State Cannot Retrospectively Withdraw Purchase Tax Subsidy, Sugar Mills Entitled to Full Five Years: Madras HC [Read Order]

In a recent ruling, the Madras High Court observed that the State cannot retrospectively withdraw the purchase tax subsidy granted to a private sugar mill and that Ponni Sugars was entitled to the full five-year benefit originally promised.

Ponni Sugars (Erode) Limited, the respondent, had been granted an annual subsidy equivalent to the purchase tax on sugarcane for two years under a 1984 Government Order, which was later extended to five years. In 1988, the State issued a fresh Government Order converting the subsidy into a deferral scheme and fixing monetary ceilings.

By a subsequent letter dated 28 December 1988, the change was given retrospective effect from 1 April 1988, curtailing the subsidy already assured. The company challenged this retrospective withdrawal before the Tamil Nadu Taxation Special Tribunal, which allowed its petition. The State then filed the present writ petition.

The State’s counsel argued that the levy of tax, the grant of subsidy, and the withdrawal of such benefits are matters of policy, and that the company had already gained significantly. They explained that the decision was taken in public interest to balance competing demands and avoid revenue loss, and that the Tribunal wrongly applied principles of promissory estoppel and legitimate expectation.

The company’s counsel argued that its operations and financial decisions were made in reliance on the 1984 Government Orders, and that the abrupt and retrospective withdrawal of subsidy was illegal and contrary to the principle of legitimate expectation. They pointed out that even if the State wished to alter its policy, such changes could only operate prospectively, not with retrospective effect.

The Division Bench of Justice Anita Sumanth and Justice C. Kumarappan observed that the subsidy was a substantive benefit based on specific Government Orders, and that Ponni Sugars had a legitimate expectation of receiving it for the full five years.

The court found that the retrospective withdrawal by way of a letter had no sanction in law, and that the State had not provided any compelling justification except citing revenue loss, which was insufficient.

The court held that Ponni Sugars was entitled to the full five-year subsidy as per the 1984 Government Orders, and that the retrospective withdrawal was arbitrary and unsustainable. The writ petition filed by the State was dismissed with no order as to costs.

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