Promissory estoppel protected industrial tax exemptions where units had begun production under a time-bound incentive policy.

An industrial incentive regime offering time-bound VAT/CST exemptions to units in category 'C' areas remained enforceable for units that had already commenced production in reliance on the promise. The State could not retrospectively withdraw the promised exemption merely because the Panchayats later lost backward area status, since the exemption notifications implementing the policy were never lawfully withdrawn for existing beneficiaries. Promissory estoppel therefore operated against the State in the absence of any shown overriding public interest or lawful cessation of the exemption regime for units already in production, and tax demands for the promised exemption period were inconsistent with the policy and notifications.

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Issues: Whether the State could withdraw tax exemptions promised under the Industrial Policy, 2004 and the Incentive Rules, 2004 for industrial units that had already commenced production in tax free zones, and whether the doctrine of promissory estoppel barred the State from demanding VAT/CST from such units after the Panchayats lost backward area status.

Analysis: The Industrial Policy, 2004 and the Incentive Rules, 2004 created a defined incentive regime for units set up in category 'C' areas, including tax exemptions for a specified period from commencement of commercial production. The petitioners altered their position and established industrial units in reliance on that promise, and the statutory exemption notifications issued to implement the policy were never withdrawn. The later de-notification of the Panchayats as backward areas could not retrospectively defeat benefits already promised for the unexpired exemption period. The State did not establish any overriding public interest, nor did it show that the exemption regime itself had been lawfully withdrawn for existing units already in production. The principle of promissory estoppel therefore applied against the State, and the State action demanding tax during the promised exemption period was inconsistent with the policy and the notifications.

Conclusion: The petitioners were entitled to continue receiving the promised VAT/CST exemptions for the full exemption period, and the State was barred from enforcing tax demands against them for the period covered by the policy and notifications.

Final Conclusion: The writ petitions succeeded because the tax concession promise made under the industrial incentive regime remained enforceable for units that had already entered production, and the subsequent withdrawal of backward area status operated only prospectively for future units.

Ratio Decidendi: Where an industrial incentive policy and corresponding notifications hold out a time-bound tax exemption to induce investment, the State cannot retrospectively withdraw that benefit from units that altered their position and commenced production during the promised period unless it establishes a legally sufficient overriding public interest or lawful withdrawal of the exemption for existing beneficiaries.

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