State may withdraw statutory tax exemptions in public interest subject to providing a reasonable notice period.

The Government of Maharashtra, exercising powers under Section 5A of the Bombay Electricity Duty Act, 1958 ("the Act"), issued notifications in 1994 and 1996 granting electricity duty exemptions to industries using captive power plants

On 01.04.2000 and 04.04.2001, the State issued fresh notifications withdrawing or modifying these exemptions, effectively imposing a duty of fifteen paise per unit on certain captive power consumption

While the exemption was later restored on 16.06.2005 (effective from 01.05.2005), the State demanded arrears for the intervening period (2000–2005)

The Respondents challenged these notifications before the High Court, which struck them down as discriminatory, arbitrary, and lacking consultation with the Electricity Regulatory Commission

The State appealed, asserting its statutory right to withdraw concessions in the public interest to address budgetary deficits

1. Whether the State, having once granted an exemption from payment of electricity duty, is legally precluded from withdrawing or modifying such exemption in the exercise of its statutory power

2. Whether the withdrawal of exemption was arbitrary, discriminatory, or hit by the doctrines of promissory estoppel and legitimate expectation

3. Whether the sudden withdrawal of a statutory concession without a transition period violates the principles of fairness and reasonableness under Article 14

Section 5A of the Bombay Electricity Duty Act, 1958, which empowers the State to grant or withdraw exemptions in the public interest

The principle that a tax exemption is a "defeasible" concession rather than a vested right, as established in Shri Bakul Oil Industries v. State of Gujarat

The "Public Interest" exception to the doctrines of promissory estoppel and legitimate expectation, citing Shrijee Sales Corporation v. Union of India, which held that while the State may resile from a representation in the public interest, it should ideally provide reasonable notice to affected parties to reorganize their affairs

The Court reasoned that an exemption is a privilege or concession granted by the State, and the power to grant it inherently includes the power to withdraw it under Section 5A of the Act

Since the exemption was a policy measure to encourage industrial self-sufficiency, it could be recalibrated for fiscal reasons, such as addressing a budgetary deficit, which constitutes a valid public interest

The Court rejected the arguments of promissory estoppel and legitimate expectation, noting that such doctrines cannot bar a statutory power exercised for the advancement of public interest, especially in economic policy where judicial review is restricted to cases of manifest arbitrariness

The Court observed that the sudden withdrawal of the exemption after industries had made significant investments based on the 1994/1996 policy caused undue hardship

Applying the principle of fairness, the Court determined that the State should have provided a "notice period" to allow industries to adjust their financial planning

The Court upheld the State’s power to withdraw or modify the exemption under Section 5A but held that the notifications dated 01.04.2000 and 04.04.2001 would only operate prospectively after the expiry of a one-year "notice period" from their respective issuance dates

This effectively granted the respondents a one-year buffer from the imposition of the duty to satisfy the requirements of fairness and equity

No order as to costs was made