THE Central Government has asked States that they have no power to impose any tax or duty on electricity generated from any source - coal, hydro, wind or solar and any such levy is illegal and unconstitutional. In a circular, the Union Ministry of Power on October 25, said it had come to the notice of the Central Government that some State Governments had imposed additional charges on generation of electricity from various sources under the guise of development free/charges/fund. “Such additional charges/fees in the form of any tax/duty on generation of electricity, which encopasses all types of generation viz thermal, hydro, wind, solar, nuclear etc is illegal and unconstitutional,” it said.

 

Clarifying on the constitutional position, the Ministry said the powers to levy taxes/duties are specifically stated in the VII Schedule. “List-II of theVII Schedule lists the powers of levying taxes/duties by the States in entries-45 to 63. No taxes/duties which have not been specifically mentioned in this list can be levied by theStateGovernmentsunder any guise whatsoever - as residuarypowersarewiththe CentralGovernment,”itsaid. Entry-53oftheList-II(State List) authorises the states to levy taxes on consumption or sale of electricity in its jurisdiction. “This does not include thepower to impose any tax or duty on the generation of electricity.

 

This is because electricity generatedwithinthe territory of one State may be consumed in other States andnoStatehas thepowertolevytaxes/duties onresidentsofother States,” the order said. The Ministry went on to state that Article-286 of the Constitution explicitly prohibits States from imposing any taxes/duties on supply of goods or services or on both,where the supply takes place outside the State. Also, Articles-287 and 288 prohibit the imposition of taxesonconsumptionorsale of electricity consumed by the Central Government or sold to the Central Government for consumption by the Government or its agencies.

 

“In light of the constitutionalprovisions,no taxes/duties canbeleviedby any state on generation or inter-State supply of electricityundertheguiseofadditional charges/free on generationofelectricityfromany source - thermal, hydro or renewables,”theorders said. The Central Government asked States to remove promptly any kind of tax/duty/cess levied in the guise of development free/charges/fundongeneration or electricity from any sources.