The Supreme Court has held that tax concessions do not create an indefeasible right in favour of industries. The Court said industries can enjoy the concession only for the period for which the government grants it. It also clarified that the government can withdraw or modify such concessions in public interest.
A Bench of Justices PS Narasimha and Alok Aradhe delivered the ruling. The Court allowed the Maharashtra Government’s appeal against captive power generators. It upheld the State’s decision to withdraw electricity duty exemptions granted to industries generating captive power for their own use.
Tax Concessions Withdrawal Dispute Began With 1994 Exemption
The dispute arose from exemptions Maharashtra granted in 1994. The State issued them under Section 5A of the Bombay Electricity Duty Act, 1958. It introduced the scheme to encourage captive power generation by industries.
Later, in 2000 and 2001, the State partly withdrew the exemptions. It cited fiscal constraints and the need to increase public revenue. The High Court struck down the withdrawal as arbitrary and discriminatory. The State then challenged that ruling before the Supreme Court.
Tax Concessions Withdrawal Not Barred by Promissory Estoppel
Justice Alok Aradhe authored the judgment. The Supreme Court set aside the High Court’s view. It held that statutory exemptions operate as concessions, not contractual assurances.
The Court said a party relying on such a notification must know its nature. The government may amend or rescind it if public interest requires. However, the Court must still examine whether such public interest actually exists.
Tax Concessions Withdrawal Must Follow Fairness
The Court rejected the industries’ reliance on promissory estoppel. It held that captive power generators did not gain a legally enforceable right to continue the exemption forever.
According to the Court, their right lasted only while the exemption remained in force. The Bench also noted that the State did not withdraw the exemption prematurely. Nor did it give the withdrawal retrospective effect.
Supreme Court Upholds Tax Concessions Withdraw
The Court also ruled that legitimate expectation would not apply in this case. It gave the same answer on promissory estoppel. The Bench said the State acted in public interest when it withdrew and modified the exemption.
The Court accepted the State’s explanation. It said the State acted to augment public revenue and address fiscal constraints. The Bench found nothing extraneous or unreasonable in that justification.
At the same time, the Court stressed an important limit. The State must exercise its power fairly and reasonably. It cannot withdraw a concession in a way that causes undue hardship.
The Bench said fair play requires a reasonable transition. Industries may have structured their affairs on the basis of the earlier concession. Therefore, the State should avoid abrupt policy reversals.
State’s Decision Upheld
Applying that standard, the Court found that the State had acted fairly. It noted that the respondents failed to show arbitrariness. They also failed to show that the Government relied on irrelevant considerations.
The Court therefore held that the withdrawal and modification were neither arbitrary nor unreasonable. It upheld the State Government’s power under Section 5A of the Act. The Court also held that the notifications dated April 1, 2000, and April 4, 2001, would take effect only after one year from their respective dates. On that basis, it allowed the appeal.
Case Title: The State of Maharashtra & Others v. Reliance Industries Ltd. & Others
Citation: 2026 INSC 304
