Industrial policy incentive conditions may preserve existing tax liability while regulating concession for an expanded mega project.

A fiscal incentive under an industrial policy may validly include conditions that preserve the existing unit's tax liability at the higher of the three-year average or actual liability. The Karnataka HC analysis treats this condition as part of the special concession package for a mega project, not as a separate levy or an unauthorised tax. It regulates when and to what extent the incentive for the expanded unit accrues, while maintaining the revenue base of the existing unit. On that basis, the condition is described as consistent with the policy and not violative of Article 265 of the Constitution of India.

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Issues: Whether the condition in the Government order and the exemption notification requiring the existing unit to maintain tax liability at the higher of the three-year average or actual liability was illegal, ultra vires the industrial policy, or violative of Article 265 of the Constitution of India.

Analysis: The relief claimed was tested against the 1996-2001 industrial policy and the subsequent Government orders and notification governing the petitioner's expansion project. The policy itself differentiated between new units and mega projects, and the expanded unit was treated as a mega project, for which incentives were not fixed in the same manner as for new units under the general sales-tax concession clause. The impugned condition was part of the incentive package granted to the petitioner and operated only as a mechanism for determining when the benefit on the expanded unit would accrue. It did not create a separate levy or impose tax without authority of law. Instead, it preserved the revenue base of the existing unit while allowing the concession on the expanded unit to operate within the terms of the package.

Conclusion: The condition was held to be valid, not contrary to the policy, and not violative of Article 265 of the Constitution of India. The petitioner was not entitled to have the condition struck down or read down.

Final Conclusion: The writ petition failed because the impugned incentive conditions were upheld as a lawful component of the special concession package applicable to the petitioner's mega project.

Ratio Decidendi: A fiscal incentive granted under an industrial policy may validly include conditions that preserve the existing revenue base, and such a condition does not amount to an unauthorised levy if it merely regulates the extent and timing of the concession.

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