It held that a later policy amendment could not be used to stop incentives already promised under the 2011 policy.
The Court set aside the rejection order and directed the authorities to pay the dues for April–September 2021 within four weeks.
This decision protects units that started under earlier incentive policies from losing benefits midway.
Case Background
The petitioner is a private company that set up a plastic furniture manufacturing unit in Hajipur, Vaishali, under the Bihar Industrial Incentive Policy, 2011.
The State Investment Promotion Board (SIPB) approved the unit’s proposal in its meeting on 21.07.2010. A formal permission letter dated 13.08.2010 was then issued to the company.
The unit started commercial production on 08.11.2011. On 31.08.2012, the authorities issued an eligibility certificate to the petitioner for reimbursement of VAT/SGST for ten years from the date of production, as per the 2011 policy.
Later, when the State did not release the tax incentives, the petitioner had to approach the Patna High Court earlier in CWJC No. 10492 of 2021. By order dated 24.03.2022, the Court directed the authorities to consider the claim for reimbursement keeping in view the judgment in M/s Sunny Stars Hotel Pvt. Ltd. v. State of Bihar & Ors, 2020(2) PLJR 321.
Following that order, the authorities asked the petitioner to submit relevant documents, including a certificate from a Chartered Accountant to show that the unit was in production. The petitioner submitted these papers.
The authorities then sanctioned reimbursement of VAT/SGST for the period July 2017 to March 2021. However, they rejected the claim for April 2021 to September 2021, saying that in those months the unit’s production was less than 25% of installed capacity.
Aggrieved by this partial denial, the petitioner filed the present writ petition seeking directions for reimbursement and for setting aside the rejection order dated 05.04.2023.
What the Court Examined and Decided
The petitioner’s main case was simple. It argued that it had set up the factory relying on the promises in the Bihar Industrial Incentive Policy, 2011. Under that policy, once eligibility was granted, it was entitled to reimbursement of VAT/SGST for a continuous period of ten years from the date of production.
The petitioner pointed out that it had begun commercial production on 08.11.2011 and was given an eligibility certificate on 31.08.2012. It argued that the State could not now apply a later amendment to cut down the benefit part-way through the ten-year period.
The petitioner’s grievance was that its claim for April 2021 to September 2021 was rejected only because its production during that time was allegedly below 25% of installed capacity. According to the petitioner, this condition of “minimum 25% production” did not exist in the 2011 policy under which its unit was approved and under which the eligibility certificate was granted.
It was argued that any subsequent change in policy could not be applied retrospectively to take away an already promised benefit for a period that had been committed at the time of investment. On this basis, the petitioner asked the Court to direct the authorities to reimburse VAT/SGST for the rejected six months as well.
On the other hand, the State strongly opposed the writ petition. The State relied on Resolution No. 108 dated 20.01.2020. It said that this resolution modified the Bihar Industrial Incentive Policy, 2011 and introduced a requirement that units with less than 25% production would not receive VAT/SGST reimbursement.
The State argued that the “law as applicable on the date of considering the application” should govern the petitioner’s claim. Since the claim for April–September 2021 was considered after the 2020 resolution, the authorities said that the new condition of minimum 25% production rightly applied.
The State also pointed out that the petitioner itself had admitted, through the Chartered Accountant’s certificate, that its production during April 2021 was less than 25%. On that basis, the State contended that the rejection of reimbursement for these months was fully justified.
The Court, therefore, had to decide one central question: whether the amendment brought in by Resolution No. 108 dated 20.01.2020 could operate retrospectively so as to affect benefits already promised and already running under the 2011 policy.
Justice A. Abhishek Reddy first noted certain undisputed facts. The Court recorded that the petitioner had obtained SIPB approval in 2010, started commercial production on 08.11.2011, and received an eligibility certificate under the Industrial Incentive Policy, 2011. Under that policy, the unit was entitled to reimbursement of VAT/SGST for ten years from the start of production.
The Court then turned to the law on how changes in incentive policies affect existing beneficiaries. It relied on earlier Supreme Court and Patna High Court rulings.
The Court quoted the Supreme Court judgment in Pournami Oil Mills and Others v. State of Kerala and Another, 1986 Supp SCC 728. In that case, the Supreme Court held that where a government order promised tax exemptions for five years to new industries, those that had already set up their units before the withdrawal of the exemption were entitled to enjoy the concession for the full five-year period. New units established after the withdrawal could not claim it, but existing units that relied on the earlier promise were protected.
The Court also referred to its own earlier judgment dated 22.03.2024 in CWJC No. 10038 of 2020. In that judgment, the Patna High Court discussed several Supreme Court and High Court authorities, including Motilal Padampat Sugar Mills Co. Ltd. v. State of UP and Others, (1979) 2 SCC 409; M/s Gangotri Iron & Steel Co. Ltd. v. State of Bihar & Others, 2021(3) PLJR 73; Kasinka Trading; and Rom Industries v. State of Jammu & Kashmir, (2005) 7 SCC 348.
That earlier judgment reiterated that when the State, through an industrial policy, makes a clear promise to grant incentives for a fixed period and an industry acts on that promise by making investments and fulfilling the conditions, the State is bound by the doctrine of promissory estoppel and legitimate expectation. It cannot withdraw or cut down the benefit for that fixed period unless there is an overriding public interest, which must be clearly shown.
The Court noted from those decisions that where a right to exemption for a fixed period has already accrued and the conditions for that exemption are fulfilled, the exemption cannot be withdrawn mid-way by a later notification which is only prospective.
Applying these principles, the Court held that once the petitioner had been promised reimbursement of VAT/SGST for ten years under the 2011 policy, that promise had to be honoured till the end of that ten-year period. The authorities could not rely on subsequent amendments to deny reimbursement for part of that period.
Importantly, the Court examined Resolution No. 108 dated 21.01.2020 itself. On a plain reading, the Court found that this resolution amended the Industrial Incentive Policy, 2016, and not the Industrial Incentive Policy, 2011.
Therefore, even the basic premise of the State’s argument—that the 2020 resolution modified the 2011 policy—was held to be factually and legally incorrect. The Court described the State’s contention that the resolution would still apply to the petitioner’s case “as on the date of taking decision” as misconceived and not legally tenable.
Thus, the Court concluded that:
First, the petitioner’s rights under the 2011 policy, including the ten-year period of VAT/SGST reimbursement from 08.11.2011, could not be cut short by later policy changes.
Second, Resolution No. 108 of 2020 did not even amend the 2011 policy; it related to the 2016 policy. Therefore, it had no application to the petitioner’s unit, which was governed by the 2011 policy.
Once these findings were reached, the reason for rejecting the petitioner’s claim—production below 25% during April–September 2021—fell to the ground, because that threshold came only from the later amendment.
In the result, the Court set aside the impugned order dated 05.04.2023 (Annexure-R/1) by which the authorities had denied reimbursement for April 2021 to September 2021.
The Court directed the authorities to calculate the reimbursement of VAT/SGST for those six months and to pay the same to the petitioner as expeditiously as possible, preferably within four weeks from the date of receipt of a copy of the judgment.
With these directions, the writ petition was allowed to the extent indicated.
Why This Judgment Matters
This judgment is significant for industrial units in Bihar that were set up under earlier industrial policies promising tax incentives for a fixed period.
The Patna High Court has made it clear that once the State promises VAT/SGST reimbursement or similar benefits for a fixed number of years and a company invests on that basis, the benefit cannot be taken away midway through that period by later amendments.
The Court also clarified that authorities must carefully read which policy a later resolution amends. They cannot mechanically apply changes meant for a newer policy to units that are governed by an older one.
For existing units, this ruling provides a strong basis to challenge denials of tax reimbursement that rely on policy conditions introduced after the unit started production and after eligibility certificates were granted.
Legal Issues and Answers
- Issue: Could the State deny VAT/SGST reimbursement for April–September 2021 to a unit covered by the Bihar Industrial Incentive Policy, 2011, by applying a 2020 resolution requiring minimum 25% production?
Answer: No. The Court held that once incentives were promised under the 2011 policy and the unit had started production and received eligibility, later amendments could not curtail the benefit for the promised period, and in any case Resolution No. 108 of 2020 amended the 2016 policy, not the 2011 policy. - Issue: Was the rejection order dated 05.04.2023 sustainable in law?
Answer: No. The Court set aside the order and directed the authorities to calculate and pay VAT/SGST reimbursement for April 2021 to September 2021 within about four weeks from receipt of the judgment.
Cases Cited by the Court
- Pournami Oil Mills and Others v. State of Kerala and Another, 1986 Supp SCC 728
- Motilal Padampat Sugar Mills Co. Ltd. v. State of UP and Others, (1979) 2 SCC 409
- M/s Gangotri Iron & Steel Co. Ltd. v. State of Bihar & Others, 2021(3) PLJR 73
- Kasinka Trading (as referred in CWJC No. 10038 of 2020)
- Rom Industries v. State of Jammu & Kashmir, (2005) 7 SCC 348
- M/s Sunny Stars Hotel Pvt. Ltd. v. State of Bihar & Ors, 2020(2) PLJR 321 (referred in earlier proceedings involving the petitioner)
Case Details
Case Number: Civil Writ Jurisdiction Case No. 8907 of 2023
Case Title: Shree Saibaba Plasto Products Private Limited v. The State of Bihar & Others
Coram: Hon’ble Mr. Justice A. Abhishek Reddy
Date of Judgment: 19.09.2024
Citation: 2024(4) PLJR 575
Advocates: Mr. Abhishek Kumar for the petitioner; Mr. Vikash Kumar (SC 11) for the respondents
Nature of the Case: Writ petition (civil) seeking mandamus and certiorari directions for reimbursement of VAT/SGST under Bihar Industrial Incentive Policy, 2011, and for quashing rejection order dated 05.04.2023.
Link to Judgment: Click here to read the full judgment of the Patna High Court
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