Supreme Court Clarifies State’s Power to Withdraw Electricity Duty Exemptions, Mandates Reasonable Notice

The decision of the Hon’ble Supreme Court in State of Maharashtra & Others vs Reliance Industries Ltd. & Others (Civil Appeal Nos. 3012–3026 of 2010 with Civil Appeal Nos. 3027–3029 of 2010, judgment dated 25.03.2026) is a landmark ruling on how and when a State can roll back fiscal incentives granted under statute.

While the Court ultimately allowed the State’s appeals and restored the validity of the impugned notifications, it simultaneously imposed an important constitutional limitation: even when a State is legally competent to withdraw an exemption, the manner and timing of such withdrawal must pass the test of fairness under Article 14.

This judgment is particularly important for businesses operating under statutory tax concessions and incentive schemes. It clearly delineates:

• The nature of statutory exemptions as defeasible concessions rather than entrenched rights
• The extent of judicial review over fiscal policy decisions
• The limited scope of promissory estoppel and legitimate expectation against the State in revenue matters
• The emergence of a distinct doctrine of reasonable notice as a procedural safeguard when long-standing concessions are withdrawn

Factual Matrix: Evolution and Withdrawal of Exemption

Legislative Framework: Bombay Electricity Duty Act, 1958

The controversy arose under the Bombay Electricity Duty Act, 1958 (“the Act”), which governs levy and collection of electricity duty in the State of Maharashtra.

Section 5A of the Act authorises the State Government, if it considers it necessary in public interest, to:

• Exempt, by notification in the Official Gazette
• Prospectively or retrospectively
• Consumption of energy in the whole or any part of the State
• In respect of any class of premises or purposes, up to a specified limit

from payment of the whole or any part of electricity duty payable under the Act.

Exemption Regime for Captive Power Generation

Relying on Section 5A, the State Government periodically granted exemptions to industries generating electricity through captive power plants for their own use. The sequence was as follows:

1. Notification dated 01.09.1994

   • First major exemption for captive power generators under Section 5A.

2. Notification dated 30.10.1996 (superseding 01.09.1994)

   • Broader exemption granted on:
     • Consumption of energy generated in a generating station by a person carrying on an industry
     • Consumed by such person for that industry
   • Applicable across the whole State of Maharashtra
   • Exemption from duty payable under Clause (b) of Part G of the Schedule to the Act

This framework was designed as an incentive to promote captive generation and reduce pressure on the public grid.

Policy Shift: Notifications of 01.04.2000 and 04.04.2001

On 01.04.2000, the State Government radically altered the regime:

1. Notification under Section 5A dated 01.04.2000 (first notification)

   • Enabled billing of electricity duty throughout Maharashtra
   • Covered premises under Parts A, B, C and G of the Schedule
   • Effectively removed the general exemption earlier enjoyed by captive power generators.