Compounded tax evasion cannot disqualify incentive eligibility once no penalised or pending case survives.

Where an alleged tax evasion case was compounded before rejection of an application under an industrial incentive scheme, it could no longer be treated as a penalised or pending case for the purpose of disqualification under clause 7(e). Once composition was completed and the amount paid, neither the offence nor any penalty survived, so rejection of the eligibility certificate on that basis was not sustainable. The separate challenge to retrospective application of clause 7(e) was unnecessary once the compounding issue was accepted.

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Issues: Whether, after the alleged tax evasion case was compounded before rejection of the application, the petitioner could still be treated as penalised or as having a pending case of tax evasion so as to attract clause 7(e) of the Sales Tax Incentive Scheme for Industries, 1987 and justify rejection of the eligibility certificate.

Analysis: Clause 7(e) denied incentive benefits to an industrial unit that had been penalised for avoidance or evasion of tax, or against which such a case was pending. The record showed that the tax evasion matter had already been compounded on 5 January 1991, long before the rejection of the eligibility application on 11 December 1991. Once the case stood compounded and the composition amount had been paid, neither the offence nor any penalty survived, and it could not be said that a penalised case or a pending case continued against the petitioner. In that situation, invocation of clause 7(e) to reject the application was not sustainable. The challenge to retrospective application of clause 7(e) did not require separate determination once the compounding issue was accepted.

Conclusion: The rejection of the eligibility certificate application under clause 7(e) was illegal and could not stand.

Ratio Decidendi: Where an alleged tax evasion case is compounded before rejection of an application under an incentive scheme, it cannot thereafter be treated as a penalised or pending case for denying benefits under a clause that disqualifies only penalised or pending cases.

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