J&K HC Quashes Water Usage Charge on Hydropower: Entry 53

🗞️ Why in News A Division Bench of the High Court of Jammu and Kashmir and Ladakh, of Justices Rajnesh Oswal and Sanjay Dhar, has struck down the water usage charges levied on hydropower projects under the Jammu and Kashmir Water Resources (Regulation and Management) Act, 2010, as reported by legal news portals. The judgment, pronounced on 29 October 2026 according to Law Chakra, held, as LiveLaw reports it, that the levy is in substance and effect a tax on the generation of electricity, which the State Legislature had no competence to impose. Demand notices issued to the power producers were quashed.

The ruling turns on one question a Prelims paper can set in a line: does the State List allow a State to tax the generation of electricity? The State List has a taxing entry for the consumption or sale of electricity, and a subject entry for water and water power, but no taxing entry for generation. The Bench held that a “usage charge” that works like a tax must find a taxing entry, and this one could not.

The Case and the Levy

The petitions were led by WP(C) No. 3008/2024, filed by 11 companies including M/s Mass N Energy Pvt. Ltd., Himalayan Musk Power Pvt. Ltd. and Khari Hydro Power Project Pvt. Ltd., and heard with two petitions filed by Magpie Hydel Construction Operation Industries Pvt. Ltd. and Choudhary Power Projects Pvt. Ltd. Bar & Bench describes the petitioners as independent power producers “operating river-based hydroelectric projects”. Justice Sanjay Dhar wrote the judgment, which had been reserved in September.

• The law. “In the year 2010, the Legislature of the erstwhile State enacted the Jammu and Kashmir Water Resources (Regulation and Management) Act, 2010, and pursuant thereto the Rules of 2011 came to be framed,” LiveLaw reports the Court as recording. The Act (Act No. XXI of 2010) received the Governor’s assent on 23 October 2010.
• Who fixes the charge. The Act defines “water usage charges” as “the rate levied or charged for use of water and fixed under section 128”. Under Section 128 the Authority set up by the Act fixes the charges; the Act itself prints no rate.
• How it was charged. The tariff was “based on head height, with the rate per cubic metre increasing in proportion to the height from which water falls, and not on the basis of the quantity of water supplied” (LiveLaw).
• The demand. The authorities issued demand notices to the petitioners for water usage charges “for generation of electricity from the year 2010 onwards”.

How the Court Reasoned

The argument ran in steps, each reported in the Court’s words or close to them.

1. A charge with no service is a tax. As LiveLaw reports the test, a tax is a compulsory exaction for public purposes, whereas usage charges are consideration for supply or consumption, and a usage charge needs a correlation between the charges collected and the services rendered. Under the proviso to Section 145(1), the charges are meant to recover the cost of projects and their operation, but for hydropower projects, the Court noted, the Union Territory or its functionaries have no obligation to incur any expenditure. The money also goes to a fund under Section 185-A for building and buying power projects and transmission networks. In Bar & Bench’s summary there was no element of quid pro quo, and it quotes the Court: the charges “are nothing but a tax”.

2. The tax falls on generation. A hydro plant passes water through its turbines and returns it to the river, a “non-consumptive use” (LiveLaw). The Court held that using water without consuming it is “an inextricable and indispensable facet of the generation process”, so a levy at any stage “prior to or during the generation of power” is in substance a tax “upon the generation of electricity itself” (Bar & Bench).

3. Entry 53 does not reach generation. Entry 53 of List II, the reports say, empowered the State to tax the consumption or sale of electricity, “but not its generation”; LiveLaw reports the Court as noting that no entry in List II vests power with the State to impose tax on generation of electricity. The Union of India took the same line before the Bench.

4. Entry 17 does not save it. The Union Territory argued that Entry 17 of List II names water, including water power, so the State could regulate water and levy water charges. It also argued that water could be read as “land” or “minerals”. The Court rejected this, LiveLaw reports, holding that the State List has no taxing entry in respect of water. Entry 17 is a subject entry; land has its taxing entry in Entry 49 and mineral rights in Entry 50, and water has none.

5. Adoption in 2019 does not cure it. The Court tested competence “with reference to the law prevailing at the time of its enactment”, that is, 2010, “when the erstwhile State enjoyed a special status under Article 370”. The Union Territory argued that Parliament had adopted the Act through the Jammu and Kashmir Reorganisation Act, 2019, so it carried Parliament’s assent. The Court disagreed: “Merely because the (2019) Act provides for adoption of State enactments and saves their application to UTs of J&K and Ladakh, the said enactments do not become the enactments passed by the Parliament.” And: “A piece of legislation, which is ultra vires the Constitution at the time of its enactment cannot be legitimized by its adoption by the Parliament subsequently.” Law Chakra reports that the Bench called the argument “an attempt in desperation to save the impugned legislation”.

The 2019 Act lists the 2010 Act in Table-4 of its Fifth Schedule, among “State Acts including Governor’s Acts that shall remain in force” in the two Union Territories, and Section 96 allowed the Central Government to adapt such laws by order. Saving a law, the Court’s reasoning implies, is not the same as re-enacting it. A legislature curing a defect by a fresh law is a different route; for one such case, see the 30 October piece on Karnataka’s Validation Act.

What Was Struck Down, and What Was Not

• Struck down: the 2010 Act “to the extent it provides for levying water usage charges upon hydro power projects”, as ultra vires (LiveLaw). The rest of the Act stands.
• Quashed: the demand notices issued to the petitioners.
• Restrained: “The respondent-State is restrained from imposing any tax on the generation of electricity under the garb of water usage charges or any other tax” (Bar & Bench).
• Not decided in the reports: the petitioners also pleaded the State’s 12% free-power share and promissory estoppel; the reports seen do not record the Court’s answer on those pleas.

Other States and the Union’s Stand

The question is not new to the Himalayan States, and the outcomes differ.

The Ministry’s letter, as PSU Watch and The Tribune reported it, also said “there is no rationale for levy of ‘water cess’ or ‘air cess’”. In November 2024 Deccan Herald quoted the Union Power Minister: “The Centre is against imposing water cess.” The Himachal and Uttarakhand rulings concerned different statutes, so they do not read as one line of cases.

For hydropower in the news this month, see the 27 October piece on the Subansiri and Upper Siang dams.

Mains Lens: Water, Power and the Limits of State Taxation

• Substance over label. Courts look at what a levy does, not what it is called. A “charge” with no service in return, and with its rate set by the height of the fall rather than the water supplied, was read as a tax.
• The federal map of electricity taxes. States may tax the consumption or sale of electricity (Entry 53), and Article 287, save as Parliament may by law otherwise provide, bars even that on electricity consumed by or sold to the Government of India or used by railways. Generation sits outside the State List, a point the Union of India and the Ministry of Power have both pressed.
• The State’s case. Hill States host the rivers and the dams and bear their costs, from submergence to fragile slopes. A levy on hydropower is one way to share in the value their water creates; the ruling closes that route by tax, at least in Jammu and Kashmir, and leaves the question of fair returns open.
• Investors and tariffs. Demands reaching back to 2010 add risk to hydro projects that are already capital-heavy. Legal certainty on levies feeds into tariffs and into the push for clean, firm power.
• Reorganisation and old laws. Laws saved by the 2019 Act still answer to the Constitution as it stood when they were made; the ruling is a reminder that continuity of a law is not a cure for a defect at its birth.

What to watch: whether the Union Territory takes the ruling to the Supreme Court, whether it seeks another lawful basis for a share in hydropower value, and how the three High Court lines (Jammu and Kashmir, Himachal Pradesh, Uttarakhand) are reconciled if the question reaches the apex court.

UPSC Relevance

GS Paper 2: Federal structure; distribution of legislative powers (Seventh Schedule); Union-State relations; the Jammu and Kashmir Reorganisation Act, 2019; judicial review.

GS Paper 3: Energy: hydropower, investment in infrastructure, resource mobilisation by States.

Prelims: Articles 246, 248, 265, 287; List II Entries 17, 49, 50, 53; List I Entries 56 and 97; tax versus fee.

Mains: “A levy called a charge may be a tax in disguise. With reference to the recent ruling on water usage charges on hydropower in Jammu and Kashmir, examine the limits of State taxing power over electricity under the Seventh Schedule.” (GS2, 250 words)

📌 Facts Corner, Knowledgepedia

Prelims, statement-ready facts:

• Ruling: High Court of Jammu and Kashmir and Ladakh, Justices Rajnesh Oswal and Sanjay Dhar, pronounced on 29 October 2026 (Law Chakra)
• Lead case: M/s Mass N Energy and Others v. Union of India and Others, WP(C) No. 3008/2024
• Law: Jammu and Kashmir Water Resources (Regulation and Management) Act, 2010 (Act No. XXI of 2010); Rules of 2011
• Holding (as LiveLaw reports it): water usage charges on hydro projects are in substance and effect a tax on the generation of electricity
• List II Entry 53: “Taxes on the consumption or sale of electricity”; no State List entry covers generation
• List II Entry 17: water, including water storage and water power, subject to List I Entry 56
• Article 248 and List I Entry 97: residuary power, including any tax not in the State or Concurrent List, lies with Parliament
• Article 265: no tax shall be levied or collected except by authority of law
• The 2010 Act is in Table-4 of the Fifth Schedule of the J&K Reorganisation Act, 2019 (State Acts that remain in force)

Prelims, the traps:

• Only the water-usage-charge provisions as applied to hydropower were struck down, not the whole 2010 Act
• Entry 17 (water) is a subject entry, not a taxing entry; taxing entries for land and mineral rights are Entries 49 and 50
• Adoption of a State law by the 2019 Act does not make it a law passed by Parliament, the Court held
• Himachal’s water cess was set aside (reported March 2024); Uttarakhand’s water tax was upheld (reported August 2021)
• Article 287 bars a State tax on electricity consumed by or sold to the Government of India, or consumed in running railways by it or a railway company
• Article 287 applies save in so far as Parliament may by law otherwise provide

Mains, arguments and keywords:

• Keywords: legislative competence, pith and substance of a levy, quid pro quo, tax versus fee, ultra vires, saved laws
• Hill States seek a share in hydropower value; after this ruling, a tax on generation is not a route open to a State legislature

Interview, be ready for:

• “Should hill States be paid for the water that runs India’s hydro plants?” Yes in fairness, but through lawful means: fees tied to services, negotiated shares, or a law within competence.

Sources: Bar & Bench, “Jammu and Kashmir High Court strikes down water usage charges on hydropower projects under 2010 law”, 31 October 2026. LiveLaw, report of the judgment, 29 October 2026. Law Chakra, 31 October 2026. Greater Kashmir, 30 October 2026. Kashmir Horizon (UNI), 30 October 2026. Jammu and Kashmir Water Resources (Regulation and Management) Act, 2010. Jammu and Kashmir Reorganisation Act, 2019, Section 96 and Fifth Schedule. The Constitution of India (Legislative Department, May 2024 text), Articles 246, 248, 265, 287 and the Seventh Schedule. The Tribune, March 2024 and April 2023. Deccan Herald, November 2024. Taxscan, August 2021. PSU Watch, April 2023.

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