When Statute Or Notification Links Tax Benefit To A Certificate, State Cannot Unilaterally Detach Them To Detriment Of Assessee: Bombay High Court
Court directs refund of ₹47 Crore to JSW Steel & upholds promissory estoppel against arbitrary withdrawal of industrial incentives.
The Bombay High Court has held that the State cannot detach tax exemptions from their underlying eligibility certificates when a statutory notification expressly links the two. The Court held that the "period of eligibility" for electricity duty exemptions must necessarily coincide with the extended validity of an industrial project’s Eligibility Certificate, reinforcing that the State cannot truncate promised benefits once an industry has altered its position based on those assurances.
By quashing a retrospective demand for electricity duty, the Court affirmed that the principles of legitimate expectation and promissory estoppel serve as a bulwark against arbitrary executive shifts in industrial policy. The Court directed the State of Maharashtra to refund over ₹47.47 crore to M/s JSW Steel Limited, concluding that the company was entitled to benefits throughout the extended seven-year window of its incentive period. The Bench clarified that once a competent authority extends an Eligibility Certificate to allow a project to exhaust its sales tax incentives, that extended duration becomes the definitive "period of eligibility" for all ancillary benefits, such as electricity duty exemptions, anchored to that certificate by law.
Justice B. P. Colabawalla and Justice Amit S. Jamsandekar, noting that the State’s attempt to distinguish between different types of incentives within the same eligibility window was legally untenable and lacked a rational nexus with the 1993 Package Scheme of Incentives, observed, “The language of the Notification, which is plain and without any ambiguity, was the promise and assurance given by the State to the Petitioner. The Petitioner has aligned its commercial position in accordance with the promise of the State. There is a huge investment made by the Petitioner relying on the promise of the State. Therefore, any interpretation of the Addenda III or the Notification by the Finance Department of the State not to give benefit to the Petitioner is arbitrary and not equitable. There is no justification at all for the decision of the Finance Department not to give the benefit of the Notification to the Petitioner. Therefore, it would be contrary to the well-established principles of promissory estoppel”.
Senior Advocate Janak Dwarkadas appeared for the petitioner and Shruti D. Vyas, Additional Government Pleader appeared for the respondent.
For the facts, M/s JSW Steel Limited was accorded the status of a "Mega Project" under the State’s Package Scheme of Incentives, 1993, receiving an Eligibility Certificate (EC) in 1998 for an initial 14-year period. A 1999 Notification issued under the Bombay Electricity Duty Act (BEDA), 1958, granted such projects an exemption from electricity duty for the "period of eligibility" specified in their EC.
In 2012, the Directorate of Industries issued Addenda III, extending the EC's validity by seven years, until August 2019, to enable the company to recover balance sales tax incentives. While the State initially confirmed the continuity of the electricity duty exemption during this extended period, it later reversed its stance, claiming the extension was limited only to sales tax benefits.
The dispute reached a head on October 14, 2015 when the Industries, Energy and Labour Department suspended a prior order that had favored the Petitioner. Consequently, the authorities issued demand notices for duty arrears covering the period from 2012 to 2015 and continued to levy duties under the new Maharashtra Electricity Duty Act, 2016.
The Petitioner challenged these actions through two subsequent writ petitions in 2015 and 2016. To prevent the disconnection of its power supply, the Petitioner paid the disputed amounts under protest while seeking judicial recourse for a full refund and the quashing of the demands.
Now, the Court reasoned on a literal and harmonious construction of the 1999 Notification and the 1993 Scheme. The Bench rejected the State's contention that the "period of eligibility" for electricity duty was frozen at the initial 14 years. It observed that the Notification did not distinguish between the "initial" and "extended" periods but referred generally to the "period of eligibility" as mentioned in the EC. Since the EC was validly amended to cover the period up to 2019, the exemption had to follow the certificate.
“…simple reading of the Notification, along with the provisions of Section 5A of the BEDA Act, 1958 makes it abundantly clear that the benefit of the Notification is extended so long as the Eligibility Certificate remains valid. If we accept the argument made on behalf of the Respondents that there is no linkage between the Eligibility Certificate and the Notification, then we have to read the Notification by deleting the words ‘for the period of Eligibility of the said project as mentioned in the Eligibility Certificate’. This is not permissible. The only condition the State chose to impose under Section 5A was that the exemption would be available only for the project’s eligibility period, as mentioned in the Eligibility Certificate…”, the Bench, thus, noted.
“…the Petitioner is entitled to get the benefit of the Notification so long as the Eligibility Certificate granted to the Petitioner under the Scheme remains valid. The whole purpose of using the words ‘for the period of Eligibility of the said project as mentioned in the Eligibility Certificate’ in the Notification was to link it with the Eligibility Certificate. Therefore, we reject the submissions made on behalf of the Respondents that the Notification is not linked with the Eligibility Certificate. The Petitioner is certainly entitled to the benefit of exemption from payment of electricity duty so long as the Eligibility Certificate remains valid”, the Bench further noted.
Accordingly, the Court made the Rule absolute and quashed the impugned demands and the suspension order of 2015. The Respondents were ordered and directed, jointly and severally, to refund the sum of ₹47,47,61,492/- to the Petitioner within 12 weeks of the judgment's uploading.
The Bench also issued a permanent injunction restraining the Respondents from taking any coercive action or disconnecting the Petitioner's electricity supply in relation to the quashed demands for the period between August 06, 2012 and August 05, 2019.
Cause Title: M/s. JSW Steel Limited v. Managing Director M.S.E.D.C.L and ors. [Neutral Citation: 2026:BHC-AS:16014-DB]
Appearances:
Petitioner: Janak Dwarkadas, Senior Advocate, with Chirag Kamdar, Vineet Unnikrishnan, Sonu Bhasi, Veena Hari, Karthika Sanjay, i/b Cyril Amarchand Mangaldas, Advocates.
Respondents: Shruti D. Vyas, Additional Government Pleader, M.M. Pabale, AGP, and Harinder Toor, Advocate.