J&K High Court declares imposition of water usage charges under 2010 Act in UT as ‘ultra vires’

The J&K High Court ruled that the 2010 water-resources law was unconstitutional to the extent that it imposed water usage charges on hydroelectric power projects. The decision matters because it removes the legal basis for charges that the court viewed as a tax on electricity generation.

Eleven independent hydroelectric companies challenged the law. They argued that their water use was non-consumptive. The court agreed that the charges, particularly when linked to hydroelectric generation, effectively taxed electricity production. A Division Bench of Justice Sanjay Dhar and Justice Rajnesh Oswal struck down that part of the enactment.

The court quashed the demand notices issued to the petitioners. It also restrained J&K from imposing any tax on electricity generation under the label of water usage charges or another tax. The ruling directly limits the administration’s ability to collect these charges from the affected projects.

“Ultra vires the Constitution” means that a law or government action goes beyond the power allowed by the Constitution. It is a strong legal finding. The court used the phrase because it concluded that the water charges crossed into taxation of electricity generation.

The law described the payments as water usage charges. However, the Division Bench found that, insofar as they applied to hydroelectric projects, they amounted to a tax on generating electricity. The petitioners also pointed out that the charges were fixed using the height of the water head, rather than the quantity of water used.

The court therefore held that the State Legislature did not have competence to impose that tax. It struck down the enactment to that extent, quashed the resulting demands, and barred J&K from imposing a similar electricity-generation tax under another label. The ruling does not describe every possible water charge as invalid.

The J&K government originally projected annual revenue of around ₹850 crores from the 2010 water-resources law. That estimate shows the law was designed not merely as a regulatory measure, but also as a significant revenue source.

The government said the Act would generate revenue by charging private and public units for using water resources. The targeted users included companies generating electricity in J&K. The National Hydro Power Corporation was among the companies covered by that broader plan, according to the article.

The High Court’s ruling now blocks collection of the challenged charges from the petitioners. It does not report how much money had actually been collected before judgment. It does, however, remove the legal basis for imposing a tax on electricity generation through these water charges, putting the projected revenue from affected hydroelectric projects in doubt.

The court concluded that the charges effectively taxed electricity generation because they were imposed specifically on hydroelectric power projects and tied to the production process. The legal label was “water usage charges,” but the court examined their actual effect and purpose.

A key example was the Water Resources Regulatory Authority’s decision of April 2, 2019. It fixed charges for electricity generation according to the head height from which water propelled a turbine, rather than according to the amount of water used. That calculation connected the payment to how a hydroelectric plant generated power.

The Division Bench held that such charges amounted to imposing a tax on electricity generation. It therefore found the State Legislature lacked competence to impose them. The judgment restrains J&K from collecting a similar tax under the guise of water usage charges or any other tax, at least as described in the ruling.

The immediate consequence is that the demand notices issued against the writ petitioners no longer stand. The High Court expressly quashed them after finding the relevant charging provision unconstitutional. The affected companies therefore are not subject to those challenged demands.

The court also issued a broader restraint. J&K cannot impose a tax on electricity generation under the guise of water usage charges or any other tax. This follows the court’s conclusion that the State Legislature lacked competence to impose such a tax through the 2010 Act.

The article does not state whether the government will seek further legal review or how it will replace the projected revenue. It does show that the judgment directly limits collection from the petitioners and prevents the same type of disguised electricity tax. Any future water-related charge would need to avoid the constitutional defect identified by the court.

The hydroelectric companies argued that their water use was “non-consumptive.” In this context, the plants use flowing or stored water to propel turbines and generate electricity, rather than using up the water as a product or permanently removing it from use.

That differs from ordinary consumptive use, such as taking water for activities where the water is absorbed, discharged elsewhere, or otherwise reduced for the original resource system. The article does not provide a detailed technical definition, but it records the companies’ central point: hydroelectric generation does not consume water in the same way.

The companies therefore argued that water usage charges should not apply. They also challenged the charge calculation because it was based on the height of the water head, not the quantum of water used. The court ultimately focused on constitutional competence and found the charges amounted to a tax on electricity generation.

India’s Constitution divides legislative subjects between the Union and the States through the Seventh Schedule. J&K argued that water, including water-power projects, appears in Entry 17 of the State List. It said this empowered the State to regulate water and charge for its use.

The administration also invoked arguments based on land and minerals, citing Entries 49 and 50 of the State List. The hydroelectric companies and the Union’s stated position took the opposite view: a State cannot impose a tax on electricity generation by calling it a water charge. The court accepted that constitutional distinction.

The High Court held that the charges on hydroelectric projects amounted to a tax on electricity generation. It therefore found the State Legislature lacked competence to impose them. The judgment leaves J&K restrained from using water-charge language, or another tax, to impose the same electricity-generation levy.