A) ABSTRACT / HEADNOTE

The judgment addresses the enforceability of fiscal incentives promised under a State industrial policy and the consequences of administrative delay in issuing statutory notifications. The dispute arose from the Jharkhand Industrial Policy, 2012, which assured 50 percent exemption from electricity duty for captive power plants for five years and mandated issuance of implementing notifications within one month. Despite the policy assurance, the State issued the exemption notification under Section 9 of the Bihar Electricity Duty Act, 1948 after nearly three years and applied it prospectively.

The respondent industrial unit contended that such delay defeated the policy promise and violated the doctrine of promissory estoppel and legitimate expectation. The High Court struck down the prospective operation of the notification. On appeal, the Supreme Court examined the evolution of promissory estoppel, its distinction from legitimate expectation, and the standards of fairness binding State action under Article 14 of the Constitution of India.

The Court held that while the State retains discretion in fiscal matters, it cannot act arbitrarily when it has made a clear representation inducing reliance. The unexplained delay and prospective application of the exemption were found to negate the solemn assurance contained in the policy. However, relief was confined strictly to the financial years consistent with the policy’s own stipulation that benefits accrue from the financial year following commencement of production.

The judgment reinforces constitutional accountability in economic governance and clarifies the doctrinal boundaries between promissory estoppel and legitimate expectation in Indian administrative law.

Keywords:
Promissory Estoppel; Legitimate Expectation; Industrial Policy; Electricity Duty; Article 14

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The judgment arises from a challenge to fiscal administration under an industrial incentive regime. After the formation of Jharkhand, the State adopted policies to accelerate industrial growth by offering tax concessions and subsidies. The Jharkhand Industrial Policy, 2012 was framed with explicit objectives of encouraging investment, generating employment, and ensuring value addition to natural resources.

A critical incentive under the policy was exemption from 50 percent electricity duty for captive power plants, both new and existing, for five years. The policy not only declared the incentive but also imposed a clear administrative obligation upon the State to issue implementing notifications within one month. This assurance was central to investor confidence and business planning.

Despite this, the implementing notification under the parent taxing statute was delayed by almost three years and made operative only prospectively. The delay resulted in eligible industrial units losing a substantial portion of the promised benefit. The respondent invoked constitutional remedies alleging arbitrariness, breach of legitimate expectation, and violation of promissory estoppel.

The case thus presented a constitutional conflict between executive discretion in fiscal matters and fairness obligations arising from policy representations. The Supreme Court used this dispute as an opportunity to restate principles governing State accountability, economic promises, and administrative fairness under Article 14.

D) FACTS OF THE CASE

The respondent established an integrated steel manufacturing unit with a 20 MW captive power plant in Jharkhand and commenced commercial production on 17 August 2011. It was duly registered under the Bihar (Jharkhand) Electricity Duty Rules, 1949 and assessed to electricity duty for subsequent financial years.

The State notified the Industrial Policy, 2012 on 16 June 2012, promising exemption of 50 percent electricity duty for captive power plants for five years. Clause 35.7(b) clarified that incentives would accrue from the financial year following commencement of production, while Clause 38(b) mandated issuance of implementing notifications within one month.

Contrary to this assurance, the State failed to issue the required notification under Section 9 of the Bihar Electricity Duty Act, 1948 within the stipulated time. It was only on 08 January 2015 that the exemption notification was issued, restricting its effect prospectively.

As a result, the respondent paid full electricity duty for FY 2011–12, 2012–13, and 2013–14. Aggrieved by denial of promised benefits, the respondent approached the Jharkhand High Court, which struck down the prospective clause and granted adjustment of paid duty. The State challenged this decision before the Supreme Court.

E) LEGAL ISSUES RAISED

i. Whether the State could deny fiscal incentives promised under an industrial policy by delaying statutory notification?
ii. Whether prospective application of the exemption violated promissory estoppel?
iii. Whether administrative delay without justification amounted to arbitrariness under Article 14?
iv. Whether the respondent was entitled to retrospective adjustment of electricity duty paid?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for the State submitted that no vested right accrued until issuance of statutory notification. It was argued that fiscal exemptions require strict statutory compliance and cannot be implied from policy statements alone. The State relied on precedents restricting refund claims and emphasized alternative statutory remedies and limitation bars. It was further contended that the respondent had accepted assessments without protest and that retrospective relief would result in unjust enrichment.

G) RESPONDENT’S ARGUMENTS

The counsels for the respondent contended that the policy constituted a clear representation inducing reliance. The delay was administrative and unexplained. Making the notification prospective defeated the very purpose of the policy. Reliance was placed on Motilal Padampat, Kalyanpur Cement, and Manuelsons Hotels, asserting that State action violating legitimate expectation and fairness is unconstitutional.

H) RELATED LEGAL PROVISIONS

i. Article 14, Constitution of India
ii. Section 9, Bihar Electricity Duty Act, 1948
iii. Jharkhand Industrial Policy, 2012

I) JUDGEMENT 

The Supreme Court upheld the High Court’s conclusion that the State acted arbitrarily. The Court held that the Industrial Policy, 2012 created a legitimate expectation of fiscal benefit. The unexplained delay and prospective application negated the policy assurance. Such conduct was found violative of Article 14.

However, the Court modified the relief by strictly applying Clause 35.7(b) of the policy. Since benefits accrue only from the financial year following commencement of production, the respondent was held not entitled for FY 2011–12 but entitled for FYs 2012–13 and 2013–14.

The Court emphasized that the State cannot rely on its own administrative failure to defeat citizens’ rights arising from policy representations.

a) RATIO DECIDENDI

A State that makes a clear policy representation inducing reliance cannot defeat legitimate expectation by unexplained administrative delay. Prospective enforcement of delayed fiscal notifications, contrary to policy assurances, constitutes arbitrariness under Article 14.

b) OBITER DICTA

The Court observed that colonial notions of unchecked State discretion are incompatible with modern constitutional governance. Transparency, accountability, and fairness must guide economic administration.

c) GUIDELINES

i. Policy assurances must be implemented within stipulated timelines.
ii. Administrative delay requires public interest justification.
iii. Fiscal discretion is subject to constitutional scrutiny.
iv. Legitimate expectation operates independently of statutory entitlement.

J) REFERENCES

a) Important Cases Referred

1. Motilal Padampat Sagar Mills Co. Ltd. v. State of U.P., [1979] 2 SCR 641
2. State of Bihar v. Kalyanpur Cement Ltd., [2010] 1 SCR 928
3. Manuelsons Hotels Pvt. Ltd. v. State of Kerala, [2016] 3 SCR 718

b) Important Statutes Referred

1. Constitution of India
2. Bihar Electricity Duty Act, 1948