Arbitrary tax incentive delay provision struck down; exemption followed from application and commercial production date.

Clause 7(d) of the Sales Tax Incentive Scheme was found inconsistent with the scheme's object of encouraging new industrial units in their initial stage, because it deferred tax incentive until issue of the eligibility certificate without any prescribed time-limit. That open-ended discretion was treated as arbitrary and unreasonable, and therefore ultra vires Article 14. As the petitioner had commenced commercial production and applied for the certificate on the same date, and the delay was attributable to the authorities, the exemption was held payable from 28 June 1988, being the date of application and commencement of production.

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Issues: Whether clause 7(d) of the Sales Tax Incentive Scheme, which made the benefit available only from the date of issue of the eligibility certificate, was arbitrary and ultra vires Article 14 of the Constitution of India, and whether the petitioner was entitled to exemption from the date of application and commencement of commercial production.

Analysis: The scheme was intended to encourage new industrial units in their initial stage by granting tax incentive for five years from commencement of production. The petitioner commenced commercial production and applied for the eligibility certificate on the same date when it was eligible under the scheme. The certificate was not issued before the scheme was amended, but the delay was attributable to the authorities and not to the petitioner. Clause 7(d) conferred an open-ended power to issue the certificate at any time without prescribing any time-limit, while also postponing the incentive until the date of issue of the certificate. Such a provision was held to be inconsistent with the object of the scheme and to create an arbitrary and unreasonable discretion.

Conclusion: Clause 7(d) was held to be ultra vires and struck down. The petitioner was held entitled to the benefit of exemption with effect from 28 June 1988, the date of application and commencement of commercial production.

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