State Cannot Retrospectively Resile From Policy Assurances Inducing Substantial Investment Under Doctrine of Promissory Estoppel

The State of Rajasthan introduced the Solar Policy, 2019, which promised a seven-year exemption from electricity duty from the date of commissioning for captive solar power plants

Relying on this assurance, Petitioner No. 1 (UltraTech) invested approximately ₹89 crores in setting up two captive solar facilities

On May 10, 2022, the State issued a notification amending Clause 16.4 of the Policy, withdrawing the fixed 7-year exemption and making it subject to periodic government notifications

Consequently, the State began levying electricity duty on the petitioner’s solar consumption despite their plants having been commissioned or registered prior to the amendment

1. Whether the State could withdraw a policy-based fiscal exemption after an investor had altered their position based on that sovereign assurance

2. Whether the lack of a statutory notification under the Rajasthan Electricity (Duty) Act, 1962, beyond March 31, 2020, rendered the policy promise of exemption unenforceable

3. Whether the amendment dated May 10, 2022, could be applied retrospectively to projects already commissioned or registered under the 2019 Policy

The court applied Section 3(3) of the Rajasthan Electricity (Duty) Act, 1962, which empowers the State to exempt electricity duty in the public interest

It relied on the doctrine of Promissory Estoppel as established in Motilal Padampat Sugar Mills v. State of U.P., which holds that the government is bound by its promises when a party relies on them to its detriment

The court further applied the principle of Legitimate Expectation and Article 14 of the Constitution, which prohibits manifest arbitrariness in state action [Brahmputra Metallics Ltd. and State of Punjab v. Nestle India Ltd.]

the rule that statutory amendments/notifications affecting vested rights generally operate prospectively [Hitendra Vishnu Thakur v. State of Maharashtra]

The court reasoned that while the Solar Policy 2019 was an executive instrument, it contained a clear, unambiguous representation intended to induce investment in the renewable energy sector

The petitioner fulfilled the requirements for promissory estoppel by making substantial capital expenditures (₹89 crores) based on this fiscal incentive

The court rejected the State’s defense that the absence of a statutory notification under the 1962 Act acts as a bar, holding that the State cannot use its own failure to issue a notification to defeat a promise it made to invite investment

Regarding the "public interest" justification (financial constraints), the court found it to be a "bald assertion" lacking substantive material, especially since the State’s solar capacity targets remained unmet

The court concluded that while the State has the power to change economic policy, such changes cannot operate retrospectively to divest accrued or vested rights of those who already acted upon the prior regime

The Court held that petitioners whose solar projects were commissioned or registered under the 2019 Policy are entitled to the 7-year electricity duty exemption from their Commercial Operation Date (COD). The respondents were directed to verify the exact COD of the projects and pass independent orders granting the exemption accordingly. Relief was limited to those projects commissioned prior to the amendment; the State’s power to apply the new policy prospectively was upheld