.02.2023 that the quantification is not based on the use of water, but is based on the height from which the water falls. The "use of water" in fact does not go by the text of the impugned Act. It is "generation of electricity" that is the "bone" and "water drawn" is only the "flesh". The taxable event is "hydropower generation" and not the "usage of water" because if there is no generation, then there is no "tax". Moreover, if the cess was on "usage of water", then how could the height, at which the water falls on the turbine, be made the taxable event? 42. It is settled principle of law that standard adopted as a measure of levy, although not determinative, is at....
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....s levy in the nature of a duty of excise. This Court held that the method thus adopted may be relevant in considering the character of the impost but its effect must be weighed alongwith and in the light of the other relevant circumstances. Referring to Bombay Tyre International Ltd. (supra), the Court further held that it is clear that when enacting a measure to serve as a standard for assessing the levy, the Legislature need not contour it along lines which spell out the character of the levy itself. A broader based standard of reference is permissible to be adopted for the purpose of determining the measure of the levy. Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy." 43. Applying the aforesaid principles to the instant cases, it would be evident that the impugned levy varies in quantum with the quantum of electricity generated but not the quantum of water drawn and, thus, makes it clear that its character or nature is such that it is inextricable with electricity generation. Thus, we have no hesitation to answer Point No. 1 in favour of the petitioners by concluding that by th....
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....nly the face of earth but everything under or over it and has in its legal significance an indefinite extent upwards and downwards giving rise to the maxim: eujus est sulum, ejus est usque ad column. Further, twin conditions to qualify a levy as tax on lands and buildings i.e.: (i) Tax is directly imposed on lands and buildings; and (ii) Tax bears a definite relation to land were specified. 48. However, we find that State's competence to levy tax on water drawn for hydropower generation in the instant case cannot be traced to Entry 49 of List-II, as the impugned levy does not satisfy the above-mentioned twin conditions. The levy of tax on water drawn for hydropower generation is definitely not a tax, which is directly on lands and buildings i.e. the land on which the hydropower plant is situated or the power generating units. Rather, as evidenced by the impugned Act itself, it is a tax on a "user" and is levied pursuant to occurrence of an event/activity i.e. "for water drawn for hydropower generation", which cannot be regarded as having any relation to land, much less a definite one. 49. Furthermore, as prescribed by the charging section i.e. Section 15 of the impugned A....
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....hat while the widest amplitude should be given to the language used in one entry, every attempt has to be made to harmonise its contents with those of other entries, so that the latter may not be rendered nugatory. 52. In this regard, reliance can be placed on the judgment of the Hon'ble Supreme Court in Calcutta Gas Company (Proprietary) Ltd. vs. State of West Bengal and others AIR 1962 SC 1044, the relevant portion whereof reads as under: "8......Before construing the said entries it would be useful to' notice some of the well settled rules of interpretation laid down by the Federal Court and this Court in the matter of construing the entries. The power to legislate is given to the appropriate Legislatures by Art. 246 of the Constitution. The entries in the three Lists are only legislative heads or fields of legislation : they demarcate the area over which the appropriate Legislatures can operate. It is also well settled that widest amplitude should be given to the language of the entries. But some of the entries in the different List or in the same List may overlap and sometimes may also appear to be in direct conflict with each other. It is then the duty of this Court to....
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.... set out under the latter. Moreover, it is trite in law that judgments cannot be applied without appreciating their contest particularly, judgments must be read as whole, and the observations are to be considered in light of the questions which were before the Court leading up to the judgment as the decision takes its colour from the questions involved in a case in which it is rendered. (See: Haryana Financial Corporation and Anr. Vs. Jagdamba Oil Mills & Anr., (2002) 3 SCC 496, Paras 19 to 21, Hon'ble three Judge Bench). 58. Therefore, the aforesaid judgment of the Hon'ble Supreme Court in Ichchapur's case (supra), which considered the limited question as to whether water is mineral within the meaning of Mines Act, 1952 read with Section 2(ba) of the User Rights Acquisition Act, cannot be read as laying down a precedent for interpreting Entry 50 of List-II of Constitution of List-II. In fact, neither the dictionary meaning of the word, nor the meaning judicially ascribed to a word (i.e., in unrelated judgments), can be invoked while interpreting the entries under the lists to the Seventh Schedule to the Constitution. 59. We may at this stage profitably refer to the observati....
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....sons, of water, the right to which vests in the Government and in respect of which no rate is leviable under any law relating to irrigation in force in any part of the State. Such rates shall be liable to revision at such periods as the State Government shall from time to time determine, and shall be recoverable as land revenue. Provided that, the rate for use of water for agricultural purposes shall be one rupee only per year per holder." Section 2(c) defines "hydropower" as a renewable source of energy that generates power by using water drawn from any water source flowing within the territory of the State. Section 2(g) defines "user" as any person, group of persons, local body, government department, company corporation, society or anybody, by whichever name called drawing water from any source for generation of hydropower. Section 2(h) defines "ater" as natural resource flowing in any river, stream, tributary, canal, nallah or any other natural course of water or stipulated upon the surface of any land like, pond, lagoon, swamp or spring. Section 2(i) defines "water cess" as the rate levied or charged for water drawn for generation of hydropower and fixed under this Act. ....
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....ight and not on the water drawn. 67. Further, a perusal of para 12 of Rekchand's case (supra), makes it clear that there are references to other judgments of the Hon'ble Supreme Court, which concern Entry 49 of List-II and specify the twin conditions being: (i) tax is directly imposed on land; and (ii) nexus between the levy and the land to be satisfied in order to sustain a legislation under Entry 49, List-II. 68. As already held above, the State's competence to promulgate the impugned Act cannot be traced to Entry 49 of List-II. Therefore, Rekchand's case (supra) is not applicable in the present case and the State's competence cannot be traced to Entry 45 of List-II. Competence to promulgate whether can be traced to Entries 17 & 18 read with 66 of List-II as a "tax": 69. Entries 17, 18 and 66 of List II (State List) provide as under:- "17. Water, that is to say, water supplies, irrigation and canals, drainage and embankments, water storage and water power subject to the provisions of entry 56 of List I. 18. Land, that is to say, right in or over land, land tenures including the relation of landlord and tenant, and the collection of rents; transfer ....
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....ulation of mines " and Entry 50 is " Taxes on mineral rights ". The above analysis-and it is not exhaustive of the Entries in the Lists-leads to the inference that taxation is not intended to be comprised in the main subject in which it might on an extended construction be regarded as included, but is treated as a distinct matter for purposes of legislative competence. And this distinction is also manifest in the language of Art. 248, Cls. (1) and (2), and of Entry 97 in List I of the Constitution. Construing Entry 42 in the light of the above scheme, it is difficult to resist the conclusion that the power of Parliament to legislate on inter-State trade and commerce under Entry 42 does not include a power to impose a tax on sales in the course of such trade and commerce." 72. Similar reiteration of law can be found in a three-Judge Bench judgment of the Hon'ble Supreme Court in M/s Hoechst Pharmaceuticals Ltd. & Ors. vs. State of Bihar and Ors. (1983) 4 SCC 45, wherein after following the judgment of the aforesaid Constitution Bench, it was observed as under:- "It would therefore appear that there is a distinction made between general subjects of legislation and taxation. Th....
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....66 of List-II. However, we find that the State lacks competence to levy the impugned cess as a fee. The entire field of legislation concerning water power/hydropower projects, declared as such by Parliament under the Electricity Act, 2003, is occupied by Parliament. Therefore, the State lacks competence to levy any fee under the garb of water cess by relying upon Entries 17 & 18, and 66 of List-II. 75. Even otherwise, it is settled that levy can assume the nature of "Fee", if there are any services rendered by the State and, as such, there is quid pro quo, between the person paying fee and the public authority which imposes it. Such quid pro quo, although not required to be established with arithmetical exactitude, must at least be established broadly and reasonably with some amount of certainty, reasonableness or preponderance of probability that quite a substantial portion of the fee realised is spent for the benefit of the payers. 76. Moreover, a "Tax" recovered by a public authority goes into the consolidated fund, which is ultimately utilised for all public purposes, whereas "Fee" is not intended to be, and does not become, part of the consolidated fund. A "Fee" is earmarked....
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....ntaining alcohol or any substance included in sub-paragraph (b) of this entry. List II 53. Taxes on the consumption or sale of electricity." 82. Noticing that electricity is goods (see CST vs. M.P. Electricity Board (1969) 1 SCC 200), the Hon'ble Supreme Court observed that levy of State duty on production of electricity is covered with the phrase "other goods manufactured" in Entry 84 of List I and this is within the exclusive jurisdiction of the Parliament. Consequently, it was declared that the State has competence to levy tax only on the sale and consumption of electricity (see Hoechst Pharmaceuticals Ltd. vs. State of Bihar, (1983) 4 SCC 45). Proceedings on this basis, the Hon'ble Supreme Court posed the question whether the State Legislature was competent to levy cess on captive power generation, through amendment of the Madhya Pradesh Upkar Adhiniyam, 1981. After a detailed discussion, the Hon'ble Supreme Court held that the levy on generation of electricity is not within the legislative competence of the State. Point No. 2 is accordingly answered in favour of the petitioners. Point No. 3. Without prejudice, the impugned Act is unconstitutional for it suffers from vi....
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....executive authority can be authorised to modify either existing or future laws but not in any essential feature. Exactly what constitutes an essential feature cannot be enunciated in general terms, and there was some divergence of view about this in the former case, but this much is clear from the opinions set out above: it cannot include a change of policy." 23. On the basis that s. 548 is a piece of delegated legislation, it has been contended on behalf of the Corporation that the rate of a tax is not an essential feature of legislation and the power to fix it was properly delegated to the Corporation as sufficient guidance for that purpose was given in the Act. It is not in controversy, and this indeed has been held by this Court, that if that is so, the section would be unexceptionable. The question first is whether the power to fix the rate of a tax can be delegated by the legislature to another authority; whether it is of the essence of taxing legislation. The contention of the Corporation that fixation of rates is not an essential part of legislation would seem to be supported by several judgments of this Court to some of which we now proceed to refer. 24. First, there i....
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....sential part of legislation, neither would the power to decide the rate of tax be so. Therefore we think that apart from the express observation made, this case on principle supports the contention that fixing of the rate of a tax is not of the essence of legislative power. 25. In regard to the observations in Pandit Benarsi Das's case([1955] 1 S. C. R. 290.) earlier quoted, it has been said that the authorities on which they appear to have been based do not support it. It has been contended that as the observations do not form part of the actual decision in the case, they need not be given that weight which they would otherwise have been entitled to. In the High Court this contention appears to have been accepted. The acceptance of the contention would result in by-passing a judgment of this Court and that is something which cannot in any case be supported. We are furthermore of opinion that the authorities to which Venkatarama Aiyar J. referred fully support his observations. The first case relied upon by him was Powell v. Appollo Candle Co. Ltd.(1 O. A. C. 282). That case upheld the validity of a statute passed by the legislature of New South Wales which conferred power on....
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....d that the delegation of power to fix rates of taxes authorised for meeting the needs of the delegate to be valid, must provide the maximum rate that can be fixed, or lay down rules indicating that maximum. We are unable to see how the specification of the maximum rate supplies any guidance as to how the amount of the tax which no doubt has to be below the maximum, is to be fixed. Provision for such maximum only sets out a limit of the rate to be imposed and a limit is only a limit and not a guidance." 85. In addition to the above, it was necessary for the legislature to have laid down Legislative Policy, standard or guidelines in the Act or else it is bound to suffer from vice of excessive delegation as held by the Hon'ble Supreme Court in Gwalior Rayon Silk Mfg (Wvg.) Co. Ltd. vs. The Asstt. Commissioner of Sales Tax and others (1974) 4 SCC 98, wherein it was observed as under:- "13. It may be stated at the outset that the growth of the legislative powers of the executive is a significant development of the twentieth century. The theory of laissez-faire has been given a go-by and large and comprehensive powers are being assumed by the State with a view to improve social an....
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....ing the tax/impost i.e.: (i) taxable event attractive the levy; (ii) the person whom the levy is imposed and who is obliged to pay the tax; (iii) the rate at which the tax is imposed and; (iv) the measure of value to which the rate will be applied for computing the tax liability. 87. This was so held by the Hon'ble Supreme Court in M/s Govind Saran Ganga Saran vs. Commissioner of Sales Tax and others AIR 1985 SC 1041, wherein it was observed as under:- "6. The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness ill the legislative scheme defining any of those components of the levy will be fatal to its validity." 88. In....