The Supreme Court on Monday asked sugar mills to show if they met the eligibility criteria to claim incentives during the validity of now withdrawn 2004 sugar policy of the Uttar Pradesh government.

Under the Sugar Industry Promotion Policy 2004, the sugar mills were to clear all the cane dues of the farmers including arrears, directly employ 1,000 people and make a capital investment of Rs 350 crore and Rs 500 crore to get benefits for five years and 10 years, respectively.

Incentives in the form of certain exemptions from taxes, subsidies and reimbursement etc were given so as to encourage private investments, better utilisation of sugar cane produced in the state and to provide employment and also to ensure timely payment of cane dues to the farmers. However, the state government withdrew the policy in June 2007 as it had resulted in unhealthy competition and caused huge loss of around Rs 3,500 crore to the state exchequer.

The sugar mills had challenged the revocation of the policy before the Allahabad High Court, claiming that they had relied and acted upon the promise of benefit made by the government and had consequently made huge investments.

The Allahabad HC’s Lucknow Bench on February 12 held that the mills (petitioners) were entitled to all the benefits during the entire period of validity of the policy as the withdrawal of the policy was in violation of the principles of promissory estoppel, natural justice and legitimate expectations.

Challenging the HC’s judgment, the UP government told the SC that out of the ten sugar companies which had moved the HC, five of them did not have eligibility certificates on the date of the withdrawal of the policy and even the other five which had such certificates were not eligible for any incentives as none of them had cleared the cane dues, which was mandatory under the policy. Even they had not submitted a certificate from the deputy labour commissioner relating to direct employment of 1,000 persons, senior counsel Shyam Divan argued on behalf of the state government.

The state government had in August last year formally withdrew the statutory notifications and government orders that granted benefits under the policy and also constituted a committee for doing special audit to examine all the claims.

Sugar mills through senior counsel Mukul Rohtagi countered Divan’s contentions saying that the withdrawal of the policy was arbitrary and they will have to close down if benefits were not given to them. A bench led by Justice RF Nariman sought response from various sugar mills led by Mawana Sugars.