Industrial incentive policy cannot be narrowed by delegated rules; deferment applies to real expansion output over actual capacity.

Delegated rules framed to implement Bihar's industrial incentive policy could not curtail a benefit granted by the policy itself, so the Explanatory Note to rule 3 was invalid to the extent it conflicted with the Sales Tax Incentive Scheme, 1989. For an existing industrial unit undertaking expansion, deferment of sales tax was required to be computed on incremental production over and above actual production capacity, not merely over and above installed capacity, because the policy had to be construed in a commercially realistic manner consistent with its objective of encouraging genuine expansion.

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Issues: (i) Whether the Explanatory Note appended to rule 3 of the Bihar Sales Tax Supplementary (Deferment of Tax) Rules, 1990 was repugnant to the Sales Tax Incentive Scheme, 1989. (ii) Whether the deferment incentive for an existing industrial unit undertaking expansion had to be computed with reference to installed capacity or actual production capacity.

Issue (i): Whether the Explanatory Note appended to rule 3 of the Bihar Sales Tax Supplementary (Deferment of Tax) Rules, 1990 was repugnant to the Sales Tax Incentive Scheme, 1989.

Analysis: The industrial policy was issued under section 23A of the Bihar Finance Act, 1981 and the Rules were framed under section 7 of that Act to carry out the policy. A rule may explain the policy where the policy is silent, but it cannot deny a benefit that the policy itself grants. If a delegated rule is inconsistent with the policy resolution, the policy prevails and the rule is invalid to that extent.

Conclusion: The Explanatory Note was repugnant to the Industrial Policy Resolution, 1989 and was illegal to that extent.

Issue (ii): Whether the deferment incentive for an existing industrial unit undertaking expansion had to be computed with reference to installed capacity or actual production capacity.

Analysis: The policy contemplated deferment of sales tax only on incremental production arising from expansion. The expression had to be understood in the sense in which the industrial world would understand the incentive, and the conceptual difference between installed capacity and actual production capacity had to be kept in view. The Explanation restricting incremental production to production over and above installed capacity was held inconsistent with the policy objective of granting incentive on real expansion.

Conclusion: The deferment incentive was held to be limited to incremental production over and above the actual production capacity, not merely production over and above installed capacity.

Final Conclusion: The writ petition succeeded, the impugned explanatory note was struck down to the extent of inconsistency, and the claim for tax deferment was required to be processed on the corrected basis.

Ratio Decidendi: Delegated legislation made to implement an industrial incentive policy cannot curtail a benefit granted by the policy itself, and the policy must be construed in a commercially realistic manner where its language and object so require.

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