2026 INSC 296 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 3012 - 3026 OF 2010

THE STATE OF MAHARASHTRA

& OTHERS ... APPELLANTS

VERSUS

RELIANCE INDUSTRIES LTD.

& OTHERS … RESPONDENT S

WITH

CIVIL APPEAL NOS. 3027 – 3029 OF 2010

J U D G M E N T

ALOK ARADHE, J.

1. These appeals by State of Maharashtra

question the correctness of judgment and

orders dated 05.10.2009 and 07.11.2009

whereby notifications dated 01.04.2000 and

04.04.2001 issued under Section 5A of the

Bombay Electricity Duty Act, 1958 (Act), were

2

struck down. The core issue which arises for

consideration in these appeals is 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. In order to

appreciate the grievance of the appellant,

relevant facts need mention.

2. The Act is an act to provide for levy and

collection of duty on consumption of electrical

energy in the State of Bombay. The Act extends

to the whole of the State of Maharashtra.

Section 5A empowers the State Government, if it

considers it necessary in the public interest so

to exempt, by notification in the Official Gazette

prospectively or retrospectively, the

consumption of energy in the whole or any part

3

of the State in respect of any class of premises

or purposes in respect of energy consumed up

to a specified limit from payment of the whole or

any part of the electricity duty payable under

the Act.

3. In exercise of powers under Section 5A of the

Act, the State Government has issued

notifications from time to time, granting

exemption from payment of electricity duty in

respect of electricity consumed by industries

through captive power plants. Such exemption

was granted by notification dated 01.09.1994.

4. In supersession of aforesaid notification, the

State Government issued another notification

on 30.10.1996, granting exemption on

consumption of energy generated in a

generating station by person carrying on an

4

industry and consumed by himself for such

industry, in the whole of the State of

Maharashtra from payment of electricity duty

payable under Clause (b) of the Part-G of the

Schedule appended to the Act.

5. The State Government thereafter on 01.04.2000

issued a notification under Section 5A of the

Act, to enable the State to bill electricity duty in

whole State of Maharashtra in respect of

premises used for consumption of energy for

any purpose under Part A, B, C and G of the

Schedule to the Act. The State Government by

another notification of even date issued under

Section 5A of the Act, exempted the payment of

electricity duty under Clause (b) of Part-G of the

Schedule to the Act, on consumption of energy

generated through non-conventional sources by

a person carrying on industry in the cooperative

5

sector and consumed by himself for such

industry.

6. The State Government thereafter issued another

notification dated 04.04.2001 under Section 5A

of the Act, exempting the consumption of energy

generated by a person carrying on an industry

and consumed by himself for such industry, in

whole of Maharashtra, from payment of such

part of electricity duty payable under Clause (b)

of Part ‘G’ of the Schedule of the Act, as in

excess of fifteen paise per unit of energy so

consumed subject to the condition that

generating set is installed in pursuance of

Government of Maharashtra policy prior to

revised policy regarding captive generation

declared vide Government Resolution dated

25.04.2000.

6

7. The validity of the notifications dated

01.04.2000 and 04.04.2001, issued under

Section 5A of the Act, was challenged in a batch

of the Writ Petitions before the High Court.

During the pendency of the Writ Petitions, the

State Government once again in exercise of

power under Section 5A of the Act, issued a

notification dated 16.06.2005, superseding the

notification dated 04.04.2001 and exempted the

payment of electricity duty on consumption of

energy generated in a captive power generation

station for the whole State with effect from

01.05.2005. The effect of the aforesaid

notification is that the exemption from payment

of electricity duty on electricity generated and

consumed from captive power plant was once

again restored from 01.05.2005. However, for

the intervening period between 01.04.2000 and

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30.04.2005, the exemption from payment of

electricity duty was not restored.

8. The High Court, by an order dated 06.06.2006

inter alia held that the respondents had assailed

the action of charging them for guaranteed

electric supply at an enhanced rate, after having

invited them to set up captive power plants for

generating electricity for their needs. It was

noted that during the pendency of the writ

petitions, the concession granted earlier in

respect of exemption for payment of electricity

duty has been restored and the only grievance

which may be made is regarding payment of

enhanced rate during the period when the

concession stood reduced or withdrawn. It was

further held that if such grievance does exist,

the writ petitioners who have such grievance

may submit a representation to the State

8

Government as well as to the Electricity Board

and if it is so made, the same shall be decided

as early as possible, preferably within four

weeks. Accordingly, the writ petitions were

disposed of.

9. The Captive Power Producers Association

submitted a representation to the State. The

State Government by a communication dated

25.01.2007, rejected the representation seeking

exemption from payment of electricity duty.

Thereafter, notices were issued on 23.02.2007

to the respondents demanding payment of

arrears of electricity duty for the intervening

period.

10. The Captive Power Plant Producers, namely the

respondents, again approached the High Court

and challenged the validity of the notification

9

dated 04.04.2001 and communication dated

25.01.2007. The High Court by impugned

judgment and final order dated 05.10.2009 ,

inter alia held that the object of grant of

exemption from payment of electricity duty

under Section 5A of the Act is to encourage the

industry to be on its own, in requirement of

power generation. It was further held that the

State Government cannot make a distinction

between a cooperative sugar factory and a

private sugar factory. It was also held that

reason of budgetary deficit to withdraw the

exemption does not justify the impugned

notifications and the State Government has

failed to make out any justifiable ground for

withdrawal of the exemption. The High Court

found the impugned notifications to be

discriminatory, arbitrary and suffering from vice

10

of non-application of mind. It was noted that

though the State Government reviewed the

decision on the basis of Maharashtra Electricity

Regulatory Commission (MERC), yet while

withdrawing the exemption it did not consult

MERC and rejected the representation of the

Captive Power Producers without assigning any

reasons. Accordingly, the notifications dated

01.04.2000 and 04.04.2001, were quashed and

set aside. In another batch of writ petitions, by

judgment and order dated 07.11.2009, similar

view was taken. Being aggrieved, the State of

Maharashtra has filed these appeals.

11. Learned senior counsel for the appellant while

inviting the attention of this Court to the

provisions of the Act and the several

notifications issued under the Act, submitted

that withdrawal of exemption was neither

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premature nor was the same withdrawn with

retrospective effect. It is urged that the

augmentation of revenue is in public interest as

budgetary deficit is the valid ground to

withdraw the exemption. It is contended that

the High Court ought to have appreciated that

doctrines of legitimate expectation and

promissory estoppel do not apply to the

obtaining factual matrix. It is argued that the

power to grant exemption is a statutory power

and is coupled with power to withdraw the

same. It is contended that the Captive Power

Producers have no Statutory or Fundamental

Right to claim exemption from payment of

electricity duty. It is urged that the rejection of

representation of the Captive Power Producers

cannot be a reason to quash the notifications

dated 01.04.2000 and 04.04.2001. In support of

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the aforesaid submissions, reliance has been

placed on the decisions of this Court

1.

12. On the other hand, learned senior counsel for

the respondents submitted that law providing

for exemption as well as taxing statutes cannot

discriminate between same category of persons,

in the absence of any explanation. It is urged

that the power to withdraw the exemption has

to be reasonable, non-arbitrary, just and fair

and has to be in consonance with Article 14 of

the Constitution of India. It is contended that

acting on the solemn representation of the State

Government, the Captive Power Produces have

made huge investments and have set up the

captive power plants and the State Government

is, therefore, bound by the doctrines of

1

Orient Weaving Mills (P) Ltd., and Another v. Union of India and Others, 1962 SCC OnLine SC

323; Kasinka Trading and Anr. V. Union of India and Anr., (1995) 1 SCC 274; Shrijee Sales

Corporation and Anr. v. Union of India, (1997) 3 SCC 398 and Sales Tax Officer & Anr. v. Shree

Durga Oil Mills and Anr., (1998) 1 SCC 572 and Kothari Industrial Corporation Limited v. Tamil

Nadu Electricity Board and Another, (2016) 4 SCC 134.

13

promissory estoppel and legitimate expectation.

In support of the aforesaid submissions, a

reference has been made to decisions of this

Court

2.

13. We have considered the rival submissions and

have perused the record. Before proceeding

further, it is apposite to take note of few well

settled legal propositions. An exemption is by

definition a freedom from an obligation which

the exemptee is otherwise liable to discharge. It

is a privilege granting an advantage not

available to others. An exemption granted under

a statutory provision in a fiscal statute has been

held to be a concession granted by the State

2

P.J. Irani v. State of Madras & Anr., (1962) 2 SCR 169; Shri Rama Sugar Industries Ltd. v. State

of A.P. & Ors. (1974) 1 SCC 534; Indian Express Newspapers (Bombay) Pvt. Ltd. & Ors. v.

Union of India & Ors., (1985) 1 SCC 641, R.K. Khandelwal v. State of U.P. & Ors., (1981) 3 SCC

592, Jain Exports (P) Ltd. v. Union of India, AIR 1991 SC 1721, Dai-Ichi Karkaria Ltd. v. Union of

India & Ors., (2000) 4 SCC 57, State of Punjab v. Nestle India Ltd. & Anr., (2004) 6 SCC 465,

Shree Sidhbali Steels Ltd. & Ors. v. State of Uttar Pradesh & Ors., (2011) 3 SCC 193, P.

Suseela & Ors. v. University Grants Commission & Ors., (2015) 8 SCC 129, Union of India &

Ors. v. N.S. Rathnam and Sons, (2015) 10 SCC 681, State of Jharkhand & Ors. v. Brahmputra

Metallics Ltd. Ranchi & Anr., (2023) 10 SCC 634.

14

Government so that the beneficiaries of such

concession are not required to pay the tax or

duty, they are otherwise liable to pay under

such statute. The recipient of a concession has

no legally enforceable right against the

Government to grant of a concession except to

enjoy the benefits of the concession during the

period of its grant. This right to enjoy is a

defeasible one. in the sense, that it may be

taken away in exercise of the very power under

which the exemption was granted

3. However, it

is equally a well-settled legal proposition that

justiciability of a notification can be tested on

the touchstone of Article 14 of the Constitution

of India

4.

3

Shri Bakul Oil Industries & Anr. v. State of Gujarat & Anr., (1987) 1 SCC 31; Kasinka Trading

and Anr. v. Union of India and Anr., (supra) ; Shrijee Sales Corporation and Anr. v. Union of

India, (supra) ; State of Rajasthan & Another v. J K Udaipur Udyog Ltd. & Another (2004) 7 SCC

673 and Shree Sidhbali Steels Ltd. & Ors. v. State of U.P. & Ors. (supra).

4

Chhotabhai Jethabhai Patel & Co. v. Union of India & Anr., AIR 1962 SC 1006; Aashirwad

Films v. UOI (2007) 6 SCC 624 and Union of India & Ors. v. N.S. Rathnam and Sons (supra).

15

14. The doctrine of promissory estoppel is

applicable against the State Government but, in

case there is a supervening public equity, the

Government must be allowed to change its

stand, it would then be able to withdraw the

representation made by it which induced person

to take certain steps which may have gone

adverse to the interest of the such person on

account of such withdrawal. If a party claiming

application of the doctrine acted on the basis of

a notification, it should have known that such

notification was liable to be amended or

rescinded at any point of time, if the

Government felt that it was necessary to do so

in public interest. However, the Court must

satisfy itself that such a public interest exists

5.

5

Shrijee Sales Corporation and Anr. v. Union of India (supra) and Bannari Amman Sugars Ltd.

v. CTO and Ors. (2005) 1 SCC 625.

16

15. The legitimate expectation can be inferred

against a statute, provided that such a claim of

legitimate expectation is in public interest, and

for a statute to claim a bar against legitimate

expectation, it must be demonstrated that the

shift in policy is for the advancement of public

interest

6.

16. Bearing the aforesaid well settled legal

propositions in mind, we may now examine the

facts of the present cases. The exemption from

payment of electricity duty in favour of captive

power generators was granted by the State

Government in exercise of statutory power

under Section 5A of the Act. The exemption was

introduced as a policy measure to encourage

the industries to generate electricity for their

own consumption and thereby reduce pressure

6

KB Tea Product Pvt. Ltd. & Anr. v. CTO, Siliguri & Ors. ; 2023 SCC OnLine SC 615.

17

on the public electricity supply system. The

exemption was, therefore, clearly in the nature

of a concession designed to promote industrial

self-sufficiency in power generation. The

exemption from payment of electricity duty

flowed from the exercise of statutory power and

therefore there could be no assurance that the

exemption from payment of elect ricity duty

which was in the nature of concession would

continue for all time to come. The very nature of

exemption implies that it may be modified or

withdrawn if the Government considers such

course of action necessary in public interest.

17. The Captive Power Generators therefore do not

possess any legally enforceable right to insist

upon continuation of exemption indefinitely.

Their right was limited to enjoy the benefit of

exemption during the period for which it

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remained in force. The exemption from payment

of electricity duty was neither prematurely

withdrawn nor the same was withdrawn with

retrospective effect. 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.

18. Now, we may examine whether exercise of

such power is arbitrary or unreasonable so as

to offend the mandate contained in Article 14 of

the Constitution of India. The record indicates

that the concerned industries enjoyed

exemption from payment of electricity duty from

1994 until the year 2000. The State

Government thereafter reconsidered the fiscal

implications of continuing such exemption and

arrived at the conclusion that exemption

required modification in order to augment the

19

public revenue and address budget ary

constraints. The withdrawal and modification of

exemption was thus a policy decision taken in

the realm of fiscal administration.

19. It cannot be overlooked that electricity duty

constitutes an important source of revenue for

the State. The decision relating to levy or

exemption of electricity duty necessarily

involves balancing the need to encourage

industrial growth against the requirement of

maintaining fiscal stability. The Government

being accountable for management of public

finances, must retain the flexibility to

recalibrate such policy when circumstances so

demand. In the present cases, the respondents

have not been able to demonstrate that the

decision taken by the State Government was

based on any irrelevant consideration or that it

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was manifestly arbitrary. The justification

advanced by the State namely, augmentation of

public revenue and addressing the fiscal

constraints cannot be regarded as extraneous or

unreasonable.

20. It is a well settled legal proposition that the

court must defer to legislative judgment in

matters relating to social and economic policies

and must not interfere unless the exercise of

executive power appears to be palpably

arbitrary

7. The judicial review in such a policy

matter is confined to examining whether

decision is manifestly arbitrary, discriminatory

or actuated by extraneous consideration. The

courts do not undertake a detailed evaluation of

the wisdom, sufficiency or effectiveness of an

economic policy, for such assessment properly

7

Vivek Narayan Sharma & Ors. (Demonetisation Case-5) v. Union of India, (2023) 3 SCC 1

21

belongs to the domain of the Government and

the experts advising it. The decision to withdraw

and modify the exemption has been taken in

public interest and therefore doctrines of

legitimate expectation and promissory estoppel

have no application to the facts and

circumstances of the case. Therefore, the

decision to withdraw and modify the exemption

can neither be termed as arbitrary nor

unreasonable.

21. However, the matter requires consideration

from another perspective. While the State,

undoubtedly possesses the power to withdraw

or modify a concession granted under a

statutory provision, the manner in which such

statutory power to withdraw exemption is

exercised, must also satisfy the requirements of

reasonableness and fairness. The principles of

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fair play demand that such withdrawal should

not operate in a manner that causes undue

hardship to those who have structured their

affairs on the basis of concession earlier

extended to them. This Court

8 recognized the

principle that Government may withdraw or

modify a concession in exercise of statutory

power. At the same time, it was held that

Government ought to resile from its stand by

giving reasonable notice so as to afford the

beneficiary a reasonable opportunity to

reorganise their affairs provided such a course

is feasible. The rationale behind the principle is

that the persons who have structured their

commercial or industrial activities on the basis

of a concession should not be subjected to

abrupt policy reversals which leave them

8

Shrijee Sales Corporation and Anr. (supra)

23

without reasonable time to adjust to the altered

regulatory framework.

22. In the present cases, captive power generators

had been enjoying exemption from electricity

duty for a considerable period from 1994. The

industrial units would naturally have organised

their financial and operational arrangements on

the basis of the concession extended to them.

The sudden withdrawal of the exemption

without providing a reasonable transitional

period to the industries had the effect of placing

the captive power generators in a position to

immediately bear an additional fiscal burden.

The legitimate object of withdrawal of exemption

is not such an urgent or time sensitive measure

as to preclude the grant of a reasonable notice

period to the affected industries.

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23. In the facts and circumstances of the present

cases, in our view, interest of justice would be

adequately served by treating the impugned

notifications, as taking effect only after the

expiry of a reasonable notice period. Having

regard to object of grant of exemption from

payment of electricity duty, the investments

made by the captive power generators and the

fiscal implications involved, we are of the view

that a period of one year would constitute a

reasonable notice, enabling the captive power

generators to adjust their operations and

financial planning.

24. 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

exemption granted under Section 5A of the Act

25

and hold that the notifications dated

01.04.2000 and 04.04.2001 would operate only

after the expiry of a period of one year from their

respective dates.

25. In the result, the appeals are allowed in the

aforesaid terms. However, there shall be no

order as to costs.

…..…….……………….………….……… .J.

[PAMIDIGHANTAM SRI NARASIMHA]

…..…….……………….………….……… .J.

[ALOK ARADHE]

NEW DELHI;

MARCH 25, 2026.