‘State cannot take away accrued rights’: Raj HC upholds solar investors’ 7-year electricity duty exemption

Jodhpur: A division bench of the Rajasthan High Court, comprising Justice Arun Monga and Justice Sunil Beniwal, has disposed of a large batch of writ petitions challenging the State’s withdrawal of electricity duty exemption promised to captive solar power plants under the Solar Policy, 2019. Ruling substantially in favour of the petitioners, the bench held that while the State retains the power to amend or withdraw its policies in public interest, it cannot divest rights that had already accrued to investors who commissioned their solar plants before the impugned amendment of 10 May 2022. The judgment was authored by Justice Arun Monga.

The dispute has its roots in the Rajasthan Solar Energy Policy, 2019, issued by the State Government on 18 December 2019. Clause 16.4 of the policy provided that electricity consumed by a solar power producer for captive use within the State would be exempt from payment of electricity duty for a period of seven years from the Commercial Operation Date (COD) of the plant. The policy was introduced against the backdrop of a long-standing legislative and regulatory framework promoting renewable energy, including the Electricity Act, 2003, the National Electricity Policy, 2005, and successive State notifications granting time-bound exemptions to captive solar generators dating back to 2016.

The lead petitioner, UltraTech Cement Limited (UTCL), operates two cement manufacturing plants in Rajasthan — Aditya Cement Works at Chittorgarh and Kotputli Cement Works at Kotputli, Jaipur. Relying on the assurance in the Solar Policy, 2019, the company registered both projects with the authorities and invested approximately ₹89 crore in establishing captive solar power generation facilities. The Aditya Cement Works solar plant was commissioned on 7 May 2022, while the Kotputli unit was still in the process of commissioning.

On 10 May 2022 — days after UltraTech’s first plant had been commissioned — the State Government issued a notification amending Clause 16.4 of the Solar Policy, 2019. The amended clause replaced the concrete seven-year exemption with a reference to government orders and notifications to be issued from time to time under the Rajasthan Electricity (Duty) Act, 1962, effectively replacing the promised exemption with an open-ended statutory discretion. Meanwhile, a letter issued by the Chairman of the Rajasthan Discoms on 30 June 2021 had already stated that electricity duty at Rs. 0.60 per unit was chargeable on captive solar generation from 1 April 2020 onwards. Electricity duty bills totalling over Rs. 26 lakhs were raised on UltraTech’s plants for the months of June, July, and August 2022, which were paid under protest, prompting the company to approach the High Court.

Appearing for the petitioners, Mr. Vikas Balia, Senior Advocate, assisted by Mr. Mridul Chakravarty and a team of advocates, advanced a four-pronged challenge to the impugned amendment. Counsel submitted that the Solar Policy, 2019 constituted a clear and unambiguous sovereign representation that electricity duty would be exempted for seven years from COD. Acting on this representation, the petitioner made capital investments of approximately ₹89 crore in establishing its solar plants, thereby satisfying all the ingredients of promissory estoppel — a clear representation, an intention to induce action, actual reliance, and consequent detriment. The State was therefore bound to honour its promise.

Counsel further contended that the amendment dated 10 May 2022 was arbitrary and could not withstand scrutiny under Article 14. No cogent reason had been given for withdrawing the exemption, and the State’s own admission that its solar capacity targets remained unmet — approximately 15,000 MW achieved against a target of 30,000 MW — made the withdrawal counterproductive to the policy’s very objectives. Wind energy producers, by contrast, continued to enjoy an unconditional exemption under the Wind and Hybrid Energy Policy, 2019, creating an unjustifiable discrimination between two classes of renewable energy producers within the same regulatory framework.

The petitioners also argued that even if the amendment were upheld, it could only operate prospectively, since retrospective withdrawal of a time-bound fiscal concession would defeat rights already vested in investors who had commissioned their projects in reliance on the policy. The Discom letter of 30 June 2021 was further challenged as legally untenable since the Discoms had no authority under the Electricity (Duty) Act to override an executive policy of the State Government.

Appearing for the respondents, Advocate General Mr. Rajendra Prasad assisted by Mr. Anirudh S. Shekhawat and other counsel sought dismissal of the petitions. The State argued that electricity duty falls exclusively under Entry 53 of the State List and can be levied, modified, or exempted only by notification in the Official Gazette under Section 3 of the Rajasthan Electricity (Duty) Act, 1962. The Solar Policy, 2019, being an executive instrument and not a legislative one, could not create enforceable rights contrary to the statute. Since no notification had been issued extending the exemption beyond 31 March 2020, there was no continuing exemption to which promissory estoppel could attach.

The State further contended that the doctrines of promissory estoppel and legitimate expectation were inapplicable because both presuppose a legal foundation that was absent in this case. The change in policy was justified by financial constraints and the maturation of the solar energy sector, which had grown substantially and no longer required the same level of incentive. On parity with wind energy, the State argued that solar and wind are distinct energy sources with different economics, and differential treatment was based on reasonable classification consistent with Article 14. The respondents also maintained that a court cannot issue mandamus to compel the issuance of a statutory notification, as that would amount to directing the legislature.

The Court began its analysis with Section 3(3) of the Rajasthan Electricity (Duty) Act, 1962, which enables the State Government to grant exemption from electricity duty, prospectively or retrospectively, in public interest. The Court noted that this provision does not create any automatic or continuing exemption upon the expiry of a notification — the power is enabling, not self-executing.

Turning to the Solar Policy, 2019, the Court observed that Clause 16.4 was “not a case of a general policy guideline but of a concrete assurance intended to create legal relations and acted upon by the petitioners.” The essential ingredients of promissory estoppel — a clear representation, an intention to induce action, actual reliance, and resulting detriment — were satisfied on the facts of the case. Tracing the doctrinal foundations of both promissory estoppel and legitimate expectation, the bench emphasised that these principles are products of equitable reasoning and administrative law, developed to prevent arbitrary State action. Relying on Motilal Padampat Sugar Mills v. State of Uttar Pradesh [(1979) 2 SCC 409], the Court reaffirmed that the government can be bound by its promises even without a formal contract, provided no overriding public interest justifies their withdrawal.

The Court squarely rejected the State’s argument that the exemption could only have arisen from a statutory notification under the Act of 1962. It held that “the policy, in effect, represented that such statutory power would be exercised in favour of eligible projects.” The State could not now rely on its own failure to issue a notification as a defence against a promise it had consciously made, as that “would render all policy assurances illusory, enabling the State to invite investment on the strength of representations and thereafter avoid compliance by inaction.” Such a position, the Court said, “would be fundamentally inconsistent with the Rule of Law and would reduce the doctrine of promissory estoppel to a dead letter.”

The plea of financial constraint was similarly rejected. The Court found that “a mere bald assertion of fiscal burden or fiscal policy, in the absence of any substantive material, cannot suffice to defeat vested rights and legitimate expectations.” The material on record showed that the solar capacity targets remained unmet, making the withdrawal of incentives “not only unsupported by compelling necessity but also counterproductive to the very policy objectives the State seeks to advance.” The invocation of public interest, the Court observed, “must be real, demonstrable, and proportionate; it cannot be a generic or post facto justification.”

The Court also located the dispute within the constitutional framework, observing that promotion of renewable energy is intrinsically linked to the right to a clean and healthy environment under Article 21 and to India’s international commitments on climate change and sustainable development. On Article 14, the bench held that withdrawal of a “specific and unambiguous assurance, after inducing substantial investment, without cogent justification, is manifestly arbitrary.” Any modification of policy “cannot operate retrospectively so as to divest accrued or vested rights.” The Court struck a balance between executive flexibility in economic policy and the need to maintain the credibility of State assurances, cautioning that if such assurances “are permitted to be withdrawn arbitrarily, investor reliance becomes illusory and the predictability essential to economic governance is eroded.”

The division bench disposed of the lead writ petition (D.B. Civil Writ Petition No. 1151/2023) with a direction to the respondent authorities to verify the exact Commercial Operation Date of each solar project set up by UltraTech — Aditya Cement Works and Kotputli Cement Works — and to determine whether the COD falls before or after the amendment of 10 May 2022. Independent reasoned orders were to be passed on each claim for electricity duty exemption, granting the benefit for seven years from the respective COD for projects commissioned before the amendment.

The connected association petitions were disposed of with liberty to individual members to file separate representations before the competent authority, which were to be considered in accordance with this judgment. The Court noted that those petitions had not disclosed the Commercial Operation Dates of individual members’ projects — information that is determinative of eligibility under the Solar Policy, 2019.

The third batch of petitions by individual rooftop solar plant owners was similarly disposed of, with the competent authority directed to independently examine each representation by verifying the precise commissioning date of each rooftop photovoltaic solar plant and to pass reasoned orders on claims for electricity duty exemption limited to seven years from that date. All pending applications in all the petitions were also disposed of.

Case details