NEW DELHI, Oct 29: The Central government has requested that states refrain from imposing any taxes or duties on electricity produced by any source, including wind, solar, hydro, or coal, adding that doing so would be unlawful and unconstitutional. In a circular published on October 25, the Union Ministry of Power stated that it had been brought to the attention of the Central Government that several State Governments had placed extra fees on the production of electricity from different sources, purporting to be development free/charges/fund.It stated that it is unlawful and unconstitutional to impose such additional costs or fees in the form of taxes or duties on the production of energy, which includes all forms of generation, including nuclear, solar, wind, and thermal. The ministry clarified the constitutional position by stating that the VII Schedule expressly states the authority to impose taxes and charges. The states’ authority to impose taxes and duties is listed in entries 45 through 63 of List II of the VII Schedule. Since the Central Government has residuary powers, the State Governments cannot impose any taxes or charges that are not clearly listed in this list, it stated. The states are permitted to impose taxes on the sale or consumption of energy within their borders per Entry-53 of the List-II (State List).This excludes the authority to levy any fees or charges on the production of electricity. This is due to the fact that electricity produced on a state’s territory may be used in other states, and no state has the authority to impose taxes or other obligations on its citizens, according to the decision. The ministry continued by saying that where a supply of products or services occurs outside of a state, Article-286 of the Constitution expressly forbids states from charging any taxes or charges on that supply. Additionally, taxes on the sale or consumption of electricity purchased by the Central Government or consumed by it for use by the Government or its agencies are prohibited by Articles 287 and 288.The directives said that no state might impose taxes or levies on electricity generation or interstate delivery under the pretence of charging more or offering a free service for electricity generated from any source, including renewables, hydropower, or thermal energy, in accordance with the requirements of the constitution. The federal government requested that states immediately eliminate any taxes, duties, or fees imposed under the pretence of funding for the generation of power from whatever source. The Ministry had requested in April that states refrain from levying any taxes or duties on electricity generation, particularly from hydroelectric projects. Under the pretence of imposing a cess on the use of water for electricity generation, many states have levied taxes or levies on the production of electricity.However, the power ministry had stated on April 25 that “even 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 states.” It said that any tax imposed on the non-consumptive usage of these rivers’ water for the production of power would be unconstitutional. The ministry had claimed that hydroelectric projects don’t use water to generate electricity, noting that the majority of them are situated on interstate rivers. Similar to how energy from wind projects is produced, electricity is produced by guiding the flow of water via a turbine. The wind is used to turn the turbine, producing power. As a result, the ministry declared that there was no justification for imposing an air or water cess.
