Govt Can Withdraw Tax Concession Given To Industry In Public Interest : Supreme Court

The Supreme Court has observed that tax concessions granted by the government create no indefeasible right on the recipient to claim it indefinitely, and the government can withdraw such concessions in the public interest.

“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.”, observed a bench of Justices PS Narasimha and Alok Aradhe, while allowing the Maharashtra Government's appeal against the captive power generators, upholding the government's decision to withdraw the tax benefits received by them for generating captive power (power that is generated by the industry for their own purpose, without relying on grid supply).

The dispute arose from electricity duty exemptions granted by the State of Maharashtra since 1994 under Section 5A of the Bombay Electricity Duty Act, 1958 to encourage captive power generation by industries.

In 2000–2001, the State partially withdrew these exemptions, citing fiscal constraints and the need to boost public revenue. The High Court struck down the withdrawal as arbitrary and discriminatory, prompting the State's appeal to the Supreme Court.

Setting aside the impugned finding, the judgment authored by Justice Aradhe held that such exemptions are statutory concessions, not contractual assurances, and can be modified or withdrawn by the government.

“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doctrine acted on the basis of a notification, it should have known that such notification was liable to be amended or rescinded at any point of time, if the Government felt that it was necessary to do so in public interest.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.”, the court observed.

Rejecting the industries' reliance on promissory estoppel, the Court observed that beneficiaries of such schemes are aware that exemptions granted under statute are inherently revocable in public interest.

“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 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.”, the court said.

The Court added that since, “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.”

While Government Has Power Withdraw Concessions, Manner Of Withdrawal Shouldn't Violate Principles Of Fair play

“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 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.”, the court said, pointing out 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 without reasonable time to adjust to the altered regulatory framework.”

Testing on this pedestal, the Court found that the government withdrawal notification sustained the principles of fair play, as “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 was manifestly arbitrary.”, further, it observed that “the justification advanced by the State namely, augmentation of public revenue and addressing the fiscal constraints cannot be regarded as extraneous or unreasonable.”

Therefore, the decision to withdraw and modify the exemption can neither be termed as arbitrary nor unreasonable, the court held.

“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”, the court held.

Accordingly, the appeal was allowed.

Cause Title: THE STATE OF MAHARASHTRA & OTHERS VERSUS RELIANCE INDUSTRIES LTD. & OTHERS

Citation : 2026 LiveLaw (SC) 304

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Appearance:

For Appellant(s) : Mr. Puneet Jain, Sr. Adv. Mr. Shivaji M. Jadhav, AOR Mr. Brij Kishor Sah, Adv. Mr. Vignesh Singh, Adv. Ms. Apurva, Adv. Mr. Aditya S. Jadhav, Adv. Mr. Amit Kumar Gupta, Adv. Mr. Yogit Kamat, Adv. Mr. Om Sudhir Vidyarthi, Adv. Mr. Shyam Mehta, Sr. Adv. Mr. Siddharth Dharmadhikari, Adv. Mr. Aaditya Aniruddha Pande, AOR Mr. Shrirang B. Varma, Adv. Mr. Bharat Bagla, Adv. Mr. Sourav Singh, Adv. Mr. Aditya Krishna, Adv. Mr. Adarsh Dubey, Adv. Ms. Chitransha Singh Sikarwar, Adv.

For Respondent(s) :Mr. C. S.vaidyanathan, Sr. Adv. Mr. K. R. Sasiprabhu, AOR Mr. Gaurav Thakur, Adv. Mr. Mahesh Sahasranaman, Adv. Mr. Vishnu Sharma A S, Adv. Mr. Vinayak Goel, Adv. Mr. Ronak Shankar Agarwal, Adv. Ms. Namrata Saraogi, Adv. Mr. Aaditya Aniruddha Pande, AOR Mr. Sandeep Sudhakar Deshmukh, Adv. Mr. Rakesh K. Sharma, AOR Ms. Adviteeya, Adv. Ms. D. Tejaswi Reddy, Adv. Mr. Sanjeev K. Kapoor, Adv. Ms. Divya Chaturvedi, Adv. Ms. Srishti Rai, Adv. Mr. Jai Dhanani, Adv. M/s Khaitan & Co., AOR M/S. Parekh & Co., AOR Mr. Sumit Goel, Adv. Mr. Ishan Nagar, Adv. Ms. Swati Bhardwaj, Adv. Ms. Apurba Pattanayak, Adv. Mr. Akhil Shresth, Adv. Ms. Suvasita Chopra, Adv. Mr. Harish M Jagtiani, Sr. Adv. Mr. Bhargava V. Desai, AOR Ms. Jahnavi Vohra, Adv. Mr. Yash Jain, Adv. Mr. Shivam Sharma, Adv. Mr. Parmanand Pandey, AOR M/S. Karanjawala & Co., AOR Ms. Ruby Singh Ahuja, Adv. Ms. Kritika Sachdeva, Adv. Ms. Megha Dugar, Adv. Mr. Jappanpreet Hora, Adv. Mr. Abhyuday Mishra, Adv. Mr. Basava S Prabu Patil, Sr. Adv. Ms. Praveena Gautam, AOR Mr. Brijendra Chahar, Adv. Mr. K K Gupta, Adv. Mr. Pawan Shukla, Adv. Ms. Tissy Annie Thomas, Adv. Mr. Rohan Bansla, Adv. Mr. Arijit, Adv. Mr. Pranaya Goyal, AOR Mr. Omm Mitra, Adv. Mr. Harish M Jagtiani, Sr. Adv. Mr. Bhargava V. Desai, AOR Ms. Jahnavi Vohra, Adv. Mr. Yash Jain, Adv. Mr. Shivam Sharma, Adv.