Authority: High Court of Jammu & Kashmir and Ladakh (Srinagar & Jammu Wings)

Order Date: 29‑10‑2026 (pronounced) 02‑09‑2026 (reserved)

Case Overview

  • Petitioners: Eleven independent power producers (IPPs) – M/s Mass N Energy Pvt. Ltd., M/s Gousia Road Construction Co., M/s Himalayan Musk Power Pvt. Ltd., M/s O2Z Trading and Industries Pvt. Ltd., M/s Renergy Power Producer Pvt. Ltd., M/s Pahalnar Power Pvt. Ltd., M/s SA Power Utilities Pvt. Ltd., M/s Khari Hydro Power Project Pvt. Ltd., M/s Sharika Enterprises Ltd., M/s P&R Engineering Services Pvt. Ltd., and M/s Rouf Infrastructures Pvt. Ltd.; additionally M/s Magpie Hydel Construction Operation Industries Pvt. Ltd. and M/s Choudhary Power Projects Pvt. Ltd. filed separate writ petitions (WP(C) Nos. 3008/2024, 3324/2025 and 3329/2025).
  • Respondents: Union of India and the Government of the Union Territory of Jammu & Kashmir (UT of J&K) represented by senior Additional Advocate General (AAG) Mr. A. R. Malik.
  • Nature of Proceedings: The petitioners challenged the Jammu and Kashmir Water Resources (Regulation and Management) Act, 2010 (the “Act”) and the Rules framed thereunder, specifically the provisions that levy water usage charges on hydro‑electric projects for the purpose of electricity generation. They also contested demand notices issued under Sections 120, 130 and 145(1)(d) of the Act.
  • Key Allegations / Contentions:
  • Petitioners argued that the levy is a tax on electricity generation, which is beyond the competence of the State Legislature under Entry 53 of List‑II (tax on consumption or sale of electricity) and that the State cannot tax generation of electricity.
  • They contended that water use in hydro projects is non‑consumptive; therefore, water usage charges cannot be imposed.
  • They invoked promissory estoppel, claiming that the State Hydro Power Policy promised no additional charges beyond a 12 % royalty, creating a legitimate expectation of no further levies for the 40‑year project period.
  • Union of India supported the petitioners, stating that taxation on generation of electricity is a Union subject (List‑I) and that the State lacks authority to impose such a tax.
  • UT of J&K defended the Act, asserting competence under Entry 17 of List‑II (water) and Entry 49 (taxes on land) and arguing that the levy is a regulatory charge for water use, not a tax.
  • Statutory Framework Examined:
  • Section 128 – fixation of water usage charges by the Water Resources Regulatory Authority.
  • Section 145 – functions of the Authority, including establishing a water tariff system that must at least recover project costs.
  • Section 185‑A – creation of a fund for water usage charges from hydro projects, to be used for establishing, buying back, or investing in hydro‑electric infrastructure.
  • Order No. 39/JKSWRRA dated 02‑04‑2019 – tariff based on head height (Rs 0.05 per m³ up to 30 m, Rs 0.12 for 31‑60 m, Rs 0.14 for 61‑90 m, Rs 0.25 above 90 m), indicating the charge is linked to electricity‑generating potential rather than volume of water.
  • Constitutional Provisions & Precedents Cited:
  • Articles 245, 246, 248, 265, 288 of the Constitution – delineating legislative competence and taxation powers.
  • Entry 53 of List‑II (tax on consumption or sale of electricity) – State can tax consumption/sale, not generation.
  • Supreme Court judgments: Mineral Area Development Authority v. Steel Authority of India (2024), Jalkal Vibhag Nagar Nigam v. Pradeshiya Industrial (2021), Hingir‑Rampur Coal Co. Ltd. v. State of Orissa (1961), Mafatlal Industries v. Union of India (taxation principle), Commissioner of Sales Tax Madhya Pradesh v. Madhya Pradesh Electricity Board (electricity as goods), M.P. Cements Manufacturers Association v. State of Madhya Pradesh (tax on generation is Union subject), National Hydro‑Electric Power Corp. Ltd. v. State of J&K (earlier quashing of electricity duty on generation), among others.
  • Legal Issues Framed:

1. True nature of the levy – tax or water‑usage charge?

2. If tax, is it on water draw‑down or on electricity generation?

3. Whether the State Legislature is competent to impose such a tax.

4. If deemed a water charge or tax, whether it is permissible under the Constitution and the parties’ agreements.

Final Outcome

  • The Court held that the water usage charges imposed on hydro‑electric projects under the 2010 Act are, in substance, a tax on the generation of electricity.
  • Such a tax is ultra‑vires the legislative competence of the erstwhile State of Jammu & Kashmir (and consequently the UT of J&K) because Entry 53 of List‑II permits tax only on consumption or sale of electricity, not on generation; generation falls within the exclusive Union domain (List‑I) and the residuary power of Parliament.
  • Consequently, the provisions of the Act that levy water usage charges on hydro‑electric projects are struck down.
  • All demand notices issued to the petitioners under the impugned provisions are quashed.
  • The State of UT of J&K is restrained from imposing any tax on electricity generation under the guise of water usage charges or any other similar levy.

Topics: Constitutional Taxation, Hydro‑Power Regulation, State Legislative Competence