A split decision has been reached by a Uttarakhand High Court panel consisting of Chief Justice Vipin Sanghi and Justice Ravindra Maithani regarding the constitutional challenge to the Uttarakhand Water Tax on Electricity Generation Act, 2012.

While Chief Justice Vipin Sanghi affirmed the Act's validity, Justice Ravindra Maithani invalidated it.

In this instance, the appellants, which were companies involved in generating power through hydropower projects, contested the constitutional legitimacy of a law enacted by the Uttarakhand government.

The Act in question, known as the Uttarakhand Water Tax on Electricity Generation Act, 2012, imposed a tax on the "withdrawal of water for the purpose of generating electricity."

The primary reasons for contesting the Act revolved around assertions that it contravened various provisions of the Indian Constitution, such as Articles 14, 19(1)(g), 246, 248, 265, and 300A. It was argued that the State Legislature did not possess the jurisdiction to enact this tax, and there was no explicit provision in the State List permitting the imposition of a water tax on electricity generation. Additionally, the Act was criticized for being an excessive delegation of legislative authority since the tax was implemented through an executive notification rather than a formal statutory law.

The appellants further contended that the principle of promissory estoppel should preclude the State from imposing this tax. The central question at hand was whether the Act, which essentially taxed electricity generation by imposing a water tax, was constitutionally sound and fell within the State's legislative authority.

In Justice Ravindra Maithani's judgment, several crucial conclusions were drawn:-

1) The Act was determined to primarily focus on taxing the generation of electricity.

2) It was established that the State Legislature did not possess the constitutional authority to pass this Act, rendering it unconstitutional. 

3) Section 17 of the Act was found to constitute an excessive delegation of power, allowing the State Government to set tax rates without clear policy guidelines, and was consequently considered void. 

4) Any tax demand made based on a notification from November 7, 2015, was deemed ineligible under the doctrine of promissory estoppel. 

5) The court emphasized its inability to revise or rewrite the statute, emphasizing that the Act imposed a tax that exceeded the State Legislature's constitutional authority, and it could not be construed as a fee.

The Judge ruled in favor of the appellants and invalidated the Act, effectively striking it down.

On the other hand Chief Justice Vipin Sanghi made the following observations:-

1) It affirmed that the Act had been legitimately passed by the Uttarakhand State legislature, exercising its legislative powers under specific provisions of the Indian Constitution. 

2) The Act was characterized as primarily focused on imposing a tax on the withdrawal of water for the purpose of generating electricity, rather than taxing those who utilized water to produce electricity. 

3) The State was not found to be bound by any promissory estoppel or any other commitments that would prevent it from enacting the contested Act. 

4) It was concluded that there was no excessive delegation of legislative authority by the State legislature in granting the State the power to establish water tax rates under Section 17 of the Act.

Consequently, Chief Justice Vipin Sanghi upheld the legality of the Act, leading to the dismissal of the appeals.

Case: THDC India Limited vs State of Uttarakhand & Ors. Special Appeal No. 149 of 2021.