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Shimla, August 11
In a major setback to the Sukhvinder Singh Sukhu government’s efforts to augment revenue, the Himachal Pradesh High Court has set aside the State’s notifications enhancing electricity duty on stone crushers, holding that the manner in which the duty was increased lacked necessary statutory safeguards and guiding principles. The judgment comes at a time when the government has constituted a Resource Mobilisation Committee to explore measures for increasing the State’s revenue. The court’s decision is therefore likely to upset the government’s revenue-mobilisation efforts, particularly as the State had sought to raise additional resources through higher electricity duty on the stone-crushing sector.
A Division Bench comprising Justice Vivek Singh Thakur and Justice Ranjan Sharma pronounced the judgment on Tuesday in a batch of 141 writ petitions concerning the levy and revision of electricity duty on stone crushers and related industrial units. The lead petition was CWP No.15413 of 2024, M/s Brajesh Stone Crusher versus State of Himachal Pradesh and another. The petitions were reserved on May 11 and decided on August 11, 2026.
The High Court directed that electricity duty payable by the petitioners shall be governed by an interim mechanism laid down by the court until the State carries out suitable amendments to the Himachal Pradesh Electricity (Duty) Act, 2009, incorporates guiding principles or frames/modifies relevant rules.
The court held that the State Government does possess the power under Section 11(2) of the 2009 Act to revise electricity duty, including enhancement and reduction. However, it found the provision vague, uncertain, unguided and unbridled to the extent that it does not prescribe a minimum interval between successive enhancements.
The Bench noted that the absence of such guiding principles had resulted in the electricity duty on stone crushers being increased from 11 per cent to 25 per cent through the notification dated September 1, 2023 and subsequently from 25 per cent to 37.50 per cent through another notification dated January 18, 2024.
The court pointed out that the two enhancements within about five months had resulted in the duty rising from 11 per cent to 37.50 per cent, representing an overall increase of 240 per cent. It held that the increase from 11 per cent to 25 per cent through the September 2023 notification itself exceeded the permissible 50 per cent enhancement contemplated under Section 11(2).
The court did not strike down Section 11(2) in its entirety. Instead, it held that the provision should be suitably modified to incorporate definite guiding principles, definite intervals and definite rates for revision of electricity duty. Until such legislative or rule-making exercise is undertaken, the State’s power to enhance the duty would have to be exercised in accordance with the mechanism prescribed by the court.
The Bench prescribed a graded mechanism under which the maximum enhancement would depend upon the period elapsed after the previous determination of the levy. The court’s table provides for a maximum five per cent enhancement after one year, with the permissible enhancement progressively increasing with the passage of time and reaching 50 per cent after ten years.
Applying the mechanism to the cases before it, the court held that electricity duty in the present cases would be governed by a rate of 16.05 per cent from September 1, 2023 and 24.75 per cent from January 18, 2024. It further directed that subsequent revision of electricity duty would remain governed by the prescribed directions until the State makes the appropriate amendments or incorporates guiding principles and relevant rules.
The judgment records that the petitioners had contended that the State could have increased the earlier rate of 11 per cent only up to 16.5 per cent, representing a 50 per cent enhancement. A subsequent 50 per cent enhancement of 16.5 per cent would have taken the rate to 24.75 per cent.
The petitioners had challenged the State’s decision to separately classify stone crushers, cement industries and mining units and impose a higher electricity duty on them. They argued that their units had earlier been included in the category of large industrial consumers with a connected load above 100 KW and were liable to the same rate as other large industrial consumers.
The court, however, rejected the contention that the State had no authority to create a separate category of consumers for the purpose of electricity duty. It held that classification for the purpose of electricity duty under the 2009 Act and classification of consumers by the Electricity Regulatory Commission for tariff purposes operate in different fields. The State, therefore, has the authority to reclassify or create a sub-class for the purpose of levying electricity duty.
The court’s principal objection was to the absence of safeguards regulating repeated enhancement of the duty. It observed that while a reduction in electricity duty primarily affects State revenue, an enhancement directly affects consumers and therefore requires clear guiding principles.
The State had defended the levy before the court, contending that the notifications represented a fiscal and policy decision aimed at generating revenue for infrastructure development and other government initiatives. It had also maintained that the State possessed legislative competence to impose and revise electricity duty under the 2009 Act.
The government had further argued that stone crushers were heavy consumers of electricity and had an environmental impact, providing a rational basis for imposing a higher duty on the sector.
The court also dealt with subsequent notifications dated September 18, 2024, under which electricity duty on certain categories of large industrial consumers above 100 KVA was reduced from 19 per cent to 16.5 per cent and from 19 per cent to 10 per cent, while stone crushers were excluded from the reduction. The petitioners had challenged their exclusion as well.
While disposing of the petitions, the Bench directed that any excess electricity duty already paid by the petitioners should be adjusted against future electricity duty, preferably within one year as far as possible. Any shortfall in payment would also be recovered in the same manner.
The Bench also made observations on the broader principles governing taxation. Referring to principles found in ancient Indian texts, including the Mahabharata’s Shanti Parva, Manu Smriti and Kautilya’s Arthashastra, the judgment observed that while a ruler has the power to levy taxes for the welfare of the people, taxation should not become excessive to the extent that it destroys the source from which revenue is generated.
The court said these principles remain relevant even in the present era and observed that electricity duty should not be imposed at an excessively high level that becomes burdensome for industrial consumers, while consumers should nevertheless contribute to funds required for the functioning of government and welfare of the people.
The High Court accordingly disposed of all the connected petitions and pending applications in the aforesaid terms.
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