HC Ruling on Water Tax May Impact Hydro Power Projects

A high court has ruled that there is a cost to water and indirect taxes must apply on these in a step that could impact the cost that could impact the cost of several hydropower plants.

The Uttarakhand High Court ruled that the contracts between the state government and the power generation companies must allocate a valuation to water and pay indirect taxes on these.

The ruling could impact power generation contracts between several state government and power generation companies, say tax experts.

The ruling could also put a question mark on the principals of promissory estoppel, said legal experts.

“While water tax may be constitutional, the legitimate expectancy of the business comes into play for the agreements which ensure that there will not be any cost over and above the 12% free electricity given to the state government,” said Abhishek a Rastogi, partner at Khaitan & Co.

The case pertains to the implementation agreement between hydropower companies and the Uttarakhand state government.

As per the agreement-restated implementation agreement (RIA)-power companies were required to pay 12% of the total electricity they generate. This was towards the royalty for using the water to produce electricity.

RIA provided that nothing over 12% will be charged from the companies but water tax was imposed, leading to the litigation.

The question is whether indirect tax was applicable on this particular amount.

Industry trackers say many other state governments too have entered into similar agreements with power companies. The ruling could impact some of the existing agreements too. S-ET

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *