Tax exemption withdrawal under Rule 28A allows recovery of benefits when production stops and continuing conditions are breached.

Rule 28A of the Haryana General Sales Tax Rules, 1975 uses a two-stage exemption scheme: eligibility is certified first, and the exemption or entitlement certificate follows. Withdrawal of the eligibility certificate deems withdrawal of the exemption certificate from its inception and exposes the unit to tax, interest and penalty as if no certificate had been granted. Separate cancellation is also permitted on discontinuance of business or closure during the exemption period, and pre-expiry cancellation makes the exempted or deferred amount immediately payable in lump sum. Continued production for five years is a condition of the benefit; breach of that condition requires repayment of the tax benefit with interest unless the shortfall is due to reasons beyond the unit's control. Recovery of the benefit was therefore maintainable.

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Issues: Whether, on discontinuance of production and cancellation of the exemption certificate under rule 28A of the Haryana General Sales Tax Rules, 1975, the authorities could recover the tax benefit already availed, having regard to the scheme of withdrawal of the eligibility certificate and the consequences prescribed in sub-rule (11).

Analysis: Rule 28A creates a two-stage mechanism: the eligibility certificate is issued by the screening committee, while the exemption or entitlement certificate is issued by the Deputy Excise and Taxation Commissioner. Under sub-rule (8)(b), withdrawal of the eligibility certificate results in deemed withdrawal of the exemption or entitlement certificate from the first day of its validity, with liability to tax, interest, and penalty as if no such certificate had ever been granted. Sub-rule (9) separately permits cancellation of the exemption or entitlement certificate in specified circumstances, including discontinuance of business or closure during the period of exemption. Sub-rule (10)(v) provides that on cancellation before expiry, the entire exempted or deferred amount becomes payable in lumpsum. Sub-rule (11)(a) and (b) further make continued production for the next five years a condition of the benefit, and where that condition is breached, the beneficiary becomes liable to repay the tax benefit with interest unless the loss in production is shown to be due to reasons beyond the control of the unit.

Conclusion: The demand for recovery of the tax benefit was maintainable, and the High Court was not right in confining the consequence only to a limited period or in ignoring the effect of sub-rule (11).

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