Top court bars water tax on hydropower projects in J&K and Ladakh

The top court for Jammu & Kashmir and Ladakh declared that the Union Territory cannot charge a water usage fee for generating electricity. It struck down parts of the 2010 Water Resources (Regulation and Management) Act, saying the law tried to tax power generation, which is beyond the former state's authority and therefore unconstitutional. The bench also cancelled demand notices served to Mass N Energy Private Limited, Magpie Hydel Construction Operation Industries and Choudhary Power Projects Private Limited.

What Happened

The division bench of Justices Rajnesh Oswal and Sanjay Dhar had earlier paused their judgment while hearing a writ petition that challenged the 2010 Act and its accompanying rules. The petitioners argued that imposing a charge on water used for power generation exceeded the state legislature’s power. The judges observed that water use and electricity production are inseparable, so the levy effectively taxed electricity rather than water. They noted that the constitutional list that deals with water is meant for regulation, not taxation, and there is no matching tax entry for water in that list.

Context

In India, the power to levy taxes on water lies with the central government, while states can only regulate its use. This ruling clarifies that state‑level statutes cannot create water taxes that amount to indirect taxes on electricity.