States are urged by the center not to tax or charge electricity production

 States are urged by the center not to tax or charge electricity production

The Ministry of Power announced in a circular on October 25 that it had been brought to the attention of the federal government that some state governments had placed extra fees on the production of power from different sources under the pretense of development free/charges/fund.

The Ministry had requested in April that states refrain from levying any taxes or duties on the production of power, particularly from hydroelectric projects.

The federal government has requested that states refrain from imposing any taxes or duties on energy produced by any source, including wind, solar, hydro, or coal, adding that doing so would be unlawful and unconstitutional.

The Ministry of Power announced in a circular on October 25 that it had been brought to the attention of the federal government that some state governments had placed extra fees on the production of power from different sources under the pretense of development free/charges/fund.

It said, "It is illegal and unconstitutional to impose such additional charges/fees in the manner of any tax or duty on the generation of electricity, including encompasses every form of generation viz. thermal, hydro, wind, solar, nuclear, etc."

The ministry clarified the constitutional issue by stating that the VII Schedule expressly states the authority to impose taxes and charges. List-II of the VII Schedule enumerates the states' authority to impose taxes and charges in entries 45 through 63. Since the central government has residuary powers, state governments are not permitted to impose any taxes or charges that are not clearly included in this list, the statement said.

The states are permitted to impose taxes on the purchase or sale of energy within their borders by virtue of Entry-53 of the List-II (State List).

"The authority to levy any taxes or duties on the production of electricity is not included in this. This is due to the fact that energy 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 if a supply of goods or services occurs outside of a state, Article 286 of the Constitution expressly forbids states from charging any taxes or charges on such supply. Furthermore, taxes on the sale or use of energy purchased by the central government or supplied to it for use by the government or its agencies are forbidden under Articles 287 and 288.

"In light of the terms of the Constitution, no taxes/duties can be collected by any state on generation or inter-state transmission of electricity under the guise of supplementary charges/free on generation of electricity about any source – thermal, hydro or renewables," the decrees said.

The federal government requested that states immediately eliminate all taxes, duties, or fees imposed under the pretense of funding for the production of power from whatever source. The Ministry had requested in April that states refrain from levying any taxes or duties on the production of power, particularly from hydroelectric projects. "Some states have imposed taxes/duties on the manufacture and distribution of electricity under the false pretense of levying a cess on the utilization of water for generating electricity."

"However, though the state could call it a water cess, it is actually a tax on the generation of electrical power – the tax is to be collected by the consumers of electricity who could potentially be residents in other states," the power ministry indicated on April 25.

"Any imposition of tax on the non-consumptive utilization of the water of these waterways for electricity generation is in contradiction to the provisions of the Constitution," it said. The government had claimed that hydropower projects don't use water to generate energy, 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 drive the turbine, producing power. The government had claimed that hydropower projects don't use water to generate energy, noting that the majority of them are situated on interstate rivers.