Supreme Court’s view on State’s right to withdraw the tax exemption vis-à-vis Industry’s legally enforceable right[1]

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Shubham Budhiraja[2]

 

State of Maharashtra in exercise of the statutory power under Section5A granted exemption to certain industries from electricity duty in 1994. Later on, such exemptions were withdrawn on ground of budget deficit. The withdrawal of notification was challenged. The Hon’ble High Court set aside the notification for being arbitrary for making classification between different industries. The Hon’ble Supreme Court held that notification is valid. The Respondent had no legal enforceable or vested right to claim exemption for indefinite time. In any case, state decision is in public interest.  

 

1.     An exemption is by definition a freedom from an obligation which the exemptee is otherwise liable to discharge. It is a privilege granting an advantage not available to others.

 

2.    The recipient of a concession has no legally enforceable right against the Government to grant of a concession except to enjoy the benefits of the concession during the period of its grant. This right to enjoy is a defeasible one. in the sense, that it may be taken away in exercise of the very power under which the exemption was granted.

 

3.    The doctrine of promissory estoppel is applicable against the State Government but, in case there is a supervening public equity, the Government must be allowed to change its stand, it would then be able to withdraw the representation made by it which induced person to take certain steps which may have gone adverse to the interest of the such person on account of such withdrawal.

 

4.    The legitimate expectation can be inferred against a statute, provided that such a claim of legitimate expectation is in public interest, and for a statute to claim a bar against legitimate expectation, it must be demonstrated that the shift in policy is for the advancement of public interest.

 

5.    The electricity duty constitutes an important source of revenue for the State. The decision relating to levy or exemption of electricity duty necessarily involves balancing the need to encourage industrial growth against the requirement of maintaining fiscal stability. The Government being accountable for management of public finances, must retain the flexibility to recalibrate such policy when circumstances so demand.

 

6.    The decision to withdraw and modify the exemption has been taken in public interest and therefore doctrines of legitimate expectation and promissory estoppel have no application to the facts and circumstances of the case. Therefore, the decision to withdraw and modify the exemption can neither be termed as arbitrary nor unreasonable.

 

7.    The sudden withdrawal of the exemption without providing a reasonable transitional period to the industries had the effect of placing the captive power generators in a position to immediately bear an additional fiscal burden. The legitimate object of withdrawal of exemption is not such an urgent or time sensitive measure as to preclude the grant of a reasonable notice period to the affected industries

 

8.    Having regard to object of grant of exemption from payment of electricity duty, the investments made by the captive power generators and the fiscal implications involved, we are of the view that a period of one year would constitute a reasonable notice, enabling the captive power generators to adjust their operations and financial planning.


[1] State of Maharashtra v. Reliance Industries, Civil Appeal No. 3012-3026/2010, Judgment dated 25/03/2026

[2] Shubham Budhiraja, Advocate [LLB, ACS, BCOM(H)], M:+91-9654055315, Budhirajalawchambers@gmail.com

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