‘Administrative lethargy of State will discourage entrepreneurship’; SC calls out Jharkhand Govt for not giving 50% electricity rebate to Industrial Units as promised

Supreme Court: In a case where an Industrial Unit was seeking a rebate or deduction of 50 per cent of the amount assessed towards electricity duty from Financial Years 2011 to 2014 on the basis of Industrial Policy 2012 notified by the State of Jharkhand and a statutory notification dated 8 January 2015 issued under Section 9 of the Bihar Electricity Duty Act 1948, the bench of Dr. DY Chandrachud* and Indu Malhotra, JJ directed came down heavily upon Jharkhand Government’s administrative lethargy and held that the company (respondent)  was entitled to an exemption from electricity duty for FY 2012-13 and 2013-14.

However, considering the terms of Clause 35.7(b) of the Industrial Policy 2012 which provided that entitlement ensues from the financial year following the commencement of production, the Court held that since the respondent had commenced production on 17 August 2011, it was not entitled to a rebate/deduction for FY 2011-12.

“If the object of formulating the industrial policy is to encourage investment, employment and growth, the administrative lethargy of the State apparatus is clearly a factor which will discourage entrepreneurship.”

Terms of the impugned Industrial Policy

The policy document contemplated the grant of a rebate/deduction from the payment of electricity duty not only to new units but to existing units as well who had or would set up captive power plants. The State held out inter alia a solemn representation in terms of Clauses 32.10 and 35.7(b) of the entitlement of the exemption for a period of five years from the date of production. Besides this, it also contemplated in Clause 38(b) that a follow-up exemption notification would be issued within one month. That period of one month stretched on interminably with the result that the purpose and object of granting the exemption would virtually stand defeated. The net result was that when belatedly, the State government issued a notification under Section 9 of Bihar Act 1948 on 8 January 2015, it was prospective. As a consequence, by the time that the exemption notification was issued, a large part of the term for which the exemption was to operate in terms of the Industrial Policy 2012 had come to an end. The State government was evidently inclined to grant the exemption.

“This is not a case where due to an overarching requirement of public interest, the State government decided to override the representation which was contained in the Industrial Policy 2012. To the contrary, it sought to implement the representation albeit in fits and starts. Firstly, there was a delay of three years in the issuance of the notification. Secondly, by making the notification prospective, it deprived units such as the respondent of the full benefit of the exemption which was originally envisaged in terms of the Industrial Policy 2012.”

The Court, hence, noticed that not only did the State in the present case hold out a solemn representation, the representation was founded on its stated desire to encourage industrialization in the State.

The policy document spelt out:

(i) The nature of the incentives;

(ii) The period during which the incentives would be available; and

(iii) The time limit within which follow-up action would be taken by the State government through its departments for implementing the Industrial Policy 2012.

Legitimate Expectation

The State having held out a solemn representation in the above terms, it would be manifestly unfair and arbitrary to deprive industrial units within the State of their legitimate entitlement. The State government did as a matter of fact, issue a statutory notification under Section 9 but by doing so prospectively with effect from 8 January 2015 it negated the nature of the representation which was held out in the Industrial Policy 2012. Absolutely no justification bearing on reasons of policy or public interest has been offered before the High Court or before this Court for the delay in issuing a notification.

“It is one thing for the State to assert that the writ petitioner had no vested right but quite another for the State to assert that it is not duty bound to disclose its reasons for not giving effect to the exemption notification within the period that was envisaged in the Industrial Policy 2012.”

Noticing that both the accountability of the State and the solemn obligation which it undertook in terms of the policy document militate against accepting such a notion of state power, the Court said,

“The state must discard the colonial notion that it is a sovereign handing out doles at its will. Its policies give rise to legitimate expectations that the state will act according to what it puts forth in the public realm. In all its actions, the State is bound to act fairly, in a transparent manner. This is an elementary requirement of the guarantee against arbitrary state action which Article 14 of the Constitution adopts. A deprivation of the entitlement of private citizens and private business must be proportional to a requirement grounded in public interest.”

Conclusion

The Court, hence, held that the State had made a representation to the respondent and similarly situated industrial units under the Industrial Policy 2012 and this representation gave rise to a legitimate expectation on their behalf, that they would be offered a 50 per cent rebate/deduction in electricity duty for the next five years. However, due to the failure to issue a notification within the stipulated time and by the grant of the exemption only prospectively, the expectation and trust in the State stood violated.

“Since the State has offered no justification for the delay in issuance of the notification, or provided reasons for it being in public interest, we hold that such a course of action by the State is arbitrary and is violative of Article 14.”

[State of Jharkhand v. Brahmputra Metallics Ltd., 2020 SCC OnLine SC 968, decided on 01.12.2020]


*Justice Dr. DY Chandrachud has penned this judgment. Read more about him here

Counsels heard:

For the State of Jharkhand: Additional Advocate General Tapesh Kumar Singh, appearing for the State of Jharkhand

For Respondent: Advocate Devashish Bharuka

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