New Delhi, March 25 In a significant ruling, the Supreme Court on Wednesday upheld the Maharashtra government's power to withdraw or modify electricity duty exemptions granted to captive power plants.
The top court, however, protected industries, including Reliance Industries Ltd, from "sudden policy reversals" and mandated a one-year notice period before such withdrawals can take effect.
A bench comprising Justices P S Narasimha and Alok Aradhe set aside previous high court orders that had struck down the state's move to tax captive power generation.
"The judgments and orders dated October 05, 2009 and November 07, 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 (Electricity) Act and hold that the notifications dated April 01, 2000 and April 04, 2001 would operate only after the expiry of a period of one year from their respective dates," the bench said.
Taking note of the facts and circumstances of the present cases, Justice Aradhe, who authored the judgement, said, "In our view, the interests 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 the object of granting 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," Justice Aradhe said.
The dispute originated from notifications issued by the Maharashtra government in April 2000 and April 2001 under the Bombay Electricity Duty Act, 1958.
These notifications withdrew a long-standing exemption from electricity duty that had been enjoyed by industries using captive power plants since 1994. Reliance Industries Ltd and several other captive power producers challenged these notifications in the Bombay High Court.
The high court had originally ruled in favour of the industries, labelling the state's withdrawal of exemptions as "arbitrary," "discriminatory," and lacking sufficient justification.
The state appealed to the Supreme Court, which addressed the question of whether a state, having once granted a tax exemption to encourage investment, is legally precluded from taking it away.
Justice Aradhe said that a tax exemption is a "concession" or a "privilege" granted by the state and does not constitute a "legally enforceable right" for the beneficiary to enjoy indefinitely.