LI Network
Published on: November 01, 2023 at 00:06 IST
The central government has issued a directive to state governments, emphasizing that they lack the authority to impose taxes or duties on electricity generated from any source, be it coal, hydro, wind, or solar. Such impositions are deemed illegal and unconstitutional, according to the circular issued by the Union Ministry of Power on October 25.
The Ministry’s circular highlighted its concern about certain state governments imposing additional charges on electricity generation from various sources under the guise of development fees or funds.
It firmly stated that any form of tax or duty on electricity generation, encompassing all types of generation, including thermal, hydro, wind, solar, and nuclear, is against the law and unconstitutional.
To provide clarity on the constitutional standing, the ministry pointed out that the powers to levy taxes and duties are explicitly listed in the VII Schedule. List-II of the VII Schedule specifies the powers of state governments to levy taxes and duties in entries 45 to 63. According to the Ministry, taxes or duties not explicitly mentioned in this list cannot be levied by state governments under any pretext, as the central government holds residuary powers.
Entry-53 of List-II (State List) grants states the authority to levy taxes on the consumption or sale of electricity within their jurisdiction. However, this does not grant the power to impose taxes or duties on the generation of electricity, as electricity generated in one state may be consumed in other states. Therefore, no state possesses the authority to levy taxes or duties on residents of other states.
The Ministry further cited Article 286 of the Constitution, which explicitly prohibits states from imposing taxes or duties on the supply of goods or services, or both, when the supply occurs outside the state. Articles 287 and 288 also restrict the imposition of taxes on the consumption or sale of electricity consumed by the Central government or sold to the Central government for its use or use by its agencies.
Based on these constitutional provisions, the directive clarified that no state is permitted to impose taxes or duties on the generation or inter-state supply of electricity under the guise of additional charges or fees for electricity generation from any source, whether thermal, hydro, or renewables.
The central government has urged states to promptly eliminate any type of tax, duty, or cess presented as development fees, charges, or funds on electricity generation from all sources.
This directive reiterates the central government’s commitment to upholding the legal framework governing electricity generation and taxation, ensuring a uniform and constitutional approach to the issue.