Rajasthan HC Upholds Seven-Year Electricity Duty Exemption for Captive Solar Projects

The Rajasthan High Court has held that the state government cannot deny electricity duty exemptions promised to solar power developers who invested under the Rajasthan Solar Policy, 2019, before the policy was amended in May 2022.

A division bench ruled that developers who commissioned captive solar projects before the amendment are entitled to a seven-year exemption from electricity duty from the date their plants became operational.

The court was hearing a batch of petitions led by UltraTech Cement. UltraTech argued that it had invested aroundINR INR 89 crore in captive solar projects for its Aditya Cement Works and Kotputli Cement Works units after the Rajasthan government assured investors of a seven-year electricity duty waiver under Clause 16.4 of the Solar Policy, 2019.

The policy, introduced in 2019 to promote renewable energy, stated that electricity consumed by captive solar plants within Rajasthan would be exempt from duty for seven years from the commercial operation date. Based on this promise, UltraTech began construction of an 8 MW solar plant at Aditya Cement Works in October 2021 and another project at Kotputli in January 2022.

Court records show UltraTech spent INR 46.56 crore on the Aditya project and INR 42.54 crore on the Kotputli plant. The Aditya plant was commissioned on May 7, 2022, while the Kotputli facility was still under development.

However, on May 10, 2022, the Rajasthan government amended the solar policy and withdrew the automatic exemption. Instead, the amended clause stated that any electricity duty waiver would depend on separate government notifications issued under the Rajasthan Electricity Duty Act, 1962.

Soon after, Rajasthan discoms raised electricity duty bills on UltraTech’s Aditya plant at the rate of INR 0.60 per unit. The company paid bills of INR 12.36 lakh for June 2022, INR 9.38 lakh for July 2022 and INR 4.94 lakh for August 2022, while challenging the levy before the High Court.

The state argued that the Solar Policy, 2019, was only an executive policy and did not have statutory force. It said electricity duty exemptions could only be granted through formal notifications under the Electricity Duty Act and that the government was free to change policy because of financial pressures and changing market conditions.

The High Court, however, rejected that argument. The bench said the state had made a “clear and unequivocal representation” to investors and that companies altered their position by committing large sums of money to solar projects. The judges held that the promise could not be withdrawn after the investment had already been made.

“The State cannot now be permitted to rely upon its own failure to issue a notification as a defence to defeat a promise consciously made,” the court observed.

Invoking the doctrines of promissory estoppel and legitimate expectation, the court said the government is bound by assurances that induce private investment, unless there is an overriding public interest strong enough to justify withdrawal. It found that Rajasthan had failed to show any compelling reason for cancelling the exemption.

The bench also noted that Rajasthan’s own renewable energy targets remain unmet. The state had set a target of 30,000 MW of solar capacity, but only around 15,000 MW had been achieved by May 2023. In such circumstances, the court said, withdrawing incentives would be counterproductive.

At the same time, the court stopped short of restoring the exemption for every solar project in Rajasthan. It held that only those projects commissioned before the May 10, 2022 amendment would qualify for the seven-year benefit. Projects commissioned after the amendment would be governed by the revised policy.

The judges directed authorities to verify the commercial operation date of each project before granting the exemption. If a plant became operational before May 10, 2022, it would be eligible for seven years of electricity duty exemption from that date.

The court also disposed of several petitions filed by solar industry associations, saying they had not provided enough project-specific details such as the commercial operation date of their members’ plants. However, it allowed individual companies and project developers to submit separate representations before the competent authority.

The judgment is expected to have a wider impact on Rajasthan’s renewable energy sector, where several developers have challenged the rollback of incentives. Legal experts said the ruling reinforces the principle that governments cannot change policy midstream after investors have already relied on official assurances and committed capital.