Supreme Court: In an appeal arising from a challenge to the validity of Notifications dated 1 April 2000 and 4 April 2001 issued under Section 5-A, Bombay Electricity Duty Act, 1958, where the core issue was whether the State, having once granted exemption from payment of electricity duty to captive power generators was legally precluded from withdrawing or modifying such exemption in the exercise of same statutory power, a Division Bench of P.S. Narasimha and Alok Aradhe,* JJ., upheld the electricity duty exemption withdrawal and set aside the High Court’s judgment, holding that the power to grant exemption from electricity duty under a fiscal statute includes the power to withdraw or modify such exemption in public interest, and therefore the beneficiary has no vested right. However, such withdrawal must operate prospectively with a reasonable notice period to satisfy fairness under Article 14.
Factual Matrix
In the instant matter, the State Government had initially granted exemption from payment of electricity duty to industries generating electricity through captive power plants, as part of a policy to promote industrial self-sufficiency in power generation.
This exemption was first introduced in 1994 and subsequently continued through notifications, including the one dated 30 October 1996, which extended the benefit across industries consuming electricity generated for their own use. However, in 2000 and 2001, the State modified this policy. The Notification dated 1 April 2000 enabled levy of electricity duty across various categories, while the Notification dated 4 April 2001 restricted the exemption by imposing a cap and limiting its applicability to certain generating units installed prior to a specified policy change.
Later, during the pendency of litigation, the State restored exemption prospectively by a Notification dated 16 June 2005, but did not grant relief for the intervening period between 1 April 2000 and 30 June 2005. As a result, demands were raised against captive power producers (respondents) for arrears of electricity duty for that period.
Aggrieved, the respondents challenged the notifications and subsequent demand notices before the High Court, which quashed the notifications as arbitrary and discriminatory. The State of Maharashtra then approached the Supreme Court.
Issues for Determination
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Whether the State Government, having once granted exemption from electricity duty, is legally precluded from withdrawing or modifying such exemption under the same statutory power?
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Whether such withdrawal violates the doctrines of promissory estoppel and legitimate expectation?
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Whether the impugned notifications are arbitrary, discriminatory, or violative of Article 14 of the Constitution?
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Whether the manner of withdrawal, without any transitional arrangement, is legally sustainable?
Legal Principles
The Court reiterated the settled principles governing exemptions in fiscal statutes, that an exemption is a concession or privilege granted by the State, relieving a person from a liability otherwise imposed by law. Such a concession does not create a legally enforceable right to its continuance and remains inherently defeasible, i.e. it might be taken away in exercise of the very power under which the exemption was granted.
The Court further held that while promissory estoppel can apply against the State, it must yield where overriding public interest demands a change in policy. Similarly, legitimate expectation cannot operate against statutory provisions unless the change is shown to be contrary to public interest.
At the same time, the Court emphasised that executive action, including withdrawal of exemption, remains subject to judicial review on the touchstone of Article 14 and must not be arbitrary or unreasonable.
Court’s Analysis and Reasoning
The Court observed that the exemption granted to captive power producers was a policy measure aimed at encouraging industries to generate their own electricity and reduce dependence on public supply. However, such exemption was granted under statutory authority and inherently subject to modification or withdrawal.
It was held that the respondents did not possess any enforceable right to insist upon continuation of the exemption indefinitely. The exemption had been enjoyed for several years, and its withdrawal was neither premature nor retrospective.
“The right to enjoy the exemption from payment of tax is a defeasible right, as the same can be taken away in exercise of power under which it was granted.”
The Court accepted the State’s justification that the modification of exemption was undertaken to augment public revenue and address fiscal constraints. Such considerations were found to be relevant and within the domain of economic policy, where judicial interference is limited.
The Court rejected the High Court’s conclusion that the notifications were arbitrary or discriminatory and held that fiscal decisions involving balancing of competing interests, i.e. industrial growth and revenue generation, must be left to the executive unless shown to be manifestly arbitrary. In matters of economic policy, the Court emphasised that judicial review is limited, and courts must defer to governmental judgment unless the decision is manifestly arbitrary.
Accordingly, the Court held that the doctrines of promissory estoppel and legitimate expectation were inapplicable in the present case, as the withdrawal was justified in public interest.
However, the Court introduced an important qualification. It held that while the State has the power to withdraw a concession, such withdrawal must be carried out in a manner consistent with fairness and reasonableness. The Court observed that industries had structured their operations based on the exemption and abrupt withdrawal imposed an immediate financial burden.
The Court emphasised that principles of fair play require reasonable notice before withdrawing such concessions, enabling affected parties to reorganise their affairs. The absence of such notice rendered the withdrawal harsh, though not invalid in principle.
Court’s Decision
The Court set aside the High Court’s judgment and upheld the State’s power to withdraw or modify the exemption. However, it held that the impugned Notifications dated 1 April 2000 and 4 April 2001 would take effect only after the expiry of a reasonable notice period of one year from their respective dates.
[State of Maharashtra v. Reliance Industries Ltd., 2026 SCC OnLine SC 477, decided on 25-3-2026]
*Judgment by Justice Alok Aradhe
Advocates who appeared in this case:
Mr. Shyam Mehta, Sr. Adv., Mr. Siddharth Dharmadhikari, Adv., Mr. Aaditya Aniruddha Pande, AOR, Mr. Shrirang B. Varma, Adv., Mr. Varad Kilor, Adv., Counsel for the Appellants
Mr. C.S. Vaidyanathan, Sr. Adv., Mr. K.R. Sasiprabhu, AOR, Mr. Gaurav Thakur, Adv., Mr. Mahesh Sahasranaman, Adv., Mr. Vishnu Sharma A S, Adv., Mr. Vinayak Goel, Adv., Mr. Yasharth Misra, Adv., Mr. Ronak Shankar Agarwal, Adv., Mr. Vijay Valsan, Adv., Ms. Vidhatri, Adv., Mr. Parmanand Pandey, AOR, Mr. Sandeep Sudhakar Deshmukh, Adv., Mr. Rakesh K. Sharma, AOR, Ms. Adviteeya, Adv., Ms. D. Tejaswi Reddy, Adv., Mr. Sanjeev K. Kapoor, Adv., Ms. Divya Chaturvedi, Adv., Ms. Srishti Rai, Adv., Mr. Jai Dhanani, Adv., M/s Khaitan & Co., AOR, M/s. Parekh & Co., AOR, Mr. Sumit Goel, Adv., Mr. Ishan Nagar, Adv., Ms. Swati Bhardwaj, Adv., Ms. Apurba Pattanayak, Adv., Mr. Akhil Shresth, Adv., Ms. Suvasita Chopra, Adv., Mr. Harish M Jagtiani, Sr. Adv., Mr. Bhargava V. Desai, AOR, Ms. Jahnavi Vohra, Adv., Mr. Yash Jain, Adv., Mr. Shivam Sharma, Adv., M/s. Karanjawala & Co., AOR, Ms. Ruby Singh Ahuja, Adv., Ms. Megha Dugar, Adv., Mr. Jappanpreet Hora, Adv., Mr. Basava S Prabu Patil, Sr. Adv., Ms. Praveena Gautam, AOR, Mr. Brijendra Chahar, Adv., Mr. K K Gupta, Adv., Mr. Pawan Shukla, Adv., Ms. Tissy Annie Thomas, Adv., Mr. Rohan Bansla, Adv., Mr. Arijit, Adv., Mr. Pranaya Goyal, AOR, Mr. Omm Mitra, Adv., Mr. Harish M Jagtiani, Sr. Adv., Mr. Bhargava V. Desai, AOR, Ms. Jahnavi Vohra, Adv., Mr. Yash Jain, Adv., Mr. Shivam Sharma, Adv., Counsel for the Respondents
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