RESTRICTIONS ON STATE-IMPOSED POWER LEVIES

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The central government has directed states that they do not possess the authority to impose any form of taxation or levies on electricity generated from various sources, including coal, hydro, wind, or solar. Any such imposition is considered illegal and in violation of the Constitution.

In an official circular issued by the Union Ministry of Power on October 25, it was brought to the attention of the central government that certain state administrations had introduced additional charges on electricity generation from diverse sources, masquerading these charges as development fees or funds.

The circular firmly stated that any additional charges or fees in the form of taxes or duties on electricity generation, covering all forms of generation such as thermal, hydro, wind, solar, and nuclear, are deemed unlawful and unconstitutional.

The Ministry clarified the constitutional standpoint, emphasizing that the powers to impose taxes and duties are explicitly outlined in the VII Schedule. List-II of the VII Schedule enumerates the states’ authority to impose taxes and duties, ranging from entries 45 to 63. It was emphasized that no taxes or duties that are not specifically listed in this schedule can be imposed by state governments under any pretext, as residual powers lie with the central government.

Entry-53 of the List-II (State List) authorizes states to levy taxes on the consumption or sale of electricity within their jurisdictions. However, this authority does not extend to imposing taxes or duties on electricity generation. This is because electricity generated within one state’s territory may be consumed in other states, and no state possesses the authority to impose taxes or duties on residents of other states.

The Ministry also pointed out that Article 286 of the Constitution explicitly prohibits states from imposing taxes or duties on the supply of goods or services, especially when the supply occurs outside the state. Additionally, Articles 287 and 288 prohibit the imposition of taxes on the consumption or sale of electricity consumed by the Central government or sold to the Central government for its consumption or use by government agencies.

In light of these constitutional provisions, the orders reiterated that no state is permitted to impose taxes or duties on the generation or inter-state supply of electricity under the pretense of additional charges or fees for electricity generation from any source, be it thermal, hydro, or renewable sources.

The Central government has requested states to promptly eliminate any type of taxes, duties, or cess that have been imposed under the guise of development fees, charges, or funds on electricity generation from any source.

In April, the Ministry had previously urged states not to impose any taxes or duties on electricity generation, particularly from hydroelectric projects. Some states had imposed taxes or duties on electricity generation, disguising them as a water usage cess. However, despite the state’s terminology, it essentially amounted to a tax on electricity generation, to be collected from electricity consumers who may reside in other states.

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