Supreme Court Affirms States' Authority to Alter Industrial Policy in Long-Standing Dispute

Supreme Court Upholds Maharashtra's Right to Withdraw Electricity Duty Exemptions

Key Findings

• The Supreme Court has upheld the government's powers to withdraw electricity duty exemptions for captive power plants.
• The court ruled in favour of Maharashtra in a 25-year-old dispute with companies such as Reliance Industries Ltd.
• The court directed that the withdrawal of exemptions would take effect only after a one-year period from the respective dates of the notifications.

Background

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The dispute dates back to Maharashtra's 1993 industrial policy, which promised exemption from electricity duty to encourage industries to set up captive power plants. However, in April 2000, the state withdrew the exemption and imposed a duty of 30 paise per unit, which was later reduced to 15 paise per unit in 2001.

Ruling

The Supreme Court held that tax exemptions are a policy concession and not a permanent right, and the government retains the authority to modify or withdraw them in public interest. The court emphasized that policy changes must be implemented fairly, without causing sudden hardship to businesses that relied on earlier incentives.

Impact

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The ruling has sparked concerns around policy certainty, with legal experts flagging risks around long-term cost stability for captive power projects. From an investment perspective, the concern is not the duty itself but the uncertainty it introduces, which weakens predictability.

Timeline

• 1993: Maharashtra's industrial policy promises exemption from electricity duty to encourage industries to set up captive power plants.
• April 2000: Maharashtra withdraws the exemption and imposes a duty of 30 paise per unit.
• 2001: The duty is reduced to 15 paise per unit.
• 2009: The Bombay High Court rules in favour of companies, striking down the state's decision and granting full exemption for the period between April 2000 and April 2005.
• 2023: The Supreme Court upholds the government's powers to withdraw electricity duty exemptions.