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Kothari Industrial Corporation Limited v. Tamil Nadu Electricity Board And Another
Factual and Procedural Background
The appeals arose out of demands raised by the State of Tamil Nadu for payment of electricity tariff at normal (non-concessional) rates from three industrial units:
- M/s Kothari Industrial Corporation Ltd. (later taken over by Southern Petro-Chemical Industries Corporation Ltd.).
- Southern Petro-Chemical Industries Corporation Ltd. (as successor-in-interest).
- National Oxygen Ltd.
Originally, by Government Letter dated 29-6-1976, the State had promised a concessional tariff for five years after commencement of production. The appellants’ units began commercial production in January 1979.
Meanwhile, the Tamil Nadu Revision of Tariff Rates on Supply of Electrical Energy Act, 1978 came into force on 23-2-1979. Its Schedule granted concessional tariffs to new industries, but a later amendment by G.O. No. 861 dated 30-4-1982 withdrew that concession from the year an industry began to earn profits. The appellants had furnished undertakings to be bound by such amendments.
When the State Electricity Board demanded normal tariff for the periods May 1982–November 1983 (for the caustic soda units) and May 1982–April 1984 (for National Oxygen Ltd.), the appellants filed writ petitions. The High Court dismissed those petitions, leading to the present civil appeals before the Supreme Court.
Legal Issues Presented
- Whether, on the doctrine of promissory estoppel, the State is barred from modifying or withdrawing the concessional electricity tariff promised to the appellants by issuing G.O. No. 861 dated 30-4-1982.
- Whether, on the facts, the appellants had earned “profits” so as to attract the withdrawal clause introduced by the amended Schedule.
Arguments of the Parties
Appellants’ Arguments
- The 1978 Act and the original Government Letter promised a five-year concessional tariff; the State is estopped from altering that promise.
- Even if withdrawal is legally permissible, the appellants were loss-making concerns; therefore the profit-linked disabling condition could not apply.
- In Kothari’s case, profit should be assessed unit-wise (caustic soda unit) rather than for the company as a whole.
- In National Oxygen’s case, depreciation on cylinders should be spread over five years; computing it in the first year alone incorrectly created a “profit.”
Respondents’ Arguments
The opinion does not contain a detailed account of the respondents' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Shree Sidhbali Steels Ltd. v. State of U.P., (2011) 3 SCC 193 | No promissory estoppel can operate against statutory power; concessions can be withdrawn. | Treated as directly governing; Court followed it to hold that withdrawal of concessional tariff could not be challenged on promissory-estoppel grounds. |
| State of Rajasthan v. J.K. Udaipur Udyog Ltd., (2004) 7 SCC 673 | Exemptions/concessions are defeasible privileges, not enforceable rights. | Cited (through Sidhbali) to reinforce that beneficiaries have only a revocable privilege. |
| Shri Bakul Oil Industries v. State of Gujarat, (1987) 1 SCC 31 | Concession recipients have no vested right; State may withdraw. | Relied upon (quoting J.K. Udaipur Udyog) to illustrate conditional nature of fiscal concessions. |
| Kasinka Trading v. Union of India, (1995) 1 SCC 274 | Similar principle that exemptions are revocable. | Referenced in support of the view that concessions can be withdrawn under the same enabling power. |
| Shrijee Sales Corporation v. Union of India, (1997) 3 SCC 398 | Further affirmation of revocable nature of concessions. | Quoted for the same rationale; bolstered rejection of promissory estoppel claim. |
Court's Reasoning and Analysis
Relying principally on Shree Sidhbali Steels, the Court held that:
- Concessional tariffs granted under statutory authority constitute a privilege, not a vested right; they are defeasible by exercise of the same statutory power.
- The doctrine of promissory estoppel cannot override statutory provisions or impede the State from amending the Schedule under Section 4 of the 1978 Act.
- The appellants had signed undertakings to abide by future amendments; this further undermined any estoppel claim.
- With respect to profits:
- For Kothari/Southern Petro-Chemical, computing profit at the corporate-entity level (instead of the unit level) was not arbitrary.
- For National Oxygen Ltd., the State’s refusal to spread depreciation over five years did not make the profit assessment irrational.
- Policy choices about when and how to grant or withdraw concessions lie within the executive domain; courts should not substitute their views.
Holding and Implications
The Supreme Court dismissed all the appeals.
Immediate Effect: The appellants must pay electricity charges at the normal (non-concessional) tariff for the disputed periods.
Broader Implications: The judgment re-affirms that fiscal and tariff concessions are inherently revocable and that promissory estoppel cannot be invoked to curtail statutory powers. No new legal doctrine was created; the Court applied existing precedent to similar facts.
Ranjan Gogoi, J.— These cases have been referred (2010) 14 SCC 615 by a two-Judge Bench of this Court on the question as to whether, in the facts of the case, the principles of promissory estoppel can be invoked in favour of the appellants so as to entitle them to the benefit of concessional tariff of electricity.
2. Civil Appeals Nos. 9748 and 9750 of 2003 have identical facts. In fact the appellant in Civil Appeal No. 9750 of 2003 is the successor-in-interest of the appellant in Civil Appeal No. 9748 of 2003. The facts in the third appeal i.e Civil Appeal No. 9749 of 2003 are also largely similar.
3. The appellant in CA No. 9748 of 2003, M/s Kothari Industrial Corpn. Ltd. had proposed to set up a caustic soda manufacturing unit at Manali in the State of Tamil Nadu. As the manufacturing process involved high consumption of electrical power, the appellant applied for concessional tariff which was promised to it by a Government Letter dated 29-6-1976 for first five years after commencement of production. In the said letter it was specifically mentioned that the rate at which the appellants were required to pay tariff would be below the rate applicable to the other two established caustic soda units in the State for the first three years and thereafter the rates will be on a par with that of the other two units in the State. Admittedly the unit of the appellant had started commercial production with effect from January 1979.
4. On 23-2-1979, the Tamil Nadu Revision of Tariff Rates on Supply of Electrical Energy Act, 1978 (hereinafter referred to as “the Act”) came into force. Section 2(b) of the Act defines “tariff” in the following terms:
“2. (b) ‘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.”
5. Section 3 of the 1978 Act provides that the tariff rates for consumption of electrical energy shall be as specified in the Schedule to the Act. Under Section 4 the State Government is empowered to amend the provisions of the Schedule to the Act after taking into account the cost of production of energy and such other matter as may be prescribed. The Schedule to the Act, inter alia, provides that in the case of new industries, concessional tariff would be charged after commencement of the production in the following manner:
“For the first three years 66% of the high tension rates under 1(A), (B), as the case may be. For the fourth year 80% of the high tension rates under 1(A), 1(B), as the case may be. For the fifth year 90% of the high tension rates under 1(A), (B), as the case may be. For the sixth year Full tariff.”
6. In exercise of the power conferred by Section 4 of the Act, the Schedule thereto was amended by G.O No. 861 dated 30-4-1982. While maintaining the concessional tariff as noticed above, the amendment provided that the same will not be available from the year when the industry starts earning profits. It is also an admitted fact that the appellants had furnished undertakings that it will be bound by amendment to the Schedule as affected by G.O No. 861 dated 30-4-1982.
7. On the above basis, a demand was raised on the appellants for consumption of electricity at the normal rate of tariff applicable on the ground that the industries had started earning profits. The said demand insofar as the appellant M/s Kothari Industrial Corpn. Ltd. and Southern Petro Chemical Industries Corpn. Ltd. is concerned is for the period from May 1982 to November 1983, while for the appellant National Oxygen Ltd. the period is May 1982 to April 1984.
8. The appellants protested against the said demand and eventually moved the High Court contending that under the Act the respondent State had promised concessional tariff for a period of five years starting from the date of commencement of commercial production. The said position could not have been revisited by any contrary action as has been done. Alternatively, it was contended that the appellants had not made any profits as claimed by the State. Therefore, even if the amendment in the Schedule to the Act is to be construed to be legally permissible, the same would have no application to the appellants which were loss-making concerns. The said claim was negatived by the High Court leading to the appeals before us.
9. We have heard Shri Pravin H. Parekh and Ms Nalini Chidambaram, learned Senior Counsel for the appellants in CAs Nos. 9748 and 9750 of 2003 and Shri Krishnamurthi Swami, learned counsel for the appellant in CA No. 9749 of 2003. We have also heard Shri Subramonium Prasad, learned counsel for the respondents.
10. The question referred to this Bench, as noticed, is whether the State would be estopped from altering/modifying the benefit of concessional tariff by means of the impugned G.O No. 861 dated 30-4-1982 on the principle of promissory estoppel. In fact, insofar as the caustic soda unit of M/s Kothari Industrial Corpn. Ltd., subsequently taken over by Southern Petro Chemical Industrial Corpn. Ltd., is concerned, strictly speaking, the above question would not even arise inasmuch as at the time when the unit was set up and had started commercial production, the Act had not yet come into force. The promise, if any, was made by the letter dated 29-6-1976 on the terms noticed above, namely, the tariff payable by the industry was to be at a rate less than what was applicable to the other two units of the State for the first three years and thereafter at the rate equivalent to what was being paid by the said two units.
11. Be that as it may, the question referred has been squarely answered by this Court in Shree Sidhbali Steels Ltd. v. State of U.P (2011) 3 SCC 193 wherein this Court has considered a similar question with regard to the withdrawal of concessional tariff/rebate to an industrial unit carrying on business in the hill areas of the State of U.P (now the State of Uttarakhand). After an in-depth consideration of the provisions of Sections 48/49 of the Electricity (Supply) Act, 1948 under which the concessional tariff/rebate was granted and the provisions of Section 21 of the General Clauses Act as well as the provisions of the U.P Electricity Reforms Act, 1999 under which the concessional tariff/rebate was later withdrawn this Court in para 51 came to the following conclusion:
“51. From the above discussion, it is clear that the petitioners cannot raise plea of estoppel against the Notification dated 7-8-2000 reducing hill development rebate to 0% as there can be no estoppel against the statute.”
12. In para 47 of the Report this Court has considered and had thought it appropriate to extract the views expressed in an earlier decision i.e State of Rajasthan v. J.K Udaipur Udyog Ltd. (2004) 7 SCC 673: (Shree Sidhbali Steels case (2011) 3 SCC 193)
“47. … ‘25. An exemption is by definition a freedom from an obligation which the exemptee is otherwise liable to discharge. It is a privilege granting an advantage not available to others. An exemption granted under a statutory provision in a fiscal statute has been held to be a concession granted by the State Government so that the beneficiaries of such concession are not required to pay the tax or duty they are otherwise liable to pay under such statute. The recipient of a concession has no legally enforceable right against the Government to grant of a concession except to enjoy the benefits of the concession during the period of its grant. This right to enjoy is a defeasible one in the sense that it may be taken away in exercise of the very power under which the exemption was granted. (See Shri Bakul Oil Industries v. State of Gujarat (1987) 1 SCC 31 , 1987 SCC (Tax) 74, Kasinka Trading v. Union of India (1995) 1 SCC 274 and Shrijee Sales Corpn. v. Union of India (1997) 3 SCC 398.)’ (J.K Udaipur Udyog case (2004) 7 SCC 673)”
13. On the aforesaid basis in para 48 of the Report in Shree Sidhbali Steels Ltd. (2011) 3 SCC 193 it was concluded as follows:
“48. From the principle enunciated in the abovementioned decision in Udaipur Udyog case (2004) 7 SCC 673 there is no manner of doubt that the rebate which was granted to the petitioners, was, by definition, a freedom from an obligation which the appellants otherwise were liable to discharge. The rebate was a privilege granting an advantage which was not made available to others. The rebate granted under Section 49 of the Electricity (Supply) Act, 1948 was, therefore, a concession granted by the State Government so that the beneficiaries of such concessions were not required to pay the electricity tariff they were otherwise liable to pay under the said Act during the period of its grant. The petitioners, as recipients of a concession, accepted to enjoy the benefits of the concession during the period of its grant. This right to enjoy was a defeasible one in the sense that it was liable to be taken away or withdrawn in exercise of the very power under which the exemption was granted.”
14. In the light of the above discussion and the earlier views of this Court, as set out above, it has to be held that the principle of promissory estoppel would have no application to the case of the appellants so as to entitle the appellants any right to the continuation of the concessional tariff earlier granted.
15. The appellants have urged certain other issues to persuade the court to strike down the impugned action of the respondents in withdrawing the concessional tariff, the foremost being that the industries in question had earned no profits so as to attract the withdrawal/disabling condition introduced in the amended Schedule. In this regard it is pointed out that Kothari Industrial Corpn. Ltd. had incurred losses as a whole though its caustic soda unit, to whom concessional tariff was promised and granted, may have earned a profit. The concessional tariff having been granted to the industry by the Act in question, though in respect of its caustic soda unit, the assessment of profit/loss made by the industry as a whole and not by the unit alone, cannot be said to be an arbitrary or irrational basis for determining the application of the impugned G.O to the appellants in CAs Nos. 9748 and 9750 of 2003. Similarly in the case of the appellant National Oxygen Ltd., the refusal of the respondent to compute the issue of profit/loss by distributing the depreciation of cylinders for a period of five years instead of the first year in which the depreciation was allowed, as claimed, cannot be termed as an unjustified basis for holding the industry to be a profit-making enterprise. The contention on the above score made on behalf of the appellant National Oxygen, therefore, is of no consequence. Similarly, the withdrawal of G.O No. 861 dated 30-4-1982 in the year 1988 and a reversal to the situation prevailing earlier cannot invalidate the G.O (No. 861 dated 30-4-1982) inasmuch as it is for the State and not for the court to determine what should be the policy for grant/refusal of concessional power at different points of time. These are questions that must be left to the State and not to the courts to decide.
16. In the light of the above, even the contentions on the merits of the decision as advanced by the appellants are not tenable so as to invalidate the action(s) impugned in the present cases.
17. For the aforesaid reasons all the appeals are without any merit and are accordingly dismissed.
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