In what can be seen as a key observation the Supreme Court has said 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.
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Justice Aradhe held that such exemptions are statutory concessions, not contractual assurances, and can be modified or withdrawn by the government.“If a party claiming application of the doctrine acted on the basis of a notification, it should have known that such notification was liable to be amended or rescinded at any point of time, if the Government felt that it was necessary to do so in public interest.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 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. 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.
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