Bombay High Court Upholds Rejection of ₹10/Litre Subsidy to Distillery Set Up Before Policy Date: “Financial Aid Intended Only for New Units With Capital Investment — No Evidence of Capital Expenditure or New Unit Setup”

Court’s Decision:

The Bombay High Court dismissed the writ petition filed by a grain-based distillery seeking a special subsidy of ₹10 per bulk litre under the State Government’s policy dated 8 June 2007. The Court upheld the State’s rejection of the claim, holding that the petitioner failed to satisfy the essential eligibility criteria under the scheme, particularly the requirement of being a newly set-up unit with capital investment.

The Court emphasized:

“The petitioner’s application was silent on the capital expenditure invested by the petitioner in terms of what has been provided for in paragraph 4 & 5 of the GR… This forms the basis for capital investment disbursement of the incentives.”

Facts:

The petitioner, a private distillery company, took over a sick grain-based distillery in 2003 through an auction conducted by SICOM. The distillery began producing grain alcohol from jowar from 2003 onwards. In 2007, the State Government introduced a policy via Government Resolution dated 8 June 2007, offering a subsidy of ₹10 per bulk litre for grain-based alcohol produced by new distilleries set up in “D” or “D+” industrial zones before the end of 2009. The petitioner applied for this subsidy in December 2009.

The State Government initially rejected the application in 2011, leading the petitioner to file Writ Petition No. 5535 of 2012. The High Court, in 2017, directed the State to reconsider the petitioner’s application, clarifying that rejection solely on the ground that the unit was already operational before the GR date (8 June 2007) was impermissible.

Upon reconsideration, the State again rejected the application through an order dated 24 November 2021, asserting that the petitioner failed to meet the core criteria of the scheme.

Issues:

1. Whether the petitioner was entitled to the grain-based alcohol subsidy under the 2007 GR despite being operational prior to its issuance.
2. Whether the State Government rightly rejected the application on grounds other than the unit’s pre-existence.

Petitioner’s Arguments:

• The petitioner argued that the High Court’s earlier order (10 March 2017) precluded the State from denying the subsidy merely on the ground that the distillery existed prior to the policy date.
• It was submitted that the GR dated 8 June 2007 did not explicitly exclude pre-existing units from availing the benefit, provided they were functional before the end of 2009.
• The petitioner emphasized its consistent manufacturing of grain alcohol and contribution to the grain economy in backward regions like Vidarbha.
• Reliance was placed on decisions in other writ petitions (W.P. No. 10312/2010, W.P. No. 207/2011, W.P. No. 2285/2011, W.P. No. 6286/2014), where subsidies had allegedly been granted in similar circumstances.

Respondent’s Arguments:

• The Government contended that the scheme was specifically designed to encourage new investment and capital expenditure in distillery units set up post-GR, especially in backward areas.
• The petitioner did not set up a new unit but acquired an existing one in 2003 and made no fresh capital investment, disqualifying it from claiming the incentive.
• It was pointed out that the policy required production to begin within two years of a Letter of Intent, and benefits were to be granted for only four years post-production.
• The circular dated 18 December 2007 further clarified that molasses-based or converted units were excluded from the benefit.
• It was also highlighted that the High Court had not ruled on the petitioner’s overall eligibility, only directed reconsideration beyond the ‘pre-existence’ factor.

Analysis of the Law:

The 2007 GR required fulfillment of multiple conditions:

• The unit had to be a new grain-based distillery or integrated unit.
• It had to become operational by the end of 2009.
• It needed to be located in “D” or “D+” zones.
• It had to incur capital expenditure, with reimbursement capped as per industrial area classification.
• Production had to commence within two years of Letter of Intent.
• The GR aimed to boost investment and employment in backward areas by promoting new setups, not refurbished or acquired units.

The Court found that:

“The petitioner’s application was totally bereft of many essentials/details the policy contemplates more particularly capital investments… the application also fails to provide the details of the excise record on the amount of excise duty paid.”

Precedent Analysis:

In the earlier judgment (WP No. 5535/2012), the Court had directed reconsideration on the limited ground that:

“The prayer of the Petitioner shall not be rejected only on the ground that the industry was operational on the date of the Government Resolution.”

However, the Court had expressly stated:

“We have not examined whether the Petitioner is otherwise eligible for the benefits under the Government Resolution dated 8th June, 2007.”

Thus, the reconsideration was validly done within the permitted legal framework.

Court’s Reasoning:

• The policy specifically emphasized “new units” with capital investment, aimed at industrial growth in backward regions.
• The petitioner did not make any new capital expenditure; it had only taken over a defunct unit without incurring costs aligned with the policy’s objectives.
• The benefit could not be extended merely on operational status without fulfilling the remaining policy criteria.
• The Court rejected the argument that the impugned order was a mere reiteration of earlier grounds already decided in 2017.

Conclusion:

The High Court dismissed the writ petition, holding:

“The petitioner’s application for subsidy under the 2007 GR does not satisfy the substantive conditions of the policy, particularly regarding capital expenditure and setting up of new unit.”

Implications:

• The judgment clarifies that subsidy policies framed to promote industrial investment must be strictly construed, especially when the core objective is to attract new capital.
• Pre-existing units, especially those acquired without fresh investment, cannot claim benefits merely due to subsequent operational status.
• Government discretion in granting subsidies is upheld, provided decisions are based on policy criteria and not arbitrary exclusions.

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