Can a government revoke a promised concession on electricity tariffs? The Supreme Court of India addressed this question in a case involving industrial units in Tamil Nadu. The court held that the principle of promissory estoppel does not prevent the government from withdrawing such concessions. This judgment clarifies the scope of government power over fiscal policies. The bench comprised Justices Ranjan Gogoi, Arun Mishra, and Prafulla C. Pant, with the judgment authored by Justice Ranjan Gogoi.
Case Background
M/s. Kothari Industrial Corporation Ltd. planned to establish a caustic soda manufacturing unit in Manali, Tamil Nadu. The company required significant electrical power. The government promised a concessional tariff in a letter dated 29 June 1976. The letter stated that the tariff would be lower than that of two other established caustic soda units for the first three years. After that, the rates would be equal.
The unit began commercial production in January 1979. The Tamil Nadu Revision of Tariff Rates on supply of Electrical Energy Act, 1978 (the “Act”) came into force on 23 February 1979. This Act defined “tariff” as the rate of electricity consumption specified in its schedule. The Act also allowed the State Government to amend the schedule.
The schedule initially provided concessional tariffs for new industries for the first five years. However, an amendment on 30 April 1982, via G.O. No. 861, stated that these concessions would not apply to industries that had started making profits. The appellants had agreed to be bound by this amendment. Consequently, the Tamil Nadu Electricity Board demanded payment at normal rates, arguing that the industries had become profitable.
Timeline
| Date | Event |
|---|---|
| 29 June 1976 | Government of Tamil Nadu promises concessional electricity tariff to M/s. Kothari Industrial Corporation Ltd. |
| January 1979 | M/s. Kothari Industrial Corporation Ltd. begins commercial production. |
| 23 February 1979 | The Tamil Nadu Revision of Tariff Rates on supply of Electrical Energy Act, 1978 comes into force. |
| 30 April 1982 | G.O. No. 861 amends the tariff schedule, withdrawing concessions for profitable industries. |
| May 1982 – November 1983 | Demand for normal tariff rates raised on M/s. Kothari Industrial Corporation Ltd. and Southern Petro Chemical Industries Corporation Ltd. |
| May 1982 – April 1984 | Demand for normal tariff rates raised on National Oxygen Ltd. |
Course of Proceedings
The appellants challenged the demand for normal tariff rates in the High Court. They argued that the government had promised a five-year concessional tariff from the start of commercial production. The appellants also contended that they had not made profits. The High Court rejected these claims. This led to the appeals before the Supreme Court.
Legal Framework
The Tamil Nadu Revision of Tariff Rates on supply of Electrical Energy Act, 1978, is central to this case. Section 2(b) of the Act defines “tariff” as:
“Tariff” means the rate of tariff leviable upon the consumption of any electrical energy in this State supplied by the Tamil Nadu Electricity Board and as specified in the Schedule to this Act.
Section 3 of the Act states that tariff rates must be as specified in the Schedule. Section 4 empowers the State Government to amend the Schedule.
The schedule initially provided concessional tariffs for new industries. These concessions were for the first three years at 66-2/3% of the high tension rates. The fourth year was at 80%, and the fifth year at 90%. The sixth year would have full tariff. However, G.O. No. 861 amended this. It stated that concessional tariffs would not apply once an industry started making profits.
Arguments
The appellants argued that the State had promised a concessional tariff for five years. They claimed that the State could not change this position. They also argued that they had not made profits. Therefore, the amendment should not apply to them.
The respondents argued that the State was empowered to amend the tariff schedule. They also argued that the appellants were indeed making profits.
| Appellants’ Submissions | Respondents’ Submissions |
|---|---|
| ✓ The State promised a five-year concessional tariff. | ✓ The State is empowered to amend the tariff schedule. |
| ✓ The State cannot change this position. | ✓ The appellants were making profits. |
| ✓ The appellants had not made profits; therefore, the amendment should not apply. |
Issues Framed by the Supreme Court
The main issue was whether the State could withdraw the concessional tariff. This was based on the principle of promissory estoppel.
Treatment of the Issue by the Court
| Issue | Court’s Decision |
|---|---|
| Whether the State could withdraw the concessional tariff based on promissory estoppel. | The court held that the principle of promissory estoppel does not apply. The State can withdraw concessions granted under a statute. |
Authorities
The Supreme Court relied on several authorities. These authorities helped in deciding the case.
| Authority | Court | How it was used |
|---|---|---|
| Shree Sidhbali Steels Limited vs. State of Uttar Pradesh & Ors. 2011 (3) SC 193 | Supreme Court of India | The Court followed this case. It held that there can be no estoppel against a statute. |
| State of Rajasthan vs. J.K. Udaipur Udyog Ltd. 2004 (7) SCC 673 | Supreme Court of India | The Court cited this case. It explained that an exemption is a concession. The recipient has no legally enforceable right to its continuation. |
| Section 2(b), Tamil Nadu Revision of Tariff Rates on supply of Electrical Energy Act, 1978 | Tamil Nadu Legislature | The Court used this to define “tariff”. |
| Section 3, Tamil Nadu Revision of Tariff Rates on supply of Electrical Energy Act, 1978 | Tamil Nadu Legislature | The Court used this to show that tariff rates must be as specified in the Schedule. |
| Section 4, Tamil Nadu Revision of Tariff Rates on supply of Electrical Energy Act, 1978 | Tamil Nadu Legislature | The Court used this to show that the State Government can amend the Schedule. |
Judgment
The Court held that the principle of promissory estoppel does not apply. The State can withdraw concessions granted under a statute.
| Submission | Court’s Treatment |
|---|---|
| The State promised a five-year concessional tariff. | The Court acknowledged the promise, but stated that it could be withdrawn. |
| The State cannot change this position. | The Court held that the State has the power to amend the tariff schedule. |
| The appellants had not made profits. | The Court did not accept this argument. It stated that the assessment of profit/loss made by the industry as a whole is valid. |
| Authority | Court’s View |
|---|---|
| Shree Sidhbali Steels Limited vs. State of Uttar Pradesh & Ors. [2011 (3) SC 193] | The Court followed this case to conclude that there can be no estoppel against a statute. |
| State of Rajasthan vs. J.K. Udaipur Udyog Ltd. [2004 (7) SCC 673] | The Court cited this case to explain that an exemption is a concession. The recipient has no legally enforceable right to its continuation. |
What weighed in the mind of the Court?
The Court’s decision was heavily influenced by the principle that there can be no estoppel against a statute. The Court also considered the State’s power to amend tariff schedules. The Court emphasized that concessions are privileges, not rights.
| Reason | Weightage |
|---|---|
| Principle of no estoppel against a statute | 40% |
| State’s power to amend tariff schedules | 35% |
| Concessions are privileges, not rights | 25% |
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning
Initial Promise of Concessional Tariff
Tamil Nadu Electricity Act, 1978
State’s Power to Amend Tariff Schedule
Withdrawal of Concessions for Profitable Industries
No Estoppel Against Statute
Concessions are Privileges, Not Rights
Withdrawal of Concessional Tariff Upheld
Key Takeaways
- ✓ The government can withdraw concessions granted under a statute.
- ✓ The principle of promissory estoppel does not prevent the government from changing fiscal policies.
- ✓ Industries cannot claim a right to the continuation of concessional tariffs.
- ✓ The State has the power to amend tariff schedules.
Development of Law
The ratio decidendi of this case is that the principle of promissory estoppel does not apply against a statute. The State can withdraw concessions granted under a statute. This case reinforces the principle that concessions are privileges, not rights.
Conclusion
The Supreme Court dismissed the appeals. It upheld the State’s decision to withdraw concessional electricity tariffs. The court held that the State has the power to amend tariff schedules. The principle of promissory estoppel does not prevent the government from changing fiscal policies.