Government Warns States Against Imposing Hidden Charges on Power Generation

Levying of additional charges on electricity generation from any source is illegal


The Ministry of Power has warned the states against levying extra fees on the production of electricity from different sources in the guise of development fees or charges.

It clarified that such supplementary charges, including any form of taxation or duty imposed on electricity generation, covering all types of generation such as thermal, hydro, wind, solar, and nuclear, are illegal and violative of the Constitution.

The Ministry had addressed this legal stance in a letter dated April 25, 2023, specifically concerning the imposition of water tax or cess by some states.

The Constitutional provisions in this regard are:

  • The authority to impose taxes and duties is explicitly outlined in Schedule VII. Entries 45 to 63 of Schedule VII detail the states’ powers to impose taxes and duties. Any taxes or duties not expressly listed cannot be imposed by state governments in any manner, as the Union government retains residual powers.
  • Entry 53 in List-II (State List) grants states the authority to impose taxes on the use or sale of electricity within their own jurisdiction. However, this does not extend to the power to impose taxes or duties on the actual electricity production. This restriction is because electricity generated within one state’s borders can be used in other states, and no state is allowed to impose taxes or duties on the residents of other states.
  • Article 286 of the Constitution explicitly bars states from imposing any taxes or duties on the supply of goods or services, especially when the supply occurs outside the state.
  • Articles 287 and 288 further prohibit the imposition of taxes on the use or sale of electricity by the Union government or its purchase for the government’s own use or for use by government agencies.

Stakeholders had told Mercom earlier that state-specific levies on renewable energy projects were unfair. They were responding to the levy of Harit Urja Vikas (green energy development) fee of ₹0.10 (~$0.0012)/kWh by the Madhya Pradesh government on electricity sold to non-DISCOM consumers. The fee was applicable to all renewable projects with consumers outside the state.

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