Clarificatory Incentive Amendments Relate Back: Promissory Estoppel Cannot Create a Double Fiscal Benefit

Introduction

In STATE OF HIMACHAL PRADESH v. M/S KUNDLAS LOH UDYOG, 2026 INSC 534, the Supreme Court of India examined whether an existing industrial enterprise that had undertaken substantial expansion could claim the electricity concession meant for new industrial enterprises under the Himachal Pradesh Industrial Policy, 2019.

The respondent, M/s Kundlas Loh Udyog, was an existing industrial unit which expanded its manufacturing capacity after the 2019 Policy. It claimed entitlement to a 15% lower energy charge under Clause 16(a) of the Policy. The State argued that Clause 16(a) was always meant only for new enterprises, while existing enterprises undergoing substantial expansion were entitled only to the rebate under Clause 16(b).

The High Court had ruled in favour of the respondent. The Supreme Court reversed that decision.

Summary of the Judgment

The Supreme Court allowed the appeal filed by the State of Himachal Pradesh and set aside the High Court’s judgment.

  • Clause 16(a) of the Industrial Policy, 2019 was held to apply only to new industrial enterprises.
  • Existing industrial enterprises undertaking substantial expansion were entitled only to the benefit under Clause 16(b), namely a 15% rebate on additional power consumption beyond the preceding financial year’s level.
  • The amendment notification dated 29.04.2022 substituting “eligible enterprises” with “new enterprises” in Clause 16(a) was held to be clarificatory and therefore retrospective.
  • The COP Certificate issued to the respondent merely recognised substantial expansion; it did not sanction the concessional tariff benefit under Clause 16(a).
  • The doctrine of promissory estoppel did not apply because the respondent was seeking a benefit never intended for its category and had already received the benefit available under Clause 16(b).

Analysis

Precedents Cited

Shree Sidhbali Steels Ltd. v. State of U.P.

The Court relied on Shree Sidhbali Steels Ltd. v. State of U.P., where it was held that the Government may modify or withdraw fiscal concessions in public interest. This case supported the proposition that industrial incentives are not immutable promises and may be regulated by the State.

State of Rajasthan v. J.K. Udaipur Udyog Ltd.

In State of Rajasthan v. J.K. Udaipur Udyog Ltd., the Court had observed that a concession recipient does not acquire an indefeasible legal right to continue receiving the concession. However, withdrawal may still be tested against promissory estoppel where equity and public interest so require. The present judgment uses this precedent to balance governmental power with fairness.

Arvind Industries v. State Of Gujarat

Arvind Industries v. State Of Gujarat was cited for the principle that the State may alter its industrial policy and fiscal incentives from time to time. The Court used this precedent to reject the idea that every policy incentive creates an unchangeable entitlement.

IFGL Refractories Ltd. v. Orissa State Financial Corporation

The Court referred extensively to IFGL Refractories Ltd. v. Orissa State Financial Corporation, which had recently restated the principles governing promissory estoppel. The judgment drew from that case to explain when State representations become enforceable and when they do not.

Other Promissory Estoppel Authorities

The judgment also discussed authorities considered in IFGL Refractories Ltd. v. Orissa State Financial Corporation, including:

These cases collectively establish that promissory estoppel can apply against the State where a clear promise induces a party to alter its position. However, the doctrine cannot be used to compel a benefit contrary to the actual scope of the policy.

Legal Reasoning

The Court’s reasoning turned on the structure of the Industrial Policy, 2019. Clause 5 identified two broad categories of eligible enterprises: new industrial enterprises and existing industrial enterprises undertaking substantial expansion. Clause 16 then created two corresponding electricity-related incentives.

  • Clause 16(a): 15% lower energy charges for three years — meant for new industrial enterprises.
  • Clause 16(b): 15% rebate on additional power consumption — meant for existing industrial enterprises undertaking substantial expansion.

The Court held that reading “eligible enterprises” in Clause 16(a) to include existing expanding industries would produce an irrational result: such enterprises would get both the concessional tariff under Clause 16(a) and the additional consumption rebate under Clause 16(b). This would amount to an unintended double benefit.

The amendment dated 29.04.2022 was treated as clarificatory because it corrected the expression “eligible enterprises” to “new enterprises” and aligned Clause 16 with the original policy intent. Since it did not create a new rule but merely clarified the existing one, it operated retrospectively.

On promissory estoppel, the Court held that the respondent could not rely merely on the COP Certificate. That certificate showed that the respondent had undertaken substantial expansion, but it did not sanction the specific benefit under Clause 16(a). Under Rule 27, incentives required sanction by the competent authority. No such sanction had been granted.

Impact

This judgment is significant for industrial incentive disputes. It confirms that policy clauses must be read as part of the entire scheme, not in isolation. A drafting ambiguity will not be interpreted to confer unintended fiscal benefits where the structure of the policy shows otherwise.

The ruling also strengthens the distinction between a recognition of eligibility and an actual sanction of incentive. Merely obtaining a certificate of expansion does not automatically entitle an enterprise to every benefit mentioned in a policy.

For future cases, the decision limits the use of promissory estoppel in fiscal incentive matters. Businesses may invoke the doctrine where there is a clear promise and reliance, but not to claim a benefit contrary to the policy’s true intent or to obtain overlapping concessions.

Complex Concepts Simplified

Promissory Estoppel

Promissory estoppel means that if one party makes a clear promise and another party acts on it to its detriment or changes its position, the first party may be prevented from going back on the promise. However, it cannot be used to demand something that was never actually promised.

Clarificatory Amendment

A clarificatory amendment explains what the law or policy always meant. It usually applies retrospectively. Here, replacing “eligible enterprises” with “new enterprises” was treated as clarification, not a new rule.

Substantial Expansion

Substantial expansion means a significant increase in plant and machinery, here at least 25%, by an existing enterprise. The respondent had expanded far beyond this threshold.

COP Certificate

A Commencement of Commercial Production Certificate recognises that an enterprise has commenced production or implemented expansion. But it is not the same as approval or sanction of every incentive under the policy.

Double Benefit

A double benefit occurs when the same enterprise claims two overlapping incentives for the same activity. The Court held that the policy did not intend to grant both Clause 16(a) and Clause 16(b) benefits to existing expanding industries.

Conclusion

The Supreme Court laid down an important rule: where an industrial incentive policy creates distinct benefits for distinct classes, courts must preserve that classification. Existing industrial enterprises undertaking substantial expansion cannot claim incentives meant for new enterprises merely because of broad wording later clarified by amendment.

The judgment also confirms that promissory estoppel cannot be invoked to create an entitlement contrary to the real meaning of a policy. Since the respondent had already received the benefit available under Clause 16(b), no further equitable relief was warranted.