Alaknanda Hydro Power Company LTD. vs. State Of Uttarakhand

Facts

This case involves multiple Special Appeals and a Writ Petition filed by various power generation companies, including THDC India Ltd., NHPC Ltd., Jaiprakash Power Ventures Limited, Alaknanda Hydro Power Company Ltd., Swasti Power Pvt. Limited, Bhilangana Hydro Power Ltd., Uttar Pradesh Power Corporation Limited, and Renew Jal Urja Private Limited. They challenged the constitutional validity of "The Uttarakhand Water Tax on Electricity Generation Act, 2012" (the Act). A Coordinate Bench of the High Court had dismissed the writ petitions. Subsequently, a Division Bench delivered a split verdict: one judge dismissed the appeals and writ petition, while the other struck down the Act. This led to the matter being referred to a Full Bench for resolution.

Held

The Court held that the State Legislature is not competent to levy a tax on the generation of electricity. It found that the Act imposes a tax on the generation of electricity, and there is no specific entry under List II of the Seventh Schedule that empowers the State to levy such a tax. The Court distinguished the present case from judgments relied upon by the State, emphasizing that taxation is a distinct matter and powers of taxation cannot be inferred from general legislative entries. Regarding promissory estoppel, the Court concurred with the view that there can be no promissory estoppel against the legislature in the exercise of its legislative functions. The Court found that the appellants failed to show extraordinary facts or circumstances to override the legislative function through promissory estoppel. Consequently, the Act was declared ultra vires the Constitution. The reference was answered accordingly, upholding the view that the Act is unconstitutional.

Key Issues

1. Whether the State Legislature is competent to legislate the Act, which imposes a tax on the generation/production of electricity, considering the division of powers under the Seventh Schedule of the Constitution of India. 2. Whether the doctrine of promissory estoppel can be invoked to prevent the State from levying the water tax, given the agreements entered into with the appellants. Contentions of the Appellants/Petitioner: The appellants argued that the tax imposed by the Act is on electricity generation, and the State Legislature lacks the competence to legislate on this subject. They also contended that the State is promissorily estopped from levying the tax due to agreements entered into with them, and any departure from these promises would be unconscionable. They relied on the principle that the State cannot impose a tax where no specific entry exists in List II of the Seventh Schedule for water tax on generation. Contentions of the Respondents (State of Uttarakhand): The State contended that the incident of tax is the drawal of water for use in electricity generation. They initially cited Entry 17 of List II but later relied on Entries 45, 49, and 50 of List II of the Seventh Schedule, and Article 288 of the Constitution of India as the basis for enacting the Act. They argued that water is a mineral and that Article 288 indicates the State's power to tax the drawal/use of water for electricity generation. They also argued that there can be no promissory estoppel against the legislature's power to enact legislation.