Facts: The State of Maharashtra, under Section 5A of the Bombay Electricity Duty Act, 1958, had granted exemptions from electricity duty to industrial units using captive power plants through notifications issued in 1994 and 1996. However, on 01.04.2000 and 04.04.2001, the State issued new notifications that effectively withdrew or modified these exemptions, citing budgetary deficits and the need to augment public revenue. The industrial units (Respondents), who had made significant investments in captive power based on the earlier exemptions, challenged these later notifications as being arbitrary, discriminatory, and in violation of the doctrines of promissory estoppel and legitimate expectation.
Procedural Posture: The High Court quashed the notifications dated 01.04.2000 and 04.04.2001, holding them to be arbitrary and lacking justifiable grounds for withdrawal. The State of Maharashtra preferred these civil appeals before the Supreme Court of India against the High Court's judgments dated 05.10.2009 and 07.11.2009.
Issue: Whether the State Government, having granted a statutory exemption, is legally precluded from withdrawing or modifying it, and whether such withdrawal must satisfy the requirements of Article 14, including the provision of a reasonable notice period.
Holding: The Supreme Court held that while the State has the power to withdraw or modify statutory exemptions in the public interest, such power must be exercised fairly. The Court ruled that the notifications would not take immediate effect but would operate only after a reasonable notice period of one year from their respective dates to prevent undue hardship.
Reasoning: The Court reasoned that an exemption is a concession and a "defeasible right" that can be taken away by the same power that granted it. It found that "augmentation of revenue" to address "budgetary constraints" constitutes a valid public interest, meaning the doctrines of promissory estoppel and legitimate expectation cannot block a policy shift in fiscal administration. However, the Court emphasized that "principles of fair play demand" that such withdrawals do not cause "undue hardship" to those who structured their affairs based on the concession. Therefore, the State should provide a "reasonable opportunity to reorganise their affairs". Given the scale of industrial investments, the Court determined that a one-year notice period was necessary for the transition to be considered non-arbitrary and fair under Article 14 of the Constitution.