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 . waPter used, then the height from which the water woul H d fall as a measure to determine the rate of cess wou ld be wholly irrelevant. It is evidently clear from the aforefsaid notification dated 16.02.2023 that the quantificat iono is not based on the use of water, but is based on th r e h t eight from which the water falls. The "use of water" in fact does not go by the text of the impugned Act. It is "g o eneraution of electricity" that is the "bone" and "water dra C wn" is only the "flesh". The taxable event is "hydropower generation" and not the "usage of water" because if there is h no generation, then there is no "tax". Moreover, if the ces g s was on "usage of water", then how could the height, at i which the water falls on the turbine, be made the taxable event? H 42. It is settled principle of law that standard adopted as a measure of levy, although not determinative, is at least indicative of the nature of the tax. Weighed alongwith and in the light of other relevant circumstances, the method adopted by

the legislature would be relevant in determining the character of

63

the impost. To be regarded as valid basis, the measure of the levy must maintain a nexus with the essential character, as held by the Hon'ble Supreme Court in State of West Bengal v. . Kesoram Industries Ltd.¹⁸. It shall be relevant to extract the relevant observations as contained in paras 33 and 38, w . hPich read as under:- H

"We now proceed to enter a deeper dimen sion in the field of tax legislation by considering o the p f roblem of devising the measure of taxation. This a spect has been dealt with in detail in Union of India t and Ors. v. Bombay Tyre International Ltd.,. T r racing the principles from the leading authority o u f Re.: a reference under the Government of Ireland Act 1920 and Section 3 of the Finance Act (Northern Ireland) 1934, (1936) A.C. 352, passing through Ralla Ram v. Province of East Punjab, 1948

FCR C 207, oand treading through the law as it has de veloped through judicial pronouncements one after the h ether, this Court has made subtle observations therein. It has been long recognized that the measure employed for g

assessing a tax must not be confused with the nature of i

the tax. A tax has two elements: first, the person, thing or activity on which the tax is imposed, and secondly, the

H

amount of tax. The amount may be measured in many ways; but a distinction between the subject matter of a tax and the standard by which the amount of tax is measured must not be lost sight of. These are described respectively as the subject of a tax and the measure of a tax. It is true

that the standard adopted as a measure of the levy may

64

be indicative of the nature of the tax, but it does not necessarily determine it. The nature of the mechanism by which the tax is to be assessed is not decisive of the essential characteristic of the particular tax charged, though it may throw light on the general character of P the .tax.

38. In the Hingir-Rampur Coal Co. Ltd. v. Sta . te of Orissa, (1961) 2 (SCR) 537, the form in wh H ich the levy was imposed was held to be an impermissible test for defining in itself the character of the levy. It was argued that the method of determining the rafte of levy was by

reference to the minerals produ o ced by the mines and,

therefore, it was levy in the nat ure of a duty of excise. This

Court held that the method t thus adopted may be relevant

in considering the u char r acter of the impost but its effect must be weighed alongwith and in the light of the other relevant circumstances. Referring to Bombay Tyre Internation o al Ltd. (supra), the Court further held that

it is clear that when enacting a measure to serve as a

sta nd C ard for assessing the levy, the Legislature need not h contour it along lines which spell out the character of the levy itself. A broader based standard of reference is

ig

permissible to be adopted for the purpose of determining the measure of the levy. Any standard which maintains a H

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

65

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 the impugned Act cess is sought to be imposed on "generation of electricit . y"P as against "water" and, therefore, it is a misnomer H that tax is levied on "water" and not "generation of electr icity", and is, therefore, not a water tax. f

This point is answered a t cco rdoingly in favour of the petitioners.

Point No. 2. r

44. At the outset, uit is necessary to observe that normally it is the 'pith o and substance' of the taxing legislation which assum es C significance not to the question of bonafides or malafide h s but in examining the competence of the legislature be g cause the State, while promulgating a statute, might i purport to act within limits of its powers, yet in substance and H

in reality, it may be transgressing these powers, the transgression being veiled by what appears, on proper examination, to be a mere pretense or a disguise.

66

Pith and Substance

45. In determining whether an enactment is a legislation with respect to the given power, what is relevant is .

whether in its "pith and substance", it is law upon the subjec P t matter in question. Therefore, it is necessary here to sub . ject the impugned Act to the test of "pith and su bs H tance" to ascertain its true intent and character, which f is relevant in determining as to which list it would fa o ll under and also to trace the State's competence to t have promulgated the impugned Act arises. As per Art r icle 265, no tax can be levied or collected except by autho u rity of law.

Competence of the State to promulgate the impugned Act whether can be C trace o d to Entry 49 of List-II to the Seventh Schedule of the Constitution as contended by the State: 46. h Entry 49 of List II (State List) provides for "Taxes on lan g ds and buildings." i 47. The State has relied on Anant Mills Co. Ltd. vs. H State of Gurajat & others 19 , in the said case the question was with regard to assessment of property tax of large premises like textile mills and factories. The property tax, in that context, comprised (a) water tax, (b) conservancy tax, and (c) a general tax. It was argued in that case that the State legislature has no

19 (1975) 2 SCC 175

67

competence under Entry 49 of List-II to enact a law for levying tax in respect of an area occupied by underground supply line. It was argued that the word land denotes the surface of land .

and not the underground strata. Rejecting the arguments, the Hon'ble Supreme Court observed that the word "land" inc . ludPes not only the face of earth but everything under or H over it and has in its legal significance an indefinite extent upwards and downwards giving rise to the maxim: e f ujus est sulum, ejus est usque ad column. Further, twin con t ditionos to qualify a levy as tax on lands and buildings i.e.:

(i) Tax is directl u y improsed on lands and buildings; and

(ii) Tax b o ears a definite relation to land were specified.

48. Ho wCever, we find that State's competence to levy tax on wate h r drawn for hydropower generation in the instant case

i^cag nnot be traced to Entry 49 of List-II, as the impugned levy H 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

68

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 Act, it is indicative that tax . is Pon the registered user i.e. it is personal. Under Section H 2(g) of the impugned Act, "user" is defined to mean "any f per son, group of persons, local body, government de o partment, company, corporation, society or anybody, by whichever name called drawing water from any source r for t generation of hydropower". Therefore, the tax is on persons (whether natural or juristic) and not on lands or builudings as units. Therefore, in such

circumstances, C the o reliance placed by the State on the judgment in A nant Mills (supra) is clearly misplaced. 50. h Even otherwise the expression "Land" cannot be log g ically interpreted to mean everything above and below it, as i that would cover everything on the earth and subsume all other H Entries in Seventh Schedule, as there are Entries in List-I and List-II, dealing with the subject on, above or below land. Some of the entries in List-I, which are connected to the land and buildings and which will be rendered otiose by the State

Government wide interpretation are:

69

(i) Entry 7. Industries declared by Parliament by law to be necessary for the purpose of defence or for the prosecution of war .

(ii) Entry 22. Railways.

(iii) Entry 23. Highways declared by or unde . r lPaw made by Parliament to be national highw H ays.

iv. Entry 24. Shipping and navig f ati on on inland waterways, declared by Pa rli o ament by way to be national waterways, as regards mechanically propelled vessels; the r rul t e of the road on such water ways.

v. Entry o 26. uLighthouses, including lightships, beac C ons and other provision for the safety of shipping and aircraft.

h vi . Entry 29. Airways; aircraft and air navigation; g

provision of aerodromes; regulation and i

organization of air traffic and of aerodromes; H

provision for aeronautical education and training and regulation of such education and training provided by States and other agencies.

vii. Entry 53. Regulation and development of oilfields and mineral oil resources; petroleum and petroleum

70

products; other liquids and substances declared by Parliament by law to be dangerously inflammable.

viii. Entry 87. Estate duty in respect of property .

other than agricultural land.

ix. Entry 88. Duties in respect of successio . n Pto property other than agricultural land. H

x. Entry 89. Terminal taxes on good f s o r passengers, carried by railway, sea or a ir; o taxes on railway fares and freight.

51. It is well settled that w t hile the widest amplitude should be given to the l u anguarge used in one entry, every attempt has to be mad o e to harmonise its contents with those of other entries, so that the latter may not be rendered nugatory.

52. In t C his regard, reliance can be placed on the judgmen h t of the Hon'ble Supreme Court in Calcutta Gas Co g mpany (Proprietary) Ltd. vs. State of West Bengal and i others 20 , the relevant portion whereof reads as under: H

"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

20 AIR 1962 SC 1044

71

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 P in direct conflict with each other. It is then the duty of this Court to reconcile the entries and bring ab H out harmony between them….."

53. In Rajendra Diwan vs. Prad o eep K f umar Ranibala and Another 21 , the Hon'ble Supreme C ourt held as under:-

"50. While the widest am t plitude should be given to the language us u ed in r one entry, every attempt has to be made to harmonise its contents with those of other entries, so o that the latter may not be rendered nugatory."

Competence to C promulgate the impugned Act whether can be traced to Entry 50 of List-II as contended by the State: 54. h Entry 50 of List-II (State List) provides for "Taxes on mi g neral rights subject to any limitations imposed by Parliament i by law relating to mineral development." H 55. The State's competence to impose impugned levy cannot be traced to Entry 50 of List-II as contended by it. Activity of non-consumptive drawl of water for generation of hydropower, where the water drawn is allowed to flow back to

21 (2019) 20 SCC 143

72

its source, being a single inextricable event cannot be brought under the purview of taxing mineral rights.

56. The State has placed reliance on the judgment of the .

Hon'ble Supreme Court in Ichchapur Industrial Coop. Society Ltd. vs. Competent Authority, Oil & Natural . GPas Commission²², to contend that water is a mine ra H l, therefore, the rights in such mineral can be taxed by it.

57. Adverting to Ichchapur's c as o e (su fpra), it needs to

be noticed that Hon'ble Supreme C t ourt clarified that the term "Minerals" was being interpreted for the purposes of Petroleum & Minerals Pipelines (Acqu u isitionr of Right of User in Land) Act, 1962 (User Rights Acquisition Act) only considering the definition of the C terms o under the Mines Act, 1952. Further, the Hon'ble Supr eme Court held that the User Rights Acquisition Act ut h ilizes the device "Legislation by reference or inc g orporation", whereby the definition of Minerals" under Mines i Act, 1952 could be deemed to have been bodily lifted and H

incorporated in the later act i.e., User Rights Acquisition Act (supra). However, the same ratio cannot be applied to the instant cases to hold that there is legislation by reference or incorporation under List-II of the Constitution insofar as

definition of the term "Minerals" contained under Mines Act,

22 (1997) 2 SCC 42

73

1952 is concerned. The Mines Act, 1952 was promulgated subsequent to the Constitution and the former cannot be interpreted with reference to definition clauses set out under .

the latter. Moreover, it is trite in law that judgments cann . ot P be applied without appreciating their contest particularly, judgments must be read as whole, and the observa H tions are to

be considered in light of the questions which f w ere before the Court leading up to the judgment as t o he decision takes its colour from the questions involved in a case in which it is rendered. (See: Haryana Financ r ial t Corporation and Anr. Vs. Jagdamba Oil Mills & Anr., (2002) 3 SCC 496, Paras 19 to

21, Hon'ble three Judge Buench).

58. Ther C efore, o the aforesaid judgment of the Hon'ble Supreme Cou rt in Ichchapur's case (supra), which considered the limi h ted question as to whether water is mineral within the me g aning of Mines Act, 1952 read with Section 2(ba) of the User i Rights Acquisition Act, cannot be read as laying down a H 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.

74

59. We may at this stage profitably refer to the observations of the Hon'ble Constitutional Bench of the Hon'ble Supreme Court in Godfrey Phillips India Ltd. & Anr. vs. State . of U.P. & Ors.²³, wherein it was observed as under:-

42. But theoretically 'luxuries' is capable of covering . eaPch of the several meanings ascribed to the word. H The question is how the word is to be construed in the Constitutional entry. Neither the dictionary meaning nor the meaning ascribed to the word judicially o (for th f e reasons stated) resolve the ambiguity. The solution must be found in the language of the Entry takin g into consideration the Constitutional scheme with t regard to the imposition of

taxes and the collection o r f revenues.

60. In view of o the a u bove discussion, even Entry 50 of List-II cannot be held to countenance the States' taxation on water drawl f or C generation of electricity. Competence to promulgate whether can be traced to Entry 45 of List-II:

i⁶¹g^.

hEntry 45 of List II (State List) provides for "Land revenue, including the assessment and collection of revenue, the

H maintenance of land records, survey for revenue purposes and records of rights and alienation of revenues". 62. In order to support its contention that the State has competence to enact the impugned Act, strong reliance is

23 (2005) 2 SCC 515

75

placed on Entry 45 of List-II and also the judgment of the Hon'ble Supreme Court in R.S. Rekchand Mohota Spg. & Wvg. Mills Ltd. vs. State of Maharashtra²⁴. .

63. Adverting to the facts of the aforesaid case, it was the the Government of Maharashtra that had by wa . y Pof resolution dated 05.06.1973 (Resolution) under Se H ction 70 of the Maharashtra Land Revenue Code, 1966 (Code) imposed water cess on use of flowing water from Riverf 'Wana' for non-

agricultural purpose, specifically ind t ust riaol purpose. 64. In order to better app r reciate the aforesaid case vis-a-vis, the facts and the law in u volved in the instant case, it would be necessary to have a comparative analysis of the said case with the present case o and the same is set out in a table below:-

Code and Res ol C ution Impugned Act and Notification A. Code A. The Impugned Act Section 7 h 0-Rates for use of water Section 2(c) defines "hydropower" as a g

renewable source of energy that i "The State Government may authorise generates power by using water drawn the Collector or the Officer in charge of from any water source flowing within a survey or such other officer as it deems the territory of the State. H

fit, to fix such rates as it may from time to time deem fit to sanction, for Section 2(g) defines "user" as any the use, by holders and other persons, person, group of persons, local body, of water, the right to which vests in the government department, company Government and in respect of which no corporation, society or anybody, by rate is leviable under any law relating whichever name called drawing water to irrigation in force in any part of the from any source for generation of

State. Such rates shall be liable to hydropower. revision at such periods as the State Government shall from time to time Section 2(h) defines "ater" as natural

24 (1997) 2 SCC 12

76

determine, and shall be recoverable as resource flowing in any river, stream,

land revenue. tributary, canal, nallah or any other natural course of water or stipulated Provided that, the rate for use of water upon the surface of any land like, pond, for agricultural purposes shall be one lagoon, swamp or spring. rupee only per year per holder."

Section 2(i) defines "water cess" as the .

rate levied or charged for water drawn for generation of hydropower and under this Act.

. fix P ed

Section 10- Duties, obligations and responsibilities of t f he re gis H tered user: (1) The registered user shall be liable to pay water c o ess for the water drawn for hydropower generation as per the provi t sions of this Act.... S r ection 15 of the Act 2023 pertains to the Fixation of water cess: u (1) The user shall be liable to pay the water cess at such rates as the o

Government may, by notification fix in this behalf. (2) The State Government may review, increase,, decrease or vary C

the rates of the water cess fixed under this section from time to time in the manner it deems fit. h

B. Resolution B. Notification i Sr. Non- Rate Unit Sr. Head Tariff ^Nog . Agriculture No. purpose H

1. Industrial (a) Rs.8/- Per 1. For Hydroelectric Rs.0.10/ Purpose for the first 10,000 Project with head upto m

3

two years ctf. Pg 30 mtr water (b) Rs.10/- for the third -do- and fourth year

(c) Rs.12.50 -do- for the fifth and

77

subsequent year

Municipality above 30 mtr and upto

60 mtr .

3. Purpose for Rs.12.50 -do- 3. For Hydroelectric Rs. the Railways Project with head 0.35/m³ above 60 mtr to upto P

90 mtr .

4. Domestic Use Nil 4. For Hydroelectric Rs.0.50/ (i.e. for Project with h H ead m³

drinking above 90 mtr

water)

f

65. Now, in case the aforesaid co o mparison is adverted to, it would be noticed that in R r ekc t han d case (supra), the levy was imposed on drawl of fl u owing water by artificial contrivance for industrial purpose o . The rates of such levy were specified under Resolution. It was on account of the definition of land under the Tra n C sfer of Property Act, 1882, which included right to water flowing therefrom, the said levy was sustained by the

Hon'ble h Supreme Court under Entry 45, List-II.

i⁶⁶g . However, in the instant cases, the levy being H

imposed on electricity generation and supply, which are inextricable parts of the single event which is taxed under the Impugned Act i.e., "water drawn for hydropower generation", which the State is not competent to do. It appears that the very definition of "water source" has been altered to include

generation of electricity because the tax is not being imposed

78

merely on the drawl of water but for the generation of electricity and the levy in turn is based, as is evident from the quantum of levy, which is based on the head height and not on the water .

drawn.

67. Further, a perusal of para 12 of Rekchand's . caPse (supra), makes it clear that there are reference H s to other judgments of the Hon'ble Supreme Court, which concern Entry 49 of List-II and specify the twin conditions beinfg:

(i) tax is directly imposed on laond; and

(ii) nexus between t r he t levy and the land to be satisfied in order to sustain a legislation under Entry 49, List-II.

u

68. As already o held above, the State's competence to promulgate the impugned Act cannot be traced to Entry 49 of List-II. There forCe, Rekchand's case (supra) is not applicable in the pres h ent case and the State's competence cannot be traced

i^to g Entry 45 of List-II. H

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

79

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 and alienation P of agricultural land; land improvement and agricultural loans; colonization. .

66. Fee in respect of any of the matters H in this List, but not including fees taken in any co f ur t."

70. The State has relied on Ent rie o s 17 & 18 of List-II to demonstrate its competence to have legislated the Impugned Act. In this regard, it is a settled r prtinciple of law that taxation

entries are distinct from ge u neral regulatory entries. Entries 1 to

44 in List-II are regula o tory, whereas Entries 45 to 63 are taxing entries. Therefo C re, the legislative competence to impose any tax on water dra wn for hydropower generation cannot be imposed by the h State by referring to Entries 17 & 18 of List-II being

i^regg ulatory entry. 71. Reference in this regard can conveniently be made

H

to the judgment rendered by the Hon'ble Constitutional Bench of the Hon'ble Supreme Court in M.P.V. Sundararamier & Co. vs. The State of Andhra Pardesh and another 25 , more particularly para 51 thereof, which reads as under:-

25 AIR 1958 SC 468

80

"51. In List 1, Entries I to 81 mention the several matters over which Parliament has authority to legislate. Entries 82 to 92 enumerate the taxes which could be imposed by a law of Parliament. An examination of these two groups of Entries shows that while the main subject of .

legislation figures in the first group, a tax in relatio P n thereto is separately mentioned in the second. T . hus, Entry 22 in List I is " Railways ", and Entry 89 is " Terminal taxes on goods or passengers, H carried by railway, sea or air; taxes on railway fares and freights ". If Entry 22 is to be construed a o s invoflving taxes to be imposed, then Entry 89 wo t uld be superfluous. Entry 41 mentions "Trade and c r ommerce with foreign countries; import and export across customs frontiers ". If these expressions are to be interpreted as including duties to be levied in respect of that trade and commerce, then

Entry 83 w o hich ius " Duties of customs including export duties " would be wholly redundant. Entries 43 and 44

re lat C e to incorporation, regulation and winding up of corporations. Entry 85 provides separately for h Corporation tax. Turning to List II, Entries I to 44 form one group mentioning the subjects on which the States

ig

could legislate. Entries 45 to 63 in that List form another group, and they deal with taxes. Entry 18, for example, H

is " Land " and Entry 45 is "Land revenue ". Entry 23 is " Regulation 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

81

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 powe P r to impose a tax on sales in the course of such trade . and commerce."

72. Similar reiteration of law can be found iHn a three- Judge Bench judgment of the Hon'ble Suprem f e Court in M/s Hoechst Pharmaceuticals Ltd. & Ors. vs o . State of Bihar and Ors.²⁶, wherein after following t r he t judgment of the aforesaid Constitution Bench, it was observed as under:-

"It would therefo u re appear that there is a distinction made betw o een general subjects of legislation and taxa C tion. The general subjects of legislation are dealt w ith in one group of entries and power of taxation ill a h separate group. In M.P. Sundararamier & Co. v. The State of Andhra Pradesh & Anr.(1) This Court dealt with the scheme g

of the separation of taxation powers between the Union i

and the States by mutually exclusive lists. In List I, H

Entries 1 to 81 deal with general subjects of legislation; Entries 82 to 92A deal with taxes. In List 11, Entries 1 to 44 deal with general subjects of legislation; Entries 45 to 63 deal With taxes. This mutual exclusiveness is also brought out by the fact that in List Ill, the Concurrent Legislative List, there is no entry relating to a tax, but it

only contains an entry relating to levy of fees in respect

82

of matters given in that list other than court-fees. Thus, in our Constitution, a conflict of the taxing power of the Union and of the States cannot arise. That being so, it is difficult to comprehend the submission that there can be intrusion by a law made by Parliament under Entry 33 .

of List III into a forbidden field viz. the State s exclusiv P e power to make a law with respect to the levy . and imposition of a tax on sale or purchase H of goods relatable to Entry 54 of List II of the Seventh Schedule. It follows that the two laws viz. sub-s. (3) of s. 5 of the Act

and paragraph 21 of the Control ordfer issued by the

Central Government unde t r su o b-s. (1) of s. 3 of the Essential Commodities r Act, operate on two separate and distinct fields and both are capable of being obeyed. There is no question of any clash between the two laws and the question of repugnancy does not come into

play." u

o

73. In v C iew of the above, considering the charging section, taxable event and nature of levying under the impugn h ed Act as well as subjecting the impugned Act to the test

i^of g "pith and substance", it is absolutely clear that the impugned Act imposes tax on generation of electricity and not merely on

H water as a subject or on drawl of water, which the State is not competent to do. It also imposes an inter-State tax on inter-State supply of electricity for which again the State is not competent to do so.

83

Competence to promulgate whether can be traced to Entries 17, 18 read with 66 of List II as a "fee":

74. It is also argued by the State in the alternative that .

the impugned levy can be justified as a "Fee" on the basis of Entries 17 and 18 of read with Entry 66 of List-II. Howeve . r, Pwe find that the State lacks competence to levy the imp H ugned cess as a fee. The entire field of legislation conc erning water power/hydropower projects, declared as sucfh by Parliament under the Electricity Act, 2003, i t s o cc o upied by Parliament. Therefore, the State lacks compe r tence to levy any fee under the garb of water cess by relyin u g upon Entries 17 & 18, and 66 of List-II.

75. Even C other o wise, it is settled that levy can assume the nature o f "Fee", if there are any services rendered by the State and, as such, there is quid pro quo, between the person pa g ying f h ee and the public authority which imposes it. Such quid i pro quo, although not required to be established with H 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

84

all public purposes, whereas "Fee" is not intended to be, and does not become, part of the consolidated fund. A "Fee" is earmarked and set apart for the purpose of services for which it .

is levied.

77. The cess collected pursuant to the impugned . APct does not get into a separate earmarked fund. More H over, while there was no services rendered by the State in f the present case for the hydropower plants and in addit io o n thereto, the services claimed to be rendered by the State is incapable of being distinguished from public se r rvic t e. Seen even from this perspective, the impugned levy cannot be termed as "Fee".

78. The Scope of Stuate's power to impose a tax on land has to be read C in the o context of Entry 18, List-II which defines Land as "La nd, that is to say, rights in or over land, land tenures h including the relation of landlord and tenant, and the co g llection of rents; transfer and alienation of agricultural land; i land improvement and agricultural loans; colonization." This H does not contemplate a river or flowing water as a part of land. Even the principle of leaning in favour of constitutionality of a provision will not be applicable as there is patent lack of legislative competence.

85

79. The reliance of the State on the judgment of the Hon'ble Supreme Court in State of West Bengal vs. Kesoram Industries²⁷ is entirely misplaced as the said judgment by .

Hon'ble five-Judge Constitution Bench, to the extent relied upon by the State, has not attained finality, and has . bePen referred to a Constitution Bench of Nine Hon'ble Ju H dges of the Supreme Court.

80. Thus, once it is held that the cefss sought to be imposed by the impugned Act is not o n tohe "water drawn" but on the "generation of electrici r ty", t then, it is the Central Government alone which u could levy tax on generation electricity.

81. In co C ming o to such conclusion, we are duly supported by the judgm ent of the Hon'ble Supreme Court in M.P. Cement Manufa h cturer's case (supra), wherein the Hon'ble Supreme Co g urt was examining Entry 84 of List I and Entry 53 of List II of i the Seventh Schedule in the following manner:- H

"9. The two competing entries in the Seventh Schedule to the Constitution are Entry 84 of List-I and Entry 53 of List- II. They respectively read: List-I 84. Duties of excise on tobacco and other goods manufactured or produced in India except-

86

(a) alcoholic liquors for human consumption.

(b) (b) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in sub- paragraph (b) of this entry. .

List II P

53. Taxes on the consumption or sale of electricity." .

82. Noticing that electricity is goods (see CS H T vs. M.P. Electricity Board (1969) 1 SCC 200), the H f on 'ble Supreme Court observed that levy of State du o ty on production of electricity is covered with r th t e phrase "other goods manufactured" in Entry 84 of List I and this is within the exclusive jurisdiction of th u e Parliament. Consequently, it was

declared that the Stat o e has competence to levy tax only on the

sale and consumption of electricity (see Hoechst

Pharmaceuti ca C ls Ltd. vs. State of Bihar, (1983) 4 SCC 45).

Proceed h ings on this basis, the Hon'ble Supreme Court posed the

i^qug estion whether the State Legislature was competent to levy cess on captive power generation, through amendment of the

H 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.

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Point No. 2 is accordingly answered in favour of the petitioners.

Point No. 3. . Without prejudice, the impugned Act is unconstitutional P for it suffers from vice of excessive delegation:

83. In order to appreciate the rival contention o.f the parties, it would be necessary to refer to the f cha rg H ing section, i.e. Section 15 of the impugned Act, wh o ich specifies that the user is liable to pay water cess at such rates, as the Government of Himachal Prades r h, m t a y fix vide notification. In terms of sub Section 15(2 u ) of the impugned Act, the State Government is empowered to review, increase, decrease or vary the rates of water fixe o d under Section 15 of the impugned Act

from time to t im C e in the manner it deems fit. 84. Notably, the power of fixation of rates has been

delegate h d to the Government of Himachal Pradesh i.e., the

i^exg ecutive by the State Legislature without any guidance. While H

fixation of rates can be left to a non-legislative body, the legislature must provide guidance for such fixation as held by the Hon'ble Supreme Court in The Corporation of Calcutta and another vs. Liberty Cinema 28 , more particularly, paras 21 to 26, which read as under:-

28 AIR 1965 SC 1107

88

"21. It was then said that if S. 548 authorised the levy of a tax as distinct from a fee in return for services rendered, it was invalid as it amounted to an illegal delegation of legislative functions to the Corporation because it left it entirely to the latter to fix the amount of the tax and .

provided no guidance for that purpose. We wish to . po P int out here that the contention now is that the section is invalid while the contention that we have just dealt with

proceeded on the basis that the section wa H s valid as it

provided for the levy of a fee in return for s ervices and as

this necessarily implied a limit of o the lefvy, namely, that it had to be commensurate to the amount of the costs of the services, no guidance fo r r 491 f ixing the amount of the fee to be levied was required t t o be provided. That argument only challenged th u e resolution on the ground that it fixed the amount of the fee at a figure much in excess of the costs for the o services rendered. 22. H C ere again there is no dispute that a delegation of es sential legislative power would be bad. It was so held by this Court first in re The Delhi Laws Act.(1) The h principle there laid down has been summarised by Bose J. g

in Rajnarain Singh v. The Chairman, Patna Administration i

Committee, Patna(2), in these terms: "In our opinion, the majority view was that an

H

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."

89

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, a P nd 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 H be delegated by the legislature to another authority; f whe ther it is of the essence of taxing legislation. The contention of the Corporation that fixation of rate s i o s not an essential part of legislation would seem to be supported by several judgments of this Court r to s t ome of which we now proceed to refer.

24. First, th o ere is u Pandit Benarsi Das Bhanot v. The State of Madhya Pradesh ( 3 ) . That case was concerned with a Sales C Tax Act which by s. 6(1) provided that no tax would be payable on any sale of goods specified in a schedule to it. Item 33 of that Schedule read, "goods sold to or by the h State Government". Section 6(2) of the Act authorised the g

State Government to amend the schedule by a notification. i

In exercise of this power the Government duly substituted by a notification for item 33 the following: "Goods sold by H

the State Government". The amendment of the schedule by the notification was challenged on the round that s. 6(2) was invalid as it was a delegation of the (1) [1951] S. C. R. 747 (2) [1955] 1 S. C. R. 290,301. (3) [1959] S. C. R. 427. 492 essential power of legislation to the State Government. Venkatarama Aiyar J. delivering the

judgment of the majority of the Court sitting in a

Constitution Bench, rejected this contention and after

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having read what we have earlier set out from the judgment of Bose J. in Rajnarain Singh's case(1), observed at p. 435:

"On these observations, the point for determination .

is whether the impugned notification relat . es to what may be said to be an essential feature of P the law, and whether it involves any change of policy. Now, the authorities are clear that it is not

unconstitutional for the legislatur f e t o leHave it to the executive to determine details relating to the working of taxation laws, such as the selection of

persons on whom th t e tax i o s to be laid, the rates at which it is to b r e charg ed in respect of different classes of goods, and the like." The Act was a u statute imposing taxes for revenue purposes. This case would appear to be express authority for the proposition that fixation of rates of taxes may be

legitim C ately oleft by a statute to a non-legislative authority, for we see no distinction in principle between delegation of h power to fix rates simpliciter; if power to fix rates in some cases can be delegated then equally the power to fix rates g

generally can be delegated. No doubt Pandit Banarsi i

Das's case(1) was not concerned with fixation of rates of taxes; it was a case where the question was on what

H

subject mater, and therefore on what persons, the tax could be imposed. Between the two we are unable to distinguish in principle, as to which is of the essence of legislation; if the power to decide who is to pay the tax is not an essential 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

91

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(1) 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 P not form part of the actual decision in the case, they nee . d not be given that weight which they would otherwise have been entitled to. In the High Court this contenHtion appears to have been accepted. The acceptance f of the contention would result in by-passing a j udgment of this Court and that is something which can t not in o any case be supported. We are furthermore of r opinion that the authorities to (1) [1955] 1 S. C. R. 290. (2) [1959] S. C. R. 427, 493 which Venkatarama Ai u yar J. referred fully support his observations. The first case relied upon by him was Powell

v. Appollo C o andle Co. Ltd.(1). That case upheld the validity of a s C tatute passed by the legislature of New South Wales which conferred power on the Governor of that Province to impose duty on certain articles in the circumstances

h pr escribed. The Governor under this power imposed the g

tax and this was challenged. The Judicial Committee i

rejected the contention that the tax had not been, imposed by the Legislature which alone could do it in the view that H

"the duties levied under the Order in Council are really levied by the authority of the Act" see p. 291. Here, therefore, a power conferred on the Governor by the Legislature to levy a tax was upheld. It would follow that a power conferred to fix rates of taxes has equally to be upheld. The next case was V.M. Syed Mohamed v. State Of Madras(2). There a power to an authority to determine

who shall pay the tax was upheld. On the same principle

92

a power to determine at what rate he will have to pay the tax has to be upheld. The last case was Hampton Jr. & Co. v. United States(3), in which the power conferred by a statute on the President to make an increase or decrease in the rate of customs duty was upheld. There it was said .

at p. 630, P

"It is conceded by counsel that Congress ma . y use executive officers in the application and enforcement of a policy declared in law by Congress a f nd auHthorise such officers in the application of the C o ongressional declaration to enforce it by regulation equivalent to law. But it is said that this never has been permitted to be done where Congress has exercised the t p ower to levy taxes and fix customs duties. The authorities make no such distinction.

The same principle thart permits Congress to exercise its

rate making o powe u r in interstate commerce by declaring the rule which shall prevail in the legislative fixing of rates, and C enables it to remit to a rate making body created in ac cordance with its provisions the fixing of such rates, justifies a similar provision for the fixing of customs duties h on imported merchandise." This therefore is clear authority g

that the fixing of rates may be left to a non legislative i

body. 26. No doubt when the power to fix rates of taxes is left to

H

another body, the legislature must provide guidance for such fixation. The question then is, was such guidance provided in the Act ? We first wish to observe that the validity of the guidance 1) 1 O. A. C. 282 (2) [1952] 3 S. T. C 367 (3) [1927] 72 L. ed. 624. 494 cannot be tested by a

rigid uniform rule; that must depend on the object of the

Act giving power to fix the rate. It is said that the

delegation of power to fix rates of taxes authorised for

93

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 su P ch maximum only sets out a limit of the rate to be im . posed and a limit is only a limit and not a guidance."

85. In addition to the above, it was nece ssHary for the legislature to have laid down Legislative Pol f icy, standard or guidelines in the Act or else it is b t oun d o to suffer from vice of excessive delegation as held by the Hon'ble Supreme Court in

Gwalior Rayon Silk Mfg u (Wv r g.) Co. Ltd. vs. The Asstt. Commissioner of Sales Tax and others 29 , wherein it was observed as under:- o

"1 3. C It may be stated at the outset that the growth of the legislative powers of the executive is a significant h development of the twentieth century. The theory of g

laissez-faire has been given a go-by and large and i

comprehensive powers are being assumed by the State with a view to improve social and economic well-being of H

the people. Most of the modern socioeconomic legislations passed by the legislature lay down the guiding principles and the legislative policy. The legislatures because of limitation imposed upon by the time factor hardly go into matters of detail. Provision is, therefore, made for delegated legislation to obtain flexibility, elasticity,

expedition and opportunity for experimentation. The

29 (1974) 4 SCC 98

94

practice of empowering the executive to make subordinate legislation within a prescribed sphere has evolved out of practical necessity and pragmatic needs of a modern welfare state. At the same time it has to be borne in mind that our Constitution-makers have entrusted the power of .

legislation to the representatives of the people, so that P the said power may be exercised not only in the name . of the people but also by the people speaking through their representatives. The rule against excessive d H elegation of legislative authority flows from and is a necessary postulate of the sovereignty of o the fpeople. The rule contemplates that it is not permissible to substitute in the matter of legislative policy the views of individual officers

or other authorities, how r eve t r competent they may be, for that of the po u pular 'will as expressed by the representatives of the people. As observed on page 224 of Vol. 1 in Coo o ley's Constitutional Limitations, 8th Ed. C "One of the settled maxims in constitutional law is, that the power conferred upon the legislature to h

make laws cannot be delegated by that department to any other body or authority. Where g

the sovereign power of the State has located the i

authority, there it must remain; and by the constitutional agency done the laws must be Made

H

until the constitution Itself is changed. The power to whose judgment, wisdom and patriotism this high prerogative has been entrusted cannot relieve itself of the responsibility by choosing other agencies upon which the power shalt be devoted,

nor can it substitute the judgment, wisdom, and

patriotism of any other body for those to which

95

atom the people have seen fit to confide this sovereign trust."

86. Furthermore, the impugned Act clearly fails to lay .

down one of the critical components of taxing statute i.e. measure of tax. It is trite in law that in order to make a le . vy P of tax to be operative and valid, four essential components must be provided in enacting statute, creating the tax/i mHpost i.e.:

(i) taxable event attractive the levy; f

(ii) the person whom the lev y i o s imposed and who is obliged to pay the tax;

(iii) the rate at which t r he ttax is imposed and; (iv) the measure u of value to which the rate will be applied for computing the tax liability.

87. This was s o o held by the Hon'ble Supreme Court in

M/s Govind Sa C ran Ganga Saran vs. Commissioner of Sales Tax and h others 30 , wherein it was observed as under:- g

"6. The components which enter into the concept of a i

tax are well known. The first is the character of the imposition known by its nature which prescribes the H

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

30 AIR 1985 SC 1041

96

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 the instant case, three essential components c P an be clearly identified within the impugned statute, which . are taxable events, "the person liable to pay tax" an d H the "rate of tax". However, the impugned legislation fails f to identify the fourth and equally critical component i .e. o measure of tax, which is the value on which the rate t of tax will be applied for computing the tax liability. r

89. Section 15 of th u e impugned Act provides that the user shall be liable to pay water cess at such rates fixed by the Government, it C fails too prescribe the value based on which such rates will be a pplied.

90. h Here, we may note that it was in exercise of powers

i^vesg ted under Section 15(2) of the impugned Act that the State Government issued a Notification dated 26.08.2023 (supra),

H whereby the tariff structure on water cess was fixed on the basis of "Head". However, even the said notification failed to prescribe the measure of tax and instead proceeded to prescribe tariff rate without any indication or measure on which such

tariff rate will be applied. Moreover, measure of tax being vague,

97

based upon the "assessment" or water drawn, which would form the basis of the tax imposed is also vague and fraught with lack of adequate guidelines, as is evident from the combined .

reading of Section 12 with Section 17 of the impugned Legislation (supra). .P

91. That apart, even the Statement of O H bjects and Reasons as well as the preamble of the impugned Act does not lend any guidance for the delegate. The pfreamble of the impugned Act merely states that it t is a n oact to levy water cess on hydropower generation in the State of Himachal Pradesh, the Statement of Objects and rearsons merely states that the

objective of the impugned Auct is revenue generation. Therefore,

on account of h C aving o delegated power to fix rates of impugned levy to Gover nment of Himachal Pradesh without any legislative policy o h r guidance, the impugned Act is unconstitutional. g This point is accordingly answered in favour of the i petitioners. H 4. Promissory Estoppel: 92. In view of the aforesaid discussion, the question of promissory estoppel has been rendered academic and, therefore, need not be answered.

98

Conclusion:

93. In view of the aforesaid discussion, all the writ .

petitions are allowed in the following terms:- .P

(i) The provisions of the Himacha f l P rad H esh Water Cess on Hydropower Electricity Generation Act, 2023, are declared to be b o eyond the legislative competence of the State Government in terms of Articles 246 and 265 o r f thte Constitution of India and,

thus, ultra vires u the Constitution.

(ii) Consequently, the Himachal Pradesh Water Cess on H C ydropoower Electricity Generation Rules 2023, are also quashed and set aside. h (iii) Sections 10 and 15 of the Himachal Pradesh

ig

99

Himachal Pradesh Water Cess on Hydropower Electricity Generation Act, 2023 and the Rules framed thereunder are ordered to be refunded within .

four weeks from today.

(v) The letter/notice issued by the . StPate Government/Himachal Pradesh State C H ommission for Water Cess on Hydropower Gen f era tion pursuant to the impugned Act, Rules, seeking recovery of water cess from the petitioners, t ar e doeclared as illegal and are accordingly quashe r d and set aside. All pending mi u scellaneous applications shall also

stand disposed of. o

C (Tarlok Singh Chauhan) Judge

h (Satyen Vaidya) 0 g 5.03.2024 Judge i (krt/pankaj/Sanjeev)

H

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