Centre asks states not to impose taxes on electricity generation

The Centre has asked states not to impose taxes on electricity generation, including through imposition of a water cess.

In a letter to all states, the Ministry of Power said that it had come to its notice that some state governments had imposed taxes or duties on generation of electricity .

“Any tax/duty on generation of electricity, which encompasses all types of generation viz. thermal, hydro, wind, solar, nuclear, etc. is illegal and unconstitutional,” the Power Ministry said.

“Some States have imposed taxes/duties on generation of electricity under the guise of levying a cess on the use of water for generating electricity. However, though the state may call it a water cess, it is actually a tax on the generation of electricity - the tax is to be collected from the consumers of electricity who may happen to be residents in other State,” the Ministry pointed out.

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If any states already imposed such taxes, they must withdraw the levies promptly, the letter said.

States are empowered by the Constitution to levy taxes on consumption or sale of electricity in their jurisdiction, but this does not include the power to impose any tax or duty on the generation of electricity.

“This is because electricity generated within the territory of one State may be consumed in other States and no State has the power to levy taxes / duties on residents of other States,” the Ministry pointed out.