In a significant ruling upholding policy certainty in India’s renewable energy sector, the Rajasthan High Court has held that the state government cannot retrospectively withdraw electricity duty exemptions promised under its Solar Policy 2019.

The Court said that while the government has the power to change policies, such changes cannot operate retrospectively to take away accrued rights. Rejecting the Rajasthan government’s argument that the duty exemptions depend on statutory notifications, it said the policy itself represented an assurance that such benefits would be granted.

Withdrawing the duty exemptions without compelling public interest was arbitrary and violative of Article 14 of the Constitution, the Court said.

The High Court directed that captive solar projects commissioned before the May 10, 2022, amendment to the Solar Policy are entitled to the promised seven-year electricity duty exemption. The withdrawal of the duty exemption will apply prospectively to future projects, it said, directing the authorities to verify the commercial operation date of each project before granting benefits.

Background

The Rajasthan government, in its Solar Policy 2019, announced that captive solar projects would be exempt from electricity duty for seven years to promote investment in such projects.

UltraTech Cement set up solar projects to power its cement units in Rajasthan, investing about ₹890 million (~$9.61 million). In May 2022, the government amended the policy, making the duty exemptions subject to separate statutory notifications. This effectively meant the withdrawal of the duty exemptions.

After the policy change, distribution companies began raising electricity duty bills for power generated from solar projects.

UltraTech Cement petitioned the High Court, challenging the amendment as arbitrary and as a violation of its expectations. It argued that the withdrawal of the electricity duty exemption violated well-established principles of public law.

The petitioner noted that the Solar Policy 2019 made a clear and unequivocal promise of a seven-year exemption from the electricity duty from the date of commissioning. Acting on this assurance, it set up solar projects, securing a vested right in its favor that the government could not later withdraw to its detriment.

The withdrawal of the exemption disrupted the financial viability of projects that were planned based on the promised incentive in the policy.

Court’s Analysis

The High Court observed that the Solar Policy 2019 contained a clear and unequivocal representation intended to attract private investment in renewable energy. In response, UltraTech Cement and others had committed substantial capital to set up the captive solar projects.

The Court emphasized that government policies, even if executive in nature, can create binding obligations when they induce investment.

Rejecting the state government’s argument that electricity duty exemptions must be granted strictly through statutory notifications under the Rajasthan Electricity (Duty) Act, 1962, the High Court held that the policy itself represented an assurance that such powers would be exercised in favor of eligible projects.

The Court also held that the 2022 amendment to the Solar Policy 2019 cannot operate retrospectively to deprive investors of accrued benefits.

While the government had the authority to modify or withdraw fiscal incentives, the Court observed that such changes must be prospective. Vested rights arising from prior assurances cannot be arbitrarily taken away.

On the state government’s contention that evolving economic conditions and financial constraints justified the withdrawal of exemptions, the High Court said this reasoning was insufficient, and no substantive material was presented to demonstrate overriding public interest in withdrawing the electricity duty exemption.

“The material on record indicates that the objectives of the Solar Policy, including the targeted solar capacity, remain unmet. In such circumstances, withdrawal of incentives appears not only unsupported by compelling necessity but also counterproductive to the very policy objectives the State seeks to advance. The invocation of public interest must be real, demonstrable, and proportionate; it cannot be a generic or post facto justification,” the Court observed.

This March, the Supreme Court ruled that the generation-based incentive granted to wind power generators must be disbursed in addition to the tariff and cannot be adjusted in a manner that would defeat the program’s purpose. The ruling came while dismissing an appeal filed by the Andhra Pradesh distribution companies against an order of the Appellate Tribunal for Electricity.

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