Industrial policy subsidy cannot be withdrawn retrospectively, and captive power plant must follow central electricity law definition.

A subsidy promised under an industrial policy, once acted upon and crystallised through an eligibility certificate, could not be withdrawn retrospectively by a later policy change or restrictive amendment. The Court treated the subsidy as part of the policy on which investment decisions had been made, and rejected the State's attempt to curtail the benefit after the policy period had run its course. It also held that, where the policy did not define "captive power plant," the term had to be read consistently with the Electricity Act, 2003 and the Electricity Rules, 2005. The State's narrower construction was rejected as inconsistent with the policy object and the governing central law.

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Issues: (i) Whether the subsidy already granted under the Industrial Policy 2004-2009 could be withdrawn by the State on a later change of view and subsequent policy amendment. (ii) Whether the petitioners' captive power plant was to be understood by reference to the Electricity Act, 2003 and the Electricity Rules, 2005, or could be given a narrower meaning to deny subsidy.

Issue (i): Whether the subsidy already granted under the Industrial Policy 2004-2009 could be withdrawn by the State on a later change of view and subsequent policy amendment.

Analysis: The subsidy incentive formed part of the policy on the faith of which the petitioners had made their investment and altered their position. A later attempt to curtail the promised benefit after the policy period had run its course was treated as an impermissible rewriting of the policy. The Court also noted that the earlier eligibility decision had been recalled without a fair and reasonable opportunity being afforded to the petitioners, and that the subsequent cap could not operate retrospectively to defeat an accrued entitlement.

Conclusion: The withdrawal of the subsidy was held illegal and unjustified. The petitioners were held entitled to the subsidy under the policy prevailing when the eligibility certificate was issued.

Issue (ii): Whether the petitioners' captive power plant was to be understood by reference to the Electricity Act, 2003 and the Electricity Rules, 2005, or could be given a narrower meaning to deny subsidy.

Analysis: The Industrial Policy did not define captive power plant, so the legally proper course was to adopt the definition in the Electricity Act, 2003 and the Electricity Rules, 2005. The narrower construction adopted by the State would make the incentive scheme unworkable because electricity generation and consumption are not static and surplus power may arise. A restrictive interpretation contrary to the central law was rejected as impracticable and inconsistent with the object of the policy.

Conclusion: The captive power plant had to be understood in accordance with the central electricity law, and the petitioners could not be denied subsidy on the restrictive interpretation adopted by the State.

Final Conclusion: The writ petitions succeeded, and the impugned withdrawal of subsidy and the connected adverse orders were set aside, with adjustment of the subsidy against the petitioners' tax liability directed in accordance with the entitlement recognized under the policy.

Ratio Decidendi: A subsidy promised under an industrial policy, once acted upon and crystallised through an eligibility certificate, cannot be withdrawn retrospectively by a later policy change or by a restrictive interpretation that is inconsistent with the governing statutory definition and the policy's object.

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