On October 25, 2023, the Ministry of Power, Government of India (“GOI”) published a circular addressing the imposition of tariffs by various State Governments on various sources of power generation.[1] The Ministry highlights in the circular that additional charges or levies on electricity generation from various sources, such as hydropower, renewables, and thermal power, are illegal and unconstitutional.
The GOI is concerned that some state governments are imposing additional levies on power generation under the guise of development fees, taxes, or funds. These fees are frequently in the form of taxes or tariffs on electricity generation. The Ministry declares unequivocally that such charges are illegal. It earlier clarified its legal position on the implementation of water taxes or cess by specific states in a letter dated April 25, 2023. The constitutional provisions supporting this position are apparent.
In light of these constitutional provisions, the circular from the Ministry of Power reiterates that no taxes or duties, regardless of the source of electricity generation, can be imposed by any State on the generation or inter-state supply of electricity under the guise of additional charges, fees, or funds. State governments should abolish any tax, levy, or cess collected under the name of development fees, charges, or funding on the generation of electricity from any source, whether thermal, hydro, renewables or any other.
This circular emphasises the importance of adhering to the rule of law and the Constitution in taxation concerns, as well as the GOI’s commitment to establishing a fair and legally compliant environment for the country’s energy generation and consumption. It is a call for consistency, legality, and a level playing field in the country’s energy sector.
[1] https://powermin.gov.in/sites/default/files/webform/notices/lmposition_of_Charges_by_various_State_Governments_on_various.pdf.