Interim tax protection turns on prima facie incentive compliance, with full waiver for one unit and partial pre-deposit for another.

Interim protection was considered separately for two manufacturing units in pending tax appeals and revisions. For Unit No. 1, where HBI moved between units of the same entity before the final product was sold within the State, the prima facie view was that the incentive condition was not clearly breached, so recovery was stayed and pre-deposit waived. For Unit No. 2, involving tax-free Naphtha and natural gas used through a separate power-generating entity to manufacture HRC, closer scrutiny was required because of the amended entry and separate legal personality; relief was limited to a 50% pre-deposit of tax only, with no deposit for interest or penalty.

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Issues: Whether, for the purpose of interim protection in the pending appeals and revisions, the petitioner was entitled to waiver of pre-deposit and stay against recovery in respect of: (i) Unit No. 1, where HBI manufactured with tax-free raw materials was transferred to Unit No. 2 and the final product was sold within the State; and (ii) Unit No. 2, where Naphtha and natural gas purchased tax-free were used through a separate power generating entity for manufacture of HRC.

Analysis: As to Unit No. 1, the Court treated the controversy as one where the same legal entity operated both units and the intermediate product moved from one unit to another before the final product was sold within Gujarat. On the prima facie view, the transfer did not clearly establish a breach of the incentive condition so as to justify immediate recovery, particularly when the department had earlier taken a contrary view and the question of incentive adjustment could arise. The Court therefore found a strong case for protection against coercive recovery and for dispensing with tax pre-deposit at this stage.

The same was not accepted to the same extent for Unit No. 2. The Court noted that the relevant entry had undergone amendment and that the electricity-generating entity was a separate legal person, so the question whether the purchased raw materials were used in the eligible unit required closer scrutiny in revision and appeal. Balancing the prima facie issue with the scale of demand and the nature of the dispute, the Court limited relief to a partial pre-deposit of tax only, and excluded interest and penalty from the deposit condition.

Conclusion: The petitioner obtained interim protection for Unit No. 1 without any pre-deposit and conditional interim protection for Unit No. 2 on deposit of 50% of the tax amount only, with no deposit required towards interest or penalty at this stage.

Final Conclusion: The petitions were disposed of by granting interim stay and pre-deposit directions tailored separately for the two units, while leaving the merits of the tax disputes to be decided in the pending appellate and revisional proceedings.

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