The Orissa High Court struck down a retrospective amendment to the Industrial Policy Resolution 2015 that excluded cement manufacturing units from net SGST reimbursement benefits, holding it arbitrary and unconstitutional as it defeated legitimate expectations created by the State's own policy. The judgment reinforces that while States may modify incentive schemes prospectively, they cannot withdraw benefits for periods already elapsed without sufficient justification, particularly when industries have acted upon policy representations and made substantial investments.
Background & Facts
The Industrial Policy Framework
The Government of Odisha introduced the Industrial Policy Resolution, 2015 (IPR 2015) on 24.8.2015 to promote industrial development through incentives including reimbursement of tax for eligible units in the "Priority Sector". Clause 5.4.5(a) of IPR 2015 provided for reimbursement of net State Goods and Services Tax (SGST) to eligible industrial units. The Operational Guidelines for Grant of Priority Sector Status prescribed procedures for recognition, including timelines for scrutiny by the Regional Industries Centre (RIC) and issuance of certificates by the Director of Industries. Section 11 of the Orissa Industries (Facilitation) Act, 2004 deemed clearance issued if authorities failed to decide within the prescribed period.
The Petitioners' Project Implementation
M/S JSW Cement Limited received in-principle approval from the State Level Single Window Clearance Authority (SLSWCA) on 2.12.2015 for a cement manufacturing unit. Land was allotted by the Industrial Infrastructure Development Corporation of Odisha (IDCO) on 22.1.2016. The first fixed capital investment of ₹167.78 crore (total investment ≈ ₹350 crore) was made on 31.7.2017. The petitioners applied for provisional Priority Sector status to the RIC on 16.8.2017, which was acknowledged on 21.8.2017. The unit was inspected on 22.8.2017, and the RIC forwarded the application to the Director of Industries on 22.9.2017 with inspection report and verification certificate. Commercial production commenced on 1.5.2020.
The Impugned Amendment and Its Retrospective Effect
The State Government issued Resolution dated 18.8.2020 amending Clause 5.4.5(a) of IPR 2015 to substitute the tax reimbursement framework with net SGST reimbursement while excluding cement manufacturing and grinding units, blast furnace slag-based units, and other specified categories. Crucially, the amendment was made operative retrospectively with effect from 1.7.2017 - more than three years before the Resolution was issued. The petitioners contended this retrospective date was material as their investment, application for provisional status, and commencement of production all preceded the amendment.
Procedural History
- 24.8.2015: IPR 2015 introduced by Government of Odisha
- 2.12.2015: JSW group received in-principle approval from SLSWCA
- 22.1.2016: Land allotted by IDCO for industrial project
- 31.7.2017: First fixed capital investment recorded (₹167.78 crore)
- 16.8.2017: Application for provisional Priority Sector status submitted to RIC
- 21.8.2017: Application acknowledged by RIC
- 22.8.2017: Unit inspected by RIC
- 22.9.2017: Application forwarded to Director of Industries by RIC with verification report
- 1.5.2020: Commercial production commenced by petitioners
- 7.9.2020: IPICOL conveyed in-principle approval of SLSWCA for expansion project
- 27.5.2020: RIC communicated that application remained under consideration, seeking additional documents
- 18.8.2020: State Government issued impugned Resolution amending IPR 2015
- 16.10.2026: Date of judgment under analysis
- 07.10.2026: Date of hearing
Relief Sought
The petitioners sought: (1) Quashing of the impugned Resolution dated 18.8.2020 insofar as it operates retrospectively against their unit; (2) Declaration that their application for provisional Priority Sector status dated 16.8.2017 be treated in accordance with Section 11 of the Facilitation Act and applicable guidelines; (3) Consequential relief for reimbursement of net SGST under IPR 2015.
The Legal Issue
The central questions were: (A) Whether the Resolution dated 18.8.2020, insofar as it retrospectively excludes cement manufacturing and grinding units from net SGST reimbursement under IPR 2015 with effect from 1.7.2017, can be sustained; (B) Whether the petitioners' application dated 16.8.2017 for provisional Priority Sector status attracts the consequence of deemed approval under Section 11 of the Facilitation Act read with Clause 4.2 of IPR 2015 and the Operational Guidelines; (C) Whether the petitioners' unit falls within the Negative List (Sl. No. 36) of IPR 2015, thereby excluding it from the incentive.
Arguments Presented
For the Petitioners
Learned Senior Counsel argued the Resolution dated 18.8.2020 was arbitrary and unsustainable as it withdrew an incentive for a period preceding the amendment, defeating legitimate expectations. They relied on this Court's judgment in Ultratech Cement Limited and Another v. State of Odisha and Others (2022 SCC OnLine Ori 13), affirmed by the Supreme Court, which held that the same Resolution could not operate retrospectively to exclude cement units from tax reimbursement benefits under IPR 2007. The petitioners contended the principle applied equally to IPR 2015, as both cases challenged the self-same Resolution dated 18.8.2020. They invoked the doctrine of promissory estoppel and legitimate expectation from MRF Ltd. v. Assistant Commissioner (Assessment), Sales Tax, asserting that the State cannot disregard consequences of its representation when industries have altered position and incurred substantial expenditure. Regarding deemed approval, they emphasized that the RIC inspected the unit, verified particulars, recommended provisional Priority Sector status, and forwarded the application - yet no rejection was communicated within the prescribed period under the Operational Guidelines. They argued the State's reliance on the Negative List was misplaced, as their investment in plant and machinery exceeded ₹10 crore and involved clinker manufacture, expressly excepted from Sl. No. 36.
For the Respondents
Learned counsel for the State contended the impugned Amendment was a valid policy decision to modify fiscal incentives in response to altered economic circumstances post-GST introduction. They argued the State is not bound to continue any incentive indefinitely and may review policies based on financial implications. The State maintained that until the competent authority grants final Priority Sector status and verifies eligibility conditions, petitioners cannot claim reimbursement as a matter of right. They asserted the RIC's forwarding of the application was merely an intermediate step, not a final decision, and that the communication dated 27.5.2020 seeking additional documents demonstrated eligibility remained undetermined. The State further contended the petitioners' unit falls within Sl. No. 36 of the Negative List (size-reducing/grinding units with investment < ₹10 crore), and that the RIC's recommendation cannot substitute the mandatory certificate from the Director of Industries.
The Court's Analysis
The Court first examined the retrospective operation of the Amendment. It held that while the State possesses authority to review and modify IPR 2015 under paragraph 14(f), the power to withdraw a benefit for a preceding period is distinct and requires sufficient justification. The Court noted: "The financial consequences of continuing an incentive and the legality of withdrawing it for a past period are separate matters. The former may support a policy change; it does not, by itself, resolve the latter." [Para 43]. It found no material on record justifying the retrospective application as being in public interest, stating: "In the present case, no material whatsoever has been placed on record by the opposite parties to establish that the impugned resolution retrospectively is in public interest." [Para 53]. The Court emphasized the chronology: IPR 2015 (24.8.2015), in-principle approval (2.12.2015), land allotment (22.1.2016), first investment (31.7.2017), application for provisional status (16.8.2017), and commercial production (1.5.2020) - all preceding the Resolution (18.8.2020). It concluded the retrospective exclusion "cannot be sustained" as it arbitrarily deprived the petitioners of a benefit for a period during which they had acted under the existing policy.
On deemed approval, the Court analyzed Section 11 of the Facilitation Act read with Clause 4.2 of IPR 2015 and the Operational Guidelines. It held: "If the requirement of a formal certificate were treated as conclusive in every case, notwithstanding the expiry of the prescribed period, the protection afforded by the deemed-approval provision could be rendered nugatory." [Para 65]. The Court found the petitioners had made out a case for deemed approval: the application was submitted per guidelines (16.8.2017), acknowledged (21.8.2017), inspected (22.8.2017), forwarded to Director of Industries (22.9.2017), and no rejection communicated within the prescribed period. The communication dated 27.5.2020 seeking additional documents could not be treated as a timely rejection of an application submitted three years prior. The Court declared: "This Court is, therefore, of the view that the petitioners are entitled to the benefit of deemed approval in respect of their application dated 16.8.2017 for provisional Priority Sector status in terms of Section 11 of the Facilitation Act and the relevant guidelines." [Para 68-69].
Regarding the Negative List, the Court rejected the State's contention that the unit falls within Sl. No. 36. It noted the exclusion applies only to size-reducing/grinding units with investment in plant and machinery < ₹10 crore, while expressly excepting cement manufacture with clinker. The petitioners demonstrated investment exceeding ₹10 crore and use of clinker, fly ash, and blast furnace slag as principal raw materials. The RIC's verification certificate recorded the unit did not fall within the Negative List and could be declared a Priority Sector unit. The Court held: "On the material placed before this Court, no sufficient basis has been demonstrated for disregarding the RIC's verification and treating the unit as categorically excluded from the benefit of IPR 2015." [Para 75].
The Verdict
The Writ Petition is allowed. The impugned Resolution dated 18.8.2020, insofar as it prescribes retrospective exclusion of cement manufacturing and grinding units from SGST reimbursement under IPR 2015 w.e.f. 1.7.2017, is held to be arbitrary, unconstitutional, and contrary to the doctrine of promissory estoppel and legitimate expectation, and is accordingly set aside. The petitioners are entitled to consideration of their claim for reimbursement of net SGST under IPR 2015, subject to verification of the amount payable and compliance with applicable conditions. The authorities shall determine and release the SGST reimbursement claim along with applicable interest within four weeks. There shall be no order as to costs.
What This Means For Similar Cases
Retrospective Policy Changes Require Rigorous Justification
The judgment establishes that States cannot withdraw industrial incentives for elapsed periods merely by citing financial considerations or policy review powers. Practitioners must now challenge retrospective amendments by demonstrating: (i) the industry acted upon the policy representation; (ii) substantial investment was made in reliance thereon; (iii) no overriding public interest justifies the withdrawal. The burden shifts to the State to prove the retrospective application serves a legitimate public purpose, not merely fiscal convenience.
Deemed Approval Protects Against Administrative Delay
The decision clarifies that Section 11 of facilitation statutes applies when: (a) an application is submitted per prescribed procedure; (b) scrutiny and forwarding occur; (c) no rejection is communicated within the stipulated period. Key takeaways for applicants: (i) retain acknowledgments, inspection reports, and forwarding proofs; (ii) treat requests for additional documents after the prescribed period as non-rejections; (iii) deemed approval does not dispense with substantive eligibility conditions (e.g., investment thresholds, production commencement) but only addresses the procedural default.
Legitimate Expectation Binds the State to Policy Representations
Reinforcing MRF Ltd., the Court held that legitimate expectation arises when: (i) the State makes a clear representation via policy; (ii) the party changes position or incurs expenditure in reliance; (iii) withdrawal would be unjust or unreasonable. For industrial projects, this means: (i) incentive eligibility crystallizes upon fulfillment of conditions (e.g., investment, production); (ii) the State cannot defeat accrued rights via retrospective amendments; (iii) promissory estoppel applies even where statutory power to amend exists, unless overridden by compelling public interest - which must be rigorously proven, not asserted.
