M/S Swasti Power PVT. 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. The appellants 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.

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 of the Constitution that empowers the State to levy such a tax. The Court distinguished the present case from precedents relied upon by the State, emphasizing that taxation is a distinct matter for legislative competence and cannot be inferred from general legislative entries. Regarding the plea of promissory estoppel, the Court, in agreement with the then Chief Justice's observation, held that there can be no promissory estoppel against the legislature in the exercise of its legislative functions. The competence of the State Legislature to enact legislation, including for taxation, cannot be interdicted on this plea. The Court found no extraordinary facts or circumstances to apply the doctrine of promissory estoppel to override a legislative function. Therefore, the Act was declared ultra vires the Constitution.

Key Issues

1. Whether the State Legislature is competent to legislate the Act, which imposes a tax on the generation/production of electricity, turning on Entry 49, 50, or 17 of List II of the Seventh Schedule to the Constitution of India. Petitioner/Appellant's Arguments: The appellants contended that the tax imposed by the Act is on electricity generation, and the State Legislature lacks the competence to legislate on such a matter. They argued that taxation is a distinct subject, and the power to tax cannot be inferred from general legislative entries. They also raised the issue of promissory estoppel, asserting that the State is estopped from levying the tax due to agreements entered into with the appellants. Revenue/State's Arguments: The State of Uttarakhand argued that the incident of tax under the Act is the drawal of water for use in electricity generation. Initially, they relied on Entry 17, List II, but later cited Entries 45, 49, and 50 of List II, along with Article 288 of the Constitution, as the basis for the Act. They relied on judgments like Ichchapur Industrial Cooperative Society Ltd. vs. Competent Authority, Oil and Natural Gas Commission and Another, and argued that water could be considered a mineral under certain contexts, and Article 288 indicates the State's power.