The Indian government has issued a stern warning to various State Governments regarding the imposition of additional charges on electricity generation from different sources. These additional fees, often disguised as development fees or funds, have been deemed illegal and unconstitutional.
In a recent communication, the Ministry emphasized the illegality of imposing taxes or duties on electricity generation, whether it be from thermal, hydro, wind, solar, nuclear, or other sources. This clarification is especially relevant given recent instances of some states imposing water taxes or cess on power generation.
The Constitutional framework is clear on this matter. The authority to levy taxes and duties is explicitly defined in the Seventh Schedule of the Constitution. Entries 45 to 63 in List II of the Seventh Schedule grant states the power to levy taxes and duties. Any taxes or duties not explicitly mentioned in this list cannot be imposed by the State Governments. The Central Government holds residual powers in this regard.
It’s important to note that while states can levy taxes on the consumption or sale of electricity within their jurisdiction, they do not have the authority to impose taxes or duties on the generation of electricity. This distinction is crucial because electricity generated within one state may be consumed in another, making it beyond the purview of individual state governments to impose such taxes.
Article 286 of the Constitution further prohibits states from imposing taxes or duties on the supply of goods or services that occur outside their borders. Articles 287 and 288 also prevent states from imposing taxes on electricity consumed by the Central Government or sold to it for its agencies.
In light of these constitutional provisions, it is abundantly clear that states cannot impose any taxes or duties on the generation or inter-state supply of electricity under the guise of additional charges, fees, or funds. This prohibition applies to electricity generated from all sources, including thermal, hydro, and renewables.
In response to these constitutional principles, the State Governments have been strongly advised to promptly eliminate any form of tax, duty, or cess that has been imposed under the pretext of development fees or charges on electricity generation from any source, including thermal, hydro, and renewables. Compliance with these constitutional provisions is essential to ensure a fair and legally sound electricity generation and supply system across the country.
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