Supreme Court Sets Aside HC Ruling Granting Electricity Duty Relief To Reliance, Other Captive Power Industries

The appeals challenged the Bombay High Court judgments dated October 5, 2009, and November 7, 2009, which had quashed state notifications withdrawing exemption and allowed full electricity duty relief to industries for the intervening period.

A bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe allowing the appeals, observed:

“For the foregoing reasons, judgment and orders dated 05.10.2009 and 07.11.2009 are quashed and set aside. We uphold the power of the state government to withdraw or modify the exemptions granted under Section 5 of the Electricity Act and hold that notifications dated 01.04.2010 qua 01.04.2001 would operate only after expiry of period of one yearfrom their respective dates. In the result, appeals are allowed.”

A detailed copy of the judgment is yet to be uploaded.

Background

The dispute arises from Maharashtra's 1993 industrial policy granting exemption from electricity duty on power generated and consumed through captive power plants to promote industrial growth. Acting on this assurance, companies including Reliance Industries Ltd invested substantial sums in setting up such plants. The exemption was implemented through notifications issued from June 1993 onwards under the Bombay Electricity Duty Act, 1958.

However by notification on April 1, 2000, the State withdrew the exemption and imposed electricity duty at 30 paise per unit, later reduced to 15 paise per unit by notification dated April 4, 2001.

This led to disputes, with industries contending that the withdrawal was arbitrary and contrary to the doctrine of promissory estoppel, as investments were made based on the earlier policy assurance. Although exemption was restored prospectively by notification dated June 16, 2005, the State refused to extend it for the intervening period from April 1, 2000 to April 30, 2005.

Aggrieved by demand notices and rejection of representations dated January 25, 2007, several industrial entities approached the Bombay high court.

The Bombay high court on November 7, 2009, held that the State had failed to provide any cogent reasons for denying exemption for the intervening period and that the decision suffered from arbitrariness and lack of application of mind. It observed that mere financial constraints or policy change could not justify withdrawal without proper justification.

The court quashed the impugned notifications and demand notices, holding that the petitioners were entitled to full exemption from electricity duty for the period from April 1, 2000 to April 30, 2005.

The Supreme Court has now set aside the high court's judgments and allowed the appeals, holding that the State Government is empowered to withdraw or modify such exemptions