Conditional tax exemption and pre-deposit relief: cancellation and recovery rules were upheld, while further deposit was relaxed for merits hearing.

Tax exemption under section 13-B of the Haryana General Sales Tax Act, 1973 was treated as a conditional concession, and the accompanying rules allowing cancellation of the exemption or entitlement certificate and recovery of exempted tax if the industrial unit ceased business or remained closed were described as serving a legitimate anti-abuse purpose. The retrospective challenge was noted to fail because the liability flowed from the conditions attached to the concession and the restriction was characterised as reasonable and non-arbitrary. The text also notes that a pre-deposit requirement before hearing the appeal on merits may be relaxed where substantial tax has already been recovered and the circumstances justify disposal of the appeal on merits.

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Issues: (i) Whether rule 28-A(9)(i) and rule 28-A(10)(v) of the Haryana General Sales Tax Rules, 1975 were ultra vires Articles 14 and 19 of the Constitution of India and invalid on the ground of retrospectivity. (ii) Whether the condition requiring deposit of the disputed tax before the appeal was heard on merits should be dispensed with.

Issue (i): Whether rule 28-A(9)(i) and rule 28-A(10)(v) of the Haryana General Sales Tax Rules, 1975 were ultra vires Articles 14 and 19 of the Constitution of India and invalid on the ground of retrospectivity.

Analysis: Exemption from sales tax under section 13-B of the Haryana General Sales Tax Act, 1973 was a concession granted subject to conditions. The impugned rules provided for cancellation of the exemption or entitlement certificate if the industrial unit discontinued business for more than six months or closed down during the exemption period, and for recovery of the exempted tax on such cancellation. The condition was aimed at ensuring that the concession was not misused and that the unit continued functioning during the exemption period. The retrospective challenge also failed because the liability arose from the condition attached to the concession and the restriction was neither arbitrary nor unreasonable.

Conclusion: The rules were held to be valid and not ultra vires Articles 14 and 19 of the Constitution of India, and the challenge based on retrospectivity failed.

Issue (ii): Whether the condition requiring deposit of the disputed tax before the appeal was heard on merits should be dispensed with.

Analysis: A substantial portion of the demanded tax had already been recovered, including amounts realised by auction and a further deposit by draft, and the unit had suffered heavy losses. In these circumstances, insistence on deposit of the remaining amount as a pre-condition for hearing the appeal was considered unnecessary, and the appeal was directed to be heard on merits.

Conclusion: The pre-deposit condition was dispensed with and the appellate authority was directed to hear the appeal on merits.

Final Conclusion: The constitutional challenge to the cancellation and recovery provisions failed, but relief was granted against the insistence on further pre-deposit, enabling the statutory appeal to be decided on merits.

Ratio Decidendi: A tax exemption is a conditional concession, and provisions requiring cancellation and recovery upon breach of the exemption conditions are valid so long as they are reasonable and non-arbitrary; a pre-deposit requirement may be relaxed where the circumstances justify hearing the appeal on merits.

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