The Supreme Court (SC) on Wednesday overturned two 2009 judgments of the Bombay High Court (HC) that had extended electricity duty exemptions to industries, including Reliance Industries, for power generated through captive plants between 2000 and 2005.

The appeals arose from the HC rulings dated October 5 and November 7, 2009, which had invalidated state notifications withdrawing the exemption, and directed that industries be granted full duty relief for the intervening period (April 1, 2000 to April 30, 2005). Allowing the appeals, a Bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe ruled that the Maharashtra government is competent to rescind or alter exemptions granted under Section 5 of the Electricity Act. 

"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 April 1, 2010, qua April 1, 2001, would operate only after expiry of a period of one year from their respective dates,” the court said. A detailed copy of the judgment is awaited. 

The litigation goes back to Maharashtra’s 1993 industrial policy, which granted exemption from electricity duty on power generated and consumed through captive power units as an incentive for industrial investment. Acting on this policy, several companies, including Reliance Industries, invested heavily in establishing such facilities. The exemption was operationalised through notifications issued under the Bombay Electricity Duty Act, 1958, from June 1993 onwards.

The state, however, withdrew the exemption through a notification dated April 1, 2000, imposing duty at 30 paise per unit, later revised to 15 paise per unit by a notification dated April 4, 2001. Industries challenged this move, arguing that the withdrawal violated the doctrine of “promissory estoppel”, since investments had been made relying on the earlier assurances.

Although the exemption was reinstated prospectively on June 16, 2005, the state declined to extend the benefit to the period between April 1, 2000 and April 30, 2005. Following demand notices and the rejection of representations in January 2007, affected companies approached the Bombay HC.

In its November 7, 2009 ruling, the HC held that the state had failed to justify the denial of exemption for the intervening period, terming the decision arbitrary and unsupported by adequate reasoning. The HC rejected financial constraints or policy shifts as sufficient grounds, and struck down the relevant notifications and demand notices, granting full exemption for the disputed period. The apex court has now reversed this position, affirming the state’s authority to withdraw or modify fiscal exemptions.