Centre calls hydropower cess imposed by states illegal, months after Congress government in HP implemented it

The Goods and Services Tax (GST) was introduced as a single levy to end all others and simplify the process, but among other complications, it is still haunted by disputes between central and state governments. Similarly some state governments and the centre don't see eye to eye on levies imposed on aviation fuel, which the ministry has blamed for high airfares.

Now the central government has slammed a water cess on hydroelectric power generation collected by states as illegal.

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Cess deemed against constitution

• Calling the extra levy taken from hydroelectric plants unconstitutional, the central government has instructed state governments to stop collecting it.

• Similarly any such cess applied by state governments on the generation of power from any source, should also be withdrawn as per the central government's letter.

• This comes almost two months after the Congress led state government of Himachal Pradesh, passed a Water Cess on Hydropower Generation Bill, 2023.

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Can't tax resources flowing between states

• Citing the constitution, the BJP-led central government stated that Article 286 bars state governments from imposing taxes on goods or services, which are supplied outside the territory.

• It also mentioned that since the power plants are built on rivers flowing between states, any tax on the non-consumptive use of their waters violates the constitutional provisions.

• Apart from barring the water cess which it called a levy on power generation, the central ministry also announced plans to merge all public sector firms generating hydropower into a single firm.