Central government urges states to refrain from levying charges on power generation

The Indian Government has raised its apprehension regarding certain state governments imposing extra fees on electricity generation for various reasons like development fees or funds. The Ministry of Power (MoP) elaborated on these concerns through a circular dated October 25, 2023. The extra fees in the form of taxes or duties related to producing electricity, cover all varieties of power generation, comprising thermal, hydro, wind, solar, nuclear, and other methods. The government affirms that these charges are unauthorised and unconstitutional.

The government asserts that no state is permitted to levy taxes or duties on the generation or inter-state supply of electricity through the imposition of additional charges or fees, irrespective of the energy source involved. Thus, all states have been advised to immediately remove any tax, duty, or cess that has been imposed on the production of power from any source under the cover of development fees, charges, or funds.

Earlier, on April 25, 2023, the MoP issued an order clarifying that the imposition of water taxes or cess on hydro power generation by specific states is illegal. The recent directive has instructed the states to abstain from imposing any taxes, duties, or additional charges on power generation. In the earlier order, ministry highlighted that the authority to impose taxes and duties is explicitly outlined in the VII Schedule of the Indian Constitution. List III of the VII Schedule specifies the states’ authority to impose taxes or duties in entries 45 to 63. Any taxes or duties not explicitly mentioned in this list cannot be levied by state governments under any circumstance, as the remaining powers are held by the central government.