In a recent decision a division bench of chief justice Bhaskar Bhattacharya and justice J B Pardiwala also issued direction to the state government to refund the cess already collected from the industrial units preferably within four months from the date of receipt of court order copy with simple interest of 8 per cent.
The Act came into force from 2011-12, where by the government aimed to generate funds to promote clean energy by introducing a Green Cess on every unit of conventional electricity generated in Gujarat.
Under the Gujarat Green Cess Act, 2011, Green Cess not exceeding twenty paise per unit was levyed on generation of electricity other than renewable energy for creation of a, fund (Green Envergy Fund) for protecting environment and promoting the generation of electricity through renewable sources in the state of Gujarat.
This would also include electricity generated by captive power plants of companies.
Major industrial players of the state had filed petitions in the High Court last year challenging the constitutional validity of the government's move of collecting cess on every unit of electricity generated in the state.
The companies who had challenged the provisions of the act included, Essar Power, Nirma Ltd, Reliance Industries, Tata Chemicals Ltd, Arvind Ltd, Phillips Carbon Black Ltd and United Phosphorpus Ltd.
The industrial players had contended that the Act provides for levy and collection of cess on generation of electricity, which is exclusively the Union subject contained in Entry 84 to List I of Seventh Schedule. The state government therefore has no competence to enact any law pertaining to such subject, they further claimed.
The companies relied upon 2004 judgement in the Supreme Court case of M P Cement Manufacturers' Association vs State of Madhya Pradesh, wherein it was held that a State was not competent to levy cess as the Parliament had exclusive legislative competence in this respect by virtue of Entry 84 in List I of Schedule 7 of the Constitution of India. It was also held by the court that electricity was "goods" and that the State would have competence to levy tax on the sale and consumption of electricity but could not levy cess on the production of electricity.
The government on its part argued that what is being charged under the act is a fee and not a tax. It further claimed that such cess is collected not for generation of electricity but is merely computed in terms of generation of electricity.
It also justified its competency in levying such cess on the companies.
After hearing the petitioner companies and the respondent state government the judges concluded "the State Act ultra vires the Constitution and the same is therefore, declared void. Resultantly, the Cess levied under the State Act would also stand vitiated."