Supreme Court Ruling on Investment Promotion Scheme and Capital Subsidy in Rajasthan

The Supreme Court of India delivered a significant judgment in the case of M/S. ULTRATECH CEMENT LTD. & ANR. vs. STATE OF RAJASTHAN & ORS., which revolves around the interpretation of investment incentives under the Rajasthan Investment Promotion Scheme-2003 (RIPS-2003). The ruling clarifies the extent to which companies can claim capital investment subsidies and the implications of incorrect entitlement certificates issued by state authorities.

The dispute arose when Ultratech Cement Ltd. claimed a 75% capital investment subsidy based on entitlement certificates issued under RIPS-2003. However, the Rajasthan government later revised the eligibility criteria, reducing the subsidy to 50%. The government sought repayment of the excess subsidy, leading to legal challenges that culminated in the Supreme Court’s decision.

Background of the Case

Ultratech Cement Ltd., formerly Grasim Industries Limited, established a cement plant in Kotputli, Rajasthan, under RIPS-2003, which was designed to attract investment in the state. The company initially received entitlement certificates allowing it to claim a 75% subsidy on the sales tax/VAT it paid. However, a revision in policy led to the state government limiting the subsidy to 50%, demanding repayment of the excess amount along with 18% interest.

Arguments of the Petitioner

Ultratech Cement Ltd. contended that:

• The company had made its investment decisions based on the initial entitlement certificates issued by the State Level Screening Committee (SLSC), which granted a 75% subsidy.
• Retrospective revision of the subsidy eligibility was unjust and violated the principle of promissory estoppel.
• The company was being unfairly targeted, as the state government had earlier approved the 75% subsidy under a special cement industry incentive.
• The demand for repayment, along with interest at 18%, was arbitrary and punitive.

Arguments of the Respondent

The State of Rajasthan argued that:

• The entitlement certificates issued granting a 75% subsidy were erroneous and not in accordance with RIPS-2003.
• Clause 13 of RIPS-2003 allowed for revisions of wrongly granted incentives, even after they had been availed.
• The excess subsidy paid to Ultratech Cement Ltd. had to be recovered in the interest of the state’s revenue.
• The company had signed an undertaking agreeing to repay any excess subsidy along with interest, making the state’s demand legally valid.

Key Observations of the Supreme Court

The Supreme Court analyzed various provisions of RIPS-2003, particularly Clause 7, which dealt with capital investment subsidies. The key observations included:

1. Entitlement Certificates Were Issued in Error

The Court held that the SLSC had wrongly issued entitlement certificates allowing a 75% subsidy. The applicable provisions of RIPS-2003 only permitted a 50% subsidy unless specifically approved by the Board of Infrastructure Development and Investment Promotion (BIDI), which had not occurred in this case.

2. Clause 13 of RIPS-2003 Permits Revision of Erroneous Decisions

The Court upheld the state government’s power to revise wrongly granted subsidies, even after they had been availed. It ruled:

“The power to revise erroneous entitlement certificates is inherent in Clause 13 of RIPS-2003, and the state government is justified in correcting mistakes that impact revenue.”

3. The Doctrine of Promissory Estoppel Does Not Apply

The Supreme Court rejected the company’s claim that the state government was estopped from revising the subsidy. It emphasized that:

“A benefit granted in error cannot be perpetuated under the doctrine of promissory estoppel, especially when it concerns public revenue.”

4. The Company Must Repay the Excess Subsidy

The Court ruled that Ultratech Cement Ltd. must refund the excess subsidy it received beyond the 50% limit. However, it modified the interest rate from 18% to 12%, stating that the company had not misrepresented facts but had relied on an erroneous government decision.

Final Judgment

The Supreme Court upheld the Rajasthan government’s decision to revise the subsidy from 75% to 50% and ordered the company to:

• Repay the excess subsidy amounting to Rs. 15,96,37,794.
• Pay interest at 12% per annum from the date of excess subsidy receipt.
• Accept the revised entitlement certificate reflecting the 50% subsidy.

Key Takeaways from the Judgment

• Entitlement certificates issued under government incentive schemes must strictly comply with policy provisions.
• Governments have the right to revise erroneously granted incentives under specific provisions.
• The doctrine of promissory estoppel does not apply to benefits obtained due to administrative mistakes.
• Interest on excess incentives should be reasonable and based on principles of fairness.

Conclusion

The Supreme Court’s ruling in this case clarifies the legal framework governing investment incentives and subsidies under government schemes. It reinforces the principle that businesses cannot claim subsidies beyond the limits set by the law, even if such benefits were mistakenly granted by government agencies. The judgment also sets a precedent for future disputes involving tax incentives and investment promotion policies in India.

Petitioner Name: M/S. ULTRATECH CEMENT LTD. & ANR..
Respondent Name: STATE OF RAJASTHAN & ORS..
Judgment By: Justice Dinesh Maheshwari.
Place Of Incident: Rajasthan.
Judgment Date: 17-07-2020.

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