Industrial policy promise on sales tax exemption cannot be narrowed later to incremental production alone.

The 1991 Industrial Policy was read as extending sales tax exemption to eligible existing industrial units undertaking expansion, modernisation or diversification when the prescribed capital, capacity and employment conditions were met. The policy's incentive promise, including exemption on raw materials and finished products for seven years, could not be narrowed by the 1995 Scheme to only incremental production from expansion. A later scheme could not lawfully curtail a benefit already promised and acted upon, especially where eligibility certificates had been issued on the earlier basis. The dissent took the view that the 1991 Policy itself limited relief to extra investment made in expansion.

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Issues: (i) Whether the 1991 Industrial Policy conferred full sales tax exemption on existing industrial units undertaking expansion, modernisation and diversification, and (ii) whether the 1995 Scheme could validly restrict that exemption to the increase in production attributable to such expansion.

Issue (i): Whether the 1991 Industrial Policy conferred full sales tax exemption on existing industrial units undertaking expansion, modernisation and diversification.

Analysis: The policy treated new units and existing units undertaking expansion, modernisation or diversification as eligible units. It further stated that such existing units would be eligible for all incentives if the stipulated capital investment, capacity increase and employment conditions were satisfied, and that prior availing of incentives would not disqualify the expansion project from getting incentives for the extra investment made. The sales tax clause provided exemption on purchase of raw materials and sale of finished products for seven years. Read together, these provisions showed that existing units satisfying the prescribed conditions were intended to receive the promised exemption.

Conclusion: The 1991 Industrial Policy entitled eligible existing units undertaking qualifying expansion, modernisation or diversification to sales tax exemption within the policy period.

Issue (ii): Whether the 1995 Scheme could validly restrict that exemption to the increase in production attributable to such expansion.

Analysis: The 1995 Scheme introduced a base-year production formula and limited relief for category B units to the incremental production after expansion. That approach was inconsistent with the broader promise in the 1991 Policy. The industrial units had altered their position on the faith of the earlier policy and had been issued eligibility certificates on that basis. The State could not, by a later scheme, curtail the promised benefit to their prejudice. The statutory power to frame a scheme could not be exercised so as to defeat the earlier assurance given under the industrial policy.

Conclusion: The 1995 Scheme could not restrict the earlier promised benefit, and the appellants remained entitled to the policy benefit.

Final Conclusion: The appeals succeeded because the later scheme was held ineffective to abridge the exemption promised under the earlier industrial policy to qualifying existing units.

Ratio Decidendi: Where an industrial policy held out a clear promise of tax incentive and investors altered their position on that faith, a later scheme framed to implement the policy cannot retrospectively curtail the promised benefit to their detriment.

Dissenting Opinion: D. Biswas, J. held that the 1991 Policy itself limited incentives for existing units to the extra investment made in expansion, modernisation or diversification, and that the 1995 Scheme was consistent with that limitation.

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